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Retirement Questions Answered by an Experienced Financial Adviser

Are people shocked with the amount of taxes to be paid when they retire?  Yes, and no.  Some people have not accumulated very much money for retirement so taxes will not be an issue.  But for those who have saved all their money into a 401(k), yes, they will be very shocked when they see taxes going from 15 percent to 25 percent whenTaxes they add their Social Security benefits on top of everything.

What happens to people reaching age 70?  Once a person reaches age 70.5 years old, they are required to take out money and pay tax on all deferred accounts, like a 401(k).  This percent of taxes to be paid on the balance grows as they get older so by age 80 it’s close to 12 percent of the balance.

Why should retired people stay below the 15% tax bracket?  Because this is the first level of tax, and it goes up close to the $75,000 income range.  So if a person gets close to this level, it’s best to find a way to pay tax-deductible items before the end of year so as not to be bumped into the 25 percent bracket.

When should a person consider a Roth IRA?  Tax planning means to know where your level of income will be and convert funds in a deferred account to a Roth IRA years before, and do it systematically so the amount you convert is as low as you can get it, but still get the job done.

Where should I take income for retirement first, a regular bank account, mutual funds, or a tax-deferred account like a shutterstock_128683532 (534x800)401(k)? It is best to even out your taxes over the years.  If all you do is defer everything, then at retirement and especially when age 70.5 arrives, the taxes will be much higher than you have paid in the past.  This really hurts to get to retirement and have to ask yourself, “Why didn’t anyone tell me about this before now?”

What are some surprises most people find out at retirement?  People find they must have a spending plan, or they will run out of money.  Up until retirement they could get along, wing-it a little because they might get a pay raise or a bonus or a large tax refund that gave them extra money to do fun things with.  But at retirement those extras go away unless you plan for them in your spending.

Anything else that may surprise people reaching retirement?  The biggest problem I see when people retire, then spend some money their first year, is finding out that within seven to eight years they will likely be entirely out of money!   They kind of know this, but it hits them hard after the first year in retirement.

What can a person do when they see they will run out of moneyscreen-shot-2016-09-16-at-2-31-17-pm
in 7 years at retirement?
  They can slow their spending, get a part-time job making extra income, sell an asset, or possibly get a reverse mortgage on their home to pull out extra money and turn this into income.  Many other ideas are available, but a person will have to be creative, and will need help from an experienced financial coach.

Will you be willing to answer my personal questions about retirement?  Sure! It is hard for people to work at a job and learn all the rules about retirement.  They work hard and come home tired and the last thing they want to do is do research on tax codes or call creditors and ask what happens when they retire. All I do is study various options surrounding retirement decisions and have coached thousands of people on how to apply these options wisely and responsibly for the past 35 years; this is my life and I’m happy to share my knowledge with you. Contact me today for a no-cost conversation:  peter@moneymastery.com. I will bring you more examples and ideas to the table of how to make income work, even if you think you might arrive broke at retirement.

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