Retirement Planning - SafeMoney.com

retirement income planning

Early on, your retirement planning was probably focused on accumulating savings and growing your money. You aimed to invest and to enjoy solid returns for your money, perhaps with an advisor’s help.

However, things change as we get closer to retirement. Now, it’s more important to protect the money you have put away over the years. And once you retire, you will use this nest egg to replace the income stream you received during your career. Whether it was from a job, entrepreneurship, or other programs, that income source will change in some way.

A well-thought-out retirement income planning strategy can make a difference in helping you enjoy a comfortable lifestyle. This quick and in-depth guide will lay the groundwork for helping you create an effective income plan.

Keep these retirement income planning tips in mind as you start planning for how you will have financial security for many years ahead. Here are a few things to know and do in order to increase your chances of a secure, fulfilling retirement.

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cost of waiting to save for retirement

When you are in the later stages of your career, retirement might be the furthest thing on your mind. It's no wonder, as many other financial priorities are likely competing for your time and attention.

At this point, many people are thinking about how they will help their kids pay for college. For others, it’s about assisting their aging parents with costly health expenses. Or perhaps paying off debt is top of mind.

But retirement can creep up quickly. For some folks, it can be sooner than they think, whether via a forced early retirement or a layoff that makes it hard to find another job.

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understanding taxes in retirement

If you live in the United States, then you know first-hand about taxes that we have to pay. In retirement, those taxes can add up.

Sales tax, income tax, estate tax, and gift tax are just some of the ways that Uncle Sam collects from taxpayers in order to meet his financial obligations.

The subject of taxes is always a hotbutton issue in presidential elections as it is in state elections. With talk of possible tax hikes at present, many people who are retired and nearing retirement are wondering about how they can watch their tax bills.

Fortunately, there are a number of things that you can do to help alleviate, and maybe reduce, the taxes that you owe every year when you file your return.

Here’s a quick, high-level look at the different taxes in retirement that you might face – and what you might want to talk to your financial professional about planning for taxes-wise.

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Editor's Note: This article explores tax topics that can change quickly and are open to differing legal interpretations. This content is not and should not be understood to be any tax, accounting, or legal advice. Sources are provided below for information.

Almost as soon as Joe Biden was elected President, he announced his intention for an aggressive tax plan. Now the Biden tax proposal has been unveiled.

Among other things, it would raise taxes on the wealthy and use that money to help pay for new developments in the United States’ infrastructure, family plans, and educational system.

The American Families Tax Plan has been reshaped since its inception earlier this year, but the general thrust of higher taxes on the wealthy remains. President Biden's tax plan proposes to generate an additional $1.5 trillion over the next ten years by raising the taxes on the top 1% of earners in America.

Pundits and commentators say that there will most likely be additional changes in this plan before Congress ratifies it to go to President Biden for approval.

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how to handle market risk near retirement

Balancing risk in your portfolio is a fundamental at all ages, but it’s particularly important the closer that you are to retirement. As the old saying goes, even the best-laid plans can go to waste.

Market risk and its unpredictable timing aren’t the same for everyone. Should your investment holdings take a hit in your late-career years, it could very much throw your retirement plans off-kilter.

Up until this point, you may have adopted an investment strategy that had growth and wealth accumulation as your top goals. But these priorities tend to change as you get closer to retirement.

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taxable vs tax deferred how taxes can affect growth

There are only two sure things in this life, and they are death and taxes. Taxes affect us at every turn financially, and investments are no exception.

The taxation of your assets can have a substantial impact on how much money you end up with. As any financial advisor will tell you, it's not what you make that matters, it's what you get to keep.

Increase Your Nest Egg with Tax Deferral

With that in mind, there are ways to increase the stockpile of savings that you have for your post-career lifestyle. ‘Tax-me-later’ vehicles can increase the amount of money that you have in retirement. In financial circles, this sort of vehicle is known as a tax-deferred asset.

In other words, it’s an asset where you don’t pay taxes on your money until you start making withdrawals from there. When you do withdraw money from this asset, you will pay income taxes on the withdrawn amount.

