Tag: Financial Advisor
Can I Retire at 55? Tips for Early Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
If you're thinking of retiring at 55, you want to be careful about where you get your advice and guidance, and that's because most retirement advice is geared toward those who retire quite a bit later, in fact… Most people retire at 62, but things will be different for you if you're going to retire at 55. So that's what we'll talk about for the next couple of minutes here, we'll go over where you can get the money from, and how that works with taxes as well as healthcare, then we'll look at some actual numbers and what it might look like for somebody who retires at age 55. We might also want to get philosophical just briefly and ask the question, Why age 55? Yes, it's a nice round number.
And there are some interesting tax strategies that are available around that age, but let's say you could retire a little bit earlier at 54, would you want to make that happen? Or if you worked a few more years… I know you'll think this is crazy, but if you worked a couple of more years and you could not impact your finances, but still take some of those dream vacations and spend time with loved ones, would that be worth it to maybe work until 59, for example? So we want to figure out exactly why you are pursuing a particular goal and then we can improve the chances of success for you, so let's start with health coverage, this is a tricky one because you're retiring quite a bit earlier than most people who might be near that Medicare age, so you have a number of different options to continue being covered, and it is a good idea to have real health insurance coverage just in case something happens.
So a couple of your choices include, number one, you can continue your current benefits from a job if you have them for up to 18 months in most cases, and that's under COBRA or your state's continuation program, that can get quite expensive because you're going to pay the full price, if you weren't already doing that, plus perhaps a teeny little bit extra for administration, but it is a way to continue with the program that you currently have, so that can be helpful if you are mid stream in certain treatments or if it's going to be hard to get certain benefits that you currently have on a different health care program, unfortunately, that's not usually a long term solution because we need to get you until age 65, which is when most people enroll in Medicare, and you should see your costs go down quite a bit at that point, maybe depending on what happens, so another solution that a lot of people look at is buying their own coverage, and that happens typically through a healthcare marketplace or an exchange, and that's where you just by coverage through an insurance company.
So you can go directly to the insurers, but it's often a good idea to go through… Start at healthcare.gov, and then go through the marketplace or the exchange, and that way you can shop some plans and potentially, depending on your income, you can potentially get some cost reductions that make it a lot more affordable, I'll talk more about that in a second, but another option is to switch to a spouse's plan, if you happen to be married and that person has coverage that's going to continue for whatever reason, that might also be a solution for you, when you leave your job, it could be a qualifying event that allows you to get on that person's program, but let's talk more about saving money on health care expenses before age 65, most people are going to buy a policy based on the factors that are most important to them, so that could be the premium or the out of pocket maximum, the deductible, the co pays, certain areas of coverage, all that kind of thing, you can select a plan that fits your needs.
Now, you might find that those tend to be quite expensive, and so if your income is below certain levels, you might be able to get effectively a reduction in the premium, it might be in the form of a tax credit or a subsidy, so here's just a preview of how things could look for you, let's say your income is, let's say 50,000 in retirement, and you need to look at exactly what income means, but there is no coverage available from a spouse, we've got one adult, and let's say you are… As our video suggest age 55 here, so you might get a benefit of roughly 422 a month, meaning you could spend that much less each month, and that's going to make it a lot easier to pay for coverage on these plans, if we switch your income down to 25,000 per year, the help is even bigger, so as you can see by varying or controlling your income, and this is something you might have some control over if you retire at 55, you can also control your healthcare costs, we'll talk about some conflicting goals here, where you might not want to absolutely minimize your income during these years, but this is important for you to know if you're going to be paying for your own coverage, and if you're experiencing sticker shock when you see the prices…
By the way, I'm going to have a link to this and a bunch of other resources in the description below, so you can play with this same calculator yourself. Now, once you're on Medicare, the cost should drop quite a bit, this is a calculator from Fidelity where we can say, let's say you are a female, and we're going to say you're eligible for Medicare at this point, so we'll bring you up to age 65.
It is going to be quite a bit higher cost, if you look at it before age 65, and that's because you are paying for those private policies from insurance companies, let's say you're going to live until age 93, and so you might expect to spend roughly 5800 6000 bucks per year, depending on your health and your location and other factors, it could be more or less, but this is an estimate of what somebody might spend, a single woman each year in retirement, of course, that number is going to increase each year with inflation and deteriorating health issues. But this is a ballpark estimate of what you might be spending in the future, now we get to the question of, do you have the financial resources to retire at 55? And that comes down to the income and the assets that you're going to draw from to provide the resources you need to buy the things you want and need, and one way to look at this is to say We want to avoid early withdrawal penalties because again, you are retiring at an age that's earlier than the typical retiree and most retirement accounts are designed for you to take withdrawals at 59.5 or later, to avoid those penalties, fortunately, you have a couple of options, so with individual and joint accounts, just taxable brokerage accounts, you can typically withdraw from those without any penalties, but you may have capital gains taxes when you sell something, those taxes may be at a lower rate than you would pay if you take big withdrawals from retirement accounts, but you just want to double and triple check that, but that can be a liquid source of funds.
You. Can also typically withdraw from Roth accounts pretty easily. So those regular contributions come out first, in other words, you can pull out your regular contributions at any time with no taxes and no penalties, what that means is that's the annual limit contributions you might have been making her by year, so the 7000 per year, for example. That money would be easily accessible, but if you have other money types like Roth conversions, for example, you're going to be very careful and check with your CPA and find out what all of that could look like.
There. Are other ways to get at funds that are inside of pre tax retirement accounts, and it might actually make sense to draw on those to some extent, we'll talk more about that in a minute, but these are some of the tricks you can use to avoid an early withdrawal penalty yet still draw on those assets before age 59.5. The first one is the so called rule of 55, so this applies if you work at a job with, let's say a 401K, and you stop working at that employer at age 55 or later, if you meet certain criteria, then you can withdraw those funds from the 401k so they go directly from the 401k to you. They don't go over to an IRA, you could withdraw those funds without an early withdrawal penalty. A complication here is that not every employer allows you to do that, so 401k plans can set a bunch of their own rules, and one of them might be that they don't let you just call them up and take money whenever you want, they might make you…
Withdraw the entire amount, so if that's the case, this isn't going to work, so be sure to triple check with your employer and the plan vendors and find out exactly how this would work logistically or if it will even work. Next, we have SEPP that stands for substantially equal periodic payments or rule 72. This is an opportunity to draw funds from, let's say your IRA or a certain IRA that you choose, but before age 59 and a half without getting early withdrawal penalties. Now, this is not my favorite choice. I don't necessarily recommend this very often at all, and the reason is because it's easy to slip up and end up paying tax penalties.
The reason for that is in part that it's really rigid, so when you establish this, You calculate an amount that you have to take out every year, and it has to be the same amount every year, and you have to make sure you do that for the longer of when you turn age 59 1/2 or for five years. And even that sounds kind of simple, but it's still easy to trip up, and you also have to avoid making any kind of changes to your accounts, so it's just really rigid and can be difficult to stick to you, so…
Not my favorite choice, but it could be an option. Those of you who work for governmental bodies, maybe a city organization or something like that, you might have a 457b plan, and those plans do not have early withdrawal penalties before 59 and a half, so you could withdraw money from that and use some income, pre pay some taxes, and have some money to spend fairly easily, this by the way, is an argument for leaving money in your employer's 457 versus rolling it over to an IRA, because once it goes over to an IRA, you are subject to those 59 1/2 rules and a potential early withdrawal penalty.
So that could end up leaving you with 72 to work with, for example, which again is not ideal. So you might be asking, well shouldn't I just minimize taxes and hold off on paying taxes for as long as possible? And the answer is not necessarily. So it could make sense to go ahead and pre pay some taxes by getting strategic, the reason for that is that you will eventually have to pay taxes on your pre tax money and it might happen in a big lump, and that can bump you up into the highest tax brackets, so it could be better to smooth out the rate at which you draw from those accounts and hopefully keep yourself in lower tax bracket, at least relatively speaking.
So when your RMDs or your required minimum distributions kick in after age 72 under current law, that could possibly bump you up into the highest tax brackets, maybe you want to smooth things out and take some income early. So let's look at the question of, Do you have enough with some specific numbers, and before we glance at those numbers, just want to mention that I am Justin Pritchard. I help people plan for retirement and invest for the future. I've got some good resources, I think, in the description below, some of the things that we've been talking about here today, as well as some general retirement planning information. So if this is on your mind, I think a lot of that is going to be really helpful for you. Please take a look at that and let me know what you think of what you find. It's also a good time for a friendly reminder, This is just a short video, I can't possibly cover everything. So please triple and quadruple check with some professionals like a CPA or a financial advisor before you make any decisions, so let's get back into these questions, Do you have enough? As we always need to mention, it depends on where you are and how much you spend and how things work for you.
Are you lucky to retire into a good market, or are you unlucky and retiring into a bad market? All of these different aspects are going to affect your success, but let's jump over to my financial planning tool and take a look at an example. This is just a hypothetical example, it's the world's most over simplified example, so please keep that in mind, with a real person, we've got a lot more going on. The world is a complicated place and things get messier, but we're keeping it very simple here, just to talk about an example of how things might look, so this person has one million in pre tax assets and 350,000 in a brokerage account, and if we just quickly glance at their dashboard here, pretty high probability of success, so let's make it a little bit more interesting and say… Maybe that IRA has, let's say, 700,000 in it. What is that going to do? And by the way, this is still a lot more than a lot of people have, but again, if you're going to be retiring at 55, you typically have quite low expenses and/or a lot of assets.
So let's keep in mind here that retirees don't necessarily spend at a flat inflation adjusted level, and I'll get into the assumptions here in a second, but let's just look at if this person spends at inflation minus 1% using the retirement spending "smile," that dramatically improves their chances, and I've got videos on why you might consider that as a potential reality, so you can look into that later at your leisure, but as far as the assumptions, we assume they spend about 50,000 a year, retire at age 55. The returns are 5.5% per year, and inflation is 3% per year. Wouldn't that be refreshing if we got 3%… So we glance at their income here age 55, nothing, and then Social Security kicks in at 70. They're doing a Social Security bridge strategy. I've got videos on that as well, or at least one video, the full year kicks in here later, and then their Social Security adjust for inflation, looking at their taxes, we have zero taxes in these earlier years because they are just not pulling from those pre tax accounts.
Maybe not getting much, if anything, in terms of capital gains, maybe their deduction is wiping that out, so we may have an opportunity here to actually do something and again, pre pay some taxes and pull some taxable income forward. In fact, if we glance at their federal income tax bracket, you can see that it's fairly low from 55 on, maybe they want to pull some of this income forward so that later in life, they are drawing everything out of the pre tax accounts all at once. It just depends on what's important to you and what you want to try to do, and that brings us to some tips for doing calculations, whether you are doing this with somebody, a financial planner or on your own, you want to look at that gap between when you stop working and when your income benefits begin from, let's say, Social Security, there's also that gap between when you stop working and when Medicare starts, and that's another important thing to look at, but what are your strategies available there? Should you take some income, and exactly how much? That's going to be an area where you might have some control, so it's worth doing some good planning.
We also want to look closely at the inflation and investment returns, and what are the assumptions in any software that you're using, for example? These are really important inputs and they can dramatically change what happens… You saw what happened when we switched from a flat inflation adjusted increase each year to the retirement spending smile, just a subtle little adjustment has a big difference on how things unfold, and in that scenario, by the way, we would typically have healthcare increasing at a faster rate.
But like I said, we use an over simplified example and didn't necessarily include that in this case, but you do want to click through or ask questions on what exactly are the assumptions and are you on board with those assumptions? You may also need to make some adjustments, and this is just the reality of retiring at an early age when you may have 30 plus years of retirement left, a lot can happen, and there really is a lot of benefit to making slight adjustments, especially during market crashes, for example, so.
If things are not necessarily going great, some little tweaks could potentially improve the chances of success substantially, that might mean something as simple as skipping an inflation adjustment for a year or two, or maybe dialing back some vacation spending. These are things you don't want to do, that's for sure, but with those little adjustments, you can potentially keep things on track, and that way you don't have to go back to work or make bigger sacrifices. And so I hope you found that helpful.
If you did, please leave a quick thumbs up, thank you and take care..
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👉Retirement Planning At 60 in 2024 – 6 Tips💥
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
imagine this you're approaching your 60s and starting to think about retirement you've worked hard all your life and it's time to enjoy the fruits of your labor but before you kick back and relax it's time to get laser focused on your retirement plan in this video we'll cover six important tips to help you plan for your retirement at 60. tip one assess your financial situation Jane has a woman who's been working as a nurse for 30 years she's always been Frugal and saved as much as she could but she's not sure she's accumulated enough for a comfortable retirement to assess her financial situation she makes a list of all her assets and her expenses she realizes that she needs to save more if she wants to maintain her lifestyle in retirement tip two explore different retirement options Bob's a 62 year old man has been working as an engineer for the last 40 years his employer has a 401k and he's been contributing to it for years Bob also explores other retirement options such as an IRA to maximize his retirement savings tip three diversify your Investments Mike is a 65 year old man who's been retired for a few years he Diversified his portfolio by investing in many different stock and bond index funds by diversifying his Investments might minimize risk and ensure a stable retirement income tip 4 plan for health care costs Sarah is a 63 year old woman who's been working as a teacher for the last 35 years she's healthy now but she knows health care costs can be expensive in retirement to plan for health care costs Sarah bought long-term care insurance to cover any medical expenses that could arise in the future tip five consider your Social Security benefits Tom is a 64 year old man's been working in construction for the last 45 years he's not sure when to start receiving his social security benefits he decides to wait till 67 to start taking his social security so he'll get a higher benefit which will give him a more comfortable retirement tip six have an actual retirement plan in place Lisa is a 61 year old woman has been working as a sales manager for the last 25 years she has a plan in place that includes a budget for her retirement expenses and a plan for Hospital spend her time in retirement Lisa plans to travel volunteer and take up a new hobby in retirement to stay active and engaged following these tips and learning from the experience of others you can ensure a comfortable and fulfilling retirement it's a great idea to consult with a good financial advisor click on the link in the description if you'd like to set a time to talk with us
Insights Live: Retirement Income Planning | Fidelity Investments
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
JONATHAN LAMOTHE:
Hello, everyone, and welcome to the latest
Insights Live, retirement income planning, going
from saving to spending. Today's webinar is the first
of two webinars we have focused on retirement income. Part two is going to
take place on November 9, and it's going to focus on
strategies for RMDs, IRAs, and more. So please ensure you
register for this one as well by visiting
fidelity.com/webinars or keep an eye out for the
email invitation. My name is Jonathan Lamonthe,
vice president of webinars here at Fidelity. And today, we're
going to be talking about a transitional period
in life, the time when you go from earning
income and saving it to living on those wages. We do have a lot
to get to today.
