McCartin Financial is a Registered Investment Adviser. CA Insurance License #0D41241
Planning for The “Golden Years”
There’s a saying that if you have your health, you have everything. Well, that’s not exactly true – without adequate resources, you could enjoy a long, healthy retirement at a far lower standard of living than you’d prefer!
When preparing for retirement, it’s vital to keep in mind the importance of money to your quality of life during your “golden years.” And with retirements now stretching as long as 20 to 30 years – and beyond – ensuring your retirement dollars outlive you is a paramount concern.
Failing to Plan, or Planning to Fail?
It’s been said that he who fails to plan, plans to fail. And nowhere is that concept illustrated more starkly than with retirement planning. A sound financial plan can be the difference between the retirement of your dreams and the nightmare of discovering you have too little money, too late to change financial course.
A disciplined retirement preparation plan, diligently followed, will help you develop realistic objectives … assess progress toward your goals … and make periodic adjustments to keep you on track.
How Much Retirement Income Will YOU Need?
Government research has determined that most Americans need between 60 and 80 percent of their pre-retirement income in order to maintain their standard of living during retirement. However, many financial experts have raised this figure to between 80 and 100 percent of pre-retirement income, citing skyrocketing healthcare costs, lengthening life spans, and the ever-present threat of inflation – which can rob a retirement portfolio of purchasing power over time.
Of course, how much you will need in retirement will be a function of your goals, time horizon, and spending habits. Those who want to purchase a second home and travel frequently will obviously need more than those who prefer to stay at home in their paid-off house. Consider these factors when estimating your future retirement income needs:
- Your support of children who will be self-sufficient by the time you retire
- Your current work-related expenses that will be dramatically reduced in retirement, such as commuting costs, daily meal expenses, dry cleaning bills, etc.
- Whether your mortgage will be paid off prior to or early in retirement
- Whether you will need to continue your monthly savings amount or begin to spend that amount for necessities
- Your tax bill in retirement
Sources of Retirement Income
Once you have estimated your target retirement income, you can begin evaluating your potential sources of regular income. In general, your income sources will fall into one of these three categories:
- Government sources. The Social Security system was inaugurated during the Great Depression to augment retirees’ incomes. Most experts feel that the system will remain solvent throughout much of the 21st century. Even so, a rising retirement age and cuts in benefits could reduce your monthly Social Security check. Benefits are based on the amount you earned during your working years.
- Employer-sponsored plans. Many employers offer company-sponsored retirement plans, which generally fall into two categories. Defined benefit plans, which are normally funded by the employer and guarantee a retirement benefit based on a formula comprising number of years on the job and employment earnings. For example, a traditional pension is a defined benefit plan. Defined contribution plans, on the other hand – such as 401(k), 403(b), and 457 – rely on funding from employees, matching funds from the employer, or a combination of the two. The employee owns an account balance (subject to company rules regarding vesting) of contributions and earnings. Upon changing jobs, an employee may be able to roll over assets into the new employer’s plan or into an IRA. At retirement, the employee decides how to withdraw the balance he or she has accumulated.
How to Get – And Stay – On Course
How can you determine whether you’re on track to reach your retirement goals, and to make adjustments if necessary? We can help you develop a sound financial plan based on your specific situation, monitor it regularly to ensure you’re making progress toward your objectives, and recommend occasional adjustments to help you stay on course.
How Living Expenses Change During Retirement
There are some upsides to being a retiree – senior discounts, lower taxes, subsidized healthcare, and regular Social Security checks among them. On the other hand, mature Americans must contend with worrisome issues such as rising costs for medical care, long-term care, prescription drugs, and even basic necessities such as food and energy.
To determine your monthly expenses during retirement, you might start by dividing costs into two categories: those you believe will change and those you believe will remain largely the same.
