What Is Retirement Planning?

By Soutas Financial

Retirement planning is the process of developing a plan for managing your finances after you have finished working.

When planning for retirement, you identify your income objectives and what you need to do to achieve them. Retirement planning involves identifying income sources, estimating future expenditures, establishing a savings programme, and managing assets and risk. Future cash flows are used to determine whether a retirement income goal is feasible.

Factor retirement planning into your financial plan as early as possible. That way, you’ll ensure a safe, secure, and enjoyable future. The reason why is that paying attention to the material and, perhaps, dull aspects of planning is enjoyable.

The key takeaways from this article are: People with autism spectrum disorder (ASD) tend to use visual information more extensively than people without ASD and they tend to take more literal statements literally.

8 Ways to Increase Your Retirement Savings

Retirement planning is to understand

Retirement planning is concerned with preparing for the post-employment phase of life. It includes financial planning, as well as other aspects of one’s life.

Retirement planning takes into account nonfinancial aspects such as lifestyle choices, where to live, and when to stop working as well as financial aspects.

The emphasis that one puts on retirement planning changes at different stages of life. For example:

How Much Do You Need to Retire?

There are numerous rules of thumb that can help you estimate how much you’ll need to retire comfortably. The sooner you start thinking about retirement, the better. Your magic number, which is the amount you’ll need to retire comfortably, is highly individualised.

It depends on who you ask how much you need.

The amount of money you need to save is important, but also think about your other expenses. Try to figure out how much it will cost you to live, cover your healthcare expenses, feed yourself, clothe yourself, and drive your car or truck. You’ll have more free time, so you might also factor in the cost of enjoying yourself and traveling. It’s best to create a rough estimate so there are no nasty surprises later on.

Start setting aside money as early as you can on whatever method you and your financial advisor use to figure out your retirement goals.

How to Prepare for Retirement

The steps that are common to almost everyone during their retirement planning are listed below.

Retirement Plans

There are different types of retirement accounts, each governed by different rules and standards.

Prepaid Plans offered by employers are a good alternative to traditional plans if you want to save money.

Employer-sponsored 401(k) or 403(b) plans are good for young adults. They can save for retirement using either one. Public schools and certain charities offer employees a similar 401(k) plan. It functions in a similar manner.

A great benefit of these qualified retirement plans is that your employer can match what you contribute up to a certain amount. For example, if you contribute 3% of your annual income to your plan account, your employer may match that and deposit the equivalent amount into your retirement account, effectively giving you a 3% bonus that grows over time.

In addition to contributing the amount of the employer match, you should contribute more. Some experts recommend up to 10% more. For the 2023 tax year, employees under the age of 50 may contribute up to $22,500 to a 401(k) or 403(b) plan, of which some may be matched by an employer. People over the age of 50 may contribute an extra $7,500 to their 401(k)s in addition to their basic contributions.

Though 401(k) plans offer higher returns than savings accounts, the investments are not free of risk. Additionally, funds in the account are not taxed when withdrawn. Since your contributions are deducted from your income, you will receive an income tax reduction immediately. Those who are about to move into a higher tax bracket might consider contributing enough to lower their bill.

An IRA that follows traditional guidelines is what you are looking for.

An IRA lets you set aside pre-tax cash before tax is taken out. Because it reduces your taxable income, an IRA lowers your tax bill. With an IRA, you can reduce your taxable income and hence your tax bill. This may occur if you’re near a higher tax bracket and invest in a traditional IRA.

You must pay your regular tax rate when withdrawing money from this type of account. However, the money in this account grows tax-free. You don’t have to pay capital gains or dividend taxes on the balance of your account until you begin withdrawals.

The conventional IRA limit for each fiscal year is set at $6,500. The inflation-adjusted limit for 2023 is $7,500. A $1,000 addition for people aged 50 and older will contribute $7,500 in 2023. You must take distributions at age 72 and can do so as soon as 59½. You will be penalized for withdrawing before that date and also for paying tax on your regular earnings.

You may contribute up to $2,500 a year to a Roth IRA

Setting up a Roth IRA can be a great way to save for future generations, funded with post-tax money. Because this strategy avoids a more significant income tax bill when the funds are withdrawn, starting a Roth IRA early in life can be a smart idea. However, even if you don’t have a lot of money to invest at first, starting a Roth IRA early can help you save for the long term. Since contributions to a Roth IRA are free of federal income taxes, the longer the funds stay inside the account, the more tax-free interest is received.

IRA contributions are limited to $6,500 or $7,500 if you are over 50 years old, regardless of whether they are Roth or traditional IRAs. Still, there are income limits for a Roth IRA: A single taxpayer can contribute the full amount if their income is less than $129,000 in 2022, and $138,000 in 2023. After that, you may invest up to a lesser extent, up to a maximum annual income of $144,000 in 2022 and $153,000 in 2023 (marital status has a bigger impact on income limits).

A 401(k) and Roth IRA both come with penalties for withdrawing funds before you reach retirement age, but there are a few noteworthy exceptions that might be particularly useful for younger people or in times of crisis. First, you may withdraw the invested capital without paying a penalty. Second, you may withdraw funds for educational expenses, buying your first home, paying for health care, and dealing with disabilities without incurring a penalty.

