What you need to know about retirement

Retirement is not a simple thing; work, stop working, and continue to live the same lifestyle. Social Security will only provide you with about 30% to 50% of your working income, less if you retire early, but where will you get the additional income necessary to support your desired lifestyle?

Planning for your retirement is very simple if you can answer just one question: When are you going to die?

If you are going to die in two years and you plan to spend $50,000 a year, the plan is easy, you have to save $100,000, simple! If you do not have an accurate answer to that one simple question, planning for retirement becomes far more difficult.

Due to the continuing advances in the medical sciences, we are all living much longer. Making our money last into an extended lifetime is the real trick.

Retirement requires a lot of planning

Prior to retirement the income for most of us comes from a single source, your job, and your tax brackets are simple, 10%, 15%, 25%, etc. During retirement your income will probably come from multiple sources, Social Security, 401K/IRA withdrawals, Pensions, Annuities, etc. and the tax structures that you will face are far more complex due to the deferred taxation of your Social Security benefits.

Savings for your retirement can take many forms. You can invest in objects that you can later sell during retirement as a source of income. You can save cash with a bank or broker. You can be part of your company 401K. You can start a traditional IRA or Roth IRA.

Saving for retirement helps in two ways. It lowers your working lifestyle which will then be a smaller target during retirement, and it also lets you grow a source of additional income during retirement. Not saving is the proverbial double edge sword. Your target lifestyle is higher and you have no savings to help you get there.

As we will see in the following pages, some of us with retirement income goals as low as $55,000 will be facing extremely high marginal tax rates, 46.25% and even 55.5%. The way you balance your retirement savings between taxable and non-taxable income sources can become a significant factor in avoiding these tax rates.

Some of the information we hope to provide:

  • It is impossible to make Roth vs traditional IRA decisions without knowing your personal tax situation.
  • Mortgage payments during retirement can be excessively expensive due to your marginal tax brackets.
  • You can move your traditional IRA savings to a Roth IRA if you pre-pay the taxes. This is known as a Roth Conversion, but how much and what symbols should you convert?
  • Annuities are the best horrible investment you can make! What does that mean and why do the salesmen always mislead you while they feed you a free dinner!
  • Widow(er)s have some special advantages, if they know how to use them.

These topics and many others are discussed in this section of my journal!

Pre-planning for Retirement

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