Tag: taxes in retirement
Retirement Planning for Singles
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Retirement is a big deal for anybody, and that's especially true for single people who may be retiring with just one income and who may have built up a nest egg solely off their own savings. So, we know that single people can and do retire comfortably. In fact, one quarter of people over age 60 are living alone in their household, and that number is slightly higher for women, and that's, of course, due to women's longevity. So what we're going to talk about here is retirement for single people. First, we'll go over some averages to give you a rough idea of what the landscape looks like for single people, then we'll get into how much money you might need as you go into retirement, then we'll talk about some tips that can help improve the chances of retiring comfortably.
Let's start with the average retirement income for single people. So it's $42,000 on average for an individual in retirement, and that comes from the US Census Bureau. The median is a little bit lower at $27,000. So a friendly reminder of how this works: The median is the middle, so if you line up all of the survey results, people telling you what their income is, for example, that arrow points at the middle observation, which would give us the median down at the bottom. But if we go to the average, that is going to get skewed by, in this case, wealthy people, for example, they have a very high income. When it comes to Social Security, the average is about $1,500 a month or $18,000 per year.Your level depends, of course on your earnings, if you had higher earnings during your working years, then you tend to potentially have a bigger benefit than that, and it could be lower, and then of course, your claiming age is also an important thing.
If you claim early at age 62, you get a reduced benefit. That's likely to bring down the amount you get. Next, we have pensions, some people get an income from a job they worked at. That might be in the public sector as a teacher, a firefighter, that sort of thing, or even in the private sector, you could have a pension from your job, and those incomes just are all over the board, it could be high, it could be low, but these are different sources of income that people might have in retirement.
This is just a friendly reminder that this is just one video and it may cover some interesting information, but it's not specific to you so I hope you'll do a lot more research, hopefully check with some professionals and get some individualized advice, and that way you can improve the chances of things going well for you. So now let's talk about how much you might need as you go into retirement. Unfortunately, there's no single answer on what you need because it depends. So the first step is to figure out what sort of income you're going to need, and I've got other videos on that, I'll put links in the description to get you some more information, but you can look at replacing a portion of your income, or you can just say, I want X amount of dollars per year, or you can go with other approaches, but first we need to know how much income you are hoping for. Next, we tally up your income sources, so that might be some guaranteed income that comes in from Social Security, for example, or from your pension at your workplace, but that forms a base of income and that might or might not cover what you need.
But it gives us a base and then if we need to fill that in, we can supplement withdrawals from your retirement savings, so that might be out of your IRA, your 401, 403, these accounts that you have built up over time can provide supplemental income to help fill the gap between that guaranteed income you get and the amount you actually want to spend. There are a number of ways to figure out how much to withdraw and to set up different strategies, there might be bucking strategies, there might be withdrawal strategies like the 4% rule. Or if you don't like that, make it the 3% rule to be safer, or take out more if you think that's not enough and you're selling yourself short. Ultimately, there are a number of ways to approach this, so you just pick one that works well for you, and again, I can point you to some resources on figuring that out. And finally, you will want to look at taxes and inflation, so during your retirement years, it's reasonable to assume that prices may increase on many of the things you buy, so we want your income to be able to increase as well, Social Security typically does rise, but maybe not at the same rate as the things you're buying, so your withdrawals may need to account for that.
Plus we've got taxes. You typically will owe taxes if you're taking distributions or you're taking withdrawals from pre tax retirement accounts. If you have a pension that might be taxable as well. We just want to look at all of these things and figure out what your ultimate money left over to spend each month is going to be. For an over simplified example, let's just look at Jane Doe. She's 60 years old, she's single, she wants to retire in about five years, she makes about 80,000 a year and has 700,000. A lot of people retire with less than that, a lot of people retire with more. I'm going to bring up my financial planning software that I use with clients, and we'll just go over kind of why there's no single answer on how much you need. Now, if you can tell me exactly how long you'll live and what the markets will do and what inflation will look like, we can tell you exactly what you'll need.
But there are a lot of unknowns, so a lot of times we start with a probability of success and I'll go over what that means, and then we look at little tweaks and how different changes might affect that probability of success, so working an extra year might bring her from… Let's say 75% to 84% likely to succeed. Now, success and failure are pretty complicated. They don't necessarily mean that you go completely broke, but you may need to make some adjustments, so let's talk about what does the success mean? We, again, cannot predict the future, so we say, Let's look back and say, You get dealt 1,000 hands.