A SIMPLE IRA is an IRA that is simple to operate

An employee retirement account offered small businesses instead of a 401(k) is known as the SIMPLE IRA. Through payroll deductions, employees can save money through this account in addition to receiving an employer match. In addition to being set up like a 401(k), the SIMPLE IRA allows individuals to save money as long as they do not spend more than 3% of their annual salary. In 2022, the SIMPLE IRA’s annual contribution limit will increase from $14,000 to $15,500. Employees aged 50 or older can increase their contribution limit to $19,000 with a $3,500 additional contribution.

After you set up a retirement account, the question becomes how to direct the funds. People intimidated by the stock market may benefit from investing in an index fund that requires little maintenance, as it simply mirrors a stock market index like the Standard & Poor’s 500. Target-date funds also adapt to and diversify your assets over time in order to help you reach your retirement goal.

Retirement planning has four stages

Here are some pointers for Retirement Planning at various stages of your life.

Between the ages of 21 and 35, figuratively speaking, people become young adults.

It is important to remember that time can also be invested, which is a key and valuable part of retirement savings. This is because of the principle of compounding.

Even if you can only save $50 each month, it will be worth three times more if you invest it at age 25 than if you wait to invest until age 45, thanks to compounding. You may be able to invest more in the future, but you will never be able to make up for any lost time.

Ages 36 to 50 are considered the early midlife phase.

In late midlife, financial pressures can develop, including mortgages, student loans, insurance premiums, and credit card debts. However, saving aggressively at this phase in retirement planning is critical. These years are particularly good for aggressive savings because they combine increased earnings with the time you still have to invest and earn interest.

People in this phase of retirement planning should continue taking advantage of any 401(k) matching programmes that are offered by their employers and should also try to maximize their 401(k) or Roth IRA contributions (you may have both at the same time). If they are ineligible for a Roth IRA, consider a traditional IRA. As with your 401(k), this is funded with pretax funds and the assets within it grow tax-free.

An after-tax retirement contribution can be added to an employer-sponsored plan. There are no income limitations, but you must stick to the same annual limit.

Don’t forget to purchase life insurance and disability insurance. If you were to die, your family would struggle financially without drawing from your retirement savings.

Between the ages of 50 and 65, the later midlife phase is defined as the time after peak career or financial status and before retirement or death.

If you want to retire early, you must be more conservative with your investments as you age. There are still a few advantages to saving for retirement at this stage. Higher wages and possibly having some of the listed expenses (mortgages, student loans, credit card debt, etc.) paid off by this time can leave you with more disposable income to invest.13

You can still set up and contribute to a 401(k) or an IRA if you’re 50 or older. You may be able to contribute an additional $1,000 annually to your traditional or Roth IRA starting at age 50 in 2023.1

If you’ve used up all the tax-advantaged savings accounts you can use, consider adding to your retirement savings in other ways. CDs, blue-chip stocks, or vacation homes you rent out might be a good choice.

You can also begin to get a sense of what your Social Security benefits will be and when it makes sense to start claiming them. You may begin to receive retirement benefits at age 62, but the age for full benefits is 66.14

Long-term care insurance is a good idea if you’re planning for the future. It can help cover the costs of a nursing home or home care if you need it in your later years. If you don’t plan for health-related expenses properly, they can devastate your savings.

There are other aspects of retirement planning beyond saving money.

Retirement planning is more than just how much money you’ll save and how much you need. It includes your entire financial situation.

Your Home

Home ownership is the most important asset for most Americans. How does that fit into your retirement plan? Since the housing downturn, planners view homes as less of an asset than they once did. A home equity loan or home equity line of credit is now a popular option for many retiring homeowners, as they are often offered with no prepayment penalty.

Even after you retire, there’s also the question of whether or not you should sell your home. You might still have a significant amount of involvement with the home where you raised multiple children, and holding onto it might cost you a lot of money. A look at your home in retirement should be part of your retirement plan.

Planning the estate is part of estate planning

A trust or other strategy should shield as much of your assets from estate taxes as possible before you die. A will should address your plans for your assets, but even before that, you should set up a trust or use another strategy to shield as much of your assets as possible from taxes.

In future, the first $12,921,000 of an estate will be exempt from estate taxes, but more and more people are leaving money to their children in a way that does not provide them with a lump sum. Changes may also be on the way in Congress concerning estate taxes, as the estate tax amount is scheduled to drop to $5,000,000 in 2026.

Taxes paid as efficiently as possible

When you reach retirement age and begin taking distributions, taxes become a big issue. Most of your retirement accounts are taxed as simple income tax, resulting in a potential 37% penalty. That’s why it is critical to consider setting up a Roth IRA or Roth 401(k) in order to pay taxes upfront rather than upon withdrawal.

Converting your Roth IRA contributions to a Roth IRA is a good idea if you expect to make more money in the future. An accountant or financial planner can help you work through tax issues.17

Insurance is the practice of covering the cost of loss or damage to property or life, through the transfer of funds or other means, usually in the form of a contract.

Protecting your assets is key to retirement planning. Age brings with it increased medical fees, and you will need to cope with the intricate Medicare system. Many people believe standard Medicare doesn’t provide adequate coverage, so they purchase Medicare Advantage or Medigap policies to supplement it. There’s also life insurance and long-term care insurance to think about.