But I truly want to thank
you for taking some time out of your day to join us. I also want to point out that
if you are watching on a laptop or desktop computer,
you're going to see a blue button at
the bottom right hand corner of your
screen to download a great document filled with
a lot of resources that are focused around today's topic.
As always, before
we begin, I would like to mention that Fidelity
does not give legal or tax advice, and nothing
we discussed today should be interpreted
as legal or tax advice. The information we
are providing is going to be general in
nature, and it may not apply to your situation. If you do have legal
or tax questions about your specific
situation, we do encourage that
you talk to your tax professional or your attorney. So with that, I'd like to
turn it over to our moderator today, Ms. Ally Donnelly. Ally, it's all yours. ALLY DONNELLY: Thanks, Jonathan. And thanks to you, our
viewers for tuning in. This is going to be
a great discussion. And we also appreciate
you sending your questions during registration. They help shape
today's discussion. And if we can, we'll pop in
a few more live as we go.
Like Jonathan
said, retirement is a time of transition, when
it comes to your money, especially. You might be wondering what
your spending will look like or whether your
savings will last. We're going to cover all
of that and so much more. So let's meet our panelists. Panelists, could you introduce
yourselves and also share the perspective you bring
to the conversation. Rita, why don't you kick us off. RITA ASSAF: Great. Well, first of all,
thank you for having me. So I'm Rita Assaf. I am responsible for Fidelity's
IRA products and small business retirement products. And what that means is we
help clients understand which product is best for them,
and then how to save on them, and then how to spend
through them once they transition to retirement. ALLY DONNELLY: Terrific. Michelle. MICHELLE HOWELL: Thank you. My name is Michel
Howell, and I'm a vice president,
financial consultant. I collaborate with
individuals and their families to discuss financial planning
topics such as retirement income planning, tax-efficient
investment strategies, navigating financial transitions
such as death and divorce, retirement cash flow
strategies, and also wealth transfer techniques.
I've worked in this
space for over 20 years. And I'm located in the Edina
Minnesota Investor Center. ALLY DONNELLY: Excellent. Jerry, fill us out. JERRY PATTERSON: Well,
greetings, everyone. Jerry Patterson,
excited to be here. I am responsible for Fidelity
Investments Life Insurance Company. We focus on fidelity.com
insurance and protection offerings, including things like
long-term care insurance, life insurance, and annuity
income solutions. Prior to that, I spent
30 years with a number of large financial
services company focused on helping people manage their
money, plan for retirement, build estate plans,
and prepare for and plan for the unexpected. ALLY DONNELLY: Great. All right. Let's get into it. Michelle, I'm going
to start with you. As someone who talks to
clients every day, and you've worked with so many
people on this transition, so help us understand,
what are some of the challenges your
clients talk about in going from
saving to spending? MICHELLE HOWELL: Yeah. There are really
two major challenges I think of in this space as
clients are transitioning from saving to spending. For individuals who have
saved their entire lives, often, there's just a
psychological adjustment that needs to be made
around spending, right? So the best way I can
bring that to color is just through a client
example, one of my clients who's definitely a saver.
I mean, he is at
his core a saver. He also is very passionate
about running and likes to jog. And for years, we'd met
and discussed the fact that he had a very
solid financial plan, but he really wasn't spending
enough in retirement. And his goal was to add to
his discretionary expense by doing some other
things he enjoyed and pursuing additional hobbies. So one time, he
comes into my office and he says, Michelle,
you'll be so proud of me. I actually spent some money. And I was excited. I thought, OK,
well, what property are we going to discuss? Are we looking at a new
vehicle out in the parking lot? Like how did you
spend the money? And he proceeds to tell
me a story about how he went to a local shoe store,
bought four pairs of running shoes at a negotiated price
because he was buying in bulk and spent $500. For most of us, we would
chuckle at that, right? But for him, that
was a huge hurdle. That was a milestone in his
ability to spend in retirement. And conversely for those who
would identify themselves as more of a spender, there's
some coaching conversations that need to take place to
make sure that when you retire, you're not just jumping in and
spending too much too soon.
Logistics and also
monetizing a portfolio is probably the
number one concern people have when they're
transitioning to retirement. Here we've saved this big
pot of money, this nest egg all of our lives. But how do we actually turn
on that spigot of cash flow? How do we get from this nest egg
to monthly cash flow and income streams to support ourselves? And really, that's a question
that has some simple solutions. So at Fidelity, we like
to work through a concept and go through an exercise
called salary and bonus structures.
And while in retirement,
we can actually construct and replicate
the same compensation structure that
many people enjoyed while they were still working. For those who prefer
their retiree income to function like a salary
because of its consistency and reliability, we aim to
cover their essential expenses through reliable income sources
like Social Security, pensions, or other predictable
income sources. The other category of expenses
are discretionary or some of the negotiable expenses. And while working,
these are expenses that are often funded through
savings accounts, from a bonus, or some other windfall
source of income. These expenses are often not
rigid and time-bound either. So in retirement, we like to
create a scenario where you've got some flexibility so that
you can incur the expenses when you're comfortable from a
psychological perspective or perhaps after we've had
a nice run up in the market and you're feeling comfortable
about taking a larger distribution out
of your portfolio, to fund the fun stuff
like the three-week trip to Italy, the kitchen renovation
you've been building up for, or perhaps to take a
huge trip to celebrate a milestone anniversary
across your family.
ALLY DONNELLY: OK. So I'm definitely putting Italy
and milestone anniversaries on my list. But where should
someone start when they're trying to estimate
those retirement expenses? MICHELLE HOWELL: Ally, this
is really the fun part. Retirement is what you make it. From how you choose to prepare
for retirement and also how you choose to spend
your money in retirement. An easy place to
start here is just to think about expenses that
are essential in your budget. These are non-negotiable
costs that everyone incurs. Perhaps it's property tax,
utilities, insurance costs. If these expenses aren't
readily known, that's OK. There's an easy
starting point, which is the fact that most bank
statements as well as credit card statements actually provide
a yearly spending summary.
And we can use that
as the foundation for how we build your budget. As for health care,
at Fidelity we also do research in
this space, and we can help you estimate expenses
that you might incur prior to Medicare eligibility
as well as when you're covered by Medicare. And then from here,
you get to dream. What do you want to
you in retirement? What does that look like to you? What other hobbies
or lifestyle choices do we need to incorporate
in the budget? Is there regular travel? Are there golf memberships? Did you always dream of becoming
that master gardener and there are some expenses that you
need to approach to get there? Those are all things we
can tack into the budget after all of those
building blocks. Lastly, I would say don't
worry about having everything precise. The markets are
definitely not static nor are any of our lives. So things change, and it's your
financial consultant's role to keep up with all of
those shifts taking place. And along the way, we'll share
our experiences and working with others. We'll also give you insights
around other retiree habits.
And in some cases, we'll
provide some transparency and some tough conversations
if the expenses start to compromise the sustainability
of your overall retirement plan. ALLY DONNELLY: OK. So Jerry, let me turn to you. You hear everything
that Michelle is saying about estimating your expenses. But then where do you
start to actually create a plan to make sure you
can cover all the costs? JERRY PATTERSON: Yeah. So for sort of very
first starters, we use a discussion framework
at Fidelity called EPG. It's very popular
with our clients. And it's a great way to begin
the overall planning journey. It's also a great framework
to revisit a plan that you may have done in the past. And through this framework,
we organize the discussion around retirement planning
into three broad categories. E for emergency, P for
protection, and G for growth. E for emergency, we need to
ask ourselves the questions, are we prepared for an
unexpected financial emergency? Do we have enough liquid
funds, for instance, to cover our bills
for six months, which is a rule of thumb
that many people use.
The P for protection,
we ask ourselves, do we have a plan to protect
the income we need to cover our essential expenses? Michelle referred to
predictable sources of income like Social Security,
like pensions. But what happens
if you have a gap between your essential
expenses and Social Security or pensions? Can things like
annuities play a role to close that gap to make sure
that you can fund your income needs as you go
forward in retirement? Do you need long-term
care protection, or are you comfortable
self-funding a long-term care benefit if it should
occur during retirement? And then G for growth,
the big question is, how are you going to invest
the rest of your nest egg after you've set aside
that money for emergencies and you've installed the
protection solutions that you think you need as well? How important are
things like maximizing the legacy you leave to your
heirs versus maintaining your current lifestyle? So G for growth is
really at the heart of the investment strategy
underneath your nest egg.
A good conversation
using this framework usually leads to the development
of very specific goals and investment and
protection strategies to ensure that you're
going to meet those goals. I'd encourage you
try it yourself. You take a piece of paper,
write E, P, G across the top. Write down the
questions that come to mind when you think
about emergency, protection, and growth. And even write down the answers. That's exactly the
kind of conversation we go through with
our clients when you meet with
people like Michelle at the beginning of
the planning process. And like I said, our
clients find the framework a really, really great
place to start the planning conversation. ALLY DONNELLY: Yeah. And I think that is. Like get the
conversation started.
Even if it's in your own
head, because when you really start to think about
it, that's where things come to take shape. But Rita, I have to
ask you, so Jerry's got this great framework. But how do you then
allocate your resources to fit those different
types of expenses? RITA ASSAF: It's
a great question. So in general, a
retirement income plan will cover different
income streams to cover different expenses.
And the reason for this is
it allows for flexibility, but it also reduces risk
that too concentrated on one income source. So in general, what we say
is to protect your income from market risk. Essential expenses– so
think of housing, utilities– these should be covered by
guaranteed income sources like Social Security,
like annuities. And the reason for that
is because they keep up with inflation. And actually, this
just in this morning, the Social Security
Administration just announced that they are
increasing 2024 Social Security benefits by 3.2% because
of cost of living. And this is a little
over from 2023, which was I believe around 8.7% But it has been higher
than the average that we've seen over
the last 20 years, which has been generally around 2.6%. But then when you look at
discretionary expenses, this is where you want these
covered by your savings or investment income so that
if there is a market downturn, you can cut back without hurting
your day-to-day expenses. And I also would echo
what Jerry just mentioned, which is an emergency fund.
So just like today the general
rule of thumb as you're working is if you happen
to lose your job, can you cover about six
months worth of expenses through your emergency fund? Well, we also want to consider
that in retirement as well. And can you tap into available
cash or short term investments should an emergency arise? ALLY DONNELLY: Yeah. Let's look out a bit
further because all of you here have mentioned change time
and again, that life is not static. So most of us don't keep
to a single spending plan year-after-year realistically.
And I mean, retirement
could be 30 years or more. So how does spending
during those years typically change over time
from what you see with clients? RITA ASSAF: So we've generally
seen sort of three stages that clients can experience. And they will vary, obviously. And they come with
different spending habits. So the three stages– and I'll try not
to trip over this– are the go-go years, the slow-go
years, and the no-go years. But by understanding
these stages and their different
spending habits, it can make you feel
much more confident that when you go to
your retirement plan, you're covered for all of these.
So I'll start with
the go-go years. These are generally at the very
beginning of your retirement. You're excited, you're active. You might be traveling, you
might be trying new hobbies. So you're generally
spending more because you're out and about. And then there are the slow-go
years, which is generally a period of transition. So you might be moving from an
active lifestyle to one that's a little bit more balanced. You might be spending more
time on relationships, friends, time with children and
your grandchildren. And it usually means
you're spending sort of comes down a little bit. And your priorities may shift. So you might be more concerned
about financial security and ensuring that
your savings last. And then finally, there
are the no-go years, which is generally
dependent on your health. This is the hardest to predict. It's also the most
emotional because it really does depend on your health.
And it generally
means that you're less active because of it and
that you have higher health care costs. It's also when you're
typically contemplating end of life plans or legacy plans. And this is where planning
does become critical because you want
to ensure you have sufficient savings to cover
these medical expenses and potentially long-term care. ALLY DONNELLY: Yeah. Yeah. I mean, of course, health
care spending is significant. But Jerry, once we hit
65, there's Medicare. So is that kind of a blanket,
so to speak, for our health care expenses? JERRY PATTERSON:
Great question, Ally. Medicare continues to be a
critical financial pillar in the US retirement system. Despite what you see
in the headlines, it's still an
important safety net for millions and
millions of Americans who are retiring and depend
on it for health care.
And for those of you who are
at that critical age of 65 or getting close, don't forget
that open enrollment starts in three days on October 15. So it's right before us. It's top of mind for a lot
of Americans right now. I think what's important
to note about health care and Medicare when you
retire is not everything is covered under Medicare. And even of those
items that are covered, it's not always covered 100%. And there's a lot
of costs we're going to face in our older years
that feel health-related that aren't covered. These include things like
certain prescription drugs, dental care, chiropractic
services, long-term care.
And even things like
foot care and acupuncture are not covered. And don't forget that we're
all responsible out-of-pocket to pay 20% of all
medical costs incurred and Medicare pays the rest. And this can add up to a lot
of money as we grow older. And the likelihood of
these costs emerging increases as we go grow older. In terms of how to address
those gaps and what gaps you may have is a really,
really, really important step in your overall planning. It's important to investigate
plans that are out there, whether that's things like
Medicare Advantage plans, whether it's Medigap or
med supplemental plans or standalone prescription
drugs or standalone dental plans or vision plans.
There's a whole host
of solutions out there that can help you
close those gaps and address things like
coinsurance and copays if those are things
you're uncomfortable with or to get you coverage
that for things that you're not going
to get under Medicare. So there are
solutions out there. And in the planning process,
it's really important as you hit 65 or you start to
creep up on 65 to investigate all those options
because they don't all work in perfect harmony.
So sometimes when
you choose one, it doesn't make sense
to choose another. And sometimes, one
perfectly covers the gap like let's
say you're looking for dental insurance
that's not covered through original Medicare. Well, Medicare Advantage
might provide you with that coverage
you're looking for. But this is an
important, important step in your planning process as
you transition into retirement for sure.
