I am not ready for Christmas, so why am I thinking and writing about retirement? Our parents are both retired, and it came fast. I remember when my parents were my age. Even though it’s Christmastime, I’ve been thinking about retirement.
Over the years, I’ve tried every retirement calculator tool available. I’ve estimated my family’s expenses. We have met with financial planners. I have concluded that there are a lot of unknown factors about retirement and have accepted this.
According to the Social Security website, currently full retirement age is 67, which is close to the age of our parents. I’m fascinated with young retirees I’ve heard about. Retirement doesn’t have to mean “age 67.” I understand it to mean the time when we are not actively earning money and living off passive or saved income. This could be any age.
My husband plans to work as long as he physically can. He loves to work so he will probably work during retirement, but it will be a different kind of work. He worked construction for his first job, which was very physical. His current production job requires physical labor, but not at much as construction required. I assume that he will do less physical labor but still work as much as he does now.
During retirement, some passive income will come from investments that you made earlier. So, we need to decide what type of investments we will make.
What kinds of expenses will you have? The best way I know to estimate retirement expenses and income is to look at those who are retired. My parents and inlaws have these expenses:
I realized that our parent's expenses are pretty similar to ours but the amounts are different. These amounts can range from a little to a lot, which is why it’s important to think about your personal plans.
This Wasatch Peaks Retirement Calculator was a great tool to use after I figured out what I think our expenses will be. The calculator said our investments need to be $300,000 to $400,000. This number depends on interest rates. Also, I didn’t calculate in social security benefits. So, it might not be an accurate number, but that is ok. Just figuring an estimate helps our family prioritize saving now. We are relatively young and there are a lot of urgent expenses we have in raising our family like clothes, braces, and Christmas to name a few. Retirement savings can easily be put on the back burner, which I have done plenty of times. Knowing this number helps me prioritize saving now in order to build to the necessary nest egg we need for the time when we don’t actively work and earn money.
A financial planner once told me that planning for retirement at my age will open up options. I want you to have a lot of options in retirement. Please join me in spending a few minutes planning for retirement.
Your wallet can become a lot like a junk drawer you carry around. It’s cluttered with loyalty cards, coupons, cash, checks, store credit cards, credit cards for gas, credit cards for everyday purchases and a host of identification cards. That much bulk can make your wallet or purse a serious hassle to carry. Even worse, though, you may be setting yourself up for identity theft.
Even though it’s all packed into one place, if it is stolen, each item has to be accounted for individually. Forget even one and you set up a thief to take your credit for a ride. That’s why it’s a good idea to give your purse or wallet a good once over. Look for things you don’t regularly need and store them in another location for use when you do need them.
There are also things you should never carry in a purse or wallet. If you see these items as you’re trimming down your daily carry, take them out immediately.
There are only a few times when you absolutely need your Social Security card. If you’re starting a new job, opening a new account or applying for some kinds of government benefits, bring the original card. It’s easy enough to stuff the card into your wallet or purse for one of these occasions and then forget about it.
That could be a big mistake. Thieves can use your original Social Security card to apply for all kinds of unsecured debt in your name. Canceling your Social Security number and getting a new one is a complicated, time-consuming process, and you may be liable for the fraud that’s committed before you complete it. Having your Social Security card stolen is one of the worst things that can happen as far as your personal information is concerned. Keep yourself safe, and get the card out of your wallet! Put it in a secure location in your home, like a lockable desk drawer, file cabinet, safety lock box, or Safe Deposit Box at Wasatch Peaks Credit Union.
This is by far the easiest way to accumulate paper in your wallet. Every single purchase generates a tiny slip of paper. Because you never know which might be needed later, you stick them all into your wallet or purse. Before you know it, you’ve got a novel-sized stack of transactions.
This could be serious trouble if your purse or wallet is ever stolen or lost. While regulations prevent retailers from printing more than the last four digits of your credit card number on a receipt, that could be enough for someone to start building a profile of your purchases, especially when used with the rest of your wallet, like your driver’s license. Thieves can use the last four digits of your card number to fish for more information with a merchant who has the card on file, like a cable company or an online retailer. While they may be caught once you report the card stolen, they’ll have all of the time in between to rack up charges.