An annuity is a unique kind of insurance policy offered by an insurer. An annuity is a sort of pension. You deposit money with an insurer and receive a predetermined monthly payment later on. There are numerous annuity alternatives and variables to consider when deciding if one is suitable for you.

What should I do to prepare for retirement?

Contribute every month—every little bit counts—to your retirement planning. You may start by contributing through an employer-sponsored plan if your company offers one. You may want to consider talking to a financial planner or investment specialist, as well. Your investments will grow over time as long as you begin contributing early. You’ll earn interest on that interest, too.

Why Is Retirement Planning So Important?

Having enough money for retirement is possible if you save enough. Because no one wants to work till the last minute, working part-time or occasionally is not sufficient to maintain your current lifestyle. It’s critical to have a retirement plan that allows you to receive the most money when you retire. It’s critical to receive the most money when you retire, and Social Security benefits will only go so far.

What Other Issues Should I Think About During Retirement?

Retirement planning is such an important part of your financial well-being. However, there are other issues you must also think about outside of retirement that might affect your finances. Make sure your finances provide you with the greatest tax benefits possible, in order to consider converting your Roth IRA to a Roth IRA. You may also wish to consider what will happen to your assets after you die, which is where estate planning comes into play. An insurance policy can help cover the costs left behind by you if you are injured or die unexpectedly.

The Bottom Line is a business blog that covers topics such as entrepreneurship, finance, and marketing.

The retirement planning process doesn’t care when you are in your life. It’s about how much money you need to be able to retire. Because it costs money to do so, everyone dreams of one day being able to quit working and spend more time with family and friends. In order to retire, you need to save money.

Your Fresno Financial Advisor Takeaways

Soutas Financial in Fresno wants to remind you of the following points. A great benefit of these qualified retirement plans is that your employer can match what you contribute up to a certain amount. For example, if you contribute 3% of your annual income to your plan account, your employer may match that and deposit the equivalent amount into your retirement account, effectively giving you a 3% bonus that grows over time. Retirement planning is such an important part of your financial well-being. However, there are other issues you must also think about outside of retirement that might affect your finances. Make sure your finances provide you with the greatest tax benefits possible, in order to consider converting your Roth IRA to a Roth IRA.

We Can Assist You

Are you trying to find a financial advisor in California? Look no further than Soutas Financial & Insurance Solutions Inc. your Fresno financial planner is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax-Efficient Strategies IRA, 401(k) & 403(b) Rollovers, Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Other Fresno Financial Advisor Articles

Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648
Soutas.com

The post What Is Retirement Planning? appeared first on Fresno Financial Advisor.

source https://soutas.com/what-is-retirement-planning/

Can You Afford to Live Comfortably in Retirement?

By Soutas Financial

How much money do you need to retire? And is it enough? According to Schwab Retirement Plan Services, the average participant in a 401(k) plan thinks they’ll need $1.7 million to do so. Roughly half of those surveyed believe they will be able to meet their financial goals. The amount you need to save for retirement depends on how much you will need. To get an idea of how much money you’ll need, you need to first determine how much you’ll spend on your retirement.

How much will you need to retire? And will it be enough? Approximately half of the people surveyed by Schwab Retirement Plan Services believe they can meet their retirement goals.1 When investing, many Americans aren’t accumulating enough money—and the funds they do collect are insufficient to cover their retirement needs. In order to understand how much of your retirement cost you’ll need, you have to first calculate your retirement expenses.

With the rise of online shopping, online banking, and online shopping, online banking has become an increasingly popular option for consumers. Basically, banking online is a convenient way for consumers to conduct financial transactions such as check writing, bill paying, transferring money, or applying for a loan. Online banking also makes it possible for consumers to access their accounts via computer or mobile device. Consumers can sign up for online banking through a number of different banking websites, such as banks, credit unions, and community banks. Online banking is typically more affordable than traditional banking. Consumers can typically access their accounts 24 hours a day and 7 days a week, which can make online banking more convenient.

Retirement expenses

There are no precise guidelines for estimating retirement expenses. Even if you’ve identified which categories of expenses are likely to decrease after you retire, you’re still likely to be off by a lot. The rule of thumb is that you’ll need to spend 80% of the amount you’ve invested in order to retire. Commuting and retirement-plan contributions are among the more significant costs that occur after you retire. Of course, other demands may rise (such as vacationing).

Many retirees say that in the early years, their expenses can match or even exceed those during work. This is especially true for retirees who have more time to spend money.

Thus, the expenses of retirees usually undergo the following three phases:

In both the early and the final stages of retirement, seniors spend the most money.

The quality of life is rated on a scale of 1 to 10, with 10 being the highest standard

Since you are nearing retirement, you are more likely to have a good idea of how much money you will need to maintain your current lifestyle—or support a new one—in the future.

Subtract any expenses you expect will go away after you retire and add any new ones. That will give you at least a ballpark figure to work with.

When it comes to planning for finances, don’t forget to count in any big bills or major cost-saving efforts, too. For example, if you plan to downsize and move to a cheaper home.

How Much Do I Need to Retire?

Financial advisors typically recommend a sustainable withdrawal rate of around 4% as a starting point.

The amount of money you could withdraw from your portfolio and still expect it to last at least 30 years, according to most financial experts.3 The majority of today’s experts believe that a 4% withdrawal rate is ideal, although there are exceptions.

