Retirement has the ability to be over a third of your life and knowing what you don’t know may mean the difference between making sure you have a great retirement over just a good retirement. That’s what we’ll be talking about today on how to risk manage retirement correctly on the things you don’t know.
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On our show today we are going to be talking a lot about what retirement looks like and the things you may not know and how that’s going to affect your retirement so that’s what we want to be talking about today and there’s multiple aspects to retirement and what we want to do on Enriching Wealth is teach you how to risk manage your retirement correctly so one of the aspects is the wealth you have and how that translates into making sure that the money you have can create an impact through your work, your company, through your family and through your community. Now, what we want to do is be discussing all of those details that you may not know starting with;
TAX BREAKS
Tax breaks you see when we talk about taxation there’s a lot that comes into your age and the older you are the more deductions you may claim especially on a standard deduction so as you are getting into retirement as you are retirement age so that is classified over 59 and a half but more so as you fully retire and start to actually plan for the next stage of your life that’s generally over the age of 65 for many of you now with that there are tax breaks that you may be qualifying for that you had not previously qualified for so as you’re going through your taxes it’s actually a very good thing to look at your taxes and to determine because of your age if there are any additional breaks tax breaks that you may be able to claim that you had not already claimed so that is something that be aware of that something that you need to be proactive about as well and making sure that your accountant or even your tax software is just up to date and knowing all the deductions that you are able to take for your age and where you’re at in your stage of life.
HEALTH CARE
Number two, Medicare doesn’t cover everything you know, there’s an old saying that’s “out there that when you have your health, you can have a thousand wishes but when you don’t have your health you have but one wish”, that is true because even with an exorbitant amount of money say hundreds of millions of dollars if you don’t have your health what good is that money and I have actually been around individuals who have had 150 – 180 million dollars who have poor health and what has ended up happening is that their health has declined so rapidly that they start seeking out other individuals other doctors to try to help with them and they spend a lot of their money trying to figure out their health and trying to get better and when that doesn’t work they try something else and keep trying something else so yes they have the wealth aside to make this happen but they’re not getting any healthier and so when they look back on their life they would trade gladly their wealth for their health.
Now, what I’m talking about here is that when we take a look at what’s going to keep you healthy that’s part of your health insurance and when you are retirement age and 65 and older you jump onto Medicare. Now Medicare is a lot of different kind of plans pulled together so we have part a part b part d we have a lot of different parts that are just subject to anything you can be signing up for right away but that’s not all you see we have part a which is a big piece of your kind of emergency care type of coverage and then we have part B which is more of your primary care type coverage part D is drug coverage but when we take a look at all of the different aspects of Medicare it does not cover all of your insurance needs so if you are going to stay healthy in retirement you need to make sure that you take care of all of the aspects of the health insurance that’s going to keep you healthy so what happens when it doesn’t cover everything well we need an additional plan so that’s where they come into Medigap policies now Medigap policies are additional policies that you can get that are going to cover those specific areas that part a b and d don’t cover now what’s more most of you are not going to get a Medigap policy you will get supplemental coverage now that is more so in the lines of from a private insurer that’s going to be covering all of the different aspects of your medical needs so know that your health is vitally important and the aspect that you are going to need additional health insurance even in retirement.
Number three your age matters now we just got done talking about age 65 with Medicare that is a huge number that you need to be aware of because that is going to be the difference between paying maybe thousands of dollars in health insurance premiums and paying hundreds of dollars in health insurance premiums but that’s not the only number that you need to be aware of you see between ages 62 and 70 you have other aspects what are those social security when to take your social security benefit can be the difference between having your benefit be paying out a standard of living until say 80 or even having a standard of living that’s going to be helpful through age 90 or even a 95.
You see what happens is that we want to take the most money out of social security and to do that correctly you have to know your numbers what’s going to be important for you and the best ways to claim social security so knowing your numbers your age and all of the different aspects is going to be vitally important so we have Medicare we have social security those are going to be important well what else how about the number 59 and a half that number specifically is when we can take money out of your retirement accounts without penalty so now we can start taking money out we can start shifting things around and we can start doing more retirement planning around your accounts so 59 and a half is vital we had 65 already we had 62 to 67 for social security now we used to have 70 and a half for your required minimum distributions. But that is no longer now it’s increasing, so now we’re at 72 for required minimum distributions and there it may actually increase in the future as well, so when we take a look at all of the different aspects of the ages that you need to be aware of there is a lot of different abilities to take money today at 59 and a half to take income in the future that’s required at say 72 to take social security on a gradient scale and when to claim Medicare at age 65.
So all of those numbers mean something and having a plan in place of when to take everything is going to be vitally important to make sure first of all that you have the money and income you need and secondly you can risk manage it so your money does not run out so whether you have a hundred thousand dollars or a hundred million dollars making sure that you have the correct strategy of how you’re going to be utilizing your money in retirement is vitally important taking from your nest egg when we look at retirement I talked about the fact that we have ages that matter one of those ages is what I call your required minimum distributions and that is true because we have a time in place where out of your retirement accounts you are required to take money out so that’s why we call it the required minimum distribution the minimum amount.