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11 steps to help you get ready for retirement

Retirement is a major event after many years of work. It marks the time when you end your career and begin the next chapter of your life.

But sometimes retirees discover that they haven't prepared as much as they could have for this transition. Just on the financial side, there are many pieces to set in place.

Those focal points range from ensuring you have enough retirement income to knowing what your post-career goals are and being ready for unexpected financial challenges.

You have worked hard to reach this point. Now it’s your turn to make the most of this point and enjoy the things that you may have delayed or put off during your working years.

Here are 11 steps that you can take to help ensure that you are ready for the big day when it finally comes. You can use these steps as a starting guideline for putting your retirement planning in order and being ready to enjoy your post-career lifestyle.

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understanding different investment risks in retirement

When you think of the word "risk,” you may get a mental picture of such activities as skydiving, race car driving, rodeos, or other similar activities that have uncertain outcomes. For investments, the word "risk" may make you think of losing your life savings on a high-risk venture such as an oil and gas drilling partnership.

But the reality is that there are many different types of investment risk. All investments carry their own types of risk. It's important to note that no investment exists without any type of risk.

Everything Has Risk of Some Sort

There is always risk of some form inherent in every investment (and every financial instrument, for that matter), even those that are "safe.” They may have guaranteed interest and principal, but they are vulnerable to inflation.

For that matter, even cash itself has this inflation risk exposure. The key then to dealing with risk is learning how to manage it effectively.

A well-diversified portfolio will be subject to a variety of investment risks. That way a single given risk will have a much lower chance of being able to effectively disrupt the performance of an entire portfolio.

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how to keep your retirement plans on track

Everyone faces challenges to some extent when moving into retirement. Even those with the best-laid plans can still have some financial hiccups. And with everything that has happened in recent years, millions of Americans are wondering what it all might mean for their financial futures.

Take, for example, a 2020 workplace wellness survey put out by the Employee Benefit Research Institute. In the study, 1,028 workers of ages 21-64 said that they worried about their finances and retirement savings.

Two-thirds of employees felt stressed when they thought about their financial future. Almost half were concerned with their household financial well-being, with saving for retirement and having funds for an emergency being the top stressors.

How You Can Secure Your Future?

Many employees felt these pressures to some extent from the impact of the novel coronavirus. But you don't have to personally leave your financial future to chance.

What can you do personally to keep your plan intact? Here are some key steps that you can take to have your planned retirement stay as much on track as you can.

Nothing is ever foolproof. But these steps can go a long way toward helping you keep in lockstep toward your retirement goals.

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post retirement planning does not stop

Financial planning for retirement, or "post-retirement planning," doesn't end once you retire. Even if you have accumulated enough money for a secure retirement, your plan will require ongoing checkups to confirm that everything is going smoothly.

You will have to continue to make changes and adjust your plan as time goes on. Retirement can last as long as one-third of someone's lifetime, as medicine, wellness, and technology have seen tremendous progress in recent decades.

In other words, having an ongoing plan for this phase of life is quite crucial. You may also experience more changes in retirement than you have previously, as your abilities and health evolve over time.

Your retirement planning strategies will need to be reviewed and updated on an ongoing basis. Conducting annual reviews of your financial plan, at a minimum, and making changes as necessary is a solid course of action. 

Here are some 'moving targets' that are likely to change in your retirement years.

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unexpected expenses in retirement

If you talk to people who have been retired for at least 15 years or more, they will often talk about the major 'stealth' expenses that can arise after you stop working, such as a medical condition or major home repair.

Statistics show that one in five retirees and one in four retired widows will get hit with at least four major financial shocks after they stop working. These numbers could be fairly eye-opening for most pre-retirees. Or, at least, they can make them take a second look at their retirement plans.

The numbers also reflect that 28% of retirees and 13% of widows haven't experienced any financial shocks yet. But they are the exception and not the rule. It's prudent to think about any and all 'surprises' that can happen during your retirement years.

Not only does proactive planning give you a longer window for anticipating "stealth expenses" and setting reserves in place for them. It can also help you reduce the impact of these risks when you have to deal with them.

For example, you might take a tax hit from having to make a sudden withdrawal from your portfolio to cover an unanticipated health scare.

