As you prepare for retirement, it is normal to worry about your income. Will it be enough to sustain your lifestyle in retirement? But aside from your anxiety about the money coming into your budget, have you prepared for the money that will go out? In particular, how much do you know about retirement income taxes? This is a complicated issue to discuss with your financial advisor or tax professional, but the following basics should give you a good overview of how retirement income is taxed.
Distributions from IRAs, 401(k) funds, and most pension plans are taxed as regular income. This income is treated the same as income from a salary, and is taxed based upon your regular tax bracket.
Withdrawals from a Roth IRA are not subject to federal income taxes. In order to qualify as tax-free income, the Roth account must be at least five years old and you must be at least 59 ½ years old.
If you sell an investment that you have held for a year or less, this will be referred to as a short- term capital gain. The profit from this sale will be taxed as regular income, according to your tax bracket.
If you have held an investment for more than a year, the profit from its sale will be counted as a long-term capital gain. Long-term capital gains are taxed at a different rate from your regular income. If you’re in the top income tax bracket, these gains are currently taxed at 20 percent. This is something to keep in mind when you sell long-term investments like real estate property or stocks.
While many types of retirement plan distributions are not regarded as net investment income, some will be subject to a 3.8 percent investment income surtax. Your tax professional and financial advisor can explain this surtax, and help you devise strategies to shelter some of your income from excessive taxation.
In some cases, depending upon your income, up to 85 percent of your Social Security payments may be taxed.The formula used to calculate this tax is complicated, and best explained by a tax professional. Consult with your accountant if you have any questions about federal or state income taxes, and make sure you know what to expect before you retire.
14569 - 2015/6/5
Job Hunting for Older Workers
Some workers reach their 50s or 60s and suddenly realize that they are ready for a change in careers. Others retire for an initial period, and then realize they want or need to go back to work. But the job market can be a frightening place for some older workers, who feel intimidated by the young, energetic competition. Since many employers actually seek out those with wisdom and experience, all you really need to do is follow these steps to get yourself ready for the current job market.
Stay in touch. Whether you’re retired, unemployed, or simply looking for a career change, remember to stay involved in your industry. Blog about your field of work, do consulting work on the side, and join LinkedIn or professional organizations. Keep yourself on your peers’ minds, and you’ll be the first to know when they hear of a position opening up.
Get a new email address. If you want to keep up with the tech-savvy younger crowd, you will need to mimic some of their habits. Did you know that an email address ending in “yahoo” or “AOL” can make you appear dated and out of touch? Switch to a more professional-sounding email address instead.
Update your resume. When it comes to resumes, there really can be too much of a good thing. Naturally you want to highlight your lengthy experience, but keep in mind that recruiters mostly skim over resumes and make quick decisions. You want them to see the most important, relevant items. Limit your resume to two or three pages, and list specific accomplishments alongside your work history.
Be prepared to grow. Try to view your job change as a new adventure, not a continuation of the same position you have held for years. This is an opportunity to gain new skills and build unique experience.
Go for it. Sometimes you may read a lengthy list of job requirements, and feel as though you shouldn’t even bother applying. Try to view those requirements as a wish list rather than absolute must-haves. Apply for the position anyway, and trust that your years of experience and poise may impress the hiring manager once you reach the interview stage.
14570 - 2015/6/5
None of us enjoy owing money, but debt can eventually become a big problem when we reach retirement. Once you retire, you may live on a fixed income. That alone can cause some strain on your budget, and high credit card payments can make things much worse.
A recent report by the Employee Benefits Research Institute revealed that Americans aged 55 to 64 carry the heaviest debt burden. In these households, the average total debt amounted to $107,060 in 2010. We think of this age group as “pre-retirees”; yet, those who should be getting out of debt are actually the ones carrying the heaviest load!
It’s no wonder so many Baby Boomers say they are worried about their retirement savings and budgets. After all, they are expected to live 20 or more years after retirement. A large amount of debt would keep anyone up at night, but it’s especially worrisome when you’re facing 20 or more years of life on a fixed income.
If you’re one of these worried Baby Boomers, you may already know that paying off your debts before retirement is the wise course of action. It goes without saying that you should cut back on expenses and stop using credit cards, but what else can you do? A debt consolidation program can help you roll all of your monthly, high-interest payments into one (in most cases) lower-interest loan. If you can avoid having a mortgage in retirement, this is another good idea. You may be planning to downsize to a smaller home once you retire; if you do it now, you can put that extra money toward credit card payments each month.
But what if you’re still facing some pretty hefty debt? It can be a difficult choice, but in most cases it is better to work a few more years and pay down that debt before you retire. It’s almost always better to retire later than you had expected, than to suffer the ill effects of high debt for the rest of your life.
Talk to your financial advisor about your debt load and expected retirement income, and plan for a carefree retirement.
14571 - 2015/6/5
How confident do you feel about your plan for retirement? If you’re lucky, you may be feeling very optimistic. But if you’re like 80 percent of Americans, you might be worried that you won’t be able to cover your regular expenses when you need to stop working.
If your company sponsors a 401(k) retirement fund, you are in a fortunate position. With a few small changes to your strategy, you can maximize your retirement income and put yourself in a better financial position in the future.
Determine your needs. Most people aren’t even sure how much they need to save for retirement! So before you start worrying about it, meet with your financial advisor to discuss your goals. He or she can help you to establish a savings objective. Now you just have to utilize your 401(k) to get there!
Take advantage of your full employer match. If your employer offers matching retirement funds, why wouldn’t you claim that money? Contribute at least the amount of your employer match to your 401(k) fund each year.
Save more after you reach age 50. You may have now reached the earnings peak in your career, so this is the ideal time to stash extra money for retirement. Once you reach age 50, your contribution limits change. You can now save an extra $6,000 per year in your retirement account. Considering the impact of compounding interest, that will add up to quite a chunk of change over the next decade or so.
Examine your expense ratios. With a 401(k), you get to decide how your money is invested. But when you make your fund selections, carefully examine the fund fees. In many cases it is not prudent to pay high fund fees unless you are absolutely sure you will stick with that fund for the long haul. Remember that index funds generally carry comparatively low fees. They may be worth consideration as part of your portfolio.
Never take early withdrawals. You might think that you can just pay yourself back, but you’re forgetting something important. Your 401(k) fund will lose not only the money you withdraw, but years’ worth of compounding interest on that money. You may also face a stiff penalty. It’s almost never a good idea to withdraw money from your retirement fund before you actually retire.
14572 - 2015/6/5
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