ALLY DONNELLY: Yeah. Yeah. I mean, clearly, health care
is a major expense for retirees that are on people's minds. But Rita, how can someone start
estimating what their cost might truly look like? RITA ASSAF: Yeah. So health care
expenses in retirement are also the biggest stressor. In our research,
that's what we've seen. It's how do you even
try to estimate that? So Fidelity has done some
research around this, and they found that a single
person aged 65 in 2023 would need almost $158,000 saved
after tax to cover health care expenses in retirement. And for a couple aged 65, they
would need almost $315,000. So that's just on average. It'll obviously vary for
your personal situation. But this is where Medicare
research will be important. And Fidelity has resources
that can help you, and our financial professionals
are great at walking you through this. But as Jerry just
mentioned, there are different Medicare options. There's also supplemental. So you want to do your
research to understand what different options
are appropriate for you and what the premiums
would be and what the out-of-pocket
costs would be.
And this includes
what prescription drug plans there are because that's
the biggest unknown as well. And out-of-pocket expenses can
vary by the different Medicare option you choose. And it can include monthly
deductibles, coinsurance, copays. So one way to estimate
these costs is once you settled on
an option, calculate your monthly premium based on
the type of coverage you have. And then keep cash for
out-of-pocket expenses. And out-of-pocket
expenses can vary, but you can also
look at expenses that you might have seen in the
past, how many times have you visited the doctor in the
last year, how many times have I gone for acupuncture,
those types of things to help come up
with that estimate. And Michelle said this earlier. It's not going to be
perfect, and that's OK.
But even getting to
this level of detail will just make you feel
a lot more comfortable. ALLY DONNELLY: Yeah. Yeah. Let me follow up there because
estimating costs are one thing. But how do you help
folks strategize how they're going
to manage the costs? RITA ASSAF: One
way to help manage the costs is through health
savings accounts or HSAs. So you might have
heard about these. They're often described
as triple tax-advantaged. And what that means is that
the contributions are tax-free. The investments grow tax-free. And your withdrawals on
qualified health care expenses are tax-free. But in order to
contribute to an HSA, you will need to be enrolled
in what you generally hear is an HSA-eligible health plan. These tend to be higher
deductible type health plans. But you know I would say,
even if you don't have access to an HSA, it's usually
prudent to set aside some cash specific for health care. But since we're on
the HSA kick, there are some interesting things how
you can use HSAs in retirement. I would say one watch out is
that once you're on Medicare, you cannot contribute
to your HSA.
Otherwise, you'd be
subject to tax penalties. But once you are on Medicare
and if you've had an HSA, you can actually use it to pay
certain expenses like premiums. And a real fun fact about the
HSA is that after you turn 65, you can use it on
whatever you want. It does not need to
be on health care. So you want to buy a boat? You can do that. But it won't allow you to
take full advantage of the tax savings because you are required
to pay state and federal taxes if applicable.
But this is similar then to a
401(k) when you're taking out a withdrawal, you do have to
pay state and federal taxes. So pretty much puts
it on par to that, but you do lose that
third tax advantage, which is being tax-free when
used on health care expenses. ALLY DONNELLY: Now, those are
great things to point out. I mean, clearly, the
cost of health care often exceeds what
we're estimating. So what other
spending curveballs tend to pop up that you
can think of, Jerry? JERRY PATTERSON:
Good question, Ally. And yeah, health care can be one
of those definitely curveball costs. You can have health care shots
deep in retirement that can have huge financial
consequences. . But there are
other things that I think are important
to think about that could come at you infrequently
or even as a one-time cost.
Think about the need to replace
your car during retirement. For me, I've always liked to
drive a car under warranty. And that requires me to go into
car-buying mode every three to five years. And I'm in that mode right now. And I bet there are
plenty of folks listening that share my sentiment that
that's not a fun mode to be in. But I'm there again right now. But given the likelihood
that I'm probably going to drive a lot less in
my retirement years, that's probably an approach
I need to rethink.
But I still need to
incorporate and anticipate that cost is going to come
whether it be 3, 5, or 10 years down the road. I think it's important
to incorporate that into your planning. Other big expenses
that can emerge are things like
paying for a wedding. Probably something people
don't plan for enough, but it happens a lot is
moving closer to your kids or moving somewhere else. And that can be a big cost. Or buying that RV to check
that trip to Glacier Park or to visit the largest
ball of twine in the world off your bucket list
might be another thing you need to plan for. And these are all things that
just need to be incorporated. I think it might
have been Michelle or maybe it was Rita was
talking about building a salary plan and a bonus plan. You almost have to
have this bonus plan with delayed frequency
to anticipate these big costs that could
emerge deep into retirement. Another one that's
really important to plan for is long-term care
because the way long term care emerges is it's usually
unexpected, it happens quickly, and you're suddenly required
to come up with liquidity.
So let's say you end up
going into a nursing home when you're 87. Those costs can range from
$9,000 to $13,000 a month. That is a huge unexpected cost. And most people when
they're deep into their 80s don't have $13,000 a month in
liquid funds easily reachable. So those are the kind of things
that when you talk about curve balls you got to incorporate
into your thinking and your planning for sure. ALLY DONNELLY: Yeah. I mean curveballs are
curveballs for a reason.
It's challenging. I want to follow up on one of
Jerry's comments, Michelle, about big purchases. So lots of clients
have asked us, is it OK to take on
debt in retirement? RITA ASSAF: Ally, the short
answer here is yes, right? Having come through the last
15 years of historically low interest rates, I
do often see clients carrying mortgage or auto
loan debt into retirement. Obviously, the compromise
that gets made, though, is if you're using a
number of cash flows to support debt paydown,
there's less cash flow to be spent on other
discretionary and lifestyle items that you might want to
incorporate in your retirement budget. The other thing I think
of here is actually just loan qualification. So often, lenders
are really focused on the recurring monthly
income sources like salary, pension, annuity income, any
automated payments coming from investments more
so than net worth or what you have on
your balance sheet during that
underwriting process.
And so when working, this
is less obvious to us because we have
compensation, we're maybe accustomed to
just looking at our W-2 and documenting
that compensation. In retirement, underwriting
can be more challenging because depending on
how much of your income is actually automated
versus being distributed on an ad-hoc basis,
the underwriting can look different. One other lending
consideration for those who actually have
non-IRA assets is something called a
collateralized line of credit.
And that's a mouthful. But really all it
is a line of credit that backs a brokerage account
in your investment portfolio. And this allows you
to actually borrow using the value of
your investments without having to sell
down your investments and incur capital gains. And it can be paid off any time. Since the brokerage account
collateralizes the loan, there's just less scrutiny
around where you're receiving your income
sources in retirement, and that can also be an option. ALLY DONNELLY: That's
really interesting. I didn't know that. OK. So once you have a
handle on your expenses, you need income, obviously,
to support the spending plan. So help us flesh out what
are some typical sources of retirement income. JERRY PATTERSON: Absolutely. So there are many typical
sources of retirement income. The obvious ones would be
Social Security, pensions, rental income,
dividends and interest from investments, and
also distributions from the investment portfolios.
Those are all the most common
sources of retiree income. And most retirement
income strategies incorporate several
of these sources just for diversification, as
Rita mentioned earlier. At Fidelity, we do believe
that essential expenses should be covered by guaranteed
sources of income. And again, those include
Social Security, pensions, and annuities, guarantees. Despite most employers no longer
offering traditional pensions, there are easy ways to convert
portions of our savings into monthly income streams
just like a pension. And those instruments
are called annuities. ALLY DONNELLY: Now, we get a lot
of questions about annuities. And Jerry, I know this is
the sweet spot for you. So help us understand how they
can fit into the overall plan. JERRY PATTERSON: Thanks. Well, first and foremost,
there are many different types of annuities.
I happen to be in a meeting with
an annuity provider this week. And this single company
features 23 different flavors of annuities. So there's a lot of
different kinds of annuities. And many of them feature
guarantees of principal or your retirement income in
the the insurance companies that issue them. For clients who value the peace
of mind and predictability that comes with
guarantees, annuities can play a really important
role in your overall savings and investment plan. Fixed income
annuities, for example, can help you close
that gap that Michelle was talking about between
Social Security and pension if you have pension income
and your essential expenses to ensure that you
have your bills fully covered by predictable sources
of income while you're retired.
For many of our
clients at Fidelity, this strategy has been a game
changer where our clients are able to neutralize
effectively the need to worry about covering
essential expenses like those pickleball
league dues. Those would probably
be essentials for me by the time I retire, but
to each his own, I guess. Many annuities
feature various fees. And some of these fees
can be high at times. It's really important for
you to understand those fees and the trade offs
that might be occurring between the investment
returns might have otherwise enjoyed versus
the value of the guarantees to you. You should also think
about the ratings and the financial strength
of the insurance companies that issue these
annuities as you may be staking your retirement
security and certainty on them. ALLY DONNELLY: I
was wondering when pickleball was going to
come into the conversation, so thank you. But Rita, I want to dig into
Social Security specifically.
There's always questions
about the right age to claim benefits. How do you counsel clients
on what considerations they should bring
into their mind before they make that decision? RITA ASSAF: Well, I would
say Social Security is just confusing. It's always a challenge. There's a lot of
myths out there. And there's headlines out
there as well of like, will Social Security last? We can't predict the future. But for now, Social
Security is here. And it should be considered as
part of your retirement income plan. But there are some things
to consider to help you decide when to claim. So first, I'll just say
that you can actually start receiving Social Security
benefits as early as age 62.
But you're entitled to your
full Social Security benefits when you reach your
full retirement age. And you might see
this shortened as FRA. So that FRA will depend
on your date of birth. Right now, the FRA for people
turning 62 and 2023 is age 67. So that group can actually start
to get their full retirement benefits at age 67. But here's where
waiting to claim is actually a benefit for
you because it can result in a higher monthly average. So for every year you delay
past your full retirement age, you get an 8% increase in
your monthly Social Security benefit. So if you wait till
age 70, that could be as much as a 24%
higher monthly benefit. So it really does help
to think about delaying and if you can make
that gap work for you.
But you also want to think
about planning Social Security when to claim with a
spouse because that does come into effect
and could actually maximize your lifetime benefit. ALLY DONNELLY: Interesting. So waiting to claim can
make a big difference. But if you're married, you
have to coordinate the decision with your spouse. Tell me more about that. RITA ASSAF: Yeah. And this is where
it gets confusing. So spouses actually can
get up to 50% of what we call primary worker's benefit. So if your spouse didn't
work for some reason and you're the
primary breadwinner, they actually can get about
50% of your retirement monthly benefit as their
own Social Security. But here's where
delaying doesn't help because if the
primary worker claims before their full
retirement age, then their spouse will
have reduced benefits. It's also important to
note that spouses max out on their Social
Security benefits at their full retirement age.
That means if the primary
worker delays till age 70, for example, and their
spouse is also age 70, the primary worker will
get that extra benefit, but the spouse will not. Also, you want to consider
if your spouse qualifies for Social Security
benefits of their own. So if they do, they will
get that amount first. If for some reason your
Social Security is higher, your spouse will get
that additional amount so that the
combination of benefits equals that higher amount.
We know that this
can be a lot, but we do have resources
and a tool that can help you assess your
options and work through that. ALLY DONNELLY: OK. Perfect. When we talk about
investments, how can someone determine
the right amount of risk to take, Michelle? MICHELLE HOWELL: Yeah. Since retirement can encompass
multiple decades of time, it's imperative that
we maintain a focus on investing for growth to help
offset inflation and longevity risk. Most would be
surprised to recognize that you can be invested
too conservatively and create just as
much of a detriment around your retirement
plan as being invested too aggressively. As an advisor, I
tend to cringe when I see articles that simplify
portfolio construction by simply taking the
number 100 less your age and using that as the sum
of the percentage of stock is what you should carry into
retirement because that's far too simplistic, right? Retirement planning is
just not one-size-fits-all.
It should be tailored it's
specific to everyone's individual situation. And two plans don't
really look alike, right? Everybody has different
investment preferences. They've got a different
history and context that they approach
investing from. And strategic allocation
between stocks, bonds, and cash and everything in between, all
the different sub asset classes should really be measuring
our own risk tolerance, our personalized
distribution needs, and just the greater context
of our own financial plan. ALLY DONNELLY: Yeah. Yeah. Rita, what's your perspective? Anything to add there? RITA ASSAF: I want to
support what Michelle just said, which is, you want to have
a diversified investment mix. It's going to be personalized
based on how comfortable you are with market volatility, your
overall financial situation, and how long you're
investing for. So your diversification
will look different than anyone else's
because you might be more concerned about inflation. So if that's the case,
may you look into tips.
So Treasury-plated protected
securities or commodities. But you also want
to consider growth. And I know a lot of
people fear growth type investments in retirement,
but they do also help against inflation. And that's where
you want to consider stocks and mutual funds. So it will vary. But having a diversified
investment mix personalized to
your goals will help you have a more balanced
plan to help you. ALLY DONNELLY: OK. All right. What about a risk that can also
be a gift, particularly for us, longevity? Women tend to outlive
men, Michelle. And if that's your
life situation, that makes a difference. MICHELLE HOWELL: Absolutely. Women, on average, tend to
outlive men by five years. So let's unpack that, right? So whether you're single
or whether you're married, there's additional income
needed to support ourselves in retirement. And that often comes in tandem
with additional expenses dedicated toward
health care costs while we're living
those extra years.
Additionally, women
tend to be caregivers, so there are added expenses
associated with that, traveling to see our loved
ones, care needs to support our loved ones. And all of those expenses
need to be incorporated into the budget at that time. Longevity risk for
everyone really demands some alternatives
to the way that you plan. So there are some obvious
considerations here like work longer, save more,
spend less in retirement. Maybe invest with a little
bit more growth in mind to grow the asset
base over time. But for many, that's just
not a comfortable situation. Rita just mentioned that often
carrying more stock allocation into retirement can be
uncomfortable for folks as they experience fluctuation. Alternatively, there
are specific investments that Jerry mentioned that really
address longevity risk directly by creating an income stream
that you can't outlive. And those investments
are the annuities that were just discussed.
And they can be designed to
convert a lump sum of money into a series of payments
that you can't outlive. Or perhaps they can be
designed to cover a particular withdrawal percentage from your
portfolio that you also cannot outlive. ALLY DONNELLY: Excellent. Excellent. I mean, this is just
so much to think about. I'd love it if each of you
could share a few takeaways you want to leave our viewers with.