Here's a look at some surprise expenses in retirement that may come your way -- and how you can prepare for them.

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what is interest rate risk

Turn on the TV or radio, and chances are you might hear of volatility hitting equity markets at some time or another. But what you might not hear as much about is the risk facing CDs, bonds, Treasury securities, and other fixed-interest holdings: interest rate risk.

What is interest rate risk? It's a particularly important topic for retirees. After all, many retirement portfolio strategies use fixed-interest holdings to generate stable retirement income or to smooth out volatility in a portfolio.

These fixed-income assets also tend to be the place where millions of Americans protect their money. Or they may park cash there for short-term to medium-term goals. So, long story short, interest rate risk can have implications for millions of people

So, how should we define interest rate risk -- and how might affect you? Let's get into it.

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retirement planning for single people

With record numbers of baby boomers retiring, many new trends are coming into the retirement landscape. Among boomers, there is one growing trend of "solo agers," or those who retired without marrying anyone or having any children. According to the American Society on Aging, around 20% of boomers fit this trend.

If you are a solo ager, here are some questions to ask when planning for your retirement. How you answer these questions can be crucial in helping you enjoy a comfortable and financially confident retired lifestyle.

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what you can do to keep your retirement plan from failing

If you really think about it, there is risk in almost everything we do. As journalist and economist Allison Schrager has noted, people often manage risk in their lives and careers in surprising ways.

The description of a book that she wrote on risk management says it well: "Whether we realize it or not, we all take risks large and small every day. Even the most cautious among us cannot opt out--the question is always which risks to take, not whether to take them at all."

Now, for retirees, one of the major risks to financial security is sequence risk. What is that?

It's the probability of having losses early in retirement or just before you retire. Financial pundits fondly call this period the "retirement red zone."

Even a 15% loss can throw a retirement plan off track, especially if you are already taking money from your accounts for income. Then it simply compounds the losses.

It's a challenging time for retirees, who now are taking a triple-hit. Never-before-seen market swings are reducing the value of their portfolios. The novel coronavirus pandemic is shutting down many workplaces, which means that workers don't have regular income to save.

Many retirees who are still working were likewise affected. And low interest rates continue to be unfriendly to retirees with fixed-interest holdings.

Meanwhile, Michael Finke, professor of wealth management at The American College of Financial Services, points out another area to keep an eye on: how the pandemic is affecting the probability of success of our retirement plans.

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tax planning is hot right now

A lot has happened in 2020, from the novel coronavirus and its effects on the economy to Congress adding trillions to the national debt for economic relief. Many financial advisors see the situation now as a major opportunity for tax planning.

Recent market drops allow them to take advantage of reduced retirement account balances and to do Roth conversions. Their clients would save on the amount of taxes due, thanks to the lower account balance.

With national debt approaching new highs, advisors believe that an increase in tax rates is inevitable. Not only that, the CARES Act, passed by Congress for coronavirus relief, also put a pause on required minimum distributions for 2020.

For advisors, the opportunity for tax planning is ripe. But on the flip-side, many financial professionals also disagree about how and when is the best time to go about these strategies.

In an article on InvestmentNews.com, many advisors shared their thoughts on how they were coordinating tax strategies for their clients.

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how can covid 19 pandemic affect retirees

The novel coronavirus pandemic has impacted all of us in some way. Almost overnight, the U.S. was hit hard with record unemployment.

Many household incomes have been abruptly shut off. Several industries have slowed down to a crawl or else been shut off.

Millions of former workers have been forced to dip into their savings accounts in order to pay their monthly bills. Some have even been forced to take distributions from their retirement savings in order to make ends meet.

Of course, there is no question that better days will be ahead at some point. The U.S. economy is strong, and we will emerge all the stronger for it.

Even so, those without the benefit of continuing income from full-time employment or those with a shorter window before retirement may want to take a step back. It’s prudent to take stock of the situation, seeing what they can do to protect themselves. And that can helpful especially if something like this ever happens again.

How can this black-swan event affect seniors and baby boomers nearing retirement? In an April column of the Retirement Income Journal, a former International Monetary Fund official lays out some of the medium-term and long-term possibilities.

