It’s not uncommon for people to rush into retirement without making the right preparations. When they do so, they can make mistakes like buying too much of their company’s stock or underestimating the cost of retirement.
One of the most important things to do before you leave your job is to do some income planning. Determine how you’ll handle taxes, how much you’ll need to live comfortably, and what your sources of income will be. You don’t have to rely on something like social security alone.
Here’s what to consider when saving for retirement.
One problem you may face when withdrawing any retirement savings is taxes. If you want to avoid sacrificing a big chunk of your earnings, then you should start by withdrawing from taxable investments.
Withdraw from your Roth IRA last, as it will continue to grow as you use your other sources of income.
Utilize a Roth IRA
The benefits of a Roth IRA are two-fold. First, they’re funded with your after-tax dollars. That means they won’t reduce your taxable income.
Second, they allow tax-free withdrawals if you’ve had an account for over five years and are over the age of 59.5.
Consider Your Quality of Living
Another tip when income planning is to determine your retirement spending needs.
For example, what kind of home do you plan on living in? Are you going to move to another area for your retirement? What kind of lifestyle do you desire?
All of these factors will affect how much you’ll need to save up and when you’ll need to dig into your investments.
One way to generate income while in retirement is through annuities. A fixed annuity allows an insurance company to invest your money into the market on your behalf. They then pay you a minimum amount at set intervals.
There are also other annuities that can pay you more when your investment does well.
Understand Social Security Taxation
A financial planner can help you figure out how your Social Security benefits will be taxed, as well as when the best time will be for you to withdraw from them. Your combined income may exceed thresholds that increase how much your benefits will get taxed.
In addition, pushing back the age for retirement can also allow you to get more value out of your Social Security.
Diversify Your Assets
Finally, make sure to diversify your assets to protect against losses.
Some of the best investments include high-yield savings accounts, government bonds, and mutual funds.
Get Help With Your Planning
It can prove complicated to lay out your future without a financial planner. After all, there are many different ways to invest in your future and spread out your capital.
Advanced Capital Management can help you sort out your retirement plans, including annuities, estate planning, income planning, and more. We’ll provide a more comprehensive outlook on your life after retirement. Contact us to learn more and schedule a 20-minute Benefits Review.