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Three Tips for Planning Your Income in Retirement

    

SUMMARY: Setting a retirement date is a big milestone, and we want to help you get there and live comfortably. Here are our tips to help you plan your income in retirement:

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If you've been diligently saving for your retirement, you may often find yourself wondering when you can afford to set an official retirement date. The answer to this question can often depend on how much monthly or annual income your retirement portfolio can generate. Read on for three tips to help you plan your income in retirement.

Look into Tax-Saving Strategies

The first step in assessing the income and assets you'll have available in retirement is to determine the tax treatment of each of your retirement accounts, pensions, or other benefits.

  • Pre-tax accounts like 401(k)s, 403(b)s, and traditional IRAs allow you to deduct contributions on your federal income tax return. But this means when you make a withdrawal, these funds are subject to federal and state income taxes.
  • Post-tax accounts like a Roth IRA are funded through contributions that have already been taxed. As a result, all withdrawals (including gains) are tax-free.
  • Other accounts like Health Savings Accounts (HSAs) have unique tax treatment. Like 401(k) and IRA contributions, HSA contributions are pre-tax; but unlike a 401(k), HSA funds are also tax-free upon withdrawal as long as they're spent on a qualifying medical expense.

By evaluating how much money you have set aside in each of these types of accounts, you'll be better able to see from where you need to draw to reduce your total tax bill.

Diversify Through Fixed Income and Growth

If you're retiring in your fifties or sixties, your retirement assets will need to last for several decades or longer. This means that cashing in your retirement accounts and putting them in a savings account or other "safe" vehicle will ultimately cause them to lose value due to inflation. However, you also don't want to be caught flat-footed if a recession causes your stock holdings to decline in value right when you need to make a large withdrawal.

The happy medium usually lies in combining a fixed income product, like an annuity or pension, with growth-focused investments held in an IRA, Roth IRA, or 401(k). This can provide you with stable, regular income to cover your expenses while also making sure you have enough stock exposure to preserve your nest egg well into the future.

Optimize Your Social Security Benefits

Deciding when to begin collecting Social Security will depend on factors like your retirement assets, your projected benefit, and your likely life expectancy. Although you can opt to collect Social Security early (at age 62) or at full retirement age (67), you can also wait until age 70 to maximize your benefit. This is a good option if you're not planning to use Social Security as a primary source of income or if you're expecting to live well into your late 80s or 90s based on your family history.

On the other hand, if the extra income provided by Social Security payments will allow you to retire early, it can serve as a valuable bridge to allow your invested assets to continue to grow.

Have specific questions? Don't hesitate to reach out to me today

Wes Garner, CRPC
Principal Wealth Strategist
(281) 269-8669
wgarner@tdecu.org

Wes Garner-1

 

 

 

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

Sources

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change. Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.

 

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