It isn't how much you make
. . .It's how much you keep!
Archive for Retirement – Page 2
Most people do not plan for their taxes throughout the year. They file their taxes and then shunt the whole process aside until next year. In reality, any-
one who earns money and files taxes can save money by planning throughout their life.
In Your 20s
The good news is you’re probably not taxed very heavily yet, but the bad news is this is because you are not making very much money. Make sure that you have all your key financial documents organized and identity information like your birth certificate and Social Security card in a secure place. If your parents opened any accounts for you when you were younger, make sure you have all relevant paperwork now. Consider meeting with an accountant or advisor to make sure you set off on the right foot. Tips:
Contribute to a tax-deferred retirement account, like a 401(k) plan or IRA. Take full advantage of any employer-matching contributions, even if you want to pay off student loans quickly. That free money will most likely grow in your account at a higher rate of return than your low-interest loans.
Keep track of your student loan payments. You can deduct the interest you pay on your loans when you file taxes and sometimes can qualify for an income based repayment plan if you owe more than you make.
Save receipts and records if you relocate for a job, since these expenses can be deducted.
Make sure you are withholding the correct amount. Getting a big refund at tax time is exciting, but by over-withholding, you have let the government sit on your cash without making it work for you during the year.
In Your 30s
Now your finances get significantly more complicated, as your savings increase along with your expenses. Tips:
Keep saving in tax-deferred accounts, but also consider opening a tax-free account like a Roth IRA or Roth 401(k) plan so you will have more income options in retirement.
If you plan to get married or have children, meet with a tax or financial advisor to ensure you are making the best financial decisions for this point in your life. Consider setting up a 529 plan for your children’s future education.
Review the credits and deductions available to you, especially the ones related to child and dependent care. Make sure you are getting everything you qualify for.
Use a flexible spending plan and reimbursement accounts for any medical bills.
In Your 40s
This is when you will probably hit your earning peak. This may bump you into a higher tax bracket, so maximizing possible deductions
(like contributions to a retirement account) is more important than ever. Tips:
Upgrade your charitable giving and keep track of any eligible gifts you make. Keep the documentation so you can deduct your giving at tax time.
Make sure to meet with an advisor before drawing money from taxable investment accounts for large expenses (such as your child’s college tuition), as there may be complicated tax ramifications. Also stay abreast of any tax credits for education: your child’s or your own.
In Your 50s
Retirement is edging closer and now you should be focused on saving as much as possible. Tips:
Max out your contributions to IRAs and 401(k) plans. Now that you’ve turned 50, you can contribute an extra $6,500 to your 401(k) plan and an additional $1,000 to your IRA.
Start planning for healthcare expenses down the road. Open a tax-free health savings account to reduce your taxable income now and provide a fund for health expenses in retirement.
Know the tax implications of cashing out any stock options or other perks from your employer.
In Your 60s
This tax-planning decade is crucial to your retirement years. Tips:
Plan for all taxes that may apply to you in retirement. For example, your retirement income level will determine whether you have to pay taxes on your Social Security benefits.
Consider converting a tax-deferred IRA to a Roth IRA for tax-free income in retirement (but know you will have to pay any taxes owed when you convert).
Be careful and strategic about how you make withdrawals to avoid paying higher taxes than necessary. Form a plan with your advisor to ensure you are not paying more than you have to.
Frankly Speaking
What’s MOST important to you NOW? Covid? The Economy? Or something else?
The first American death from the COVID-19 pandemic occurred on 2/06/20. As of 9am ET on 8/06/21, i.e., 18 months later, 619,158 Americans had died from the pandemic, an average of 7,938 deaths per week. 3,273 Americans died of COVID-19 in the last week (source: NBC News, Meet the Press: First Read).
“The problem in the last few cycles as I see it is we get promoters and insiders and people who have done very well cashing out as retail is buying,” says Jim Chanos. “The game would appear to be rigged against you if you keep coming in and buying things 10x what they are worth.” Squawk Box, Aug. 10, ’21
Good point Mr. Chanos, yet how to protect people from making foolish investments or refusing to get vaccinated? Isn’t this what happened after the Internet Boom of the 90’s led to the TECH WRECK; or the Mortgage Boom led to the DEBT WRECK of ’08? And looks a lot like something that’s going on now with the ‘Gamification’ of the stock market?
“Experience is the name everyone gives to their mistakes.” -Oscar Wilde
We all know the process. Estimate how much is needed in retirement
(which can range anywhere from 70% to over 100% of pre-retirement
income), determine available income sources, and then calculate how much to save annually to reach those goals. As you go through this largely mathematical exercise, however, don’t forget the most important part. You need to give serious thought to the type of retirement you want — visualize what retirement will be like.
Retirement is no longer viewed as a time to slow down, but considered a new beginning in life. That means your current living expenses may have very little to do with your retirement expenses. To help you visualize your retirement so you can estimate retirement expenses, consider these questions:
When do you want to retire?