Using the 4% rule, this is how much one might withdraw annually from three different nest eggs:

To estimate how much money you’ll need in retirement, divide your anticipated monthly expenses by 4. Therefore, if you think you’ll need $50,000 a year to live comfortably in retirement, you’ll need $1,250,000 ( $50,000 ÷ 0.04).

Financial security after retirement

Now that you have a rough idea of the costs of your retirement, the next step is to see whether your income will cover them. To do so, add up how much income you expect to receive from the following three sources:

Social Security Retirement

To get an idea of your future Social Security retirement benefits, use the Social Security Retirement Estimator. If you’ve been working and paying into the system for at least 10 years and have accumulated 40 credits, your projections are likely to be pretty accurate. As you near retirement, the estimate will be more accurate.

Each month you receive, the less you’ll get if you take your benefits early. You may take your retirement benefits as early as age 62 or as late as age 70, after which there is no further incentive for waiting since you will receive the full amount regardless of your age.5

The June 2020 monthly Social Security retirement benefit was $1,514.6 The amount you can receive depends on when you start collecting benefits.

The benefit for each month in 2022 will be:

The amount of monthly benefits is as follows for the 2023 tax year:

A plan that pays an assured monthly benefit to employees, regardless of their length of service

When your pension payments are scheduled to arrive, the benefit manager of the plan can supply you with an estimate of how much you’ll receive.

It is wise to consider how your income might change if you were to receive survivor benefits in form of a joint and survivor annuity, which continue to provide a specified percentage of your benefits to your spouse if you die first.

The amount of money you put aside for your retirement

401(k)s, IRAs, health savings accounts (HSAs), and other retirement accounts are all included in your retirement savings.

You must start taking required minimum distributions from a traditional IRA or 401(k) at age 72 if you have one. You don’t have to take any RMDs from a Roth IRA (although Roth 401(k)s do). At age 72, the monthly income you receive from those accounts will be determined by the RMDs that you’ve already taken. You may, however, start withdrawing funds from an IRA or 401(k) as early as age 59½ without penalty.

How to measure your personal success

In other words, if your retirement income totals up to more than what you predicted would be necessary, you probably have enough. However, you might want to increase your savings.

If you think you’ll fall short, you may need to make modifications or increase your income or reduce your expenses, depending on the situation. For example:

The more time you’ll have to work the numbers in your favor, the sooner you should do the math.

Saving vs. Investing

Saving often results in lower retirement account balances and investment returns than investing. When you need money or an emergency arises, your money is available and has a low chance of losing value—as well as small potential gains.

Investing, on the other hand, is performed with long-term objectives in mind. When investing money, you can expect higher future returns, but with more risk. Your risk tolerance and time horizon are key factors in determining the right balance of risk and reward.

How Much Is Enough?

It’s good to have a dollar amount as your long-term savings goal, but focusing on how much you should sock away each year is helpful.

Schwab advocates saving 10% to 15% of your income throughout your life to ensure a comfortable retirement.12 Here’s how certain retiree scenarios might play out.

People who save at least 5% of their salaries for retirement have an 85% chance of reaching age 90, according to research by the Employee Retirement System of Texas. Paraphrase: 85% chance of reaching age 90

Beth, a 30-year-old, receives $40,000 a year and is expecting 3.8% increases until retirement at age 67. In addition to stock and bond mutual funds, Beth expects to receive 6% annual returns on her retirement contributions.

By saving 5% throughout her working life, Beth will have amassed $423,754 by age 67. However, since she will still require 85% of her pre-retirement income once she retires, her 5% retirement savings are likely to fall short.

At age 67, Beth needs $1.3 million to match her pre-retirement income. Because a 5% savings rate doesn’t produce even half of what she’ll need in retirement, her savings of $50,000 won’t cut it.

15% and 10% Savings Rates

In order to arrive at the $847,528 at age 67 that Beth can expect to save at a 10% rate, assume that she is paid $1.3 million, her projected needs stay the same at $1.3 million, and that she wants to save $1 million. Then, keeping the three assumptions above, the required savings amount is $847,528. Even at a 10% savings rate, Beth will not accumulate the desired amount.

Beth can fund her retirement if she increases her savings rate to 15%. Using anticipated Social Security, she can reach $1.3 million.

Are individuals who do not save 15% doomed to a substandard retirement? No, not necessarily.

The phrase ‘conservative assumptions’ is synonymous with ‘presumptive reasoning’

We have made some assumptions about the future. The investment returns might be higher than 6% annually, and Beth might live in a neighborhood with a low cost of living. She might need less than 85% of her prior salary, or she might decide to work until age 70. Her salary might increase by more than 3.8% annually.

In the best-case scenario, Beth could save less than 15% and have a sufficient nest egg for retirement, thanks to all of these optimistic possibilities.

What if the assumptions are too optimistic? What if Social Security payments are lower than they are now? Or what if Beth’s financial trajectory is positive? In a 2019 Schwab study, a quarter of the participants took out a loan from their 401(k) with most of them taking out more than one.13

Even if Beth saves 15% of her income, she might still have to live on 85% of her previous income in order to have a comfortable retirement if she lives in one of the five high-cost-of-living cities of California, Chicago, Los Angeles, New York, or Seattle.

