Income Planning for the Realities of Retirement
Despite harsh global and national economic conditions, many workers will fail to come up with a proper and realistic income planning strategy, which can then result in inadequate funds in retirement. Before you plan, you will need to consider numerous factors, including the possibility that retiring earlier will put more strain on your nest egg compared to retiring later, and that you may still have to pay taxes on your 401K and IRA withdrawals, as well as your Social Security benefits.
In addition to taxes on retirement account withdrawals and the checks you get from Social Security, you may experience reduced Social Security benefits if you receive employment income. Retiring before normal retirement age, which is currently at 65, permits you to receive this type of income to a maximum of $14,160 yearly. When you go beyond that maximum amount, you will lose half of every dollar you are supposed to receive in benefits. However, reaching full retirement age means that you will not experience reduced benefits regardless of your earnings.
Inflation should also be a factor that you consider when planning your finances for retirement. Inflation will not stop dragging down the value of your savings and investments, and require you to shell out more money for the same services and products you used to pay less for. Annual inflation rates are at an average of 3% - currently spending $50,000 yearly on overall expenses, for example, may mean you will need double that amount to retain that lifestyle a couple of decades from now.
The cost of living, contrary to conventional retirement wisdom, may actually go up when you retire. While some expenses may no longer be present or decline once you are out of the workplace, you may have to spend more money compared to pre-retirement. For instance, while you will not have to spend on commuting, lunch-outs, and buying work clothes, you may feel the need to spend on hobbies, travel, entertainment, and other leisurely interests.
The US Census Bureau has found that if you have already reached the normal retirement age of 65, you will probably live around twenty years more. Due to this, you will need stronger income planning strategies that consider the effects of taxes on retirement account and Social Security benefits, the possibility of smaller Social Security checks, inflation eroding your nest egg, and a higher cost of living in retirement compared to your working years.
About the Author:
Katherine Smith is an author who specializes in financial topics concerning seniors. Puritan Financial Group gives seniors reliable investment options, to help them strengthen their income planning strategy. For more information on how Puritan Financial Group can help you, please visit our website at http://www.puritanlife.com/solutions/retirement_planning.
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