How Much Money Do You Need for Retirement?

Even if you meticulously review your retirement savings and anticipated retirement plan, inflation, volatility in the stock market, and unexpected bills can derail your strategy. So how much money do you need for retirement? Here are a few things to keep in mind.

Rising Costs (and the Future Impact of Inflation)

Rising costs caused by inflation can erode your purchasing power in retirement. The savings that you thought would be sufficient may no longer be enough.

Take inflation into account when deciding how much you need to save for retirement. Look for a comprehensive calculator that considers inflation when calculating your savings goal.

For example, the retirement savings calculator at Bankrate includes an expected inflation rate of 2.9 percent but allows you to adjust the number for more accurate projections.

To increase the chances that your investment returns outpace inflation, utilize a variety of savings options.

Market Volatility

It can be disheartening logging into your retirement account to see the value of your account has dropped significantly in a day.

However, it’s important to remember that it’s normal for investments to fluctuate in value; consider focusing on creating a mix of investments that have the opportunity to increase in value over time.

Another thing to remember is that you don’t lock in your losses until you sell your funds. Avoid panic selling in an attempt to minimize future losses; panic selling locks in your losses and reduces your overall returns.

If you’re worried about your ability to not panic during market volatility, consider avoiding checking your account daily; this may only fuel your anxiety.

Make sure you’re invested in funds that are suitable for your preferred risk level. As you near retirement, consider keeping the portion of your savings that you’ll need over the next few years in an investment option that may retain its value even with market fluctuations.

Unexpected Expenses

You’re facing an unexpected medical bill, or your car needs expensive repairs. Don’t let these unexpected bills cause your retirement savings to fall short.

Make sure that you’re prepared for these irregular expenses by setting up an emergency fund or sinking fund. An emergency fund ensures you have money available for true financial emergencies, like job loss.

A sinking fund is an account you use to set aside money for expenses that you can anticipate but tend to overlook when budgeting. This includes things like:

  • Car repairs and maintenance
  • Home maintenance and repairs
  • Holiday expenses
  • Medical and dental expenses
  • Insurance premiums

Review your bank statements to see how much you spend on these items, and then set aside a certain amount each month to fund the account before you need it.

For example, if there are six months until the holiday season and you usually spend $2,000, set aside $334 each month to prepare for holiday expenses.

Consider Getting Help Revamping Your Retirement Savings Strategy

Feel your retirement savings strategy needs updating? Contact us for help with your retirement savings management.

Advisory services are offered through Quantum Strategies, LLC dba Quantum Strategies, a Registered Investment Advisor in the State of Pennsylvania. Insurance products and services are offered through William Rizzo, Sole Proprietor.

3 Retirement Tax Considerations You May Want to Prepare For

You’re steadily increasing your retirement contributions while paying down debt and giving some serious thought to your desired lifestyle in retirement. One thing that many would-be retirees fail to consider is how taxes will impact their retirement. Here are three retirement tax considerations you may need to anticipate.

1. Withdrawals from Your Retirement Plan Are Taxable

One of the benefits of using a tax-advantaged account to save for retirement (like a 401(k) or traditional IRA) is that you can deduct your contributions on your taxes, allowing you to reduce your tax liability.

However, when you withdraw money from these accounts, you’ll have to pay taxes on your withdrawal. If you plan on withdrawing a certain amount to cover your expenses, you’ll need to take out more money to pay taxes on this withdrawal.

For many people, tax-advantaged accounts are still a smart option for saving for retirement, as many individuals are in a lower tax bracket in retirement.

There are a couple of ways to deal with retirement withdrawal taxes. You can adjust your withdrawals to include the taxes or adopt a tax strategy to minimize your tax liability.

Another alternative is to use after-tax retirement accounts, like the Roth IRA or Roth 401(k), to reduce your tax liability on retirement withdrawals. You pay taxes on your contributions to these accounts, but your money can grow tax-free. Your qualified withdrawals are also tax-free.

If you anticipate being in a higher tax bracket during retirement or want to hedge your bets, utilizing after-tax accounts is an excellent option to explore.

2. Your Property Taxes are Likely to Increase

Retirees who plan to own property in retirement should expect their property taxes to increase at some point, usually due to increases in their property’s assessed value or increases in their state and local property tax rates.