Finding Out What You Want To Do What You Need To Do In Life

It’s important to plan for extra savings or income streams from now on to make up for the shortfall if you’ve reached mid-career without saving as much as these numbers say you should have.

You may wish to retire to a location with a lower cost of living so that your money lasts longer. You may also anticipate to work longer, which would increase your Social Security benefits, as well as your earnings. Remember, your Social Security benefit will be higher if you wait until your full retirement age to collect it, and it will be even higher if you delay until age 70.

Finding an exact figure for your retirement nest egg goal can be accomplished using the provided guidelines. Some financial advisors suggest saving 12 times one’s annual salary at retirement. For example, a 66-year-old earning $100,000 would require $1.2 million at the end of their careers if they adhered to this recommendation. Since the future is unknown, there is no prefect retirement savings target or percentage.

The Bottom Line is a 2013 American-Italian docudrama short film directed by John Turturro, and written by him and Peter Dinklage. It stars Dinklage, Joan Allen and Vincent D’Onofrio. It is about a cancer patient who is dying of his disease and has only a few hours left to live. The film was produced in association with Closer Productions and the United Nations Foundation and is dedicated to the memory of the late Academy Award-winning actress and UN Goodwill Ambassador, Haley Bennett. The film received a nomination for the Academy Award for Best Live Action Short Film, but lost to The Dressmaker.

Retirement planning isn’t something you do before you stop working. Rather, it is a lifelong process.Throughout your working life, you will go through a series of phases as you evaluate your progress and targets and make decisions to reach them.

It’s difficult to determine how much money you will need in retirement and to plan for it. However, it is critical to be prepared. You can’t predict how much income you will require, but it’s preferable to be overprepared than to wing it.

Your Fresno Financial Advisor Takeaways

Soutas Financial in Fresno wants to remind you of the following points. Approximately half of the people surveyed by Schwab Retirement Plan Services believe they can meet their retirement goals.1 When investing, many Americans aren’t accumulating enough money—and the funds they do collect are insufficient to cover their retirement needs. In order to understand how much of your retirement cost you’ll need, you have to first calculate your retirement expenses. Investing, on the other hand, is performed with long-term objectives in mind. When investing money, you can expect higher future returns, but with more risk. Your risk tolerance and time horizon are key factors in determining the right balance of risk and reward.

We Can Assist You

Are you trying to find a financial advisor in California? Look no further than Soutas Financial & Insurance Solutions Inc. your Fresno financial planner is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax-Efficient Strategies IRA, 401(k) & 403(b) Rollovers, Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Other Fresno Financial Advisor Articles

Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648
Soutas.com

The post Can You Afford to Live Comfortably in Retirement? appeared first on Fresno Financial Advisor.

source https://soutas.com/can-you-afford-to-live-comfortably-in-retirement/

5 Steps to Retirement Planning

By Soutas Financial

To help you achieve a safe, secure, and fun retirement, follow these five steps

The process of preparing for retirement is a multistage endeavor. To enjoy a comfortable, secure, and fun retirement, you must build a financial cushion that funds it all. However, planning how you’ll get to retirement is also important.

Before setting up a retirement account, first consider your retirement goals and the amount of time you have left to achieve them. After that, look at the variety of retirement accounts that can assist you save for the future. As you save your money, it must be invested to increase in value.

When you finally stop working and start withdrawing your retirement savings, you’ll have to pay a big tax bill. There are a few things you can do to avoid paying huge retirement taxes while you’re saving for the future. You can continue the process if that day ever comes when you no longer have to work.

The following are the five steps that everyone should follow, no matter their age, to create a solid retirement plan. We’ll get into these issues later. For now, learn the five steps.

How Much Should You Save for Retirement?

The amount of money they need to save before crunching the numbers on their retirement goals will depend on many factors, such as their annual income and the age when they plan to retire.

There is no fixed rule about how much money to save for retirement, but many retirement experts offer rules of thumb such as saving $1 million, or 12 years of one’s pre-retirement annual income. Others recommend the 4% rule, which says that retirees should spend no more than 4% of their retirement savings each year in order to ensure a comfortable retirement.

Calculating the ideal retirement savings amount for your own situation is certainly worth doing.

For help constructing the ideal retirement plan, order a copy of the print edition of Investopedia’s Retirement Guide.

Considerations

You should think about the factors that will affect your retirement goals when planning for retirement. What are your family’s plans? Having children can significantly reduce your retirement savings for many people. As a result, the kind of family you want may affect your retirement planning.

Retirement plans are also worth thinking about, including possibly changing your home or living situation. Many people want to travel during retirement, but extensive travel will eat away at their savings faster than staying at home. On the other hand, moving to a country with a low cost of living may allow you to save more for extended periods of time while enjoying a high standard of living.

Americans usually qualify for social security benefits, but those benefits are rarely enough to cover all of their retirement expenses. In addition, one should also consider the variety of tax-advantaged retirement accounts.

401(k)s and IRA accounts have largely replaced pension funds as the standard retirement vehicles for skilled workers. Because of the contribution limits, your retirement strategy will depend on the number of tax-advantaged accounts available to you.

Once you have considered these factors, these are the next steps for planning your retirement:

The timeframe you are considering when taking an investment decision is critical to understanding the overall investment opportunity and to making a sound decision about the investment.

