How to Plan Your Income for Retirement
Most people look forward to retirement. They want to spend more time with their families, dedicate themselves to hobbies and explore the world. Unfortunately, about a third of Americans don’t have any retirement savings. More than half have meager savings that add up to $10,000 or less.
Ideally, you should start planning for your retirement while you’re still young. The reality, however, is that few people follow this advice, so they have to find retirement income planning strategies that can work for them even when they’re 50 or older.
As long as you follow a plan designed specifically for your financial circumstances, you can fund your retirement even if you haven’t saved any money. In most cases, you can expect your retirement plan to include a mixture of the following seven opportunities.
No matter how old you are, today is a good time to start investing. You may, however, need to take a different approach than younger people. As you near retirement, you should follow a conservative strategy that lets you grow your wealth while protecting you from loss.
More often than not, investors 50 and over will want to focus on annuities and other secured income contracts. Since secured income contracts have limited guarantees, you don’t have to worry about losing your total investment. Putting your money into riskier stocks or mutual funds does not offer similar protections.
Young people rarely benefit from annuities because they can afford to accept the higher risk of investing in stocks. As you near retirement, though, the stability of an annuity starts to look more appealing.
An annuity is an insurance product that guarantees a payout. When you invest in one, you don’t have to worry about losing all of your money.
There are different types of annuities, though, so it pays to talk to a professional before you choose a product. Overall, though, you can expect the annuity to protect you from higher taxes and give you a guaranteed income after you retire.
You probably don’t want to use annuities as your only retirement funding option. They will, however, diversify your portfolio, lower your investment risk and give you a guaranteed income later in life. That makes them excellent opportunities for people over 50.
Since all investments include some level of risk, you may want to include some guaranteed income products in your retirement income planning. Many people like annuities because they come with guarantees that ensure you get a minimum return on your investment.
You can also improve your asset protection by diversifying your investments. The more diversity your investment portfolio has, the more protection you get from market fluctuations.
Long-Term Care Strategies
As you get older, you can expect your healthcare expenses to grow. Home healthcare for retirees usually costs $50,000 or more per year. Living in a nursing home can cost as much as $80,000 per year.
You can’t rely on Medicaid to pay for your long-term care until you have spent the bulk of your savings. Because of this, you may need a long-term care insurance policy that helps pay your bills and protect your assets.
IRA and 401(k) Rollovers
Even if you don’t have a solid plan for funding your retirement, there’s a good chance that you have some money in an IRA or 401(k). After all, nearly 80 percent of Americans work for companies that offer 401(k) retirement plans or something similar.
Depending on your age and when you plan to retire, you may want to:
- Roll your 401(k)’s value into an IRA.
- Leave the money in your 401(k) account until you retire.
- Transfer the money into a different type of employer-sponsored retirement plan.
- Cash out the account.
Typically, you will want to avoid cashing out your 401(k) until you’re over 59.5 years old. If you cash out before then, you may need to pay a 10 percent federal tax on top of your income tax. Still, the option to close 401(k) accounts and keep the cash works to the benefit of some people under 59.5 years old.
Tax Minimization Strategies
Lowering your tax burden makes it easier to accumulate wealth. The less money you pay the government, the more you can invest in your retirement.
Tax-deferred vehicles make it possible for you to avoid taxes on the capital gains that you earn from investing. There are several tax-deferred vehicles that you may want to consider.
Keep in mind that deferring taxes does not mean that you can avoid them forever. Insurance products, for instance, let you avoid taxes until you retire. This approach benefits most people because they enter lower tax brackets when they retire.
Charitable giving gives you another opportunity to lower your tax burden. By setting aside money for qualified charities and non-profits, you may find that you can benefit from:
- Income tax deductions
- Avoiding capital gains
- Reducing or eliminating estate taxes
Maximizing the benefits of charitable giving often requires help from a professional who understands the role that philanthropy can play in retirement and estate planning. If you try to plan charitable giving on your own, then you could miss opportunities to protect yourself and your family from higher taxes.
How you do your retirement income planning will make a significant difference in your post-career lifestyle. Get professional advice by contacting Ross Wealth Advisors at 614-545-0277. The sooner you start planning, the more money you should have when you retire.
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