Rita, do you want
to get us started? RITA ASSAF: Sure. I would say rip
the Band-Aid off, just get started with that
retirement income plan. I know it can be hard. Our fear and our emotions
can get in the way of it. It's scary and
it's overwhelming. But we found that people who
have a plan feel more prepared, have greater peace of mind. And you don't have to
do it all yourself. Your financial
professional can actually help you take the
stress out of it.
I would also say, keep
revisiting that plan because if you
constantly check in, you can help
prepare for anything that comes up unexpected. And then finally, I would
say, enjoy retirement. It's an exciting new chapter. You earned it. Have fun. ALLY DONNELLY: Yeah. We're pivoting from fun to
Jerry, back to expenses. What would you say? JERRY PATTERSON: I agree
with both sentiments. No, but I do agree very much. Getting started is
often the hardest step. But there's nothing that
gives more peace of mind and more security
as you transition to retirement than
having a plan. And having a good handle
around expenses is key in core to an effective income
plan in retirement. And I challenge everyone, give
yourself a homework assignment whether you do it
yourself or you sit down with a financial advisor. This is definitely something
we can help you with. We have tools to do it. But even in your
own kitchen, put a piece of paper down in
front of yourself and write, if you're retiring
in the year 2030, you're 2030 spending plan. And think in terms of
essential, discretionary, and one-time expenses.
And start to think about,
which of the expenses I have today when I get to
2030 are going to go away. Am I really going to
need to buy work clothes? Am I going to save
on commuting costs? What are the new expenses
that are going to emerge? The annual river cruise,
the cost of golf cart fuel. Ask yourself questions
like, is the cost of pickleball an
essential expense? Or one that's probably
real and close to heart is visiting my kids
on a regular basis.
Is that essential expense
that I have to plan for? So really getting your
hands around expenses is, like I said, key and
core to your retirement plan and your spending plan. In my own life, I'm going
through this process right now. And I did just as I described. I wrote down on a piece of
paper essential, discretionary, and one-timers. And I have a
25-year-old daughter where I'm afraid
the one-timer might happen while I'm in retirement
when she actually gets married.
We'll see. But that's going to
be a real cost for me that I've got to be
prepared for now as I start to think about expenses
as I transition to retirement down the road. ALLY DONNELLY: Yeah. Yeah. Maybe you can combine the
wedding and pickleball at the same time. Michelle, I hope you don't mind,
but we're being mindful of time and we want to get to a few
of the clients questions. So Rita, I'm actually
going to ask you to take this first one from clients. We want to do a deep
dive on Roth and RMD during our November show. And there have been
a lot of questions on this topic in the chat today. So why don't we cover
some basics right now, what they're whistle. One viewer asked, is converting
money from a traditional IRA to a Roth IRA good
strategy to mitigate some of the tax hit on the RMDs? So Rita, take this
one, if you would.
RITA ASSAF: So this might
frustrate some viewers, but the answer is, it
depends, and depends on your personal situation. So when we talk about
a Roth conversion, we're talking about
moving money that's been tax-deferred to tax-free. So usually, money that's
been in a traditional IRA to a Roth IRA. But you do have to pay taxes. And the reason
why some people do this is because they're
not eligible to contribute to a Roth IRA directly
because of the income limits that Roth have. But if you think about
Roth conversions with RMDs, a lot of people will
think, well, if I do that, then I no longer have to
take RMDs in the Roth IRA.
But this is where you need
to be careful because there are some considerations. You want to look at
your tax bracket. Will it be higher in
retirement or now? So that's a
consideration for you. Do you want to maximize
the money you're going to leave to heirs that may
be doing a Roth conversion can help because it'll earn longer
because you don't have required minimum distributions? Are you not
taxed-diversified, meaning are all your assets and
tax-deferred accounts? That's a consideration
where you want to consider a Roth so that you
have different tax treatments and you can better control your
taxable income in retirement. But here's where you
may not want to consider converting to a Roth.
If you're really in
retirement or near retirement and you need money,
like that could actually impact your taxes and
you wouldn't have time to recoup the taxes
that you would have paid on the conversion. You also want to be careful
because if you're doing a Roth conversion and you're
receiving Social Security or you're on Medicare, the
Roth conversion can increase your taxable income, which
means the Social Security benefits could be taxed and
your Medicare costs could rise. So there's a lot here. And if you're really worried
about RMDs and their tax impact, there are also
Qualified Charitable Distributions or QCD, which is
an option where you're donating to charity, use that RMD
to donate to charity, and you wouldn't
have to pay taxes. So that's why the answer
depends because there's a lot of elements
that go in there. And in next month's
webinar, I know we'll deep dive into these topics. ALLY DONNELLY: Yeah. Yeah. There's a lot there, right? Jerry, I want to get one
more viewer question in as we wrap up these last few minutes.
But this viewer asked, how is it
best to plan for long-term care if you're already over 65? JERRY PATTERSON: Great question. And we get a ton of
questions from clients about long-term
care, and am often startled at the confusion
that's out there. I just looked at some
research last week, and it was shocking to see
how many people of all ages think they already
have the protection because in their mind, they
think their health care insurance pays for that or they
think Social Security backstops that for them or Medicare takes
care of it when they retire. For those of us that
are 65 or older today, we have a 70% chance of
incurring some long-term care costs in retirement. So it's real, and it's going
to happen to more of us than less of us. And if you're already
retired and you're wondering about long-term care,
if you're relatively healthy, you can still seek out and
secure insurance protection if that's something
you want to explore.
You don't automatically get
declined because of age. It's based on health
and medical history. If you're going to
self-fund it, this is one of those
things I talked about before, I think you got to look
at it as a potential one-timer. And it's often a
potential one-timer that hits way deep in
retirement when you're older, and so it becomes harder to
surface the kind of liquidity you might have to come up with
to fund a long-term care event. So again, let's assume you're
going into a facility– I think I shared earlier– costs can range from as much
as $9,000 to $13,000 per month. And imagine if you're
late in your 80s and you suddenly have to come
up with the funds to self-fund and support a cost like that,
it's big and it's significant. But it's something you
got to think about.
So even if you're
already retired, if protection is a route
you're interested in, I'd encourage explore it. And if you're going
to self-fund it, really imagine what
self-funding looks like deep in your retirement
years where you're going to be expected to
deliver a significant amount of liquid funds to
fund those costs. ALLY DONNELLY: Terrific. Terrific. Thank you. Michele, your voice is so
important in this conversation. Help us understand what your
takeaways are from today. MICHELLE HOWELL: Thanks, Ally. Just three things, right? I agree with both Rita
and Jerry, don't delay. Start the planning
conversation today. The best retirements
have been well planned, and they are not
filled with trepidation around money in retirement. You have more enjoyment
because of that. And also, don't let the
fact that you may not have tracked expenses
become some sort of artificial roadblock
to the conversation.
Let your financial consultant
help you with this. We can help break this
up into smaller pieces. Secondarily, be transparent. The best financial plans are
built around full disclosure. There's no need for
you to be embarrassed about how you want to spend
your money in retirement or about the time you may have
sold out of your portfolio because you were anxious
due to market fluctuation. These are really
important things for us to recognize as your
financial consultants so that we can help prepare
you for these events and build a plan
that's all-weather.
You wouldn't want your
doctor to design a treatment plan without assessing
your overall health, right? Lastly, commit. Financial planning is
an iterative process, and it begs clients
and advisors coming to the table with an open mind. So my best relationships
are with clients that I meet with
multiple times a year and they always come in
looking for new ideas.
ALLY DONNELLY: Excellent. Excellent. Well, Michelle, thank you. And thank you to
all of our panelists for their great insights. This was a terrific discussion. And thank you to you, viewers,
for sending in your questions. If you're interested in learning
more about retirement income, tune in for our November
panel on RMDs and Roths. It's going to be a
good conversation too. And to learn more about other
financial planning topics, subscribe to Insights from
Fidelity Wealth Management. I'm Ally Donnelly. Thanks for being here. We hope we see you again soon..
Can I Retire at 55? Tips for Early Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
If you're thinking of retiring at 55, you want to be careful about where you get your advice and guidance, and that's because most retirement advice is geared toward those who retire quite a bit later, in fact… Most people retire at 62, but things will be different for you if you're going to retire at 55. So that's what we'll talk about for the next couple of minutes here, we'll go over where you can get the money from, and how that works with taxes as well as healthcare, then we'll look at some actual numbers and what it might look like for somebody who retires at age 55.
We might also want to get philosophical just briefly and ask the question, Why age 55? Yes, it's a nice round number. And there are some interesting tax strategies that are available around that age, but let's say you could retire a little bit earlier at 54, would you want to make that happen? Or if you worked a few more years… I know you'll think this is crazy, but if you worked a couple of more years and you could not impact your finances, but still take some of those dream vacations and spend time with loved ones, would that be worth it to maybe work until 59, for example? So we want to figure out exactly why you are pursuing a particular goal and then we can improve the chances of success for you, so let's start with health coverage, this is a tricky one because you're retiring quite a bit earlier than most people who might be near that Medicare age, so you have a number of different options to continue being covered, and it is a good idea to have real health insurance coverage just in case something happens.
So a couple of your choices include, number one, you can continue your current benefits from a job if you have them for up to 18 months in most cases, and that's under COBRA or your state's continuation program, that can get quite expensive because you're going to pay the full price, if you weren't already doing that, plus perhaps a teeny little bit extra for administration, but it is a way to continue with the program that you currently have, so that can be helpful if you are mid stream in certain treatments or if it's going to be hard to get certain benefits that you currently have on a different health care program, unfortunately, that's not usually a long term solution because we need to get you until age 65, which is when most people enroll in Medicare, and you should see your costs go down quite a bit at that point, maybe depending on what happens, so another solution that a lot of people look at is buying their own coverage, and that happens typically through a healthcare marketplace or an exchange, and that's where you just by coverage through an insurance company.
So you can go directly to the insurers, but it's often a good idea to go through… Start at healthcare.gov, and then go through the marketplace or the exchange, and that way you can shop some plans and potentially, depending on your income, you can potentially get some cost reductions that make it a lot more affordable, I'll talk more about that in a second, but another option is to switch to a spouse's plan, if you happen to be married and that person has coverage that's going to continue for whatever reason, that might also be a solution for you, when you leave your job, it could be a qualifying event that allows you to get on that person's program, but let's talk more about saving money on health care expenses before age 65, most people are going to buy a policy based on the factors that are most important to them, so that could be the premium or the out of pocket maximum, the deductible, the co pays, certain areas of coverage, all that kind of thing, you can select a plan that fits your needs.
Now, you might find that those tend to be quite expensive, and so if your income is below certain levels, you might be able to get effectively a reduction in the premium, it might be in the form of a tax credit or a subsidy, so here's just a preview of how things could look for you, let's say your income is, let's say 50,000 in retirement, and you need to look at exactly what income means, but there is no coverage available from a spouse, we've got one adult, and let's say you are… As our video suggest age 55 here, so you might get a benefit of roughly 422 a month, meaning you could spend that much less each month, and that's going to make it a lot easier to pay for coverage on these plans, if we switch your income down to 25,000 per year, the help is even bigger, so as you can see by varying or controlling your income, and this is something you might have some control over if you retire at 55, you can also control your healthcare costs, we'll talk about some conflicting goals here, where you might not want to absolutely minimize your income during these years, but this is important for you to know if you're going to be paying for your own coverage, and if you're experiencing sticker shock when you see the prices…
By the way, I'm going to have a link to this and a bunch of other resources in the description below, so you can play with this same calculator yourself. Now, once you're on Medicare, the cost should drop quite a bit, this is a calculator from Fidelity where we can say, let's say you are a female, and we're going to say you're eligible for Medicare at this point, so we'll bring you up to age 65. It is going to be quite a bit higher cost, if you look at it before age 65, and that's because you are paying for those private policies from insurance companies, let's say you're going to live until age 93, and so you might expect to spend roughly 5800 6000 bucks per year, depending on your health and your location and other factors, it could be more or less, but this is an estimate of what somebody might spend, a single woman each year in retirement, of course, that number is going to increase each year with inflation and deteriorating health issues.
But this is a ballpark estimate of what you might be spending in the future, now we get to the question of, do you have the financial resources to retire at 55? And that comes down to the income and the assets that you're going to draw from to provide the resources you need to buy the things you want and need, and one way to look at this is to say We want to avoid early withdrawal penalties because again, you are retiring at an age that's earlier than the typical retiree and most retirement accounts are designed for you to take withdrawals at 59.5 or later, to avoid those penalties, fortunately, you have a couple of options, so with individual and joint accounts, just taxable brokerage accounts, you can typically withdraw from those without any penalties, but you may have capital gains taxes when you sell something, those taxes may be at a lower rate than you would pay if you take big withdrawals from retirement accounts, but you just want to double and triple check that, but that can be a liquid source of funds. You. Can also typically withdraw from Roth accounts pretty easily.
So those regular contributions come out first, in other words, you can pull out your regular contributions at any time with no taxes and no penalties, what that means is that's the annual limit contributions you might have been making her by year, so the 7000 per year, for example. That money would be easily accessible, but if you have other money types like Roth conversions, for example, you're going to be very careful and check with your CPA and find out what all of that could look like. There. Are other ways to get at funds that are inside of pre tax retirement accounts, and it might actually make sense to draw on those to some extent, we'll talk more about that in a minute, but these are some of the tricks you can use to avoid an early withdrawal penalty yet still draw on those assets before age 59.5.
The first one is the so called rule of 55, so this applies if you work at a job with, let's say a 401K, and you stop working at that employer at age 55 or later, if you meet certain criteria, then you can withdraw those funds from the 401k so they go directly from the 401k to you. They don't go over to an IRA, you could withdraw those funds without an early withdrawal penalty.