The framework for an effective retirement plan is based on your current age and the anticipated retirement date. The higher the degree of uncertainty involved in your retirement plan, the higher the degree of risk that your portfolio can withstand. If you’re young and have decades until retirement, you can invest most of your assets in riskier assets such as stocks. However, over long periods, stocks have outperformed other investments such as bonds. It’s critical to remember the phrase “long.”

You must maintain your purchasing power during retirement if inflation is increasing. “An acorn eventually becomes a mighty oak tree if it grows enough,” says Savannah, Tenn., financial advisor and RetirementPlanningMadeEasy.com founder Chris Hammond.

Inflation “is like compound anti-growth for your money,” Hammond says. “It erodes its value over time as a result of inflating. A seemingly small inflation rate of 3% will decimate the worth of your savings over a period of 24 years as a result of a measly 3% yearly increase. It doesn’t look like much, but over time, it is significant.

A 64-year-old should have a higher allocation to less risky bonds such as bonds to preserve capital and maintain income, rather than seeking the same return from stocks that are more volatile and provide a higher standard of living.

When building a retirement plan, break it up into multiple components. For instance, let’s suppose a parent wants to retire in two years, fund a child’s education at age 18, and move to Florida. In terms of investment strategy, the three periods would be: contributing to the plan until retirement, saving for college, and living in Florida (with regular withdrawals to cover living expenses).

To find the best portfolio allocation, a multistage retirement plan must match different time horizons with varying liquidity needs. You should also rebalance your portfolio as your time horizon changes.

Saving a few dollars here and there in your 20s might not seem much, but the power of compounding will make it worth a lot more by the time you need it.

Calculate the amount of retirement spending required

Most people believe that after retirement, their annual spending will amount to only 70% to 80% of what they spent previously. 1 People often have unrealistic expectations about what they will spend after retirement. This is because they believe that their post-retirement spending will be 70% to 80% of what they spent while they were working.

Even if the mortgage has not been paid off or unforeseen medical expenses occur, an assumption that retirement will be financially secure may often be proved unrealistic. Retired adults also sometimes spend their first years splurging on travel or other bucket-list goals.

According to David G. Niggel, CFP, ChFC, AIF, founder, president, and CEO of Key Wealth Partners LLC in Litilz, Pa., the proportion of retirement savings needed by retirees should be higher than 100%, he says. “The cost of living is rising every year, especially healthcare expenses. As people live longer and desire to thrive in retirement, the amount of money they will need for retirement will increase. To save and invest accordingly, retired people will need more income over a longer period of time.”

Retired adults, by definition, spend eight or more hours a day not working, so they have more time to travel, go sightseeing, shop, and engage in other expensive activities. In retirement planning, more spending in the future requires additional savings today if spending goals are accurate.

“The amount you withdraw each year, and the investments you make, are significantly influenced by your withdrawal rate. It’s crucial to know what your future expenses will be so you can decide how much to withdraw from your retirement account each year and how to invest it. If your future expenses are understated, you run the risk of outliving your investment, or if your future expenses are overstated, you could miss out on the retirement lifestyle you desire,” says Kevin Michels, CFP, EA, and financial planner in Draper, Utah.3

In order to successfully plan for retirement, you must also take into consideration your life expectancy. Individuals are living longer than ever before.4

If you want to purchase a house or fund your children’s post-retirement education, you’ll need more money than you think. Those outlays must be included in your overall retirement plan. Make sure to update your plan once a year to keep track of your savings.

According to Alex Whitehouse, AIF, CRPC, CWS, president, and CEO of Whitehouse Wealth Management in Vancouver, Wash.,6 specifying and estimating early retirement activities, accounting for unexpected expenses in middle retirement, and forecasting what-if late-retirement medical costs can help improve retirement planning accuracy.

After tax return on an investment is the percent increase or decrease in the value of an investment over a period of time, after deduction of all transaction costs.

Once the time horizons and spending requirements have been determined, the after-tax real rate of return must be computed to determine the feasibility of the portfolio producing the needed income. Even for long-term investing, a required rate of return of more than 10% (before taxes) is normally considered unrealistic. As you age, this return threshold goes down, as low-risk retirement portfolios are largely composed of low-yielding fixed-income securities.

If, for example, an individual has a $400,000 retirement portfolio and $50,000 of expenditures, preserving the portfolio’s balance, if there are no taxes and the retirement fund holds steady, the 12.5% return is excessive. A primary advantage of planning for retirement at an early age is that the portfolio can be expanded to safeguard a realistic return. A more reasonable expected return of 5% might be achieved using a $1 million gross retirement investment account.

The amount of investment return and the taxability of that return are both dependent on the retirement account that you hold. Therefore, the actual return must be calculated after tax dollars are deducted. However, the tax status at the beginning of retirement funds withdrawals is an important part of the retirement planning process.

Risk Tolerance versus Investment Goals must be properly balanced in order to achieve investment goals

The most important step in retirement planning, whether you’re doing it yourself or hiring a professional money manager, is ensuring your portfolio is properly allocated to balance the needs of risk aversion and returns objectives. How much risk are you willing to take to meet your goals? Are you investing in risk-free Treasury bonds to cover future spending?

