Do you know what you need to do to achieve your ideal lifestyle in retirement?
Retirement planning may seem like something meant for those in or nearing retirement. The reality is that the earlier you start planning, the better for your future financial situation. Waiting until you are near retirement to focus on your financial needs can create additional challenges. This is because you will be limited in what you can do or save and will have lost out on years of compound interest. Understanding what funds will be the most beneficial and how much to contribute on a monthly or annual basis can help you reduce future tax liability and take advantage of compound interest. By planning ahead now, you will have a greater likelihood of achieving your future goals and desired lifestyle.
We can help you plan for retirement by helping you understand:
How much you need to invest/save
A financial plan helps you understand what your annual income needs will likely be in retirement based on your goals. In addition, it shows how much you need to save now to reach your goals. Your advisor can use this information to help you understand what investments make the most sense, such as a Roth vs. traditional IRA.
When you can retire
There are two key factors that affect this decision – your age and your savings. If any of your retirement is centered around applicable pensions or social security, you will have to factor how your retirement age will affect the payout amounts. In addition, the amount you have saved affects when you can retire, as you must meet your savings/investment goals to fund your retirement.
How your income will work in retirement
A cash-flow analysis can help you review your retirement income sources to understand where your retirement income will be coming from and what gaps exist. This can also help you identify the optimal time to begin your social security benefits, how to time your required minimum distributions (RMDs), and what a safe withdrawal rate would look like.
How your retirement income will affect your taxes
In addition to your income strategy, you need to consider the impact on your taxes and tax-sensitive issues (such as Medicare premiums that vary based on income). Your advisor can assist you with this.
How do you envision spending your retirement?
Do you envision living in a lake house on the water? Traveling across the United States? Spending time with family? Retirement goals come with associated costs. Are you saving enough now to live the life you envision in retirement?
Common Questions Related to Retirement Planning
How much should I save for retirement?
The easiest way to answer this question is through a financial plan. This helps us to understand your near-term and long-term goals, saving ability, and expected income. With this information, we can look at what you currently have in savings and investments, how much compound interest you are likely to accrue by retirement, your expected social security/pensions, and how much more you need to save or invest. Our goal is to determine your future financial needs and how to help you achieve them. This can include how much and where to invest, when you could safely retire, and how your retirement date may affect your social security payouts.
How are a traditional IRA and a Roth IRA different?
The primary differences between a traditional IRA and a Roth IRA lie in their tax treatment, required minimum distributions (RMDs), and income limitations. Contributions to a traditional IRA are typically tax-deductible, meaning you don’t pay taxes on the money you contribute, but you will pay taxes on withdrawals in retirement. In contrast, Roth IRA contributions are made with after-tax dollars, so you don’t get a tax break upfront, but your withdrawals are tax-free in retirement (provided certain conditions are met). Additionally, traditional IRAs require you to start taking RMDs at a certain age whereas Roth IRAs do not require RMDs during the account holder’s lifetime. Lastly, Roth IRAs have maximum income limitations while traditional IRAs do not. Both traditional IRAs and Roth IRAs have yearly contribution limits that you need to be aware of.
How do Required Minimum Distributions (RMDs) affect my retirement income?
RMDs are mandatory withdrawals you must begin taking from traditional IRAs and most employer-sponsored retirement plans once you reach a certain age. The amount you must withdraw is based on your account balance and life expectancy. RMDs increase your taxable income, potentially impacting your tax bracket and overall financial situation. Planning for these distributions is important to avoid unexpected tax liabilities to ensure your retirement plan remains on track.
So many investment options - but, which should you choose?
There are pros and cons to each different investment option. Do you pay taxes on the money now or later? Are you required to take distributions after reaching a certain age? What will the return be on the investment? The reality is that there is no one-size-fits-all answer as the optimal investments may vary from individual to individual depending on your financial needs and goals. An advisor can help you determine what is best for you.
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