Retirement Planning in Connecticut

retirement plan label on document folderRetirement planning is the process of quantifying your retirement goals and determining the necessary steps to achieve them. It usually starts by calculating how much income you’ll need in retirement, then you can build a financial roadmap that tells you how much you need to save and how to invest your savings to provide that income.

A solid retirement plan is essential to creating your ideal retirement. Without a plan, you’re simply riding on hope. And hope is not a retirement strategy. People don’t plan to fail. They fail to plan. Since retirement is far too important to leave up to chance, and you only get one chance at it, we’ve created this guide to retirement planning in Connecticut. It covers the most essential retirement planning elements for Connecticut residents to consider as they prepare for and near this pivotal life goal.

Chapter 1

Using a Professional Financial Advisor

Given the intricacies of retirement planning, finding a true professional financial advisor to work with can be a smart first step. A retirement advisor can help you identify your retirement goals and how much income you’ll need in retirement to make your goals a reality. Your financial advisor can then help you build a retirement plan and projections that will get you from where you are today to where you are going and want to be.

The right financial advisor will have the experience and tools at hand to help you build a retirement roadmap that can weather any bumps along the way. The retirement planning software financial advisors use can run simulations of your plan under various market, economic and fiscal conditions to test how long your money will last.

Professional financial advisors also stay on top of tax laws and other policies that can impact retirees. Since states have their own tax laws, it can be very beneficial to work with a local advisor. A Connecticut financial advisor, for example, would know the unique considerations for retirees living in Connecticut.

To choose a financial advisor, consider his or her certifications and professional background. Does the advisor specialize in retirement planning? There are many elements of retirement that you’ll want to stress-test before taking the leap into retirement. Here are a few.

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Chapter 2

Social Security Analysis

Social Security makes up a central part of many retirees’ income. Social Security can also account for a large part of your beneficiaries’ retirement income. Since it’s likely to be a bedrock of your retirement income stream, strategizing and calculating your Social Security benefits is a key retirement planning step.

If you were born in or after 1929, you need 40 credits, roughly the equivalent of 10 years of work paying into the system, to receive Social Security benefits. The size of your benefit will depend on how much you earned during the years you were paying Social Security tax. You can find your earnings to date on

Knowing approximately how much you can expect to receive from Social Security can help you plan your retirement income streams. There are a number of free online Social Security calculators you can use to help you estimate your benefit, but when and how you take Social Security benefits should really depend on your specific situation and goals. It’s worthwhile to run an analysis on different claim dates.

At Heritage Capital, we have our own internal Social Security calculations and system that runs all kinds of scenarios with ages, inflation, etc. Contact us to get started.

For each year you delay taking your benefit up to age 70, your benefit increases. However, if delaying taking Social Security means you’re forced to withdraw more from other retirement income sources, it may make sense to start claiming your benefit earlier.

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Chapter 3

Tax Review

Unfortunately, taxes do not end when you stop working. Managing taxes can be a key component in determining how you take income in retirement. The goal is to keep as much of your income in your pocket as possible.

Connecticut taxes most retirement income, including Social Security, pensions and annuities. Even former state employees who have a pension but have moved to another state must declare their pension income on their tax returns. The only people in Connecticut who avoid pension and annuity income tax are non-residents living in the state part-time. Such individuals need to file a Special Tax Return.

Connecticut residents can expect state and federal income tax on any money withdrawn from a traditional or pre-tax retirement account. Meanwhile, money saved in after-tax accounts, like a Roth IRA or Roth 401(k), may not be taxed. Some retirees choose to gradually convert their pre-tax savings into after-tax savings. This may allow them to avoid or reduce the Required Minimum Distributions (RMDs) that must begin by age 72, unless you are still working.

While your tax bracket in retirement will likely be lower than during your working years, if you take too much income in a given year, you could inadvertently bump yourself into a higher bracket. Ideally, you’ll have multiple income streams in retirement that allow you to have some flexibility on where you draw your income from each year.

As you plan for retirement, make sure you’re using after-tax income estimates in your calculations.

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Chapter 4

Special Needs of Business Owners

Retirement planning for business owners in Connecticut can be even more complex than for traditional workers. As a business owner, your retirement is entirely in your hands. It’s up to you to determine the best retirement plan for yourself and your employees.

Even harder than saving for retirement can be transitioning into retirement for business owners. What is as simple as choosing a retirement date and cleaning off your desk for traditional employees becomes a complicated process of easing away from the helm and exiting your business.

Letting go of the reins of a business you created and nurtured can be as much a psychological challenge as an emotional one. But if you want to truly retire from working, and especially if you want to sell your business to help fund your retirement, it’s important to have a plan in place for how you’ll exit your role.

It’s wise to build some flexibility into your exit strategy. Market conditions can adversely affect the price buyers are willing to pay for your business. To ensure you get top dollar, you obviously want to avoid selling in down times. Try to structure your retirement such that you can delay for a few months or years to give the market time to rebound. Having this built-in flexibility can also make your business more appealing to buyers, as you’re less likely to seem desperate to sell.

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Chapter 5

Possible Threats/What Ifs 

Even the best-laid plans can be derailed by unforeseen events. Things like divorce, the loss of a loved one or a lawsuit can quickly throw a wrench into your retirement plan. Even known risks, like a recession or bear market, which we know occur regularly but no one can predict, can pose a threat to your retirement.

The closer you are to retirement when such threats occur, the more severe the consequences can be. Divorce, for instance, can be difficult both emotionally and financially. But when you divorce in your 30s, you still have more than 20 working years or so left to make up for the loss in income. Likewise with a bear market: Younger individuals who don’t need to access their retirement funds for many years may be able to ride out market declines. Near or current retirees, on the other hand, could face more severe consequences.

If an unforeseen event threatens your retirement, you may need to retire later than planned. Although no one wants to continue working longer than they intended, it may be more beneficial to put in a few extra earning years than risk running out of money in retirement.

We can’t predict every threat to our financial plans, but understanding what risks are out there and having an action plan if certain ones do occur can help reduce the chances of your retirement plan getting derailed. One of the benefits of working with a financial advisor is having an objective advocate in your corner to help you navigate these unforeseen events and their financial and emotional impact.

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Chapter 6

Making Your Money Last

One of the biggest concerns retirees face is running out of money in retirement. To help make your money last as long as possible, ensure that you have a sound withdrawal plan to account for various positive and negative scenarios that include good and bad markets, higher taxes and inflation.

Having the flexibility to adjust how much money you withdraw in a given year allows you to adjust for market declines. If you always withdraw the same dollar amount, regardless of market conditions, you may take out more than you should during declining markets. Doing so would leave you with less money invested that can grow for future years.

Flexibility is a retiree’s greatest asset. From the flexibility to choose who you work with, where your income comes from and when you take it, to the flexibility on when and how you retire. With no one else dictating the terms of your life, it’s up to you to build your dream lifestyle in retirement. And it’s entirely possible to do if you know the right retirement planning steps to take along the way.

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Retirement planning can be complex, but you don’t have to do it alone. Contact Heritage Capital to see how we can help.