{"id":32228,"date":"2019-08-15T11:38:26","date_gmt":"2019-08-15T15:38:26","guid":{"rendered":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/?p=32228"},"modified":"2019-08-16T13:37:15","modified_gmt":"2019-08-16T17:37:15","slug":"business-report-plans-for-a-successful-retirement","status":"publish","type":"post","link":"https:\/\/www.glensfalls.com\/glensfallsbusinessjournal\/2019\/08\/business-report-plans-for-a-successful-retirement\/","title":{"rendered":"Business Report: Plans For A Successful Retirement"},"content":{"rendered":"
\"\"
James E. Amell is director, Marvin and Co., PC, CPAs in Glens Falls.<\/figcaption><\/figure>\n

By James E. Amell, CPA
\nThough not certain like death and taxes, most individuals strive for an enjoyable, comfortable retirement that lasts a number of years.<\/p>\n

To accomplish this goal when life expectancy at age 65 may exceed 20 years requires thoughtful consideration and planning years in advance. I recently hosted a webinar, \u201cPlanning for Retirement\/Social Security Update,\u201d where I reviewed how to budget your retirement spending, including income taxes, and determine your income and asset needs.<\/p>\n

I also explained in detail how Social Security works so you can better understand how to plan for this important source of retirement income.<\/p>\n

There are several steps to undertake to ensure the retirement lifestyle you desire, the earlier you start the better, but certainly no later than five years prior to planned retirement.<\/p>\n

First, consider your retirement \u201cvision.\u201d Do you have hobbies and interests that you will pursue and fill your time? Do you want to travel? Relocate? Go south for the winter? Do you have social activities, volunteer and community involvement? And last, but not least, how is your health and your family health history?<\/p>\n

Your retirement vision can significantly influence your annual expenditures.<\/p>\n


\nThe next step is to budget your expenses. Though the rule of thumb is that retiree households (defined as having at least one person over 65) spend 80 percent of the amount the same household spent while working, the actual amount varies based on a variety of factors.<\/p>\n

The starting point for a retirement budget is your current budget, then adjust for changes you anticipate in retirement. Certain expenses will decrease, such as commuting costs, other employment related costs (did you buy lunch three days a week?), disability insurance, retirement and\/or education savings, and perhaps life insurance.<\/p>\n

But certain expenses may increase, including medical, continuing expenses that were formerly reimbursed by your employer, travel and recreation, and even maintenance costs. Your budget should include monthly\/recurring expenses (housing and household, transportation, health insurance and medical, food and supplies, recreation and entertainment, memberships and subscriptions, and of course income taxes) and nonrecurring expenses (travel, major repairs, new vehicles and other major purchases, gifts and contributions).<\/p>\n

As you plan for retirement, consider actions that can be taken now to reduce your expenses once retired. Make extra payments to pay off your mortgage, pay off credit card debt and other consumer loans, and even consider downsizing and\/or moving to a less expensive community. And once retired, take advantage of age-based discounts. Last, but not least, be sure to consider inflation. Though inflation has been low in recent years (averaging roughly 2 percent over the last decade), the long-term average inflation rate is 3.25 percent; at this rate, costs will double in 20 years.<\/p>\n

Once you have estimated your annual budget, you need to figure out how to pay for it! Ideally, retirees will have three sources of \u201cincome\u201d for the duration of their retirement: pension income, social security income, and savings. If you have a defined benefit plan-based pension, consider yourself one of the lucky ones.<\/p>\n

A defined benefit plan more or less guarantees income for life, along with your spouse should you choose a joint life payout. Defined contribution plans, including 401(k), 403(b) and IRA type plans are much more common and in many cases the retiree is responsible for managing the underlying investments and bears the risk of investment losses, returns not keeping up with inflation, and even outliving the account.<\/p>\n

A common rule of thumb for withdrawing from pension plans is to draw 4 percent of the account balance on an annual basis. Of course this is just a starting point and each individual is different. I highly recommend consulting with your investment manager to arrive at an investment strategy that works for your situation.<\/p>\n

Included in the retirement savings pool is the Roth IRA. Contributions to Roth IRAs are not deductible, but the contributions and earnings thereon are also not taxed when withdrawn. The Roth IRA is a great source of nontaxable income that can be used in retirement for large or nonrecurring expenses.<\/p>\n

For example, if $25,000 is needed for a new car, you could use money from savings which may or may not have a related tax cost, withdraw from a Roth IRA at no tax cost, or take a distribution from a taxable pension account, which will have a tax cost of at least $5,000 and probably more.<\/p>\n

The second source of retirement income is social security. We all face the complicated decision of when to start claiming social security. There are several basic concepts regarding Social Security benefits that are important to understand.<\/p>\n

First, your expected benefits as reported on your annual Social Security statement (you check this every year on www.ssa.gov, right?) are based on the premise that you will begin claiming at your full retirement age (FRA), which is age 66 if born between 1943 and 1954; 66 plus two months per year from birth years 1955 to 1959, and 67 if born in or after 1960. Social Security benefits can be claimed in normal circumstances as early as age 62, but at a significant reduction that remains for your life.<\/p>\n

By waiting until after FRA to claim Social Security benefits, benefits are increased for every month you wait to claim after reaching FRA, up to age 70.<\/p>\n

Factors to be considered in deciding when to commence social security benefits include health and life expectancy, and the nature and extent of other retirement income. For example, someone who has a defined benefit pension plan is \u201ccovered\u201d for long life expectancy so may be inclined to claim social security benefits earlier than FRA.<\/p>\n

But for most people, social security becomes their longevity insurance and should weigh this heavily in making the claiming decision. The average \u201cbreak-even point\u201d for claiming social security at age 62 vs. age 66 is age 78. In simple terms, if you claim at age 62 and die before age 78, you are ahead, if you live past age 78, you are behind.<\/p>\n

However, if the decision is being made for the spouse with the higher earnings record then the life expectancy of the lower earning spouse also needs to be considered (I won\u2019t get into the complexity of spousal benefits). Remember, Social Security was intended to fund only part of a person\u2019s retirement, not most or all.<\/p>\n

The final source of funds during retirement is personal savings and investments. This source of funds may have a taxable component, for example appreciated investments and mutual funds, and a nontaxable component such as bank accounts (or investments that haven\u2019t appreciated much).<\/p>\n

A good rule of thumb is to have at least one year of living expenses set aside in a readily accessible account to have available for emergencies or a substantial decline in the stock market (as in 2007-2008) where you may not want to further deplete your pension accounts.<\/p>\n

One final reminder: sign up for medicare when you approach or reach age 65. Your initial enrollment period begins three months prior to your 65th birthday and ends four months after your 65th birthday. There are significant penalties, with some exceptions, for failing to enroll during your initial enrollment period. You do not need to have claimed social security benefits to enroll in medicare.<\/p>\n

In summary, ensuring the type of retirement you desire requires careful thought and planning well in advance of your planned retirement.<\/p>\n","protected":false},"excerpt":{"rendered":"

By James E. Amell, CPA Though not certain like death and taxes, most individuals strive for an enjoyable, comfortable retirement that lasts a number of years. To accomplish this goal when life expectancy at age 65 may exceed 20 years requires thoughtful consideration and planning years in advance. 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