Leave a little room in your budget to accommodate increases in your property taxes. You should also see if your state or town offers programs permitting individuals who meet certain age or income guidelines to reduce their property taxes.

Or, if you’re planning to relocate during your retirement, consider an area known for having affordable property taxes.

3. Your Roth IRA Needs to Meet Certain Guidelines for Tax-Free Withdrawals

Many individuals embrace the Roth IRA to provide them with tax-free distributions during their retirement. However, to make sure that your distributions are always tax-free, your Roth IRA must adhere to the following guidelines:

  • You’ve had your Roth IRA for at least five years
  • You’re 59.5 or older

If your Roth IRA is less than five years old, your withdrawals are potentially taxable, even if you’re 59.5 or older. Note that your retirement contributions always qualify for tax-free withdrawals; it’s your Roth IRA earnings that are subject to taxation.

Create a Financial Plan to Prepare for Your Retirement

Want to confirm that your retirement and investment strategies are right for your financial needs? Contact us today so we may help you to build and protect your wealth.

Advisory services are offered through Quantum Strategies, LLC dba Quantum Strategies, a Registered Investment Advisor in the State of Pennsylvania. Insurance products and services are offered through William Rizzo, Sole Proprietor.

Your Retirement Timeline

What is Retirement Planning?

The process of retirement planning involves saving and investing portions of your current paycheck so you have money to live on when you decide to leave the workforce. Simply put, you are putting away money now to pay yourself in the future. We think your retirement timeline is made easier by breaking down the process into five key decisions.

1. Deciding when to start planning. Financial planning, at its core, demands a plan. We recommend you start this as soon as possible. How much money you need to save and how much money it will cost in the long run is dependent on when you start.

2. Deciding how much money you will need. Retirement planning depends on one number that will provide you with a comfortable living while no longer working. A financial advisor can help you determine this number using life expectancy actuary tables, statistical data, and historical economic data.

3. Deciding to prioritize savings. No matter where you are in life, there is a good chance you have other financial obligations that make it harder for you to choose to save. But part of this step is making that difficult leap. At this point, your debt-to-income ratio will come into play, followed by a serious decision to make retirement investing a priority. Sometimes thinking of it as a bill helps incorporate it into your budget. A financial advisor can sometimes even find ways to save you hadn’t considered before.

4. Deciding on a retirement account. This decision involves picking a retirement account based on your current situation and eventual goals. Common accounts include:401(k)

  • Roth IRA
  • Traditional IRA
  • Self-directed IRA
  • Simple IRA
  • SEP IRA
  • Solo 401(k)

5. Deciding on specific investments. Once you choose a retirement account, you need to determine what you will invest in. Some of the most common choices include stocks, bonds, and mutual funds. Here is another area where enlisting the help of an experienced financial advisor can help simplify this process. Financial advisors have their thumb on the pulse of the investment industry and can help you decide how much risk you are comfortable with, along with other qualifying decisions.

Important Milestones in Your Retirement Timeline

Regardless of when you decide to begin retirement planning, there are important milestones you should plan on:

Age 59 ½: This is the earliest you can start withdrawing from a 401(k) or IRA without a 10% penalty
Age 62: You are eligible for Social Security at this age, but with reduced benefits.
Age 64 ¾: This is the time to enroll in Medicare
Age 65: Medicare officially begins; time to sign up for Medigap
Age 66-67: You qualify for full Social Security retirement benefit; if you wait until you are 70, its value will increase each month you delay

Depending on your year of birth, AND if you were born from 1943 to 1960, your full retirement age differs. Source: Social Security Administration.

Age 70: If you haven’t filed yet, it’s time to file for Social Security
Age 72: Now is when you need to begin taking required minimum distributions (RMDs) from your retirement plans

Retirement Planning with a Professional

If you have not yet begun planning for your financial future, there is no time like the present. Our Quantum Strategies Wealth Advisory team can walk you through all the decisions you need to help grow or preserve your wealth. Contact us today, and let’s get started on your future!

Advisory services are offered through Quantum Strategies, LLC dba Quantum Strategies, a Registered Investment Advisor in the State of Pennsylvania. Insurance products and services are offered through William Rizzo, Sole Proprietor.