A complication here is that not every employer allows you to do that, so 401k plans can set a bunch of their own rules, and one of them might be that they don't let you just call them up and take money whenever you want, they might make you… Withdraw the entire amount, so if that's the case, this isn't going to work, so be sure to triple check with your employer and the plan vendors and find out exactly how this would work logistically or if it will even work. Next, we have SEPP that stands for substantially equal periodic payments or rule 72. This is an opportunity to draw funds from, let's say your IRA or a certain IRA that you choose, but before age 59 and a half without getting early withdrawal penalties. Now, this is not my favorite choice. I don't necessarily recommend this very often at all, and the reason is because it's easy to slip up and end up paying tax penalties. The reason for that is in part that it's really rigid, so when you establish this, You calculate an amount that you have to take out every year, and it has to be the same amount every year, and you have to make sure you do that for the longer of when you turn age 59 1/2 or for five years.
And even that sounds kind of simple, but it's still easy to trip up, and you also have to avoid making any kind of changes to your accounts, so it's just really rigid and can be difficult to stick to you, so… Not my favorite choice, but it could be an option. Those of you who work for governmental bodies, maybe a city organization or something like that, you might have a 457b plan, and those plans do not have early withdrawal penalties before 59 and a half, so you could withdraw money from that and use some income, pre pay some taxes, and have some money to spend fairly easily, this by the way, is an argument for leaving money in your employer's 457 versus rolling it over to an IRA, because once it goes over to an IRA, you are subject to those 59 1/2 rules and a potential early withdrawal penalty.
So that could end up leaving you with 72 to work with, for example, which again is not ideal. So you might be asking, well shouldn't I just minimize taxes and hold off on paying taxes for as long as possible? And the answer is not necessarily. So it could make sense to go ahead and pre pay some taxes by getting strategic, the reason for that is that you will eventually have to pay taxes on your pre tax money and it might happen in a big lump, and that can bump you up into the highest tax brackets, so it could be better to smooth out the rate at which you draw from those accounts and hopefully keep yourself in lower tax bracket, at least relatively speaking.
So when your RMDs or your required minimum distributions kick in after age 72 under current law, that could possibly bump you up into the highest tax brackets, maybe you want to smooth things out and take some income early. So let's look at the question of, Do you have enough with some specific numbers, and before we glance at those numbers, just want to mention that I am Justin Pritchard. I help people plan for retirement and invest for the future. I've got some good resources, I think, in the description below, some of the things that we've been talking about here today, as well as some general retirement planning information. So if this is on your mind, I think a lot of that is going to be really helpful for you. Please take a look at that and let me know what you think of what you find. It's also a good time for a friendly reminder, This is just a short video, I can't possibly cover everything. So please triple and quadruple check with some professionals like a CPA or a financial advisor before you make any decisions, so let's get back into these questions, Do you have enough? As we always need to mention, it depends on where you are and how much you spend and how things work for you.
Are you lucky to retire into a good market, or are you unlucky and retiring into a bad market? All of these different aspects are going to affect your success, but let's jump over to my financial planning tool and take a look at an example. This is just a hypothetical example, it's the world's most over simplified example, so please keep that in mind, with a real person, we've got a lot more going on. The world is a complicated place and things get messier, but we're keeping it very simple here, just to talk about an example of how things might look, so this person has one million in pre tax assets and 350,000 in a brokerage account, and if we just quickly glance at their dashboard here, pretty high probability of success, so let's make it a little bit more interesting and say… Maybe that IRA has, let's say, 700,000 in it. What is that going to do? And by the way, this is still a lot more than a lot of people have, but again, if you're going to be retiring at 55, you typically have quite low expenses and/or a lot of assets.
So let's keep in mind here that retirees don't necessarily spend at a flat inflation adjusted level, and I'll get into the assumptions here in a second, but let's just look at if this person spends at inflation minus 1% using the retirement spending "smile," that dramatically improves their chances, and I've got videos on why you might consider that as a potential reality, so you can look into that later at your leisure, but as far as the assumptions, we assume they spend about 50,000 a year, retire at age 55.
The returns are 5.5% per year, and inflation is 3% per year. Wouldn't that be refreshing if we got 3%… So we glance at their income here age 55, nothing, and then Social Security kicks in at 70. They're doing a Social Security bridge strategy. I've got videos on that as well, or at least one video, the full year kicks in here later, and then their Social Security adjust for inflation, looking at their taxes, we have zero taxes in these earlier years because they are just not pulling from those pre tax accounts. Maybe not getting much, if anything, in terms of capital gains, maybe their deduction is wiping that out, so we may have an opportunity here to actually do something and again, pre pay some taxes and pull some taxable income forward.
In fact, if we glance at their federal income tax bracket, you can see that it's fairly low from 55 on, maybe they want to pull some of this income forward so that later in life, they are drawing everything out of the pre tax accounts all at once. It just depends on what's important to you and what you want to try to do, and that brings us to some tips for doing calculations, whether you are doing this with somebody, a financial planner or on your own, you want to look at that gap between when you stop working and when your income benefits begin from, let's say, Social Security, there's also that gap between when you stop working and when Medicare starts, and that's another important thing to look at, but what are your strategies available there? Should you take some income, and exactly how much? That's going to be an area where you might have some control, so it's worth doing some good planning.
We also want to look closely at the inflation and investment returns, and what are the assumptions in any software that you're using, for example? These are really important inputs and they can dramatically change what happens… You saw what happened when we switched from a flat inflation adjusted increase each year to the retirement spending smile, just a subtle little adjustment has a big difference on how things unfold, and in that scenario, by the way, we would typically have healthcare increasing at a faster rate. But like I said, we use an over simplified example and didn't necessarily include that in this case, but you do want to click through or ask questions on what exactly are the assumptions and are you on board with those assumptions? You may also need to make some adjustments, and this is just the reality of retiring at an early age when you may have 30 plus years of retirement left, a lot can happen, and there really is a lot of benefit to making slight adjustments, especially during market crashes, for example, so.
If things are not necessarily going great, some little tweaks could potentially improve the chances of success substantially, that might mean something as simple as skipping an inflation adjustment for a year or two, or maybe dialing back some vacation spending. These are things you don't want to do, that's for sure, but with those little adjustments, you can potentially keep things on track, and that way you don't have to go back to work or make bigger sacrifices. And so I hope you found that helpful. If you did, please leave a quick thumbs up, thank you and take care..
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Can I Retire at 55? Tips for Early Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
If you're thinking of retiring at 55, you want to be careful about where you get your advice and guidance, and that's because most retirement advice is geared toward those who retire quite a bit later, in fact… Most people retire at 62, but things will be different for you if you're going to retire at 55. So that's what we'll talk about for the next couple of minutes here, we'll go over where you can get the money from, and how that works with taxes as well as healthcare, then we'll look at some actual numbers and what it might look like for somebody who retires at age 55.
We might also want to get philosophical just briefly and ask the question, Why age 55? Yes, it's a nice round number. And there are some interesting tax strategies that are available around that age, but let's say you could retire a little bit earlier at 54, would you want to make that happen? Or if you worked a few more years… I know you'll think this is crazy, but if you worked a couple of more years and you could not impact your finances, but still take some of those dream vacations and spend time with loved ones, would that be worth it to maybe work until 59, for example? So we want to figure out exactly why you are pursuing a particular goal and then we can improve the chances of success for you, so let's start with health coverage, this is a tricky one because you're retiring quite a bit earlier than most people who might be near that Medicare age, so you have a number of different options to continue being covered, and it is a good idea to have real health insurance coverage just in case something happens.
So a couple of your choices include, number one, you can continue your current benefits from a job if you have them for up to 18 months in most cases, and that's under COBRA or your state's continuation program, that can get quite expensive because you're going to pay the full price, if you weren't already doing that, plus perhaps a teeny little bit extra for administration, but it is a way to continue with the program that you currently have, so that can be helpful if you are mid stream in certain treatments or if it's going to be hard to get certain benefits that you currently have on a different health care program, unfortunately, that's not usually a long term solution because we need to get you until age 65, which is when most people enroll in Medicare, and you should see your costs go down quite a bit at that point, maybe depending on what happens, so another solution that a lot of people look at is buying their own coverage, and that happens typically through a healthcare marketplace or an exchange, and that's where you just by coverage through an insurance company.
So you can go directly to the insurers, but it's often a good idea to go through… Start at healthcare.gov, and then go through the marketplace or the exchange, and that way you can shop some plans and potentially, depending on your income, you can potentially get some cost reductions that make it a lot more affordable, I'll talk more about that in a second, but another option is to switch to a spouse's plan, if you happen to be married and that person has coverage that's going to continue for whatever reason, that might also be a solution for you, when you leave your job, it could be a qualifying event that allows you to get on that person's program, but let's talk more about saving money on health care expenses before age 65, most people are going to buy a policy based on the factors that are most important to them, so that could be the premium or the out of pocket maximum, the deductible, the co pays, certain areas of coverage, all that kind of thing, you can select a plan that fits your needs.
Now, you might find that those tend to be quite expensive, and so if your income is below certain levels, you might be able to get effectively a reduction in the premium, it might be in the form of a tax credit or a subsidy, so here's just a preview of how things could look for you, let's say your income is, let's say 50,000 in retirement, and you need to look at exactly what income means, but there is no coverage available from a spouse, we've got one adult, and let's say you are… As our video suggest age 55 here, so you might get a benefit of roughly 422 a month, meaning you could spend that much less each month, and that's going to make it a lot easier to pay for coverage on these plans, if we switch your income down to 25,000 per year, the help is even bigger, so as you can see by varying or controlling your income, and this is something you might have some control over if you retire at 55, you can also control your healthcare costs, we'll talk about some conflicting goals here, where you might not want to absolutely minimize your income during these years, but this is important for you to know if you're going to be paying for your own coverage, and if you're experiencing sticker shock when you see the prices…
By the way, I'm going to have a link to this and a bunch of other resources in the description below, so you can play with this same calculator yourself. Now, once you're on Medicare, the cost should drop quite a bit, this is a calculator from Fidelity where we can say, let's say you are a female, and we're going to say you're eligible for Medicare at this point, so we'll bring you up to age 65.
It is going to be quite a bit higher cost, if you look at it before age 65, and that's because you are paying for those private policies from insurance companies, let's say you're going to live until age 93, and so you might expect to spend roughly 5800 6000 bucks per year, depending on your health and your location and other factors, it could be more or less, but this is an estimate of what somebody might spend, a single woman each year in retirement, of course, that number is going to increase each year with inflation and deteriorating health issues.
But this is a ballpark estimate of what you might be spending in the future, now we get to the question of, do you have the financial resources to retire at 55? And that comes down to the income and the assets that you're going to draw from to provide the resources you need to buy the things you want and need, and one way to look at this is to say We want to avoid early withdrawal penalties because again, you are retiring at an age that's earlier than the typical retiree and most retirement accounts are designed for you to take withdrawals at 59.5 or later, to avoid those penalties, fortunately, you have a couple of options, so with individual and joint accounts, just taxable brokerage accounts, you can typically withdraw from those without any penalties, but you may have capital gains taxes when you sell something, those taxes may be at a lower rate than you would pay if you take big withdrawals from retirement accounts, but you just want to double and triple check that, but that can be a liquid source of funds.
You. Can also typically withdraw from Roth accounts pretty easily. So those regular contributions come out first, in other words, you can pull out your regular contributions at any time with no taxes and no penalties, what that means is that's the annual limit contributions you might have been making her by year, so the 7000 per year, for example. That money would be easily accessible, but if you have other money types like Roth conversions, for example, you're going to be very careful and check with your CPA and find out what all of that could look like. There. Are other ways to get at funds that are inside of pre tax retirement accounts, and it might actually make sense to draw on those to some extent, we'll talk more about that in a minute, but these are some of the tricks you can use to avoid an early withdrawal penalty yet still draw on those assets before age 59.5.
The first one is the so called rule of 55, so this applies if you work at a job with, let's say a 401K, and you stop working at that employer at age 55 or later, if you meet certain criteria, then you can withdraw those funds from the 401k so they go directly from the 401k to you. They don't go over to an IRA, you could withdraw those funds without an early withdrawal penalty. A complication here is that not every employer allows you to do that, so 401k plans can set a bunch of their own rules, and one of them might be that they don't let you just call them up and take money whenever you want, they might make you…
Withdraw the entire amount, so if that's the case, this isn't going to work, so be sure to triple check with your employer and the plan vendors and find out exactly how this would work logistically or if it will even work. Next, we have SEPP that stands for substantially equal periodic payments or rule 72. This is an opportunity to draw funds from, let's say your IRA or a certain IRA that you choose, but before age 59 and a half without getting early withdrawal penalties. Now, this is not my favorite choice. I don't necessarily recommend this very often at all, and the reason is because it's easy to slip up and end up paying tax penalties. The reason for that is in part that it's really rigid, so when you establish this, You calculate an amount that you have to take out every year, and it has to be the same amount every year, and you have to make sure you do that for the longer of when you turn age 59 1/2 or for five years.
And even that sounds kind of simple, but it's still easy to trip up, and you also have to avoid making any kind of changes to your accounts, so it's just really rigid and can be difficult to stick to you, so… Not my favorite choice, but it could be an option. Those of you who work for governmental bodies, maybe a city organization or something like that, you might have a 457b plan, and those plans do not have early withdrawal penalties before 59 and a half, so you could withdraw money from that and use some income, pre pay some taxes, and have some money to spend fairly easily, this by the way, is an argument for leaving money in your employer's 457 versus rolling it over to an IRA, because once it goes over to an IRA, you are subject to those 59 1/2 rules and a potential early withdrawal penalty.
So that could end up leaving you with 72 to work with, for example, which again is not ideal. So you might be asking, well shouldn't I just minimize taxes and hold off on paying taxes for as long as possible? And the answer is not necessarily. So it could make sense to go ahead and pre pay some taxes by getting strategic, the reason for that is that you will eventually have to pay taxes on your pre tax money and it might happen in a big lump, and that can bump you up into the highest tax brackets, so it could be better to smooth out the rate at which you draw from those accounts and hopefully keep yourself in lower tax bracket, at least relatively speaking.
So when your RMDs or your required minimum distributions kick in after age 72 under current law, that could possibly bump you up into the highest tax brackets, maybe you want to smooth things out and take some income early. So let's look at the question of, Do you have enough with some specific numbers, and before we glance at those numbers, just want to mention that I am Justin Pritchard. I help people plan for retirement and invest for the future. I've got some good resources, I think, in the description below, some of the things that we've been talking about here today, as well as some general retirement planning information. So if this is on your mind, I think a lot of that is going to be really helpful for you. Please take a look at that and let me know what you think of what you find. It's also a good time for a friendly reminder, This is just a short video, I can't possibly cover everything.