You're playing a game of cards and you get 1,000 hands. Some of those are good and some of those are bad, so the very good ones tend to be up here, near the top. And you actually end up with a lot of money left over. Some of them are not as good and you end up running out of money early. The median is, again, that one that's right in the middle when we line them up in order for best to worst. And so you might say, you're probably not going to get the best, you're probably not going to get the worst, although anything is possible. So that's how we go with this likelihood of success. Now, maybe she doesn't want to work an extra year, so we can look at different ways of accomplishing things here. By the way, we've built in some long term care in case she does get sick and needs that at the end of life.
She's looking to spend about 4,000 a month, that's after some health care costs that are going to inflate each year, and she's saving a decent amount in some 401K and taxable accounts. Let's say she goes ahead and maxes out that Roth, is it going to make a big difference? Not really, 'cause she only has five years left. So what we do here is we start looking at all of these different variables and playing with the pieces and figuring out what does it take to make her successful at her retirement, or at least successful enough that she's comfortable making that transition. So here are some tips to improve your chances. The first is to plan for long term care. If you're living on your own, you don't have somebody in the house who can help you do things, and it's arguable if even a couple is capable of managing this on their own…
I mean, if you think about a couple, is one of the people physically able to move the other person around and do they have the skills to provide health care, and the time and the energy, frankly, to provide all that type of care? So it's important for everybody, but it's especially important for single people to plan for this care. So you can look at getting insurance, you can look at budgeting for some costs, like we showed you in the software, you might want to budget for a much bigger number if you go into memory care or something like that with 24 hour supervision, it can get really expensive quickly. And you can explore different living arrangements, maybe doing things with friends or certain communities that might be a good fit for you. Next is to avoid leaving money on the table so if you were previously married and your spouse passed away or you've been divorced, you may be eligible for benefits. That's maybe from Social Security, you can potentially get a survivor's benefit, or if you were married for at least 10 years and you've been divorced, you can potentially get spousal benefits on your ex spouse's work record.
It's just important to explore all of these to see if there are any resources available for you. Next is to make a plan, and I am of course biased as a financial planner, but I think it is really helpful to go through the process, and the main goal isn't to get a big document that tells you what your financial plan is. Instead, really, the benefit is going through that process and learning a lot about your finances as you do it, and in that process, you get an idea of what the risks are, how you're doing, you might get confidence and clarity on whether or not you can go ahead and retire, if you should do certain things or not. It's just a very valuable process for a lot of people, but I'll leave that for you to decide.
If you found this video helpful, please leave a quick thumbs up. That gives me feedback that this is something you might enjoy more of, so thanks for watching and take care..
Read More
Retirement Planning for Singles
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Retirement is a big deal for anybody, and that's especially true for single people who may be retiring with just one income and who may have built up a nest egg solely off their own savings. So, we know that single people can and do retire comfortably. In fact, one quarter of people over age 60 are living alone in their household, and that number is slightly higher for women, and that's, of course, due to women's longevity. So what we're going to talk about here is retirement for single people. First, we'll go over some averages to give you a rough idea of what the landscape looks like for single people, then we'll get into how much money you might need as you go into retirement, then we'll talk about some tips that can help improve the chances of retiring comfortably.
Let's start with the average retirement income for single people. So it's $42,000 on average for an individual in retirement, and that comes from the US Census Bureau. The median is a little bit lower at $27,000. So a friendly reminder of how this works: The median is the middle, so if you line up all of the survey results, people telling you what their income is, for example, that arrow points at the middle observation, which would give us the median down at the bottom.
But if we go to the average, that is going to get skewed by, in this case, wealthy people, for example, they have a very high income. When it comes to Social Security, the average is about $1,500 a month or $18,000 per year.Your level depends, of course on your earnings, if you had higher earnings during your working years, then you tend to potentially have a bigger benefit than that, and it could be lower, and then of course, your claiming age is also an important thing. If you claim early at age 62, you get a reduced benefit. That's likely to bring down the amount you get. Next, we have pensions, some people get an income from a job they worked at. That might be in the public sector as a teacher, a firefighter, that sort of thing, or even in the private sector, you could have a pension from your job, and those incomes just are all over the board, it could be high, it could be low, but these are different sources of income that people might have in retirement.
