Like every parent, you want your children to become happy, self-sufficient adults.
Many of us are given the opportunity to contribute to our retirement savings plans through our employers’ 401(k), 403(b) or other plans. Hopefully, you are taking full advantage of this benefit.
As financial planners we are often asked, “Will I be OK in retirement?” Before we even look at a client’s assets and expenses to answer that question, we ask them one ourselves, “What do you want your retirement to look like?”
The silver generation, as they’re often called, faces a unique set of challenges in today’s fast-paced, ever-changing, tech-driven world. With the sudden proliferation of Artificial Intelligence (AI), the challenges have become even greater.
“Turn! Turn! Turn!” written by Peter Seeger and made famous by The Byrds was released in 1965. If listening to this song on the AM station was part of your early memories, then you are probably thinking about downsizing or soon will be. Downsizing is a time to break things down and a time to cast things away. Hopefully there will be some laughter and dancing and not too much to mourn, but probably some tears are inevitable.
Earned income stops for everyone at some point, and people then need to navigate the transition from saving for retirement to spending from their investment portfolio. From a financial planning standpoint, we generally encourage clients to be debt-free in retirement so that when their earned income stops, so do their debt payments. Exceptions may be made for situations with reasonable levels of debt at extremely low interest rates or for loans with short remaining terms.
With the SECURE Act 2.0 delaying Required Minimum Distributions to age 73, and higher marginal brackets a likely reality in the near future, annual income tax planning has become even more important.
What Are RMDs?
Unlike taxable accounts, funds cannot stay in retirement accounts indefinitely. The requirement is to distribute a minimum percentage annually once you attain a certain age. The reason for these “required distributions” is to make sure that Uncle Sam gets his due. When funds are contributed to retirement accounts, it is with pre-tax dollars with the assumption that the saver is in a higher income tax bracket when contributing versus when it comes time to distribute (if the expectation is that this will not be the case, there are other options to consider so speak with your financial advisor).
As financial planners we are often asked, “Will I be OK in retirement?” Before looking at a client’s assets and expenses to answer that question, we ask corresponding questions such as, “What do you want your retirement to look like?” Each individual’s perspectives on retirement are unique. Some people want to remain in their current house and community. Others wish to downsize and stay in the area close to family and friends. There is yet another group that wants to leave a high-cost of living area to move to an area with lower-cost of living. Thus, it’s key to expand on a client’s retirement goals earlier rather than later.
Nothing guarantees there will be sufficient money to cover all costs in retirement. But there are some common mistakes to steer clear of as you grow older.
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