So please triple and quadruple check with some professionals like a CPA or a financial advisor before you make any decisions, so let's get back into these questions, Do you have enough? As we always need to mention, it depends on where you are and how much you spend and how things work for you. Are you lucky to retire into a good market, or are you unlucky and retiring into a bad market? All of these different aspects are going to affect your success, but let's jump over to my financial planning tool and take a look at an example. This is just a hypothetical example, it's the world's most over simplified example, so please keep that in mind, with a real person, we've got a lot more going on. The world is a complicated place and things get messier, but we're keeping it very simple here, just to talk about an example of how things might look, so this person has one million in pre tax assets and 350,000 in a brokerage account, and if we just quickly glance at their dashboard here, pretty high probability of success, so let's make it a little bit more interesting and say…
Maybe that IRA has, let's say, 700,000 in it. What is that going to do? And by the way, this is still a lot more than a lot of people have, but again, if you're going to be retiring at 55, you typically have quite low expenses and/or a lot of assets. So let's keep in mind here that retirees don't necessarily spend at a flat inflation adjusted level, and I'll get into the assumptions here in a second, but let's just look at if this person spends at inflation minus 1% using the retirement spending "smile," that dramatically improves their chances, and I've got videos on why you might consider that as a potential reality, so you can look into that later at your leisure, but as far as the assumptions, we assume they spend about 50,000 a year, retire at age 55.
The returns are 5.5% per year, and inflation is 3% per year. Wouldn't that be refreshing if we got 3%… So we glance at their income here age 55, nothing, and then Social Security kicks in at 70. They're doing a Social Security bridge strategy. I've got videos on that as well, or at least one video, the full year kicks in here later, and then their Social Security adjust for inflation, looking at their taxes, we have zero taxes in these earlier years because they are just not pulling from those pre tax accounts. Maybe not getting much, if anything, in terms of capital gains, maybe their deduction is wiping that out, so we may have an opportunity here to actually do something and again, pre pay some taxes and pull some taxable income forward.
In fact, if we glance at their federal income tax bracket, you can see that it's fairly low from 55 on, maybe they want to pull some of this income forward so that later in life, they are drawing everything out of the pre tax accounts all at once. It just depends on what's important to you and what you want to try to do, and that brings us to some tips for doing calculations, whether you are doing this with somebody, a financial planner or on your own, you want to look at that gap between when you stop working and when your income benefits begin from, let's say, Social Security, there's also that gap between when you stop working and when Medicare starts, and that's another important thing to look at, but what are your strategies available there? Should you take some income, and exactly how much? That's going to be an area where you might have some control, so it's worth doing some good planning.
We also want to look closely at the inflation and investment returns, and what are the assumptions in any software that you're using, for example? These are really important inputs and they can dramatically change what happens… You saw what happened when we switched from a flat inflation adjusted increase each year to the retirement spending smile, just a subtle little adjustment has a big difference on how things unfold, and in that scenario, by the way, we would typically have healthcare increasing at a faster rate. But like I said, we use an over simplified example and didn't necessarily include that in this case, but you do want to click through or ask questions on what exactly are the assumptions and are you on board with those assumptions? You may also need to make some adjustments, and this is just the reality of retiring at an early age when you may have 30 plus years of retirement left, a lot can happen, and there really is a lot of benefit to making slight adjustments, especially during market crashes, for example, so. If things are not necessarily going great, some little tweaks could potentially improve the chances of success substantially, that might mean something as simple as skipping an inflation adjustment for a year or two, or maybe dialing back some vacation spending.
These are things you don't want to do, that's for sure, but with those little adjustments, you can potentially keep things on track, and that way you don't have to go back to work or make bigger sacrifices. And so I hope you found that helpful. If you did, please leave a quick thumbs up, thank you and take care..
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Your Retirement Questions Answered
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Nobody teaches you how to retire in school, so you might have a lot of unanswered questions as you approach retirement. We're going to talk about some of the most frequently asked questions, including Social Security, health care, how much money you need, and more… So let's start with how much money you need to retire. There are a couple of ways to answer that, and the best and most honest way is that it depends on a lot of factors, including how much money you have saved up, what you're going to earn or lose on that money, and over what period of time you're going to take withdrawals.
Some people want a quicker answer, so a couple of tips for you: one is to use a chart that shows you some basic check points and it make some assumptions that you need to make sure that you're comfortable with and on board with. But you can use this to at least get a ballpark idea of where you stand for retirement. The other way to do it is to multiply the amount you want to withdraw from your savings (this is not necessarily the amount you want to spend in retirement because you might also have income from Social Security and pensions, but the amount you want to withdraw) multiply that by 25 and that can give you a lump sum amount that you might want to have saved or retirement.
This is just based on sort of a rule of thumb, and it's not a perfect number, it's not gonna guarantee anything, but it can help you estimate using the opposite of the 4% rule, how much money you might want to have, so as an example, if you wanted to withdraw $40,000 per year from your savings, we would multiply that by 25 to arrive at a number of $1 million that you would want to have saved a retirement. Again, 40,000 times 25 equals 1 million. That's going to be your goal. Again, neither the chart or the multiply by 25 who are perfect, and we would love for you to actually do a detailed cash flow projection and estimate taxes and all that other stuff, but these can at least give you a ballpark idea, next is when to take your social security benefits, you can claim your benefits as early as age 62, but if you do that, you get a reduced benefit as compared to your full retirement age benefit, so that reduced benefit means you get less money each month, and if a surviving spouse takes over your Social Security income, they are also stuck with that permanently reduced amount, so it can be problematic to claim early, now you can claim at your full retirement age, and that depends on your birthday, or you can delay claiming and wait until age 70 as you delay.
You get effectively about an 8% per year race, it happens every month, so you don't have to do it on your birthday, but you get about an 8% per year raise, and then those increases stop once you reach age 70, so there's not much benefit. And waiting past that, this confuses a lot of people because they might think, Well, if I retire at age 62, I think I wanna start taking Social Security right away at age 62. And that might make sense and that might be the right answer for you, but it's always helpful to do some calculations to figure out maybe you can spend from your assets and delay claiming and get a bigger social security paycheck when you claim later in life by the way in the meantime, they're in between your retirement date and your first social security payment, you might have the opportunity to do things like convert some assets to rot or pre pay some taxes during your very low income earning years.
So a number of strategies you have, in general, for a lot of people, unless you have major health issues, it pays to wait to claim Social Security. Next is How much will healthcare cost in retirement during your working years, your employer has probably been paying a portion were all of your health insurance premiums, and when you retire, that changes and you are responsible for those costs. So if you are age 65, you're typically gonna go on Medicare, and that's fairly straightforward, although you have a couple of options, and we'll go over some rough cost there, but if you're retired before age 65, it's quite a bit more challenging. You might need to get a plan from the exchange, or you might need to use Cobra or your state's continuation program, so that you can keep using your former employer's healthcare for, let's say, 18 months at a maximum unless California.
But that can be quite expensive. So you need to be aware of those costs, you might also be able to switch to a spouse's coverage. So Let's talk about some Medicare cost. If you're a 65 year old woman, you might expect to spend about 7000 on your first year of retirement on out of pocket expenses, and that assumes you have decent health, but one or two issues, and if you have poor health, it's gonna be more expensive than that. A study from Fidelity tells us each year what retirees should expect in terms of healthcare spending for 2020, that number was 295000 of out of pocket costs, and that ignores any potential long term care costs, so this isn't something that you need to write a check for at the beginning of retirement, that full 295000, but it's what two people might spend between age 65 and the end of their life.
Next is a logistical question. People often wonder, How do I actually spend the money that I have saved up? It's in this account, how do I actually get it out and pay whoever I'm paying, and the answer is, oftentimes, you're gonna move your money to an IRA or an Individual Retirement Account, and you can typically link that account, let's say it's an investment account, with a discount broker or with a financial advisor, you can link that account to your bank account and you can just transfer money over electronically, it's very easy, you can also set up automatic monthly payments to kind of replicate what your income was like during your working years, or if you need a lump sum, you can call them up and say, The furnace broke, send me several thousand dollars, whatever the case may be, and you can make that happen and you get the money within a couple of days, so that's typically how the logistics work.
You should be aware that if you're taking withdrawals from retirement accounts, that's gonna generate taxable income for you, so you can't necessarily spend every penny that you have saved in retirement accounts, if you have 100000 in a retirement account, you're gonna have to pay… Who knows, it might be 18 30000 in taxes to the IRS. So you don't necessarily wanna spend every penny of that Talk to your CPA and figure out exactly what that's gonna look like, just be aware for now that you can't spend all that money. The Other thing to know is that you wanna make sure that this money lasts for the rest of your life, we don't want you to outlive your money, so you need to withdraw at a rate that draws down your account balances gradually or slowly enough so that you don't run out of money, a couple of techniques for that, one of them we touched on with that 4% roll above, and you can learn more about that elsewhere.
Next is, when do most people retire, and you can, of course, retire whenever you have the financial resources to stop working, according to the Employee Benefits Research Institute, most people retire around age 62, an interesting fact that is a lot of people find themselves forced into retirement earlier than they expected. So that's about 40% of people, and a lot of times the reason for that is healthcare, you might be experiencing problems yourself, or you might be caring for a loved one, and that takes you out of the workforce, so that creates a challenge in terms of planning for retirement, because you might not work as long as you had initially thought, the other leading cause of leaving the workforce early at an unexpected time as changes in your job, your employer might reorganize, start doing things differently. Who knows what the case is, but that can often surprise people and put them out of the workforce for the rest of their lives, that Leads us to the question of working longer…
Is that beneficial? So if you work part time or if you're looking at your retirement prospects and it doesn't look as good as you want, should you keep working a couple of extra years, and the answer is it typically is quite helpful for you, and here's why. Number one, your Social Security benefits might improve because social security looks at your 35 highest earning years, and if you continue working later in life, you're typically at your peak earning years, you have earned your promotions, you've developed in a career, and you might presumably be learning some of the IS salary you've ever earned in your life, so as you can add more years at that higher salary, that helps your social security… The concept is the same for pensions, many pension systems look at your highest three years of earnings and they're gonna base your pension payout on that, so if you've got higher earnings for more years, that can just help you out.
The Other way it helps is that you might delay taking your Social Security or your pension at a later age, and as you take those benefits later, you tend to get more each month, so again, we said Social Security, you can claim as early as age 62, but you get that reduction. And if you wait a couple of years till your full retirement age, you get more than at age 62, and you can further increase that by waiting until age 70. Another way that working longer helps is that you have fewer years of retirement to fund, this might sound morbid, but essentially we're looking at the period of time between when you stop working and when you die, and we need you to have an income during that period, but if you keep working longer, that puts you closer to the day you die, and that means fewer years of funding that we need to provide, and finally, as you keep on working, you have the opportunity to say more, you have income, so you can set aside some of that money in your retirement accounts and that provides resources that you can spend later.
Next is the question of annuities. Does an annuity make sense for you? This is a huge and complicated world to deal with, and we can't possibly cover it in a couple of minutes here, but what I would say is that the simplest and purest form of an annuity is something where you just give the insurance company some money and a lump sum, then they pay that money back out to you over time, and they typically guarantee that those payments would last maybe for the rest of your life, or maybe for you and a spouse is life, or maybe for at least 10 years, if you are both of you died within just a few years, those are the simplest types of annuities, and those tend to make the most sense. Other types of annuities get extremely complicated, they can be problematic, you wanna be very careful in approaching those kind of annuities, so just be aware that there are different flavors of annuities out there, and I would suggest talking with the only financial planner to evaluate which annuities might or might not make sense for you.
The only advisors don't get any commission, and so that can take the commission piece out of the question, if somebody is recommending an annuity, you wanna know if they're getting a commission and exactly how much that commission is, it is pretty much never clear. You're probably not gonna know that, so you wanna try and get unbiased advice on these questions, next is the question of taxes in retirement, you are going to most likely pay some taxes, so as I mentioned earlier, is you take money out of pre tax retirement accounts, you typically generate taxable income, and you might have to pay taxes on that income, people also wonder about Social Security, so do you owe taxes on that? And the answer is, it depends. If your earnings go above a certain level, and that number can change from time to time, so probably not worth getting into it, but if you go above a certain level, 50% of your Social Security income might be taxable if you go above a higher level, 85% of your Social Security income could be taxable income, so you wanna try and manage what your taxes are gonna be in retirement, there are several strategies for doing that, that can include timing when you take different withdraws from different accounts, it might include strategies like Roth conversions, you just wanna look at all of these different opportunities to manage what you've pay in taxes so that you have as much as possible to spend on things in retirement.
Will social security run out of money? That's always a big question, and I have a separate video that pretty much just talks about this, but the answer is we don't know, but probably not… So the Social Security trust fund, as you've probably heard, was scheduled to run out of money in 2035, but that could be accelerated due to covid 19, more like 20 29. What you wanna know is that Social Security is a pay as you go system for the most part, so about 75% of the money that's needed to pay out beneficiaries to pay retirement income, let's say, on social security, comes from people's payroll taxes each year.
So if the Social Security trust fund just went away and nothing happened, when people might still receive about 75% of what they were promised, there Are several other ways to fix Social Security, and those include just making small tweaks the US, especially as a retiree, probably would not notice, we don't wanna guarantee anything 'cause we just don't know what the future will bring, but it's likely that you'll probably get the benefits that you were promised, especially if you're over…
Let's say 60 years old today, and for those who are younger, probably smart to expect the Social Security will one way or another be less generous than it has been in the past. Next is the question on pensions, so your employer pays you a pension, maybe it's a city, maybe it's a private employer, a company, and what happens if that company goes bankrupt? Well. You might not necessarily be of luck, many pensions are covered by the PGC or the pension benefit guarantee corporation, that is an agency of the US government, but it does have some limits on how much it's going to pay you, so if you are a particularly high earner, you might not get as much after your organization goes bankrupt as you were before, for 2021, the maxim a monthly benefit for a 65 year old with 634 per month, so if your pension was higher than that, you might suffer some losses in the event of a bankruptcy, but if you're below that, you might be relatively comfortable that you wouldn't see major changes… I hope this information has been helpful.
