What follows are 9 questions centered around my experience over four decades of helping people plan for retirement. They are varied and don’t necessarily hook together, but they are quick and to the point. See if they help you.
- Are people shocked with 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) plan, they will see taxes going from 15% to 25% when they add their Social Security benefits on top of earnings.
- What happens to people’s retirement funds when they reach age 70? Once a person reaches age 70.5 years old, they are required to take money out of all deferred accounts, like a 401(k). This percent of balance grows as they get older so by age 80 it is close to 12% 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 to a higher bracket once a person reaches $75,000 annual income. 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 you don’t bump up into the 25% bracket.
- When should a person consider a Roth IRA? Tax planning means to know where your level of income will be and convert funds from a deferred account into a Roth IRA years before you retire, and do it systematically so the amount you convert is low as you can get it, but still get the job done.
- Some folks have been able to save in a regular bank account, mutual funds and tax deferred accounts, like 401(k)s. Where should they take their income at retirement from first? 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 more than normal. 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 (this is not a budget), 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.
- What other surprises might someone find at retirement? The biggest problem I see when people retire, then spend some money their first year, is that they find that within 7 years they will be totally 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 money in 7 years? They can slow their spending, get a part-time job making extra income, or sell an asset, and possibly get a reverse mortgage on their home to pull out extra money and turn this into income. Many other ideas are available, but you will have to get creative. I suggest you contact me for some really great options that most other advisors will never tell you about: firstname.lastname@example.org.
- Would you be willing to answer more questions that arise out of this retirement discussion? Of course! 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 research tax code or call creditors. All I do is study various options surrounding the retirement decision so I can bring you lots of examples and ideas tailored to your specific situation so you won’t arrive at retirement broke, or run out of money in only a few years. Call me or email: (801) 292-1099, email@example.com for a no-cost consultation.