This is just a friendly reminder that this is just one video and it may cover some interesting information, but it's not specific to you so I hope you'll do a lot more research, hopefully check with some professionals and get some individualized advice, and that way you can improve the chances of things going well for you. So now let's talk about how much you might need as you go into retirement. Unfortunately, there's no single answer on what you need because it depends.
So the first step is to figure out what sort of income you're going to need, and I've got other videos on that, I'll put links in the description to get you some more information, but you can look at replacing a portion of your income, or you can just say, I want X amount of dollars per year, or you can go with other approaches, but first we need to know how much income you are hoping for. Next, we tally up your income sources, so that might be some guaranteed income that comes in from Social Security, for example, or from your pension at your workplace, but that forms a base of income and that might or might not cover what you need. But it gives us a base and then if we need to fill that in, we can supplement withdrawals from your retirement savings, so that might be out of your IRA, your 401, 403, these accounts that you have built up over time can provide supplemental income to help fill the gap between that guaranteed income you get and the amount you actually want to spend. There are a number of ways to figure out how much to withdraw and to set up different strategies, there might be bucking strategies, there might be withdrawal strategies like the 4% rule.
Or if you don't like that, make it the 3% rule to be safer, or take out more if you think that's not enough and you're selling yourself short. Ultimately, there are a number of ways to approach this, so you just pick one that works well for you, and again, I can point you to some resources on figuring that out. And finally, you will want to look at taxes and inflation, so during your retirement years, it's reasonable to assume that prices may increase on many of the things you buy, so we want your income to be able to increase as well, Social Security typically does rise, but maybe not at the same rate as the things you're buying, so your withdrawals may need to account for that. Plus we've got taxes. You typically will owe taxes if you're taking distributions or you're taking withdrawals from pre tax retirement accounts. If you have a pension that might be taxable as well. We just want to look at all of these things and figure out what your ultimate money left over to spend each month is going to be.
For an over simplified example, let's just look at Jane Doe. She's 60 years old, she's single, she wants to retire in about five years, she makes about 80,000 a year and has 700,000. A lot of people retire with less than that, a lot of people retire with more. I'm going to bring up my financial planning software that I use with clients, and we'll just go over kind of why there's no single answer on how much you need. Now, if you can tell me exactly how long you'll live and what the markets will do and what inflation will look like, we can tell you exactly what you'll need. But there are a lot of unknowns, so a lot of times we start with a probability of success and I'll go over what that means, and then we look at little tweaks and how different changes might affect that probability of success, so working an extra year might bring her from…
Let's say 75% to 84% likely to succeed. Now, success and failure are pretty complicated. They don't necessarily mean that you go completely broke, but you may need to make some adjustments, so let's talk about what does the success mean? We, again, cannot predict the future, so we say, Let's look back and say, You get dealt 1,000 hands. You're playing a game of cards and you get 1,000 hands. Some of those are good and some of those are bad, so the very good ones tend to be up here, near the top. And you actually end up with a lot of money left over. Some of them are not as good and you end up running out of money early. The median is, again, that one that's right in the middle when we line them up in order for best to worst. And so you might say, you're probably not going to get the best, you're probably not going to get the worst, although anything is possible.
So that's how we go with this likelihood of success. Now, maybe she doesn't want to work an extra year, so we can look at different ways of accomplishing things here. By the way, we've built in some long term care in case she does get sick and needs that at the end of life. She's looking to spend about 4,000 a month, that's after some health care costs that are going to inflate each year, and she's saving a decent amount in some 401K and taxable accounts.
Let's say she goes ahead and maxes out that Roth, is it going to make a big difference? Not really, 'cause she only has five years left. So what we do here is we start looking at all of these different variables and playing with the pieces and figuring out what does it take to make her successful at her retirement, or at least successful enough that she's comfortable making that transition. So here are some tips to improve your chances.
The first is to plan for long term care. If you're living on your own, you don't have somebody in the house who can help you do things, and it's arguable if even a couple is capable of managing this on their own… I mean, if you think about a couple, is one of the people physically able to move the other person around and do they have the skills to provide health care, and the time and the energy, frankly, to provide all that type of care? So it's important for everybody, but it's especially important for single people to plan for this care.
