What Is Retirement Planning?

Retirement planning involves the complex process that involves creating a comprehensive plan to fund your retirement. Success Wealth Management considers many factors when planning for your retirement goal. We use a wide range of investments, taxes, and other retirement strategies. We use a variety of modeling techniques to evaluate the success or failure potential of different retirement strategies.

The Retirement Planning Process:

If you have financial goals that are both current and future, retirement planning is appropriate. We help our clients to understand the various strategies that are available and coordinate and implement their game-plan in order to achieve those goals.

We first need to establish your retirement income requirements. A common approach is to begin with a percentage (e.g. 60 % to 100%) of your current income. Alternately, you can start with your current expenses and increase them at a reasonable rate. The average annual inflation rate in recent years has been between 1% and 2%. You should consider the possibility of unexpected expenses such as paying off your home mortgage or increasing health-related costs. It is important to consider the expected retirement age, life expectancy, as well as the possible effects of living beyond one’s normal life expectancy when estimating retirement expenses.

The second step is to determine sources of retirement income. This can be done by estimating future income or assets. An individual retirement plan, annuity income or a part time job may be additional sources of retirement income. To estimate the future value of assets, both tax-deferred and taxable, it is important to use conservative projections of growth (e.g. 4 percent to 5 percent) both pre-retirement as well as post-retirement. A cash flow projection will then show whether there is a need for portfolio withdrawals in order to pay expenses during retirement.

The third step is to use the cash flow projection model to determine the retirement income surplus or shortfall based on a variety of assumptions.

  • Cut down on your current expenses to make it easier to save for retirement.
  • Allocate assets to investments with higher potential returns (remember that higher potential returns can result in greater loss risk).
  • Retire at a later age.
  • Reduce living expenses during retirement.
  • Work part-time during retirement.

Retirement savings strategies can include any or all of these options, regardless of whether there is a surplus or a shortfall.

  • Maximize employer-sponsored retirement plans contributions. Maximum contributions may not be possible. Instead, consider contributing the minimum amount necessary to receive the employer’s matching contribution.
  • Contribute if permitted by tax law to individual retirement accounts.
  • Explore other options for saving for retirement. If appropriate, these include stocks, bonds, and mutual funds, non-qualified deferred payment plans, salary continuation plans, or employee stock purchase plans.

This is the fourth and most important step in retirement planning. We keep track of your progress towards your retirement goal in case of personal and economic changes that might require us to revise our original game plan.

As retirement nears, it is easier to determine the exact amount of retirement income. It is possible to determine the actual retirement account values (e.g., 401(k) plans, IRAs, etc.). It can then be determined whether withdrawals from portfolio assets (i.e. tax-deferred saving vehicles and/or taxes-taxable accounts) are necessary to pay for retirement expenses. It is important to establish how much money can be safely withdrawn from the portfolio to be used on a regular basis without increasing one’s living standard or running out of money.

Tax Implications

There are many tax implications to retirement planning, both post-retirement as well as pre-retirement. Employer-sponsored retirement plans allow employees to contribute from their salary. These contributions are then deducted from the employee’s salary and are therefore not included in an employee’s income. The investment earnings are also tax-deferred until they are withdrawn. These plans include 401(k), 403 (b) and 457 (b). These plans could also contain employer-matching contributions, which are not currently taxable to employees. There are different annual limits for employer and employee contributions.

Some government agencies and companies offer defined benefit pensions or defined benefit plans. These plans allow the agency or company to contribute to future retirement benefits. The employer’s contributions are generally not included in an employee’s income tax. Normally, the retirement benefits are income-taxable at the time they are distributed to employees.

Clients may make tax-deductible or nondeductible contributions into a traditional individual retirement account (IRA), as well as nondeductible contributions into a Roth IRA. There are however many limitations. There is a phase-out for certain amounts of modified adjusted gross income to remove the deductible IRA contribution limits and nondeductible Roth IRA contribution limits. Qualified Roth IRA distributions are generally exempt from tax.

SEP and SIMPLEIRAs allow for higher contribution amounts. These contributions are pre-tax and therefore are not included in an employee’s income. The entire amount distributed when distributions are made is generally included in the retiree’s income.

Premature distributions from qualified plans or IRAs, such as those made before age 59 1/2, are subject to a 10 percent penalty on the taxable portion of the distribution (i.e. from deductible contributions). This is in addition to regular income tax. The penalty does not apply to the nontaxable portion of the premature distribution, i.e. nondeductible contributions, or if it is rolled over into another qualified plan or IRA. There are several exceptions to the penalty of premature distributions.

Required minimum distribution (RMD) rules mandate that retirement account owners take income-taxed distributions. These rules apply to qualified retirement plans and 403(b), 457 plans as well as IRAs, with the exception of individual Roth IRAs, during the account owner’s lifetime. Distributions must be made by the “required starting date” (RBD) and continued each year at the minimum amount. Qualified plan participants who own more than 5 percent of an employer business or IRA owner are subject to an RBD. This applies even if they work. Qualified plan participants can be employed by the employer sponsoring the plan, and still, work after reaching age 70 1/2. They must own at least 5 percent of the business. This group of plan participants is allowed to delay distributions until they retire, as long as their qualified plan allows. A penalty of 50% of the unpaid amount of any RMD not received on time will be assessed for each portion.

To avoid adverse estate, gift, income, or other tax consequences, beneficiary designations in retirement plans must be coordinated with the client’s estate plan.

If one earns additional income or has significant investment income, Social Security benefits may be considered taxable income. This means that income tax may be due on some Social Security benefits. Based on one’s tax filing status, and the amount of income received in the year, Social Security benefits can be subject to tax at up to 85 percent.

The taxable assets/accounts included in a portfolio are not eligible for the same income tax treatment as retirement plans. These taxable portfolio assets can include interest-bearing assets (e.g. money market, CDs, and taxable bonds), as well as other income-producing accounts (e.g., the money market, CDs, and taxable bonds). Stocks, mutual funds, and other assets. The earnings from these taxable accounts, i.e. interest, dividends, and capital gains, are generally taxed in accordance with the year they were received or generated. Tax deferral is not available for earnings from taxable accounts, unlike retirement plan earnings. There may be tax breaks for capital gains and qualified dividends that may allow for lower tax rates.

This post was written by All Seasons Wealth. At All Seasons Wealth, we provide expert advice and emphasize the importance of creating in-house portfolios to personalize your strategy for asset management, financial planning, and cash management. We utilize research and perform market analysis to provide you with retirement planning in Tampa Fl. No matter your needs, we can work with you to develop a consulting solution tailored to you.

Any opinions are those of All Seasons Wealth and not necessarily those of RJFS or Raymond James. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Past performance may not be indicative of future results.

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