Costs You Believe Might Change
- Housing expenses – particularly if you plan to live in your paid-off home or plan to downsize to a smaller dwelling
- Medical insurance – which may shift from a premium for HMO coverage to a Medigap policy
- Costs for dependents – if you have children you believe will be self-sufficient by the time you retire
- Entertainment and travel expenses – for some people, these might decline precipitously; for others, they might be far higher
- Taxes – most retirees find their combined tax burden is less than during their working years
- Automobile-related costs – retirees generally drive less than workers who commute to their jobs every day, thus spending less on maintenance, tolls, gasoline, etc.
- Monthly contributions toward retirement savings accounts – not only can you stop making this contribution, you might even consider spending it!
Costs You Think Will Remain the Same
- Clothing – unless you previously spent large amounts of money on uniforms or other job-specific wardrobe items
- Household expenses – such as telephone, utilities, cable, etc.
Determine Your Individual Needs
Once you analyze all this information, you can determine your estimated monthly income needs as well as how large of an emergency fund to establish. This fund should be held in a liquid form such as a money market account, which provides stability for your funds as well as ready access to them.
Consider reviewing your estimated needs at least annually, because circumstances can and do change in today’s fast-moving world.
Most qualified retirement plans offer significant tax benefits – if you’re willing to follow a few IRS-specified rules, that is. The federal government wants to make plans such as 401(k)s, Keoghs, SEP-IRAs and traditional IRAs available for specific needs, and has enacted laws to help eliminate potential abuses of these tax-advantaged investment alternatives.
Retirement Plans are Intended for Retirement
For one thing, the government wants to make sure that such savings (and income tax benefits) actually go towards providing retirement income. Stiff penalties for early withdrawal help encourage investors to hold off on receiving income from qualified plans until their retirement years.
The government also wants to make sure they can someday tax these accumulated funds. If you have a 401(k), a Keogh, a SEP or a traditional IRA, you must begin taking mandatory minimum distributions from your plan by April 1st of the year following the year in which you turn 70-1/2.
Although the tax code allows you to wait until April 1 of the year following the year you turn 70-1/2, it is generally a good idea to take your first mandatory withdrawal in the same year you reach that age. If you wait, you will have to make two withdrawals in the first year, doubling the amount of taxable income you must declare and potentially increasing your marginal tax bracket.
The amount you are actually required to withdraw each year, and which will be subject to taxation, is based on tables that estimate your remaining lifetime.
Calculating Your Required Withdrawals
It’s vital to maintain a disciplined process of taking minimum withdrawals from your qualified plans. That’s because if you don’t meet the required minimum distribution withdrawals, the IRS will impose a stiff penalty: 50% of the amount not withdrawn, plus the income taxes due. Ouch!
The good news is. the IRS has made calculating your required minimum distributions much easier. Based on your age, you simply divide your qualified plan balance as of the last day of the previous year by the factor from the IRS Pub. 590 table shown below. The resulting quotient is your annual required minimum distribution.
Uniform Lifetime Table
(For use by: unmarried owners, married owners whose spouses are not more than 10 years younger, and married owners whose spouses are not the sole beneficiaries of their IRAs)
|115 and over 1.9||1.9|
Retire in Style and Comfort
Peace of Mind comes from knowing that your retirement assets generate predictable income each and every year, without the risks of the stock market. John McCartin of McCartin Financial has made a commitment to stay educated and knowledgeable about the solutions to the financial challenges of retirement planning. John is a strong client advocate and demonstrates a passion for the services he provides by implementing them in a warm, caring and compassionate manner that generates a high degree of client satisfaction.
McCartin Financial is a professional firm designed to assist retirees in helping to protect their assets and standard of living. Rather than offering a wide variety of retirement planning services, we believe we can best respond to our clients’ needs by focusing on a specific range of financial issues and opportunities.
McCartin Financial specializes exclusively on meeting the financial needs of those age 50 and over.
San Diego retirees have trusted John with their retirement planning for nearly 30 years – Give him a call today at 858-278-4244.
McCartin Financial is a Registered Investment Adviser. CA Insurance License #0D41241