Inflation and Your Retirement

It is essential to understand and pay close attention to inflation and your retirement. Inflation impacts many aspects of one’s financial well-being. Inflation influences the cost of almost everything in society —the price of consumer goods, services, and the cost of living. The inflation rate is also used to determine contribution limits for certain services such as social security benefits.

Retirees need to keep in mind how the rise in inflation affects them. Inflation influences how much retirement benefits will be worth at retirement age and could affect retirement plans by altering purchasing power. Why is this so? Seniors may have to spend more than the younger generation. This is especially true with services such as health care. According to multiple studies, retirees spend three times more money than non-retired adults.

Although seniors have no power to control inflation, it does not mean they should sit back and panic as inflation rises. They need to come up with ways to help prepare for inflation’s effects on their retirement benefits.

One way of doing so is by cutting down on expenses such as housing costs. Take this hypothetical of Susan for example. This 66-year-old woman was pushed into retirement after being let go from the trucking company she worked for. She had been working on her retirement plans, but due to lost wages and the rising inflation rate, she feared her retirement savings was not enough to see her through her retirement years. Susan decided to sell her house in New Jersey and move to a mobile home park in Delaware to reduce her housing costs. This change will help Susan’s retirement savings last longer, hopefully throughout her life. However, even with a tight $40,000 annual budget, she is still anxious that the cost of living might see her outlive her savings.

Professionals in the financial service industries have been advocating for better retirement planning. Working adults are encouraged to up their game and invest as early as possible to take advantage of years of growth potential.

If you are at or nearing retirement and concerned about how your retirement savings will stand up to inflation, contact our team at Quantum Strategies Wealth Advisory. We would be happy to review your retirement plan with you.

Advisory services are offered through Quantum Strategies, LLC dba Quantum Strategies, a Registered Investment Advisor in the State of Pennsylvania. Insurance products and services are offered through William Rizzo, Sole Proprietor.

What’s Missing from Your Retirement Plan?

Life expectancy is longer today than ever before. Taxes and inflation will likely increase over the next several years. Given these circumstances, it is understandable why many people are worried about their retirement plans. The following factors, investment volatility, and a highly uncertain financial landscape make it essential to consider including the following strategies in your retirement plan.

Retirement Plan Strategy: Create an Income Plan

One of the most critical steps in retirement income planning is determining how much income you’ll need in retirement and where that money will come from. When you are in your prime earning years, you must plan carefully to ensure you’re putting enough of your current income toward retirement savings and income-producing investments. As you move toward retirement, consider these steps to help you start and develop your plan:

  • List all solid sources of income — pensions, Social Security payments, guaranteed annuities, etc. You can count on these income sources, regardless of what circumstances change in your life.
  • List retirement savings accounts, including employer-sponsored 401(k) plans and IRA accounts.
  • Determine if your projected income will cover your intended lifestyle. Most retirees need 60-80% of their working income to avoid significant lifestyle changes in retirement.

Retirement Plan Strategy: Optimize Social Security Income

There are 567 Social Security income claiming strategies for married couples. Which is right for you? For most, waiting until full retirement age (currently 67) is the best move as it provides more considerable monthly income benefits. If you can wait until age 70, you’ll get the largest Social Security income payment possible.

Retirement Plan Strategy: Know Your Tax Options

Taxation ruins more retirement plans than just about any other financial factor. Many retirees are not prepared for how much of their retirement income is lost to federal, state, and local taxes. Taxable distributions on retirement investment plans such as 401(k) and Roth IRA plans must begin by age 72. Planning ahead for this will help you avoid an abrupt decrease in income. Also, converting tax-deferred income into a Roth IRA can help effectively shield you from excessive taxes. If you are 59.5 years old or older and have maintained a Roth IRA for at least five years, this strategy can allow your funds to continue to grow tax-free. Want to know more about how you can maximize your retirement income and enjoy the stress-free retirement you’ve always dreamed of? Get in touch with one of our experienced professionals at Quantum Strategies Wealth Advisory. We are here to serve you.

 

Advisory services are offered through Quantum Strategies, LLC dba Quantum Strategies, a Registered Investment Advisor in the State of Pennsylvania. Insurance products and services are offered through William Rizzo, Sole Proprietor.