7 Questions to Ask Yourself Before Deciding to Retire

Few Americans save enough for retirement. Whether due to financial issues or a lack of foresight, a lot of people either don’t give much thought to retirement or are unable to save up enough to help them fund their elder years.

In fact, only 13 percent of people who haven’t retired yet say they’ve given a lot of thought to financial planning for retirement, according to a survey conducted by the Federal Reserve Board. Nearly 40 percent say they have given little to no thought to retirement planning.

Mapping out your retirement takes more than asking yourself, “When should I retire?” Consider these seven questions to help you better plan for financial and personal obstacles in retirement.

Read: What Retirement Without Savings Looks Like

1. What kind of lifestyle do I want?

Before figuring out how much money you need to retire, you need to consider what sort of lifestyle you want to have in retirement, said John Sweeney, Executive Vice President of Retirement and Investing Strategies at Fidelity.

Do you want to stay in your current home or downsize? Will you want to move to a bigger city or someplace warmer? Maybe you want to travel the world.

No matter how you envision your retirement, you’ll need to plan ahead to fund it. Depending on your goals, you might need to save more than you originally planned. If you’re married, you’ll need to speak with your spouse to make sure your retirement plans are aligned.

2. What will my expenses in retirement be?

Sweeney said most people can expect to spend about 85 cents in retirement for every dollar spent before retirement. Depending on your health, however, you might need to save more to cover medical expenses. If you have a chronic condition or mobility issues, over time you might end up needing to spend more money to maintain your quality of living.

To help you project rough estimates of your retirement costs, you can use an online retirement income calculator. With a financial planner, you can get a detailed cash-flow analysis and help managing taxes.

3. Will I have enough savings to cover my expenses?

Less than half of all workers say they’ve ever tried to calculate how much money they will need to save to live comfortably in retirement, according to The 2015 Retirement Confidence Survey conducted by the Employee Benefit Research Institute. Scott Bishop, Director of Financial Planning at STA Wealth Advisors in Houston, recommends comparing your current monthly expenses with how much income you’ll have in retirement.

If your retirement savings can’t sustain your mortgage, insurance and other typical costs, you might want to reconsider your current savings plan. You will also want to calculate your Social Security benefit to determine how it will affect your monthly budget. When considering whether you’ll have enough income in retirement, assume you’ll be in retirement for 25 years and have access to four percent of your savings annually.

In retirement, you’ll want to revisit your withdrawal percentage, adjusting for your actual spending, said Bishop. Your retirement portfolio, which should include numerous asset types, should also be structured to outpace inflation. Sweeney recommends you have a mix of stocks — about 55 percent — in your early years of retirement to maintain growth, and fixed income, such as bonds, to guard against market volatility.

4. What impact will taxes have on my retirement income?

Taxes don’t disappear when you stop working. In fact, your tax bill can take a big bite out of your retirement income.

Up to 85% of your Social Security benefits might be taxable if you have income in addition to your benefits. Withdrawals from tax-deferred retirement accounts, such as traditional IRAs and 401(k)s, are also taxed. So, if you need $5,000 a month to cover expenses in retirement, you might need to withdraw up to $6,000, said Bishop.

Higher-income taxpayers will have to pay taxes on profits from the sale of stocks, bonds, mutual funds and other investments not held in tax-deferred retirement accounts. States have their own rules for taxing retirement income, so depending on where you live, you could be hit with an above-average tax bill.

The states that impose the highest taxes on retirees include California, Connecticut, New York, Oregon, Rhode Island and Vermont, according to a 2014 analysis of state taxes conducted by Kiplinger, a publisher of business forecasts and personal finance advice. A financial planner can help you figure out how taxes will impact you in retirement and what strategies you can use to minimize your tax bill.

5. Where will I get my health care?

Chances are your employer won’t continue providing health care coverage for you in retirement. Only 28 percent of companies with 200 or more employees offer retiree health coverage, according to the 2013 Kaiser/HRET Survey of Employer-Sponsored Health Benefits.

You are eligible for Medicare when you turn 65. You likely won’t need to pay a premium for Medicare Part A, which covers inpatient hospital stays, care at nursing facilities, hospice care and some home health care. If you want extended health benefits, however, you’ll need to pay a monthly premium for Medicare Part B, which covers most doctor and outpatient services. Medicare Part B typically costs around $104.90 each month.

