5 Ways to Help Pre-Retirees Balance Goals

When it comes to retirement, my advice is to plan years in advance for this very day, and concern yourself with issues beyond how much money you have.  It is important is to realize that most people don’t fully retire now, they transition into a part time career to help their brains continue to fire and to keep themselves busy.  Here are 5 tips for folks who are considering retirement.

1. Time is of the essence. When it comes to retirement, the longer your time frame, the better — so start planning early! At least five years before retirement or semi-retirement is a great time to begin the formal retirement planning process. (Of course, you’ve already been saving for years at this point!) Work with a financial advisor who employs strategies that align with your best interests.

2. Make a budget and stick to it. Create a realistic budget based on your guaranteed income and your regular expenses, along with a cushion for “worst-case scenario” items such as health care and emergency funds. Your budget should help balance the payment of short-term monthly bills with 401(k) and IRA savings for the long-term.

3. Understand your life priorities. Consider the trade off (a.k.a. the opportunity cost) between working versus retirement. Need help creating this vision? Our Wealth Vision financial planning software will help you plan for all the “what if” scenarios you can dream up.

4. Understand how financial planning connects retirement components. The face of retirement has changed, and your financial planner can help you navigate these new realities. In the past, folks retired and died soon after; today, it’s essential to plan for longer life expectancies that require a range of investment options. These options may include simply working longer, especially for those that are healthy and enjoy their jobs, as well as a diversity of investment buckets to ensure a comfortable retirement.

5. Get a handle on your taxes and health care expenses ahead of time. Converting qualified money to Roth IRAs over time can help you save taxes over a lifetime; investigate this tax-mitigating strategy before it’s time to retire. Take charge of your health care expenses by looking into Medicare at least six months before you turn 65.

Above all, enjoy the journey — but take care to remain balanced in your financial life.

Listen below as Win Damon and Stu talk about this topic on WJOP Joppa radio FM 96.3 in Newburyport.

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About Stu: With more than 29 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.

 

For more information please visit our website at www.erocktax.com

 

 

Stu talks about the Income Tax implications of drawing from an IRA

 

Do you have questions about withdrawing from your IRA? We like to describe the potential growth in an IRA as a bell curve, hopefully growing up over the years, and then slowly being drained over the rest of your life expectancy, starting at age 70 ½ years old.

There are three types of withdrawals, also known as distributions:

 

  • Owner withdrawal before age 59 ½, after age 59 ½, and after age 70 ½;
  • Owner passes away and the spouse inherits account;
  • Owner passes away and a non-spouse inherits the account.

Distributions before age 59 1/2. In addition to all applicable federal and state taxes, if you take distributions before age 50 1/2, you’ll also have to pay a 10-percent penalty. However, under certain extenuating circumstances, you may avoid the penalty—though you’ll still owe the taxes. Exempt situations may include:

  • Buying your first home;
  • Paying for a child, grandchild, or spouse’s school;
  • Unreimbursed medical costs that are more than 7.5 percent of your adjusted gross income;
  • Health insurance premium costs, if you’re unemployed for 12 weeks or more;
  • In the case of disability or death.

Distributions after age 59 1/2. There are no penalties or restrictions if you take disbursements between the ages of 59 1/2 and 70 1/2. Remember, your interest, dividends, and capital gains will be taxed as ordinary income, so you may owe state and federal taxes.

Distributions after age 70 1/2. Once you turn 70 1/2, you must take distributions. Also known as minimum required distributions or MRDs, if you don’t make these withdrawals, you’ll pay a penalty of up to 50 percent of the amount you should have taken.

If you pass away and your spouse inherits your account. Good news: if your spouse doesn’t need the funds right away, they can roll them over into their own IRA then take distributions after 59 1/2. If they need the funds early and are under age 59 1/2, they can roll the funds into a so-called “Inherited IRA” account and avoid the 10-percent penalty.

If you pass away and a non-spouse inherits your account. If your IRA passes to a non-spouse beneficiary, they may transfer the assets into an inherited IRA beneficiary account. Distributions will depend on your beneficiary’s age and life expectancy, and will be taxed as part of their income.

The rules that govern IRA distribution and inheritance are complex. Meet with a trusted financial advisor to work through the details.

Considering tapping into your IRA? Know the rules first to avoid fees, taxes or penalties.

Listen below to hear Stu and Win Damon review this topic on Joppa Radio 106.1 Newburyport

 

Like what you have read? Please share with friends.

About Stu: With more than 25 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.

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