You should be comfortable with the level of risk involved in your portfolio and know what is essential and what is superfluous. “Don’t be a ‘micromanager’ who reacts to daily market noise,” says Craig L. Israelsen, Ph.D., creator of 7Twelve Portfolio in Springville, Utah.6

“Too often, ‘helicopter’ investors overmanage their portfolios, according to Israelsen. When your portfolio’s mutual funds experience a bad year, boost your contributions. A mutual fund you dislike this year may turn out to be next year’s best performer—so don’t abandon it.”

“Markets go up and down in regular cycles, so if you can live with seeing your portfolio’s value increase and decrease over 40 years, you can endure the ups and downs,” says John R. Frye, CFA, senior advisor at Carnegie Investment Counsel.7 “When the market goes down, buy—don’t sell. Refuse to panic and buy if shirts are on sale 20% off. Why not stocks if they go on sale 20% off?”

Make sure you stay on top of estate planning matters

Well-rounded retirement plans require the assistance of lawyers and accountants, who specialize in those areas, in addition to other specialists. Providing life insurance is also important to the estate planning process. Your estate plan and life insurance coverage ensure that your assets are distributed in accordance with your wishes, and your loved ones will not experience financial difficulties after your death. A properly constructed estate plan also minimizes the likelihood of a costly and time-consuming probate process.

The estate planning process includes both tax planning and gift planning. An individual should compare the tax implications of gifting or passing assets through the estate process if he or she wants to leave assets to family members or a charity.

Saving for retirement is often accomplished through a periodic investment plan that produces returns that exceed yearly inflation-adjusted living expenses and maintain the value of the portfolio. To find out the right retirement plan for an individual, consult a tax professional.

According to Mark T. Hebner, founder and president of Index Fund Advisors Inc. in Irvine, California,9 “Estate planning will vary over an investor’s lifetime,” he says. “Early on, things such as powers of attorney and wills are necessary. Once you begin a family, a trust may become an important part of your financial plan.”

“Later on in life, how you would like your money to be dispensed will be of utmost importance in terms of cost and taxes,” says Hebner. “Working with a fee-only estate planning attorney can help you prepare and maintain this portion of your financial plan.”

What Is Risk Tolerance?

The amount of loss you’re willing to tolerate within your portfolio depends on your financial objectives, income, and age.

How Much Should I Save for Retirement?

In a perfect world, savings would begin in your 20s and last throughout your working life.

You can start collecting Social Security retirement benefits as early as age 62, but you won’t receive full benefits as you would if you waited to collect them at full retirement age. 11

The Bottom Line is a business reality television series that seeks to help small and middle-sized businesses grow and prosper. The program follows the lives of seven bottom line-minded business owners as they navigate the daily challenges of running a small business. The hour-long series peaks on June 5, 2015 at 8:00PM EST on the DIY Network.

The retirement planning burden has shifted from employers to employees in recent years. A defined-benefit pension, awarded by most employers, is rare these days. If you are not offered one, you must manage your investments on your own, not your employer’s.

Creating a comprehensive retirement plan is one of the most challenging aspects because it requires striking a balance between realistic return expectations and a desired standard of living. The best approach is to focus on constructing a flexible portfolio that can be revised regularly to account for changing market conditions and retirement goals.

^{Your Fresno Financial Advisor Takeaways}

Soutas Financial in Fresno wants to remind you of the following points. The process of preparing for retirement is a multistage endeavor. To enjoy a comfortable, secure, and fun retirement, you must build a financial cushion that funds it all. However, planning how you’ll get to retirement is also important. The most important step in retirement planning, whether you’re doing it yourself or hiring a professional money manager, is ensuring your portfolio is properly allocated to balance the needs of risk aversion and returns objectives. Creating a comprehensive retirement plan is one of the most challenging aspects because it requires striking a balance between realistic return expectations and a desired standard of living. The best approach is to focus on constructing a flexible portfolio that can be revised regularly to account for changing market conditions and retirement goals.

We Can Assist You

Are you trying to find a financial advisor in California? Look no further than Soutas Financial & Insurance Solutions Inc. your Fresno financial planner is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax-Efficient Strategies IRA, 401(k) & 403(b) Rollovers, Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Other Fresno Financial Advisor Articles

Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648
Soutas.com

The post 5 Steps to Retirement Planning  appeared first on Fresno Financial Advisor.

source https://soutas.com/5-steps-to-retirement-planning/

Want To Know What You Should Be Checking Off Your List Before Retirement?

By Soutas Financial

Make sure you finish these items before you retire smoothly

Retirement planning is hard. Even if you plan to retire in 10 years, it’s very important that you’re ready for those years. Here’s a checklist of suggestions and hacks to help you prepare for those years to come.

The key takeaways are listed below:

Contribute to Your 401(k) and IRA

Many retirement savers consider these to be their highest-earning years. It’s crucial to contribute as much as possible to your employer’s retirement plan, IRA accounts, and so on. Every bit helps, even if these contributions don’t compound as much as those made in your 20s and 30s.

You might be eligible for Social Security benefits if you have worked long enough.

It is likely that those currently in their 50s will receive the benefits they have paid for. You can obtain your statement and check your benefits on the Social Security Administration website.2

It’s important to make sure you’ve received full compensation for your work, as well as to know and recognise what your retirement payments will be, based on your age.

