Do you feel like you know enough about money to get by? A newly released survey by the TIAA Institute shows that people of all ages and experience levels could answer only 50% of financial literacy questions correctly! Your level of knowledge in the financial world can have big ripple effects, especially when preparing for retirement.
As financial professionals, we advise clients from a wide range of financial levels. So, we’re sharing our top retirement planning tips for retirees nearing their golden years.
‘Plan ahead to maintain your standard of living in retirement.’
As you begin to consider retirement, take a thorough review of your monthly expense needs. When many people retire, they want to maintain the same standard of living or even increase it! Which is why retirees need a plan.
A retirement plan is a written income plan that includes income and tax planning, Social Security strategies and long-term care and estate plans. Start saving early to ensure you have enough money in your accounts to sustain your lifestyle in retirement. The U.S. Department of Labor reports if you save $6,000 each year and earn a 7% return on your investment, you will have $150,774 after just 15 years. If you add an additional 10 years of savings, that number jumps up to $379,494, proving why starting early can set you up for success.
You should also plan for shifts in the market and inflation to avoid getting caught off guard. Since March, inflation has hit a couple of 40-year highs. While many are feeling it at the gas pump and grocery store, retirees are concerned about the implications on their nest eggs. For years, many retirement planners have suggested retirees add a 3% annual inflation rate to their plan, but it might not hurt to raise that rate. Talk with your financial planner about adjusting your plan, so you don’t run out of money when it’s time to leave the workforce.
‘You’re still going to be paying income taxes, maybe more than you think.’
One of the most common mistakes that some people make is assuming they will be in a lower tax bracket in retirement, but some retirees find themselves in a higher tax bracket. Distributions from retirement accounts like traditional IRAs or 401(k)s are considered taxable income. Depending on how much you plan to withdraw, you could be bumped into a higher bracket.
Another reason for a potential increase in your tax liability is having fewer deductions. You won’t be able to claim your children as dependents, and if your home is paid off, you won’t be able to deduct the interest from your mortgage.
There are tax strategies that …….