So you can look at getting insurance, you can look at budgeting for some costs, like we showed you in the software, you might want to budget for a much bigger number if you go into memory care or something like that with 24 hour supervision, it can get really expensive quickly. And you can explore different living arrangements, maybe doing things with friends or certain communities that might be a good fit for you. Next is to avoid leaving money on the table so if you were previously married and your spouse passed away or you've been divorced, you may be eligible for benefits. That's maybe from Social Security, you can potentially get a survivor's benefit, or if you were married for at least 10 years and you've been divorced, you can potentially get spousal benefits on your ex spouse's work record.
It's just important to explore all of these to see if there are any resources available for you. Next is to make a plan, and I am of course biased as a financial planner, but I think it is really helpful to go through the process, and the main goal isn't to get a big document that tells you what your financial plan is. Instead, really, the benefit is going through that process and learning a lot about your finances as you do it, and in that process, you get an idea of what the risks are, how you're doing, you might get confidence and clarity on whether or not you can go ahead and retire, if you should do certain things or not.
It's just a very valuable process for a lot of people, but I'll leave that for you to decide. If you found this video helpful, please leave a quick thumbs up. That gives me feedback that this is something you might enjoy more of, so thanks for watching and take care..
Read More
Retirement Planning for Singles
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Retirement is a big deal for anybody, and that's especially true for single people who may be retiring with just one income and who may have built up a nest egg solely off their own savings. So, we know that single people can and do retire comfortably. In fact, one quarter of people over age 60 are living alone in their household, and that number is slightly higher for women, and that's, of course, due to women's longevity. So what we're going to talk about here is retirement for single people. First, we'll go over some averages to give you a rough idea of what the landscape looks like for single people, then we'll get into how much money you might need as you go into retirement, then we'll talk about some tips that can help improve the chances of retiring comfortably. Let's start with the average retirement income for single people. So it's $42,000 on average for an individual in retirement, and that comes from the US Census Bureau. The median is a little bit lower at $27,000.
So a friendly reminder of how this works: The median is the middle, so if you line up all of the survey results, people telling you what their income is, for example, that arrow points at the middle observation, which would give us the median down at the bottom. But if we go to the average, that is going to get skewed by, in this case, wealthy people, for example, they have a very high income. When it comes to Social Security, the average is about $1,500 a month or $18,000 per year.Your level depends, of course on your earnings, if you had higher earnings during your working years, then you tend to potentially have a bigger benefit than that, and it could be lower, and then of course, your claiming age is also an important thing. If you claim early at age 62, you get a reduced benefit. That's likely to bring down the amount you get.
Next, we have pensions, some people get an income from a job they worked at. That might be in the public sector as a teacher, a firefighter, that sort of thing, or even in the private sector, you could have a pension from your job, and those incomes just are all over the board, it could be high, it could be low, but these are different sources of income that people might have in retirement. This is just a friendly reminder that this is just one video and it may cover some interesting information, but it's not specific to you so I hope you'll do a lot more research, hopefully check with some professionals and get some individualized advice, and that way you can improve the chances of things going well for you.
So now let's talk about how much you might need as you go into retirement. Unfortunately, there's no single answer on what you need because it depends. So the first step is to figure out what sort of income you're going to need, and I've got other videos on that, I'll put links in the description to get you some more information, but you can look at replacing a portion of your income, or you can just say, I want X amount of dollars per year, or you can go with other approaches, but first we need to know how much income you are hoping for. Next, we tally up your income sources, so that might be some guaranteed income that comes in from Social Security, for example, or from your pension at your workplace, but that forms a base of income and that might or might not cover what you need. But it gives us a base and then if we need to fill that in, we can supplement withdrawals from your retirement savings, so that might be out of your IRA, your 401, 403, these accounts that you have built up over time can provide supplemental income to help fill the gap between that guaranteed income you get and the amount you actually want to spend.
There are a number of ways to figure out how much to withdraw and to set up different strategies, there might be bucking strategies, there might be withdrawal strategies like the 4% rule. Or if you don't like that, make it the 3% rule to be safer, or take out more if you think that's not enough and you're selling yourself short. Ultimately, there are a number of ways to approach this, so you just pick one that works well for you, and again, I can point you to some resources on figuring that out. And finally, you will want to look at taxes and inflation, so during your retirement years, it's reasonable to assume that prices may increase on many of the things you buy, so we want your income to be able to increase as well, Social Security typically does rise, but maybe not at the same rate as the things you're buying, so your withdrawals may need to account for that.