If you’re in the habit of using receipts to track your purchases, think about going paperless. Use one of the dozens of mobile scanning apps to turn your phone into a digital filebox. This information can be encrypted to keep it out of the hands of malicious people, but still accessible to you if you need to check a purchase or balance your account.
Every store offers its own card and usually offers incentives to use it, too. Whether it’s a purchase discount or cash back, retailers really prefer to keep their credit card processing in-house. If you shop at a few of these stores, those cards can really add up. Tack on an extra couple of cards for gas purchases, everyday expenses, and work-related stuff, and you could easily end up with a wallet or purse chock full of plastic.
If your wallet or purse is stolen, though, each one of those cards has to be canceled individually. Forgetting even one can put you on the hook for hundreds or thousands of dollars of purchases. It’s best to thin your collection down to the one or two you use regularly. Look for those that can be widely used, provide the lowest fees and best acceptance rates. Put the rest of them into a safe place at home, using them only when you need them.
Once you’re down to your top cards, make a list of their numbers and the steps you’d need to take to cancel them if necessary. Put it next to your Social Security card in a safe place. That way, you know exactly what cards to cancel!
Whether your retirement unfolds as a beautiful dream or a scary nightmare depends largely on the financial decisions you make today. But if retirement planning is brand-new to you, you're not alone. The average working household has very little cash saved for retirement and about 45% of working-age households have no retirement savings at all, according to the National Institute on Retirement Security. However, you still have time this year to start building a retirement fund and gain a tax advantage in the process.
How much will you actually need for retirement? Chances are, quite a lot. Retirement may last anywhere from 15 to 20 years or more, and you'll need somewhere between 70% and 90% of your pre-retirement income annually to live comfortably.
Don't count on Social Security to cover this; many people experience some shortfall. To determine yours, contact the Social Security Administration online or call 1-800-772-1213 for a benefit estimate. Factor in retirement accounts you already have, as well as how expenses might change after retirement. To close your gap, you'll need to save $15 to $20 for each annual shortfall dollar. So an annual shortfall of $25,000 means you'll need to save between $375,000 and $500,000 before retirement.
There are various types of savings plans that let you save on your taxes while you get ready for retirement.
IRAs: Individual retirement accounts come in many forms, including CDs and mutual funds. In any case, two basic structures apply:
Both IRA types have a basic contribution limit of $5,500 annually (with the exception of qualified reservist repayments and rollover contributions). If you're 50 or older, however, you're allowed to make additional catch-up contributions of $1,000 each year.
401(k) plans: These employer-managed plans often match employee contributions up to a set limit, which translates to free retirement money for you. Unless your plan is specifically a Roth 401(k), your contributions are deducted from your federal income, resulting in a nice immediate tax break. Like traditional IRAs, when you make retirement withdrawals, the money is taxed as income. When planning your retirement savings, make sure to take full advantage of any employer 401(k) match that's available before putting money into other types of plans.
Health savings accounts: HSAs don't generally come to mind during retirement planning, which is a shame because if you're enrolled in a high-deductible health insurance plan, they can provide a tax break today and help to make retirement more comfortable down the road. Payroll deductions for HSAs are pretax, and individual contributions are tax-deductible, up to the annual limits of $3,350 for individuals and $6,750 for families. Then, to sweeten the deal, any interest earned on these accounts is tax-free, and you can make tax-free withdrawals anytime for qualified medical expenses.
If you're wondering what this all has to do with retirement, there's no limit on carry-overs or when you have to withdraw funds. This means you can invest annually in an HSA, receive a tax break right away, and reserve the funds to use tax-free for medical expenses during retirement.
Once you've reached the contribution limits for tax-advantaged retirement investment options, you can explore alternative retirement savings options, including money market accounts, CDs and cash-value life insurance, to make sure your shortfall is covered. With the right planning and discipline on your part, you can achieve your best possible tax outcome this year while ensuring a comfortable tomorrow.
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