I'd love to help you plan your retirement, if you'd like to chat, please reach you out, we can look at how your retirement years might unfold, we can uncover maybe some opportunities to help you manage taxes or just to improve your chances in retirement. So please reach out, I'd love to talk. Please subscribe to this channel, and you can do that with the little red graphic there in the bottom right now, that does not cost you anything, what it does is helps you stay informed and get more information like this, and it also helps me out a teeny bit so thank you and thanks everybody. Who is already subscribed?.
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200 ★POWERFUL★ Abundance Affirmations & Images #1 – Wealth Prosperity Cash Law of Attraction Money
Jason 0 Comments Retire Wealthy
I can and will have more than I ever dreamed
possible. I feel good about money and deserve it in
my life. Great wealth is flowing to me now. I now create my wonderful, ideal life. I am thankful for the comfort and joy that
money provides me. I know I am abundant. I always have enough money for myself. Every day in every way I am becoming more
and more prosperous. I see myself as wealthy, and that’s who
I am.
I choose wealth and abundance. My wealth derives from honesty in everything
I do. I am worthy of great success. My greatest good is coming to me now. I love abundance in all its beautiful forms. I am wide awake to my abundance
I release all my negative beliefs about money and invite wealth into my life. I am prosperous, healthy, happy and live in
abundance. Wealth is my birth-right, my natural state
of being. Making money is good for me and for everyone
in my life. My income is growing higher and higher now. Money is an important part of my life and
is never away from me. All my issues with wealth have disappeared. I clearly see opportunities to effortlessly
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seize it. Being wealthy gives me joy, happiness and
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Everything good is coming to me easily and
effortlessly. Thank you Universe for my great abundance. Feeling joyful attracts abundance. I allow all good things to come into my life,
and I enjoy them. Wealth is a positive expression of divine
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and it comes to me naturally. I am magnetic to money, and it is magnetic
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with the world. Everything and everybody prospers me now. I am wealthy. I spend money wisely. I will live life abundantly. I expect the best and I get it now. I am living the life of my wealthy dreams. Money flows easily into my life. I am so grateful now that I possess abundance. I create prosperity in my life. I am worthy of the finest life has to offer. I deserve to have financial abundance in my
life now. Abundance and I are one. I enjoy an abundance of money. My greatest good is here for me now. I attract money to me and I am attracted to
money. I am grateful for everything I receive in
life. I have unlimited abundance. The Universe has chosen me to be wealthy so
that I can help others with my wealth. I love money. I enjoy making money and strive to have fun
in every aspect of my work. Whatever activities I perform make money for
me. I believe anyone can be wealthy — and that
includes me.
I enjoy multiple streams of passive income. Money flows to me easily, frequently, and
abundantly. I give thanks that I am now rich, well and
happy. I expect lavish abundance every day in every
way. My ideas are incredible and I have the creative
energy to bring them to life. I always get everything for my greatest good. I notice prosperity all around me. I know that whatever I put out comes back
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allow it. Every day is a wealthy day. I always get what I wish for. All resistance to prosperity dissolves away. I automatically receive surplus. I am thankful for the unlimited flow of good
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me. I am living abundantly. I give thanks for the prosperity which is
mine. Money flows easily into my life. I accept and embrace wealth in my life. Unexpected income flows to me. I feel great joy in providing for my family
and those that I love. I deserve to prosper. I absolutely attract abundance. I am skilled at creating assets that make
me wealthy. Wealth and prosperity is circulating in my
life.
I always have enough money to fulfill my needs. Money and I are friends. I believe that more abundance is coming to
me now. Abundance within me, abundance around me. The Universe wants me to have great abundance. It is so easy for me to open to prosperity. I am easily led to the abundance I desire. I am deserving of abundance, no matter what. It is natural for me to be successful. I am successful in every way. Money is flowing to me. I respect my abilities to generate wealth. My circumstances are changing, and prosperity
is flowing into my life.
I believe I have the right to be prosperous,
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magic. I allow the universe to bless me with great
abundance now. My good now flows to me in streams of success,
happiness and abundance. The seeds of great wealth are inside me. Abundance is simply a way of life, and I live
it. Each day is filled with endless expressions
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create it.
I deserve prosperity, and I accept prosperity
into my life. I am a wealth creator, so I am always wealthy. Prosperity is alive in each area of my life. I am in a constant state of fulfillment. I am full of money making ideas. I have the right to be prosperous. I have more money than I could ever dream
of. Accumulating money comes easy to me. It is so easy for me to become a millionaire. Wealth comes to me from many sources. I love my abundance. I am happy being rich. I am grateful to be wealthy. Prosperity follows everything I do. I always have more than enough money.
I welcome abundance into my life. I am free to accumulate wealth. I enjoy sharing my wealth. My wealth allows me to do whatever I want. I am proud to be wealthy. I am a millionaire. I use money to make the world a better place. My prosperity thoughts create my prosperous
world. I am grateful for my wealth. I allow wealth to shine through me. Abundance flows to me. I am successful. Wealth flows to me easily and abundantly. I prosper in my finances. I welcome wealth with open arms. Being wealthy and staying wealthy is in my
nature, therefore I am always wealthy. Everything I need in life is mine. I invite wealth into my life. I am successful because I know what I want
and I ask for it. I am prosperous. Great Job !!!.
Can I Retire at 55? Tips for Early Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
If you'' re thinking about retiring at 55, you intend to beware concerning where you obtain your advice and support, which'' s since a lot of retirement guidance is geared toward those who retire quite a bit later, as a matter of fact … Most individuals retire at 62, yet things will be various for you if you'' re going to retire at'55. That'' s what we ' ll talk concerning for the following pair of minutes right here, we'' ll go over where you can get the cash from, and just how that functions with tax obligations as well as health care, then we'' ll appearance at some real numbers and also what it might look like for someone who retires at age 55. We might likewise intend to obtain philosophical simply quickly and ask the question, Why age 55? Yes, it'' s a good round number.And there are some fascinating tax methods that are readily available around that age, however allow ' s state you could retire a little earlier at 54, would certainly you wish to make that take place? Or if you worked a couple of more years … I recognize you ' ll believe this is insane, yet if you'functioned a number of even more years and also you could not influence your finances, but still take a few of those dream holidays as well as hang around with loved ones, would certainly that be worth it to maybe function until 59, for instance? So we want to figure out specifically why you are pursuing a specific goal and after that we can boost the opportunities of success for you, so let ' s begin with wellness insurance coverage, this is a challenging one because you'' re retiring a fair bit earlier than lots of people that could be near that Medicare age, so you have a variety of different options to continue being covered, and also it is an excellent concept to have actual medical insurance coverage simply in case something happens.So a couple of your options include, top, you can continue your present advantages from a job if you have them for as much as 18 months in many instances, and that ' s under COBRA or your state ' s continuation program, that can get quite pricey due to the fact that you ' re mosting likely to pay the full price', if you weren ' t currently doing that, plus possibly a teensy little bit additional for administration, but it is a way to proceed with the program that you currently have, to ensure that can be handy if you are mid stream in certain treatments or if it ' s mosting likely to be hard to get certain benefits that you currently have on a different health and wellness care program, however, that ' s not normally a long-term service due to the fact that we need to obtain you till age 65, which is when the majority of people enroll in Medicare, as well as you must see your prices drop a fair bit at that factor, perhaps depending on what occurs, so one more solution that a great deal of people check out is getting their own insurance coverage, which happens generally via a medical care industry or an exchange, and also that ' s where you just by coverage with an insurance policy company.So you can go straight to the insurance providers, yet it ' s typically a great suggestion to undergo … Begin at healthcare.gov,
and also after that experience the industry or the exchange, which means you can go shopping some strategies as well as potentially, depending upon your revenue, you can possibly obtain some cost decreases that make it a great deal extra inexpensive, I ' ll talk much more regarding that in a second, yet an additional choice is to switch over to a spouse ' s plan, if you occur to be wed which individual has coverage that ' s going to proceed'for whatever reason, that may additionally be a solution for you, when you leave your'job, maybe a certifying occasion that allows you to get on that person ' s program, however allow ' s chat even more concerning conserving cash on healthcare expenditures before age'65, the majority of individuals are going to get a policy based on the aspects that are most vital to them, to make sure that could be the costs or the out of pocket optimum, the deductible, the co pays, specific locations of protection, all that kind of point, you can pick a plan that fits your needs.Now, you could locate that those often tend to be fairly costly, as well as so if your revenue is listed below particular degrees, you may be able to get successfully a reduction in the costs, it may be in the form of a tax obligation debt or an aid, so right here ' s just a preview of just how things can seek you, let ' s claim your income is, allow ' s say 50,000 in retired life, and'you need to look at specifically what income means, yet there is no insurance coverage readily available from a spouse, we ' ve obtained one adult, and also let ' s claim you are … As our video recommend age 55 below, so you may obtain an advantage of roughly 422 a month, suggesting you might invest that much less every month, which ' s mosting likely to make it a great deal easier to pay for'insurance coverage on these plans, if we switch your income down to 25,000 per year, the assistance is also bigger, so as you can see by varying or regulating your revenue, as well as this is something you might have some control over if you retire at 55, you can additionally control your healthcare expenses, we ' ll talk about some conflicting goals here, where you may not wish to definitely lessen your income throughout these years, however this is essential for you to understand if you ' re mosting likely to be paying for your own insurance coverage, as well as if you'' re experiencing sticker label shock when you see the prices …'By the means, I ' m going to have a web link to this and also a bunch of various other sources in the summary listed below, so you can have fun with this same calculator yourself.Now, once you ' re on Medicare, the expense must go down a fair bit, this is a calculator from Integrity where we can'say, let ' s state you are a woman, and we ' re going to claim you ' re eligible for Medicare at this point, so we'' ll bring you'approximately age 65. It is mosting likely to be quite a little bit greater expense,'if you look at it prior to age 65, which ' s due to the fact that you are paying for those personal policies from insurer, allow ' s claim you ' re mosting likely to live until age 93, therefore you may expect to invest approximately 5800 6000 dollars per'year, depending on your wellness as well as your area and also various other aspects, it might be essentially, but this is a price quote of what someone may invest, a solitary female each year in retired life, naturally, that number is going to boost annually with rising cost of living and also deteriorating wellness issues. This is a ball park estimate of what you might be investing in the future, now we get to the inquiry of, do you have the economic resources to retire at 55? Which comes down to the earnings and also the possessions that you ' re mosting likely to draw from to offer the resources you require to buy the important things you'want as well as require, and also one method to look at this is to claim We intend to avoid early withdrawal fines due to the fact that once more, you are retiring at an age that ' s earlier than the regular senior citizen and also a lot of retirement accounts are made for you to take withdrawals at 59.5 or later on, to stay clear of those fines, the good news is, you have a number of options, so with private and joint accounts, simply taxed brokerage firm accounts, you can normally withdraw from those with no charges, however you might have funding gains taxes when you sell something, those taxes might go to a lower price than you would certainly pay if you take big withdrawals from pension, yet you just wish to double and also three-way check that, yet that can be a fluid resource of funds.You. Can also generally take out from Roth accounts pretty conveniently. So those routine payments come out initially, simply put, you can draw out your normal payments at any type of time without taxes as well as no penalties, what that indicates is that ' s the yearly restriction payments you may have been making her by year, so the 7000 per year, as an example. That cash would be easily obtainable, but if you have various other money types like Roth conversions, for example, you ' re going to be really careful and get in touch with your certified public accountant and also discover out what every one of that could look like. There. Are various other methods to access funds that are within pre tax retired life accounts, as well as it might actually make good sense to draw on those somewhat, we ' ll talk a lot more regarding that in a minute, yet these are a few of the tricks you can make use of to stay clear of an early withdrawal charge yet still attract on those assets prior to age 59.5. The very first one is the so called guideline of 55, so this uses if'you work at a work with, allow ' s state a 401K, as well as you quit working at that company at age 55 or later, if you fulfill particular requirements, after that you can withdraw those funds from the 401k so they go straight from the 401k to you.They wear ' t go over to an individual retirement account, you could withdraw those funds without a very early withdrawal fine. A difficulty below is that not every employer allows you to do that, so 401k strategies can establish a lot of their own guidelines, as well as among them could be that they wear
' t allow you just call them up and take cash whenever you desire, they may make you … Withdraw the whole amount, so if that ' s the situation, this isn ' t going to work, so make sure to triple contact your employer and also the plan vendors as well as figure out exactly just how this would certainly function logistically or if it will also function. Next, we have SEPP that stands for significantly equivalent periodic repayments or rule 72. This is a chance to attract funds from, let ' s say your IRA or a certain IRA that you choose, but prior to age 59 and also a half without getting early withdrawal penalties.Now, this is not my preferred selection. I don ' t always suggest this extremely typically in all, as well as the reason is because it ' s simple to slide up and also end up paying tax obligation charges. The factor for that remains in part that it ' s truly rigid, so when you establish this, You compute a quantity that you have to take out yearly, and also it has to be the'very same quantity every year, as well as you have to make certain you do that for the longer of when you turn age 59Â 1/2 or for five years. And also also that seems type of simple, yet it ' s still simple to trip'up, and you likewise have to stay clear of making any type of modifications to your accounts, so it ' s simply truly rigid as well as can be hard to stay with you, so … Not my favorite option, but maybe a choice. Those of you who work for governmental bodies, maybe a city company or something like that, you could have a 457b strategy, as well as those strategies do not have early withdrawal penalties prior to 59 as well as a half, so you can withdraw cash from that as well as utilize some income, pre pay some taxes, and also have some money to spend relatively conveniently, this incidentally, is an argument for leaving cash in your employer ' s 457 versus rolling it over to an IRA, because once it visits an IRA, you undergo those 59Â 1/2 policies and a possible early withdrawal penalty.So that could end up leaving you with 72 to deal with, as an example, which once more is not optimal. You might be asking, well shouldn ' t I just reduce'tax obligations and also hold off on paying taxes for as long as possible? As well as the response is not necessarily. It can make sense to go ahead and also pre pay some taxes by obtaining calculated, the reason for that is that you will at some point have to pay tax obligations on your pre tax cash as well as it could occur in a huge lump, as well as that can bump you up right into the highest tax obligation brackets, so it can be far better to smooth out the price at which you attract from those accounts as well as with any luck keep yourself in reduced tax obligation brace, at least reasonably speaking.So when your RMDs or your required minimum distributions kick in after age 72 under present regulation, that could potentially bump you up into the highest tax obligation brackets, possibly you want to smooth points out as well as take some income early. So let ' s take a look at the inquiry of, Do you have enough with some specific numbers, and prior to we eye those numbers, just wish to mention that I am Justin Pritchard. I help individuals prepare for retirement and also spend for the future. I ' ve got some great resources, I think, in the description below, several of the important things that we ' ve been chatting regarding right here today, as well as some general retired life intending information. If this is on your mind, I believe a great deal of that is going to be really useful for you. Please have a look at that and also allow me recognize what you assume of what you discover. It ' s also a great time for a pleasant pointer, This is simply a brief video clip, I can ' t possibly cover whatever. Please three-way and quadruple check'with some experts like a Certified public accountant or a financial consultant before you make any type of decisions, so allow ' s get back right into these questions, Do you have enough? As we constantly need to discuss, it depends upon where you are as well as exactly how much you invest as well as how things benefit you.Are you fortunate to retire into a good market, or are you unfortunate and also retiring into a negative market? All of these different facets are mosting likely to affect your success, but allow ' s jump over to my monetary preparation tool and also take a look at an instance. This is just a theoretical example, it ' s the world ' s most over streamlined example, so please keep that in mind, with a genuine individual, we ' ve got a lot much more taking place. The world is a complex place and