Plus we've got taxes. You typically will owe taxes if you're taking distributions or you're taking withdrawals from pre tax retirement accounts. If you have a pension that might be taxable as well. We just want to look at all of these things and figure out what your ultimate money left over to spend each month is going to be. For an over simplified example, let's just look at Jane Doe.
She's 60 years old, she's single, she wants to retire in about five years, she makes about 80,000 a year and has 700,000. A lot of people retire with less than that, a lot of people retire with more. I'm going to bring up my financial planning software that I use with clients, and we'll just go over kind of why there's no single answer on how much you need. Now, if you can tell me exactly how long you'll live and what the markets will do and what inflation will look like, we can tell you exactly what you'll need. But there are a lot of unknowns, so a lot of times we start with a probability of success and I'll go over what that means, and then we look at little tweaks and how different changes might affect that probability of success, so working an extra year might bring her from…
Let's say 75% to 84% likely to succeed. Now, success and failure are pretty complicated. They don't necessarily mean that you go completely broke, but you may need to make some adjustments, so let's talk about what does the success mean? We, again, cannot predict the future, so we say, Let's look back and say, You get dealt 1,000 hands. You're playing a game of cards and you get 1,000 hands. Some of those are good and some of those are bad, so the very good ones tend to be up here, near the top. And you actually end up with a lot of money left over. Some of them are not as good and you end up running out of money early. The median is, again, that one that's right in the middle when we line them up in order for best to worst.
And so you might say, you're probably not going to get the best, you're probably not going to get the worst, although anything is possible. So that's how we go with this likelihood of success. Now, maybe she doesn't want to work an extra year, so we can look at different ways of accomplishing things here. By the way, we've built in some long term care in case she does get sick and needs that at the end of life. She's looking to spend about 4,000 a month, that's after some health care costs that are going to inflate each year, and she's saving a decent amount in some 401K and taxable accounts. Let's say she goes ahead and maxes out that Roth, is it going to make a big difference? Not really, 'cause she only has five years left. So what we do here is we start looking at all of these different variables and playing with the pieces and figuring out what does it take to make her successful at her retirement, or at least successful enough that she's comfortable making that transition.
So here are some tips to improve your chances. The first is to plan for long term care. If you're living on your own, you don't have somebody in the house who can help you do things, and it's arguable if even a couple is capable of managing this on their own… I mean, if you think about a couple, is one of the people physically able to move the other person around and do they have the skills to provide health care, and the time and the energy, frankly, to provide all that type of care? So it's important for everybody, but it's especially important for single people to plan for this care. So you can look at getting insurance, you can look at budgeting for some costs, like we showed you in the software, you might want to budget for a much bigger number if you go into memory care or something like that with 24 hour supervision, it can get really expensive quickly.
And you can explore different living arrangements, maybe doing things with friends or certain communities that might be a good fit for you. Next is to avoid leaving money on the table so if you were previously married and your spouse passed away or you've been divorced, you may be eligible for benefits. That's maybe from Social Security, you can potentially get a survivor's benefit, or if you were married for at least 10 years and you've been divorced, you can potentially get spousal benefits on your ex spouse's work record. It's just important to explore all of these to see if there are any resources available for you.
Next is to make a plan, and I am of course biased as a financial planner, but I think it is really helpful to go through the process, and the main goal isn't to get a big document that tells you what your financial plan is. Instead, really, the benefit is going through that process and learning a lot about your finances as you do it, and in that process, you get an idea of what the risks are, how you're doing, you might get confidence and clarity on whether or not you can go ahead and retire, if you should do certain things or not. It's just a very valuable process for a lot of people, but I'll leave that for you to decide. If you found this video helpful, please leave a quick thumbs up. That gives me feedback that this is something you might enjoy more of, so thanks for watching and take care..
Read More
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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Retirement Planning for Singles
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Retirement is a big deal for anybody, and that's especially true for single people who may be retiring with just one income and who may have built up a nest egg solely off their own savings. So, we know that single people can and do retire comfortably. In fact, one quarter of people over age 60 are living alone in their household, and that number is slightly higher for women, and that's, of course, due to women's longevity. So what we're going to talk about here is retirement for single people. First, we'll go over some averages to give you a rough idea of what the landscape looks like for single people, then we'll get into how much money you might need as you go into retirement, then we'll talk about some tips that can help improve the chances of retiring comfortably. Let's start with the average retirement income for single people. So it's $42,000 on average for an individual in retirement, and that comes from the US Census Bureau.