There are a number of strategies to consider if you are married when it comes to filing for social security benefits. Using a calculator can help you make the best decision. The Benefits Planner from the Social Security Administration and the AARP’s Social Security Calculator are both worth trying.

Collect Information For All Your Retirement Accounts

It’s not unusual for someone to have worked at five or more jobs over the course of a career these days. This can result in several retirement plans with former employers, if you’re married and your spouse works. This number can obviously increase if you’re married and your spouse works. In addition to your Social Security benefits, of course.

An old pension, old 401(k) plan accounts that they’ve left with their old employer and haven’t touched for years, and multiple IRA accounts are among the things I’ve seen over the years.

It is a good time to make sure you have a record of all these old plans, as well as a strategy for integrating and investing them properly. It’s an even better time to make sure that your old 401(k) and IRA accounts have up-to-date contact information, and that your old employer has your current details.

Even if these accounts are relatively small, they can add up to real money for your retirement if you have several of them.

Include It in Your Other Financial Resources

You may also want to take a look at your other financial assets at this time to see if they could help support your retirement lifestyle. These assets may include:

You may gain from the NUA rules if your 401(k) account contains company stock. In addition, check to see if your company offers retiree health insurance. Will you work full or part-time during retirement?

It’s not uncommon for companies to offer incentives for longer-tenured employees to take an early retirement. If you’re the recipient of such an offer, please consider taking it on two counts.

The first offer might be quite financially attractive, and second, if you don’t accept the first offer, the subsequent ones are usually not nearly as lucrative. After that first offer, you likely are “on the list,” so to speak.

Someone might be in line for an inheritance from their parents or others. I’d advise against including this as a retirement asset, for the reasons stated. Things might happen, such as their parents living longer than expected and reducing much of their wealth.

Calculate How Much You’ll Need to Retire

You’ve been thinking about this for a long time, so it’s time to start making decisions about how you will live in retirement and, more importantly, figure out how much money you’ll need.

Are you planning to move or reduce your house size in retirement? Are you hoping to free yourself from debt before retiring? Will you have to support adult children in addition to yourself? You may also phrase this question as a retirement budget question.

Use a Retirement Calculator to determine how much money you will need to live on in your retirement

You might be able to find a retirement calculator online, or even through your company’s retirement plan provider. Make sure to check the methodology and the underlying assumptions of the calculator you choose, because some are better than others. If you use a good calculator, you may get an idea of whether your retirement plans are realistic or not.

Retirement projection tools typically ask you to enter your retirement plan assets, pensions, Social Security, and other investment funds. Based on your investment allocation and other variables, these programs will estimate how much retirement cash flow your funds might support.

Knowing that you have a potential shortfall as early as possible prior to retirement is a lot better than not knowing. This might be a good time to seek the services of a fee-only financial advisor. Besides their expertise, a qualified advisor can add a detached third-party perspective to your retirement planning.

Consider a Retirement Withdrawal Strategy

Retirement accounts can be quite complicated, partly because you need to decide which ones to use and in what order. Different types of accounts have different income tax consequences.

Withdrawals from a traditional IRA account or a 401(k) account are usually treated as ordinary income. In contrast, Roth IRA accounts are often exempted from taxation as long as you follow certain rules.

When taking annuity payments, you may want to pay some or all of them tax. The following describes the kinds of investment that may qualify for preferential long-term capital gains treatment if certain rules are followed. If you make poor investment choices, your financial well-being in retirement may be harmed.

It is a good idea to consult with a qualified tax or financial advisor if you expect to be in a high tax bracket during retirement, particularly if you are a business owner.

Apply Your Strategy to a Real-World Context to Test Its Durability

Even the most carefully thought-out plans often don’t go as planned. What if you suffer a life-threatening medical emergency that prevents you from working until retirement? What if your company terminates your employment prior to your desired retirement age? Will your retirement plans still function?

The Bottom Line is a business term used to refer to the items or ideas that are most important in a business

It’s critical for investors to have a handle on their retirement resources before retiring. These include Social Security, pension plans, retirement accounts, and so forth.

Make sure you have everything you need to support your retirement lifestyle down before you begin planning your retirement. A good retirement requires planning, so don’t hesitate to seek professional assistance if you need it.

^{Your Fresno Financial Advisor Takeaways}

Soutas Financial in Fresno wants to remind you of the following points. Many retirement savers consider these to be their highest-earning years. It’s crucial to contribute as much as possible to your employer’s retirement plan, IRA accounts, and so on. Every bit helps, even if these contributions don’t compound as much as those made in your 20s and 30s. When taking annuity payments, you may want to pay some or all of them tax. The following describes the kinds of investment that may qualify for preferential long-term capital gains treatment if certain rules are followed. If you make poor investment choices, your financial well-being in retirement may be harmed.

We Can Assist You

Are you trying to find a financial advisor in California? Look no further than Soutas Financial & Insurance Solutions Inc. your Fresno financial planner is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax-Efficient Strategies IRA, 401(k) & 403(b) Rollovers, Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Other Fresno Financial Advisor Articles

Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648
Soutas.com

 

The post Want To Know What You Should Be Checking Off Your List Before Retirement? appeared first on Fresno Financial Advisor.

source https://soutas.com/want-to-know-what-you-should-be-checking-off-your-list-before-retirement/