Retirement planning strategies continue to evolve as there is not a one size fits all strategy. Many people like the idea of a semi-retirement, there is not a specific age anymore which it is assumed that one should retire. This is another very personal decision that needs to be thoughtful and planned for accordingly. We will work together to understand how you envision your retirement and the steps to make this dream a reality.
Lifetime Income Need
The goal is typically “to maintain my/our current standard of living in retirement”. The key to success at retirement is having a clear understanding of your cash flow and living expenses today, so we can plan for tomorrow. Unfortunately, upon retirement we still need to plan for inflation and pay taxes. When it is time to start withdrawing the funds you have worked so diligently to save, we will help create a tax efficient distribution schedule.
Health Care Needs
When the time comes to review Medicare Part A, Part B, Part C and Part D, we will work with you and our strategic partners to review your specific situation. While it is interesting to discuss with friends and family which supplemental plan they have, keep in mind that often times what is the right supplement for your spouse or friend may not be the right solution for you.
Estate planning is a critical part of your financial plan. The simple fact is, if you don’t have an estate plan, the State of Minnesota has one for you. Estate planning is very personal and emotional as each plan is unique. We will work with you and our strategic legal partners to understand what is important to you so a proper plan can be created and also implemented.
Social Security was established in the 1930’s as a safety net for people who, after paying into the system from their earnings, could rely upon a steady stream of income for the rest of their lives. The age of retirement, when the income benefit starts was originally age 65 which was referred to as the “normal retirement age”. Now, for a person born after 1937, the normal retirement age is being increased gradually until it reaches age 67 for all people born in 1960 and beyond. The amount paid in benefits is based upon the earnings of an individual while working. If a person wants to continue to work and delay receiving benefits, they may do so to build up a larger benefit. Conversely, early retirement benefits are available, at a reduced level, as early as age 62.
Employer-Sponsored Qualified Plans
Most employer-sponsored plans today are established as “defined contribution” plans whereby an employee contributes a percentage of earnings into an account that will accumulate until retirement. As a qualified plan, the contributions are deductible from the employee’s current income. The amount of income received at retirement is based on the total amount of contributions, the returns earned, and the employee’s retirement time horizon.
Traditional and Roth IRAs
Individual Retirement Accounts (IRA) are tax qualified retirement plans that were established as a way for individuals to save for retirement with the benefit of tax favored treatment. The traditional IRA allows for contributions to be made on a tax deductible basis and to accumulate without current taxation of earnings inside the account. Distributions from a traditional IRA are taxable. A Roth IRA is different in that the contributions are not tax deductible; however, the earnings growth is not currently taxable. To qualify for tax-free and penalty-free withdrawals of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching 59 ½ , may be subject to an additional 10% federal tax penalty.
For more information on retirement income needs and income sources, please contact us today.