In considering retirement, the goal is maintain or even increase one’s standard of living. To do this, here are three lessons to consider.
Make A Retirement Plan: This is a written income plan that includes income and tax planning, social security strategies, and long-term care and estate plans.
“Start saving early to ensure you have enough money in your accounts to sustain your lifestyle in retirement,” advises Tony Drake, a certified financial planner.
“The US Department of Labor reports if you save $6,000 each year and earn a 7% return on your investment, you will have $150,774 after just 15 years. If you add an additional 10 years of savings, that number jumps up to $379,494, proving why starting early can set you up for success.”
Drake also suggests planning for shifts in the market and changes in the inflation rate.
“Talk with your financial planner about adjusting your plan,” continued Drake “so you don’t run out of money when it’s time to leave the workforce.”
You Will Pay Taxes: A mistake to avoid is assuming that retirement means a lower tax bracket.
“Distributions from retirement accounts like traditional IRAs or 401(k)s are considered taxable income,” continued Drake.
“Depending on how much you plan to withdraw, you could be bumped into a higher bracket.”
Drake added that having fewer deductions, no children to claim as dependents, no house payments to make and no deductions for interest on a mortgage will increase tax liability. He added there are ways to minimize taxes.
“One way is to consider a Roth conversion. This method will shift money from a traditional retirement account to a Roth IRA, which allows your money to grow tax-free. The one drawback is that you will need to pay the taxes on that money at the time of the conversion.”
A Word About Social Security Benefits: A steady source of income for many retirees, these benefits can replace 40 percent of pre-retirement incomes. What many do not realize is that these benefits are subject to income taxes.
One way to do this is by using a Roth IRA or Roth 401(k). This retirement account is not subject to taxes because the money was taxed when you contributed.
“Don’t be afraid to think big, dream big and plan ahead of time!” concluded Drake.
For more information, visit www.kiplinger.com/retirement/retirement-planning.