Will you realistically have the resources to retire at that age?
Do you plan to stay in your current home, trade down to a smaller one, or move to a different city? If you plan to move, is the cost of living there more or less expensive than your present city?
Will your mortgage be paid off by retirement? What about other debts?
Will you continue to work after retirement? If so, will you work part- or full-time? Where will you work and how much can you expect to earn? Do you have any hobbies or interests That can be turned into paying job s? Are you planning to start a business after retiring?
How will you spend your free time? What hobbies will you pursue? How much and where will you travel? How much will all these activities cost?
How will you pay for medical costs? Will your employer provide health insurance or will you need to purchase insurance to supplement Medicare coverage?
Do you have any medical conditions that are likely to impact your quality of life in retirement? What would you do if you became physically disabled? Would your spouse take care of you, would you move in with your children, or would you go to a nursing home? How will you provide for long-term-care costs?
How much of your income will be provided by personal investments, including 401(k) funds? Are you confident those investments will last your entire retirement?
What would happen financially if your spouse dies? If you die, would your spouse be able to support himself/herself financially?
Answering these questions should give you a clearer picture of what your retirement will be like.
If you’d like to review these questions in more detail, please call or contact me.
Frankly Speaking
The English astronomer Edmund Halley prepared the first detailed mortality table in 1693. Life and death could now be studied statistically,and the life insurance industry was born. – Mathshistory.st-andrews.ac.uk
“You can live to be a hundred if you give up all things that make you want to live to be a hundred.” – Woody Allen
“Don’t go around saying the world owes you a living. The World owes you nothing. It was here first.” – Mark Twain
Summertime an’ the livin’s easy, fish are jumpin’ & the market is high…And where is RISK when the Market is HIGH? Where is the market today? You got it – HIGH! And what can you do about it? Ever hear of Guaranteed Income Accounts*? Or ‘Buffered’ accounts, either Exchange Traded Funds or (God forbid) annuities*? They each offer downside protection in exchange for a ‘cap’ on gains. So, WHEN do you think the next correction will occur? Sooner or later?
If you or anyone you know wants to discuss protection of your gains, PLEASE call or contact me ASAP!
*All guarantees and protections are subject to the claims-paying ability of the issuing company.
To enjoy your retirement without financial worries, make sure you have enough money saved when you retire. This calculation can be a daunting task, since a variety of factors affect your required amount and inaccurate estimates for any factor can leave you with way too little in savings. Some of the more significant factors
include:
What percentage of your preretirement
income will you need?
You can find various rules of thumb indicating you need anywhere from 70% to over 100% of your preretirement income. On the surface, it seems like you should need less than 100% of your income. After all, you won’t have any work-related
expenses, such as clothing, lunch, or commuting costs. But look carefully at your current expenses and how you plan to spend your retirement before deciding how much you’ll need. If you pay off your mortgage, stay in good health, live in a city with a low cost of living, and engage in inexpensive
hobbies, then you might need less than 100% of your income. However, if you travel extensively, pay for
pay for health insurance, and maintain significant debt levels, even 100% of your income may not be enough. You need to take a close look at your expenses and planned retirement activities to come up with a reasonable estimate.
When will you retire?
Your retirement date determines how long you have to save and how long investment returns can compound. You want to make sure your retirement savings and other income sources, such as Social Security and pension benefits, will support you for what could be a very lengthy retirement. Even extending your retirement age by a couple of years can significantly affect the ultimate amount you need.
How long will you live?
Today, the average life expectancy of a 65-year-old man is 81 and of a 65-year-old woman is 84 (Source: Social Security Administration). Most people use average life expectancies to estimate this, but average life expectancy means you have a 50% chance of living beyond that age and a 50% chance of dying before that age. Since you can’t be sure which will apply to you, it’s typically better to assume you’ll live at least a few years past that age. When deciding how many years to add, consider your health as well as how long other family members have lived.
What long-term rate of return do you expect to earn on investments?
A few years ago, many retirement plans were calculated using fairly high rates of return. Those high returns don’t look so assured now. At a
minimum, make sure your expectations are based on average returns over a very long period. You might even want to be more conservative, assuming a rate of return lower than long-term averages suggest. Even a small difference in your estimated and actual rate of return can make a big difference in your ultimate savings.
Have you considered inflation?
Even modest levels of inflation can significantly impact the purchasing power of your money over long time periods. For instance, after 30 years of just 2% inflation, your portfolio’s purchasing power will decline by 45%. When estimating an inflation figure, don’t just look at the historically low inflation rates of the recent past. Also consider long- term inflation rates, since your retirement could last for decades.
What tax rate do you expect to pay during retirement?
Especially if you save significant amounts in
tax-deferred investments that will be taxable when withdrawn, your tax rate can significantly affect the amount you’ll have available for spending. You may find your tax rate is the same or higher fter retirement.
Once you’ve estimated these factors, you can calculate how much you’ll need for retirement.
Please call if you’d like help with this calculation.