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four percent rule retirement doesnt always work

At some point or another, you may have heard of the "Four Percent Withdrawal Rule," but what exactly is it? And why does it matter for your retirement?

The four percent rule is the brainchild of south California financial planner Bill Bergen. Simply put, the rule states that a retiree can withdraw 4% of their initial retirement portfolio balance, and thereafter, adjust their amount for inflation each year. This approach would give the retiree a reliable "paycheck" that lasted for 30 years.

Back in 1994, Bergen had many clients worrying about safe withdrawal rates. They were anxious about how much they could spend in retirement without running out of money. Searching for answers in financial textbooks, Bergen found that no educational materials at the time gave a definitive answer.

With that, Bergen went to work on his computer. He ran analyses on data provided by no less than Roger Ibbotson, whose blockbuster research includes groundbreaking findings on indexed annuities as a retirement asset class.

The end result? Bergen's now-famous four percent withdrawal rule. Today, it's one of the most widely quoted and used rules of thumb in finance.

But those days had vastly different economic conditions than now. Given that, is the 4 percent rule still relevant for retirement investors today?

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coronavirus retirment bill congress cares act

Recently, Congress passed and President Trump signed into law the "CARES Act." Among policymakers, the bill is known more formally as the Coronavirus Aid, Relief, and Economic Security Act.

Much of the law is aimed at providing economic relief for businesses, but some parts of the act changed IRA and retirement-plan provisions. The bottom-line of it all? Many of these retirement changes can directly affect your ability to access money and bolster your income.

These changes will have a large effect, regardless of whether you are retired or are still working toward your golden years. In a Forbes.com column, Bob Carlson, editor of Retirement Watch newsletter, wrote about some of the most important changes.

Here’s a look at some major changes that might be coming to your retirement, courtesy of the coronavirus economic relief legislation that became effective on March 27th.

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retirement planning blind spot avoid this

Many working-age Americans have at least some idea of when they want to stop working and sail off into the sunset. But sometimes there can be a major gap between what we plan and what actually happens.

For many workers, one such gap is between the age at which they want to retire and the age at which you discover that you have to retire instead. A surprisingly large percentage of American workers are forced into early retirement for a variety of reasons. Those reasons include job termination, layoffs, personal health issues, or a need to care for elderly parents or other relatives.

Of course, early retirement can come with its own financial headaches. You might need to begin taking Social Security early for a reduced benefit. Or you might have to deal with not having enough savings to last for the rest of your life. Whatever the challenges, it's a period of major adjustment.

Early retirement means that you will have fewer years to save for retirement. You will also have a longer period of time over which you must stretch your money.

What if you plan to work until age 65 or 70? It's wise to create a financial projection of what your retirement will look like if you had to stop working at age 55 or 60.

And don't be surprised if you run into some sort of income shortfall. Not everyone is fully prepared to retire early when forced into retirement. So, to be ready for that possible outcome, you might have to make adjustments to your plan accordingly.

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2020 advisor outlook united states

As a new year rolls in, one survey suggests that advisors are optimistic but cautious about what might lie ahead for their clients in an uncertain economy.

InvestmentNews has released the findings of another one of its comprehensive surveys of advisors each year. In November of 2019, the news outlet surveyed 353 advisors about their outlooks and their concerns for the upcoming year.

Most of their outlooks were chiefly optimistic, and in some cases, even moreso than last year's survey. They expect the economic expansion to continue and predict another bullish year for stocks. But they do have some reservations about the possible results of the 2020 election.

About 7 out of 10 advisors think the economy is doing well. Only 54% of advisors felt this way in InvestmentNews's advisor survey in 2019. Meanwhile, a hefty 80% of advisors thought so in the survey from 2018.

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how long might you spend in retirement

People are living longer than before, leading many to ask: “How long could my retirement really last?” In generations past, retirement represented a relatively short period of time in most peoples' lives. They would work until they were 60 or 65 and then live perhaps a few more years before passing away.

But this has become a thing of the past. Today, some retirees could live for as long as another 30 years after they finish with their careers. Many of them are now travelling around the world, starting new businesses, or doing charity work.