The median is a little bit lower at $27,000. So a friendly reminder of how this works: The median is the middle, so if you line up all of the survey results, people telling you what their income is, for example, that arrow points at the middle observation, which would give us the median down at the bottom. But if we go to the average, that is going to get skewed by, in this case, wealthy people, for example, they have a very high income.
When it comes to Social Security, the average is about $1,500 a month or $18,000 per year.Your level depends, of course on your earnings, if you had higher earnings during your working years, then you tend to potentially have a bigger benefit than that, and it could be lower, and then of course, your claiming age is also an important thing. If you claim early at age 62, you get a reduced benefit. That's likely to bring down the amount you get. Next, we have pensions, some people get an income from a job they worked at. That might be in the public sector as a teacher, a firefighter, that sort of thing, or even in the private sector, you could have a pension from your job, and those incomes just are all over the board, it could be high, it could be low, but these are different sources of income that people might have in retirement. This is just a friendly reminder that this is just one video and it may cover some interesting information, but it's not specific to you so I hope you'll do a lot more research, hopefully check with some professionals and get some individualized advice, and that way you can improve the chances of things going well for you.
So now let's talk about how much you might need as you go into retirement. Unfortunately, there's no single answer on what you need because it depends. So the first step is to figure out what sort of income you're going to need, and I've got other videos on that, I'll put links in the description to get you some more information, but you can look at replacing a portion of your income, or you can just say, I want X amount of dollars per year, or you can go with other approaches, but first we need to know how much income you are hoping for. Next, we tally up your income sources, so that might be some guaranteed income that comes in from Social Security, for example, or from your pension at your workplace, but that forms a base of income and that might or might not cover what you need.
But it gives us a base and then if we need to fill that in, we can supplement withdrawals from your retirement savings, so that might be out of your IRA, your 401, 403, these accounts that you have built up over time can provide supplemental income to help fill the gap between that guaranteed income you get and the amount you actually want to spend. There are a number of ways to figure out how much to withdraw and to set up different strategies, there might be bucking strategies, there might be withdrawal strategies like the 4% rule.
Or if you don't like that, make it the 3% rule to be safer, or take out more if you think that's not enough and you're selling yourself short. Ultimately, there are a number of ways to approach this, so you just pick one that works well for you, and again, I can point you to some resources on figuring that out. And finally, you will want to look at taxes and inflation, so during your retirement years, it's reasonable to assume that prices may increase on many of the things you buy, so we want your income to be able to increase as well, Social Security typically does rise, but maybe not at the same rate as the things you're buying, so your withdrawals may need to account for that.
Plus we've got taxes. You typically will owe taxes if you're taking distributions or you're taking withdrawals from pre tax retirement accounts. If you have a pension that might be taxable as well. We just want to look at all of these things and figure out what your ultimate money left over to spend each month is going to be. For an over simplified example, let's just look at Jane Doe. She's 60 years old, she's single, she wants to retire in about five years, she makes about 80,000 a year and has 700,000.
A lot of people retire with less than that, a lot of people retire with more. I'm going to bring up my financial planning software that I use with clients, and we'll just go over kind of why there's no single answer on how much you need. Now, if you can tell me exactly how long you'll live and what the markets will do and what inflation will look like, we can tell you exactly what you'll need. But there are a lot of unknowns, so a lot of times we start with a probability of success and I'll go over what that means, and then we look at little tweaks and how different changes might affect that probability of success, so working an extra year might bring her from… Let's say 75% to 84% likely to succeed. Now, success and failure are pretty complicated. They don't necessarily mean that you go completely broke, but you may need to make some adjustments, so let's talk about what does the success mean? We, again, cannot predict the future, so we say, Let's look back and say, You get dealt 1,000 hands.
You're playing a game of cards and you get 1,000 hands. Some of those are good and some of those are bad, so the very good ones tend to be up here, near the top. And you actually end up with a lot of money left over. Some of them are not as good and you end up running out of money early. The median is, again, that one that's right in the middle when we line them up in order for best to worst. And so you might say, you're probably not going to get the best, you're probably not going to get the worst, although anything is possible. So that's how we go with this likelihood of success. Now, maybe she doesn't want to work an extra year, so we can look at different ways of accomplishing things here.