points get messier, however we ' re keeping it very easy below, just to chat about an instance of how things might look, so he or she has one million in pre tax possessions as well as 350,000 in a brokerage firm account, as well as if we just swiftly look at their dashboard right here, quite high likelihood of success, so allow ' s make it'a little bit'extra interesting and state … Maybe that individual retirement account has, let ' s state, 700,000 in it. What is that going to do? As well as incidentally, this is still a great deal greater than a great deal of individuals have, but once more, if you ' re going to be retiring at 55, you usually have rather low expenses and/or a great deal of assets.So let ' s remember here that retirees wear ' t always invest at a flat inflation changed level, and I ' ll get right into the assumptions below in a second, yet let ' s just take a look at if this individual spends at rising cost of living minus 1 %using the retired life costs “smile,” that significantly improves their opportunities, and I ' ve obtained video clips on why you may consider that as a potential reality, so you'can check into that later on at your leisure, yet as for the presumptions, we presume they spend about 50,000 a year, retire'at age 55. The returns are 5.5 %per year, and also inflation is 3%per year. Wouldn ' t that be freshening if we got 3%… So we eye their earnings below age 55, absolutely nothing', and afterwards Social Safety and security starts at 70. They ' re doing a Social Safety and security bridge method. I ' ve got video clips on that particular as well, or at the very least one video, the complete year starts here later, and also after that their Social Protection change for rising cost of living, considering their taxes, we have absolutely no taxes in these earlier years since they are just not pulling from those pre tax obligation accounts. Maybe not getting much, if anything, in regards to capital gains,'perhaps their reduction is wiping that out, so we might have a possibility right here to in fact do something and also once again, pre pay some tax obligations and pull some taxed revenue'forward.In reality, if we eye their federal income tax bracket, you can see that it ' s fairly reduced from 55 on, possibly they desire to draw some of this earnings ahead to ensure that later on in life, they are drawing whatever out of the pre tax obligation accounts simultaneously. It just depends on what ' s essential to you and what you intend to attempt to do, and that brings us to some tips for doing calculations, whether you are doing this with somebody, an economic coordinator or on your own, you intend to consider that space in between when you quit working as well as when your earnings advantages start from, allow ' s say, Social Protection, there ' s also that space between when you stop functioning and also when Medicare starts, and also that ' s an additional essential thing to check out, yet what are your approaches available there? Should you take some income, and precisely how much? That ' s going to be a location where you might have some control, so it ' s worth doing some excellent planning.We also desire to look very closely at the inflation and also investment returns, and also what are the assumptions in any kind of software application that you ' re making use of? These are truly important inputs and also they can considerably transform what takes place …'You saw what happened when we switched over from a level rising cost of living modified boost annually to the retirement costs smile, simply a refined little adjustment has a big distinction on how points unfold, as well as in that circumstance, by the means, we would normally have healthcare boosting at'a much faster rate.But like I said, we use an over streamlined example and didn ' t necessarily consist of that in
this case, yet you do intend to click via or ask concerns on what exactly are the presumptions and also are you on board with those assumptions?'You might additionally need to make some changes, and also this is just the fact of retiring at an early age when you may have 30 plus years of retired life left, a lot can happen, and there really is a whole lot of benefit to making small changes, particularly during market collisions, for example, so. If things are not necessarily going terrific, some little tweaks might possibly enhance the possibilities of success considerably, that might imply something as easy as avoiding a rising cost of living modification for a year or 2, or maybe dialing back some holiday spending.These are things you put on ' t intend to do, that ' s for certain, however with those little changes, you can potentially keep things on the right track, and that method you put on ' t need to go back to function or make bigger sacrifices. And also so I wish you located that valuable. If you did, please leave a fast thumbs up, thanks as well as take treatment.
Yes, it'' s a great round number.And there are some intriguing tax obligation approaches that are available around that age, however allow ' s state you could retire a little bit previously at 54, would certainly you want to make that occur? A problem below is that not every company allows you to do that, so 401k strategies can set a lot of their own policies, and one of them might be that they wear
' t allow you just call them up and take cash whenever you want, they could make you … Withdraw the whole quantity, so if that ' s the case, this isn ' t going to function, so be sure to three-way check with your employer and the plan suppliers and locate out precisely just how this would certainly work logistically or if it will certainly also function. It simply depends on what ' s important to you and also what you desire to attempt to do, as well as that brings us to some ideas for doing estimations, whether you are doing this with somebody, an economic planner or on your own, you want to look at that space between when you stop working as well as when your revenue benefits start from, let ' s claim, Social Protection, there ' s also that void between when you quit functioning as well as when Medicare starts, and that ' s one more essential point to look at, but what are your techniques readily available there? That ' s going to be an area where you might have some control, so it ' s worth doing some excellent planning.We additionally desire to look very closely at the inflation and also financial investment returns, and what are the assumptions in any software that you ' re using? If points are not necessarily going great, some little tweaks might potentially enhance the opportunities of success significantly, that might mean something as straightforward as skipping an inflation adjustment for a year or two, or possibly calling back some trip spending.These are points you wear ' t want to do, that ' s for certain, yet with those little changes, you can potentially keep points on track, as well as that way you put on ' t have to go back to work or make larger sacrifices.
Read MoreTaxes in Retirement: Planning for Tax Costs
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
It'' s reasonable to presume that when you'' re in retired life,'you ' re no more working and also earning a revenue, so you shouldn'' t have to pay taxes. However sadly, that'' s not just how the IRS jobs. You commonly do pay some kind of tax obligations in retired life, and also that'' s crucial due to the fact that'obviously, you ' ve obtained some set income sources, and also you could be taking cash out of retirement accounts. But the more you need to pay in tax obligations, the less you have left over for spending on every little thing that'' s essential to you. So in this video, we'' re going to provide you some info to help you not get captured by surprise, so that you can allocate what your taxes could be and strategize your spending. And there are likewise some additional side benefits of keeping your tax obligations low. It is very easy to overdo that, and I don'' t know that you need to always go to absolutely no percent tax obligations because the cost of getting there can be rather high.But recognizing a few points can assist you capitalize on opportunities that can potentially assist you. So. We ' re mosting likely to look at types of accounts, which aids you comprehend what the tax obligation repercussions are, and afterwards you can select what to invest, so that you sort of “dial in” your tax level as they show with those sliders there. We ' ll talk about Social Safety and security as well as pension earnings, along with'called for minimum circulations. The various kinds of accounts you have are going to impact the taxes when you take money out. In tax obligation deferred accounts, those are points like your typical pre tax individual retirement account, possibly a rollover IRA, a 401K with pre tax money, that cash has never ever been tired, therefore it will require to be tired when you take it out of retired life accounts. When you ' re prepared to spend it, if you draw out, let ' s say$ 25,000, you can ' t always spend that whole$25,000, or you want to recognize if you can or not, since you may require to send out some of that to the IRS for tax obligation payments.Then we have tax complimentary accounts. Those are your Roth IRAS, as an example, an HSA [
Health Interest-bearing Accounts] if you use the cash for qualified medical care expenses. These accounts do not create taxable income when you take the cash out. There are also taxable accounts like your individual or joint broker agent accounts, those are mosting likely to have you paying taxes annually as you earn the income in those accounts, however you may likewise have gains if the important things you purchase gain value. If you sell those investments, you would commonly have perhaps lengthy term or short-term resources gains, tax obligations that you have to pay on those gains, and typically long-term funding gains are mosting likely to be one of the most favorable for you. Social Safety may be taxed or it may not. If it ' s your only income source, there ' s a decent chance that you ' re not going to pay tax obligation on Social Security income, yet if you'have various other incomes, consisting of withdrawals from pre tax obligation retirement accounts, you might need to pay taxes.I ' m mosting likely to consist of some info in the description, a link right to a Social Safety and security Administration ' s site to aid you identify much more regarding that. Pension income is generally taxed, so if that ' s from a company that you helped, they pay you a lifetime revenue, that ' s generally'taxed. Your called for minimum distributions are typically taxed. The internal revenue service needs you to take cash out of tax deferred accounts, and also the suggestion is to see to it that that money isn ' t tax safeguarded forever, so they want to generate some tax income. In many cases, that ' s mosting likely to remain in pre tax accounts, yet there are a couple of exemptions, maybe with inherited accounts, where it ' s not mosting likely to generate tax obligation costs for you, so Exactly how can you manage your tax? There are a number of strategies. One is to draw from whichever bucket makes the many feeling to draw money out of. So if you ' re in a year where you have a relatively high earnings, as an example, as well as you want more money out of your pension, it may make good sense to pull that from a free of tax pail, like a Roth IRA.That way you ' re not mosting likely to additional increase your tax bill while you ' re at a higher price. You can additionally look at filling the tax obligation braces, which indicates trying to draw out simply sufficient to pay tax obligations that are relatively reduced rates, so if you ' re in a reduced income year, that ' s an opportunity to say, “I ' m okay with this tax obligation rate, I ' m mosting likely to get a bit even more money from pre tax obligation accounts and also go on as well as pay those tax obligations due to the fact that I'believe that that will level out the'rate at which I pay.” Of course, you are pre paying some taxes, yet it can possibly end up in you paying less general throughout your lifetime. That ' s comparable to what you ' re finishing with a Roth conversion method. Keeping that technique, you transform cash rather than in fact taking a withdrawal. You shift it from a pre tax account'to an after tax Roth account, as well as there are some challenging rules when you do this, but if succeeded, it can cause you having cash in tax free accounts, and once more, commonly, ideally, you ' re paying at a fairly reduced price so that you can ravel those tax obligations throughout your lifetime.Then there ' s additionally the suggestion of simply general tax obligation efficiency. So, that ' s trying to lessen turn over as well as try not to get too much simply put term funding gains in your taxable accounts, maybe consider property location, like what sorts of financial investments enter into taxed accounts versus tax sheltered accounts and also various other points like that. If you ' d like to chat about these kinds of things and also get some suggestions on your retired life, I ' d be delighted to talk with you.We can go over all of this and also much more … And also please subscribe to this channel. This assists you keep up to day. It does not cost you'anything, and it also assists me out a little bit, so many thanks for doing that! As well as thank you to everybody who has actually currently subscribed.
In tax obligation deferred accounts, those are points like your traditional pre tax obligation IRA, maybe a rollover IRA, a 401K with pre tax money, that money has actually never ever been strained, and so it will certainly require to be strained when you take it out of retired life accounts. When you ' re all set to spend it, if you pull out, allow ' s claim$ 25,000, you can ' t necessarily spend that entire$25,000, or you want to understand if you can or not, due to the fact that you might require to send out some of that to the IRS for tax obligation payments.Then we have tax obligation totally free accounts. That ' s going to be in pre tax obligation accounts, yet there are a couple of exceptions, perhaps with acquired accounts, where it ' s not going to create tax obligation expense for you, so Just how can you manage your tax? If you ' re in a year where you have a fairly high income, for instance, and also you desire even more cash out of your retirement accounts, it might make sense to draw that from a tax totally free container, like a Roth IRA.That way you ' re not going to further rise your tax costs while you ' re at a greater price. You change it from a pre tax obligation account'to an after tax obligation Roth account, and also there are some tricky policies when you do this, but if done well, it can result in you having cash in tax obligation complimentary accounts, and again, usually, ideally, you ' re paying at a relatively reduced rate so that you can smooth out those tax obligations throughout your lifetime.Then there ' s likewise the suggestion of simply basic tax obligation efficiency.
Read MoreInvesting For Retirement – 4 Tips (I Learned Over 30 Years As A Financial Advisor)
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
are you bothered with exactly how you'' re mosting likely to pay for retirement you ' re not the only one lots of people are concerned about their retirement financial savings specifically with the volatility in the stock exchange in recent times in this video I'' m going to show you 4 pointers that can help you to invest for retirement these tips are based on my 30 years experience as a financial advisor and I function with hundreds of customers tip top make the most of your employer'' s retirement match several employers provide a retirement with a coordinating payment for instance if your company offers a 50 pair up to 6 percent of your salary as well as you gain fifty thousand dollars per year you must contribute at the very least three thousand dollars to your retirement your company will certainly then match your contribution with fifteen hundred bucks for a total amount of forty 5 hundred bucks in your pension not benefiting from your company'' s matches leaving cash on the table so make sure you contribute a minimum of adequate to your retirement plan to maximize your employer'' s match idea two purchase a diversified portfolio this implies investing in a selection of Investments like supplies and also bonds this should aid you to lower your threat and enhance your opportunities of reaching your retired life goals tip 3 rebalance your profile periodically to make certain that it remains in line with your risk profile if you'' re a person that suches as to handle your profile yourself even more power to you as well as sign up for our network to maintain learning if you'' re the sort of individual who likes assistance selecting and also managing your profile well that'' s the service we provide to our clients I'' ll leave a link in the summary you can click if you'' d like to establish a time to talk to us now on to our following pointer idea 4 Don'' t Panic sell the stock market will certainly fluctuate yet it'' s important to remain tranquil as well as not offer your Investments when the markets take a slump panic marketing can cost you a great deal of cash in the future if you'' re concerned regarding the marketplaces being down when you retire enjoy this video following [Songs]
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