retirement

Retirement Income Planning Checklist 5 Questions To Answer Right Off The Bat

Retirement planning is something that people must think about, but the way that they think changes as they approach retirement. Early in life, you are trying to figure out how much to save and put towards retirement. It does not matter what is your ideal vision of retirement, still, you should answer a few necessary questions to make your dream to be a reality. As a wealth management company, here are 5 basic questions to ask as you start approaching retirement.

What do you want to do in retirement?

During your 20s, 30s, and 40s, financial freedom years can be tough. Once you reach the 10-15-year window prior to retirement, the sense of urgency probably will increase. Make time to consider these retirement questions to recognize the why behind your aims. Understanding why retirement is essential to you starts with asking yourself what you look forward to doing the most.

How to think about taxes when planning for retirement?

While this discussion depends on the specific investment vehicles you used to fund your retirement, it is essential to manage all taxable income where possible and consider the effect taxes will have on the real amount available to fund your lifestyle. The income that is leading up to retirement and through retirement will have unexpected implications for the retirement expenses. For instance: Your taxable income two years prior to your Medicare eligibility will determine your Medicare premiums. Your taxable income determines the threshold for deductibility of some costs, such as medical.

Many people have a mix of investment vehicles dedicated to funding their retirement lifestyle. If you invested in a Roth IRA, the money will be taxed before it will go into the account. Therefore, no taxes require to be paid during the withdrawal, even on the earnings. In accounts like traditional IRAs and 401ks where contributions are made with pre-tax dollars, withdrawals are recognized as ordinary income and will be taxed as such. When looking at tax-deferred balances in non-Roth retirement accounts, you need to mentally decrease the amount available for lifestyle expenses by 30 percent to account for income taxes.

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How long you want the money to last?

This question is asking how long you plan on living. Life expectancy is not something most people like to think about, but the reality is that your expected longevity will play an important role in your retirement planning projections. The longer your life expectancy, the greater the anticipated price of retirement. After turning 65, 1 in 3 women and 1 in 5 men will live beyond 90. Before you can estimate how many years you’ll spend in retirement, you need to figure out when you want to retire. You need to use as realistic of a life expectancy as possible.

You need to personalize your assumptions based on your own health and wellness history and your family’s history of longevity. You can use the average lifespan that is76 years for men, or 81 years for women. If you are not sure how long you will live or if your retirement date is a moving target, there are some different retirement scenarios to help you decide how long your money needs to last.

How Much Retirement Savings Will You Need?

If you have 5 years or less unless your desired retirement age, you need to complete a real budget plan for retirement. The nice approach to a budget is that you should think about the standard of living and ask yourself basic questions, like whether you will maintain the existing lifestyle, or if you need more money to fund your retirement adventures. Otherwise, studies recommend that retiree expenses average between 70 percent to 85 percent of preretirement income.  You can adjust this target up or down depending on if you want to enjoy a further action or a further frugal lifestyle.

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Should I tweak my investment strategy?

There is no denying that retirees require some type of stability in their portfolios as they start to rely on their portfolios to sustain their lifestyles. The reality is that the cookie-cutter 60/40 mix between stocks and bonds does not create the type of income that most people need in retirement, nor are bonding providing the type of inflation protection that you require for a long retirement. While the right allocation is highly individual and dependent on your good conditions, a good rule of thumb is planning for 12 to 18 months of cash at the beginning of the retirement to have the lifestyle and reducing sequence of returns risk.

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