By the way, we've built in some long term care in case she does get sick and needs that at the end of life. She's looking to spend about 4,000 a month, that's after some health care costs that are going to inflate each year, and she's saving a decent amount in some 401K and taxable accounts. Let's say she goes ahead and maxes out that Roth, is it going to make a big difference? Not really, 'cause she only has five years left. So what we do here is we start looking at all of these different variables and playing with the pieces and figuring out what does it take to make her successful at her retirement, or at least successful enough that she's comfortable making that transition.
So here are some tips to improve your chances. The first is to plan for long term care. If you're living on your own, you don't have somebody in the house who can help you do things, and it's arguable if even a couple is capable of managing this on their own… I mean, if you think about a couple, is one of the people physically able to move the other person around and do they have the skills to provide health care, and the time and the energy, frankly, to provide all that type of care? So it's important for everybody, but it's especially important for single people to plan for this care. So you can look at getting insurance, you can look at budgeting for some costs, like we showed you in the software, you might want to budget for a much bigger number if you go into memory care or something like that with 24 hour supervision, it can get really expensive quickly.
And you can explore different living arrangements, maybe doing things with friends or certain communities that might be a good fit for you. Next is to avoid leaving money on the table so if you were previously married and your spouse passed away or you've been divorced, you may be eligible for benefits. That's maybe from Social Security, you can potentially get a survivor's benefit, or if you were married for at least 10 years and you've been divorced, you can potentially get spousal benefits on your ex spouse's work record. It's just important to explore all of these to see if there are any resources available for you. Next is to make a plan, and I am of course biased as a financial planner, but I think it is really helpful to go through the process, and the main goal isn't to get a big document that tells you what your financial plan is.
Instead, really, the benefit is going through that process and learning a lot about your finances as you do it, and in that process, you get an idea of what the risks are, how you're doing, you might get confidence and clarity on whether or not you can go ahead and retire, if you should do certain things or not. It's just a very valuable process for a lot of people, but I'll leave that for you to decide.
If you found this video helpful, please leave a quick thumbs up. That gives me feedback that this is something you might enjoy more of, so thanks for watching and take care..
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 MoreRetirement Planning for Singles
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
The very first step is to figure out what type of income you ' re going to need, and I ' ve got other video clips on that, I ' ll placed web links in the summary to get you some even more info, but you can look at replacing a part of your revenue, or you can just claim, I desire X amount of dollars per year, or you can go with various other techniques, however first we need to recognize just how much revenue you are wishing for. Or if you put on ' t like that, make it the 3%rule to be safer, or take out more if you assume that ' s not enough and also you ' re marketing on your own short.Ultimately, there are a number of means to approach this, so you just pick one that functions well for you, and also again, I can aim you to some sources on figuring that out. You will certainly desire to look at taxes and rising cost of living, so throughout your retired life years, it ' s practical to think that prices might enhance on numerous of the things you purchase, so we desire your revenue to be able to boost as well, Social Safety and security commonly does climb, however maybe not at the exact same rate as the things you ' re acquiring, so your withdrawals may require to account for that.Plus we ' ve got tax obligations.
One quarter of people over age 60 are living alone in their family, and that number is a little greater for ladies, as well as that'' s, of training course, due to females ' s long life. We'' ll go over some averages to offer you a harsh idea of what the landscape looks like for solitary individuals, after that we'' ll obtain into exactly how much money you could need as you go into retirement, after that we'' ll talk concerning some pointers that can help improve the chances of retiring comfortably.Let ' s start with the ordinary retirement revenue for single people. The very first step is to figure out what type of income you ' re going to need, and also I ' ve obtained various other video clips on that, I ' ll put links in the description to get you some even more details, yet you can look at changing a part of your revenue, or you can simply claim, I desire X amount of dollars per year, or you can go with other strategies, yet initially we need to know exactly how much revenue you are wishing for. Or if you put on ' t like that, make it the 3%rule to be much safer, or take out more if you think that ' s not sufficient and you ' re marketing on your own short.Ultimately, there are a number of methods to approach this, so you just choose one that works well for you, and also once again, I can direct you to some resources on figuring that out. You will want to look at taxes as well as inflation, so throughout your retired life years, it ' s sensible to presume that costs may enhance on many of the things you acquire, so we want your revenue to be able to increase as well, Social Security typically does rise, but maybe not at the exact same rate as the things you ' re acquiring, so your withdrawals might require to account for that.Plus we ' ve obtained tax obligations.
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