If you retire early, you’ll have to get an insurance policy on your own. Couples who retire at 62 can expect to pay $17,000 a year for health insurance premiums and out-of-pocket costs until they’re eligible for Medicare, according to Fidelity. A retiree can expect to pay an average of $220,000 in medical expenses over the course of their retirement.

You also need to factor in long-term medical care, which could wipe out your retirement savings if you’re not prepared. The median annual cost of care in an assisted living facility is $43,200, and the average cost of a private nursing home room is more than double that, according to the Genworth 2015 Cost of Care Survey. To curb these types of costs, you can look into long-term care insurance.

6. How much debt do I have?

The more debt you carry into retirement, the more retirement income you’ll need to pay off what you owe. When you’re deciding when to retire, you need to figure out how long it will take to pay off your existing debts. You should pay off any high-interest debts that aren’t tax-deductible first, such as credit card balances, said Bishop. If you have good credit, refinance any high-interest debt that’s tax-deductible, such as a mortgage, to get the lowest rate possible.

7. Am I emotionally ready to retire?

Ask yourself what you will do once you retire. If you don’t know — and most people don’t — you might have a problem, said Bishop. Around 22 percent of people surveyed by the Federal Reserve Board say they plan to stop working entirely in retirement.

You need to figure out before you retire whether you want to continue working in some capacity. If you initially choose not to work in retirement, you might have a harder time becoming employed after being out of the workforce for a while.

Deciding to retire, much less knowing how to map out a retirement plan, takes work and careful thought. Consider meeting with a financial planner to help you determine how to decide when to retire and to create an action plan for retirement. Knowing how and when you will retire will allow you to look forward to retirement.

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When Can I Get My Full Social Security Retirement Benefits?

When you can obtain full retirement benefits is determined by your date of birth. If you were born betweem 1943 and 1954, full retirement age is 66. Between 1955 and 1959, full retirement gradually climbs toward 67 if your birthday falls between 1955 and 1959. For those born in 1960 or later, full retirement age is 67. When you turn 62, you can apply for Social Security retirement benefits but, taking benefits before your full retirement age results in a reduction of as much as 25% of your benefit. Further, this reduction would be permanent. If you have any questions about Social Security, you should consult an experienced Social Security attorney. Kent S. DeJean

 

Should I Retire Early ?

This link is to a great article regarding Early Retirement:

http://www.nytimes.com/2014/05/15/business/retirementspecial/social-security-at-62-lets-run-the-numbers.html?WT.mc_id=D-E-OTB-AD-TOPSTORIES-HP-OS-0514&WT.mc_ev=click&bicmp=AD&bicmlukp=WT.mc_id&bicmst=1400182869000&bicmet=1401565269000&_r=0

 

Americans in denial about long-term care

It’s not a topic that’s considered even barely enjoyable, but it’s something that must be faced by every American in the age of modern medicine. We’re now living much longer than our ancestors, and we’ll require care for a much longer period of time than our great great grandparents did.

New polls indicate that among people over 40, two-thirds of them have done absolutely nothing to prepare for a transition to comfortable senior living, even though about half of the people surveyed had already served as caregivers for an older relative. For more of the dirty details, head over to this article at NBC News.

The attorneys of Losavio & DeJean possess the expertise and experience to help you plan ahead, making sure that when you’re no longer able to care for yourself, you’ll have the means to get the help you need.  Not only do we help people qualify for Medicaid regardless of the wealth they’ve accumulated over their lifetimes, we can also help solidify decisions that will need to be made in the future by drafting a Will and Powers of Attorney. In addition, we help protect assets during life and after death, and we can help eligible Veterans receive the benefits that they deserve for their service to our country. And it’s all more affordable than you probably think.

Take the first step in planning your future by calling us to set up an appointment.

Tax Note: Five-year rule on tax-free Roth withdrawals

by Brian J. Munson, Esq.

If you recently opened a Roth IRA, try to avoid making withdrawals anytime soon. One point of the Roth is to allow your assets to grow tax-free.