The answer to this question will depend upon many factors, such as your projected longevity, financial resources, and current health. If you come from a family of long-lived forebearers, then you may have a good chance of living that long yourself. If you smoke or drink heavily, then your lifespan may not last as long as it would if you quit doing those things.

Thanks to advances in medicine, technology, and wellness, people's lifespans are longer than before. The National Vital Statistics Report from the Department of Health and Human Services revealed that the average American's lifespan has increased by 30 years over the past century.

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required minimum distributions retirement

Uncle Sam can be one of your key partners in your retirement saving. If you have money in a traditional IRA or an employer-sponsored retirement plan, then that money automatically receives tax-deferred status in the eyes of the IRS. Other accounts like SIMPLE IRAs and SEP-IRAs also benefit from this tax-favorable treatment.

Generally, your contributions to those accounts are tax-deductible. The money inside the account grows tax-deferred, or without taxes on the earnings over time, as long as withdrawals aren’t taken.

But you can’t enjoy this tax-deferred growth forever. Required minimum distributions are one way that Uncle Sam ultimately collects his tax dues.

Once you reach age 72, the IRS sets required minimum distributions (or RMDs) for you. You will be required to start pulling a certain amount of money out of your traditional IRAs and qualified plan balances every year.

The same goes for other kinds of IRAs with pre-tax money status. And this money will be taxed at your top marginal tax bracket, regardless of how long it's been in the account.

Before wide-ranging retirement reform called the SECURE Act was passed, the age for starting required minimum distributions was 70.5. If you turned 70.5 in 2019, the old rules apply to you. Check with an experienced tax advisor for guidance with your situation.

There is no capital gains treatment available for traditional IRAs and qualified plans, save for one exception. The sale of company stock held inside a 401(k) plan can be spun off and sold separately under the Net Unrealized Appreciation (NUA) rule.

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2020 irs contributions limits retirement plans

It's here. The IRS has posted the new income and contribution limits for all types of retirement plans and accounts for 2020. The IRS also covered income and contribution limits for different medical savings accounts.

Many of the income thresholds and contribution limits were raised. Meanwhile, a few stayed the same or changed very little.

Millions of Americans save and accumulate money for retirement using IRAs and qualified plans (or non-qualified plans for highly compensated and key employees). And every year, the IRS updates the income thresholds and contribution limits for a wide variety of retirement and medical savings accounts. This is done to keep pace with inflation.

The changes to contribution limits for retirement plans and other accounts in 2020 are listed as follows:

2020 irs contributions limits retirement plans image 1

Defined-benefit plans will also see change in 2020. The limit for defined-benefit plan annual benefits rises from $225,000 in 2019 to $230,000 in 2020.

And what about the income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit)? The credit for low-income and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000.

For heads of household it is set at $48,750, up from $48,000. And for singles and married individuals filing separately, it's now $32,500, up from $32,000.

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more predictable income certainty as pensions disappear

Once a corporate giant, General Electric Corporation has found itself in a downward spiral in recent years. The former staple of American business has been working to clear some substantial debt off its books.

One of the company’s latest big moves? To reduce debt by freezing its employee pension assets. This means that benefits will not continue to accrue for its employees, even though they continue to work there.

But while this is obviously better than pension termination, where the pension plan is simply dissolved, it marks the latest casualty in the pension landscape in corporate America.

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retirement tax planning

When it comes to taxes, you can be sure that Uncle Sam will want his share. Retirement tax planning can help you make the most of your money. Tax-wise strategies let you maximize your income and keep more of what you have accumulated over a lifetime of hard work.  

But while Uncle Sam’s tax collections are a certainty, what is less than clear for millions of retirees is their own tax bills. Many don’t know whether they are paying too much in taxes or not – and how, in turn, that affects their retirement income streams.

Fortunately, there are several ways that you can reduce your tax bill after you stop working through the proper use of annuities and IRAs.

The order in which you withdraw your assets can also substantially impact the amount of tax that you will have to pay. Studies have shown that a properly-structured withdrawal schedule can extend the life of an investment portfolio by as many as 6 years in some cases.

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