If you feel you must withdraw money from the account, you can always take contributions from a Roth IRA tax- and penalty-free. Your contributions will be considered the first money out of the account, and these are tax free.

To withdraw earnings without having to pay taxes or penalties, you must have had the Roth IRA for at least five (5) years and you generally must be older than 59½.

If you dip into earnings before you reach age 59½, you will owe income tax and a 10% penalty, even if you’ve satisfied the five-year test.

No Early-Withdrawal Penalties for Inherited IRAs

by Brian J. Munson, Esquire

If a person inherits an IRA from a decedent, there is no early distribution penalty.  Thus, the new recipient of the IRA does not have to worry about the 10% penalty for withdrawals if he or she takes the money out before reaching 59 ½.

In fact, the law states that the new beneficiary must begin distributions by the end of the year following the year the owner died, or withdraw all the money within five years.

Medicaid Monday: Long-term Care Costs

Costs for most long-term care services rose in 2011 compared with 2010, according to the MetLife Mature Market Institute. The national average daily rate for a private nursing-home room went up 4.4%, to $239 per day.

The average monthly base rate for assisted living climbed 5.6%, to $3,477.

The daily rate for adult day care rose by 4.5%, to $70 per day.

The hourly rate for home health aides stayed at $21.

With these rates being as high as they are and increasing year-to-year, it is important to have a Life Care plan in place.  This can help you pay for the cost of care and even qualify you for Medicaid without losing everything you’ve worked for.  Call today to schedule a free consultation and find out how.

Tax Note: Make the Tax Code Work for You in Retirement

by Brian J. Munson, J.D., LL.M. Taxation

Some of the most powerful ways to stretch a retirement portfolio are hidden in the tax code. By drawing down your nest egg tax-efficiently in retirement, you can make a portfolio last up to seven years longer.

To maximize your options for making tax-efficient withdrawals, you should save in both taxable and tax-deferred accounts while you are still working.

Consider a married couple over 65 drawing money from savings to cover expenses. While conventional wisdom tells them to draw money from taxable accounts, leaving 401(k) money more time to grow tax-deferred, that’s probably not the best solution. The elderly couple could take enough money from the 401(k) to fully use a low tax bracket. Add that to the income they can receive tax-free thanks to personal exemptions, the standard deduction and deductions for people over 65, and the couple could draw up to almost $40,000 from the 401(k) this year with the funds taxed at no more than 10%.

Even if tax rates remain the same in the future, it can be beneficial to fully use the lower bracket from ages 66 to 70. Once you start taking required minimum distributions from your tax-deferred accounts at age 70½, you might be bumped into a higher bracket. You don’t want to miss the opportunity to take pretax dollars out with a minimal tax bite.

Contact us today if you’d like more information about stretching your retirement more effectively.

Can an ex-spouse get Social Security Spousal Benefits?

by Kent S. DeJean, Esq.

Yes. Bringing up the memories of an estranged relationship is never something an ex-spouse likes to do, but it’s important to consider the possible benefits that they may be eligible for.

If the ex-spouse was married to a former spouse for 10 years and has been divorced for at least 2 years, that ex-spouse is eligible to collect Social Security spousal benefits based on the earnings of their former spouse. That ex-spouse, however, can only obtain these benefits if they are unmarried when they file to collect.

It should also be noted that if the former spouse dies, an ex-spouse can begin to collect his or her full amount of Social Security benefits just as they would be able to do with a current spouse.

Contact us if you have questions or concerns regarding Social Security Benefits.

Important changes for Social Secuirty recipients in 2013

by Kent S. DeJean, Esq.

There will be two important changes regarding benefits for Social Security recipients in 2013:

  • No more paper checks
    Due to security and costs, the Social Security will no longer issue monthly paper checks for Social Security benefits to recipients. All Social Security recipients will receive their payments either by direct deposit into their credit union or bank account, or the benefits will be transferred onto a Direct Express Debit MasterCard. If a recipient does not choose an option before March 1, 2013, their monthly benefits will be transferred onto a pre-paid debit card automatically.
  • More monthly benefits
    There will be a cost of living increase for Social Security retirees of 1.7% in 2013. The average Social Security check is expected to increase $ 21.

If you’ve been denied Social Security benefits, contact our office today. We may be able to help.