You need to be claiming outside of your retirement account and from your retirement account to make sure that you satisfy all the laws that have been placed you see what happens is that you have been given 72 years to basically save a lot of this money and the government says you know what we want a little bit of our taxes today so we are going to require a certain amount of money to come out of the accounts, now you can find that amount in the percent based upon your age that comes from your unified tables so those are published tables that you have so you can have access to those from the IRS website or you can even have a lot of different required minimum distribution calculators that will calculate the exact amount from the money that you have in your retirement accounts and making sure that you take the enough money out of them one thing to know here is that if you have a 401k and an IRA they’re both retirement accounts but you have to make sure that you’re taking money out of both of them.
You see some of the accounts you can kind of lump together and take more from one and none from the other but there’s other accounts that you need to claim that money and take it out of irregardless if you’ve taken out of other accounts, so to know which accounts and to know the laws means just doing a little bit of research but just know that there are going to be times where you’re required to take money out and that you may have to take out of more than one account to satisfy all that you are required to take so with that just know that you are required to take money out of your accounts and that you’re going to have to pay taxes on it so we’re not getting past those taxes on your 401k accounts on your traditional IRA accounts on your step IRAs on your simple plans your qualified pension plan to your qualified defined benefit plans they’re called defined contribution plans all of those are taxable in retirement and that is the reason why just having again a strategy in place can help you risk manage your taxes.
NEST EGG
When we talk about your Nest Egg you have done a great job of saving and so much so putting money away now we have to take out a certain amount every year just to make sure that you have the standard of living that you want now again want is going to be subjective so your standard of living is going to be different than everyone else’s but we need to make sure we have the retirement income to support that and so that’s looking at your nest egg.
Making sure that we can take out enough to support your lifestyle but not too much that we’re going to deplete it sooner than you have wanted so what I mean by this is that there’s going to be a time when you have more money at the end of your life that is when you can pass it on to your to your heirs to your kids you can leave it as a legacy as part of maybe say charitable organizations you have a lot of options.
When you have more money at the end of your life but what happens if you have more life at the end of your money that is a recipe for disaster and I know that’s one that you do not want to kind of be entangled in, so what can we do to make sure that that doesn’t happen, well it’s taking a look at where you’re at for retirement and making sure we have a strategy for withdrawing the money out of your accounts, make sure we know how much we’re going to be taking on a yearly basis and the probability that it’s going to last all of your retirement years you see when we take a look at that the whole idea now is that we have the ability to have more money at the end of your life and not the other way around in retirement you can keep saving for retirement this one is fairly straightforward that there are going to be some aspects and some accounts that if you are working you have the ability to continue to keep saving money into even after you turn the age 72.
So if you have decided that you don’t want to quit working you don’t want to retire which you know is actually a great aspect because it keeps your mind sharp it keeps you active and it keeps you doing the things that you want to do and love well if that is earning income there may be great places that you can continue to keep saving that income for whether it’s a future retirement or whether it’s for getting some tax benefits off of it that is the reason why having kind of a look into your income or look into your savings especially as you get into your 70s is going to be very helpful because some places you are unable to save money into but others you have the exact benefit that you’re going to be enjoying by being able to put money away for retirement even if you are not retired and that leads us to our last aspect taxation you see when we look at your traditional IRA accounts your traditional 401k accounts social security many of your pension plans that you have those are taxable taxation is going to be a huge aspect to your retirement.
Now I have some bad news the information that you have been fed through the media from the newspapers from the news that you’ve been watching over the last probably about 20 years has really talked to you in the fact that just put money away for retirement and in retirement you will probably pay less tax than when you’re working well the news and the bad news I have for you is that most likely that’s not going to be the case I mean there’s going to be some aspects that change yes you no longer are going to be paying into social security or Medicare as part of your taxes if you do not have earned income so yes that aspect is going to change but the thing is as you take money out of your accounts most likely you may actually stay in the same tax bracket or may even jump a tax bracket depending on your income and depending on how much money you are required to take out of your account so what do we do about that how can we make sure that we stay in a lower tax bracket to keep our taxes lower and yes this is called risk managing your tax brackets then so if we want the money to last longer one way to do that is make sure that we don’t have as much in taxation that occurs so what we can do here is take a look at the different tax buckets we have now.
You may have heard of the tax buckets before and understand the kind of the concepts so we have the taxable buckets that’s the ones like your individual accounts your non-retirement accounts your jointly held accounts bank accounts brokerage accounts, ones that you’re putting money into and you can take out at any time and any of the growth you pay tax on so that tax then would be subject to how long the money has been invested if it’s under one year then it’ll be short term if it’s over one year it’d be long term and those can come back to capital gains so that’s something to know there’s going to be taxation on those taxable accounts, then we have a tax deferred bucket that bucket itself is going to be what most of your tax is going to come from because remember you’re putting money into these accounts so like your IRAs your 401Ks to find contribution plans you’re putting money into them, where basically you’re not paying tax on that money to go into the accounts and because of that when you take money out of the account it’s going to be taxable so every dollar you take out of those accounts are going to be taxable, so we have the one that is going to be taxable just in general when you take money out of it and any transactions that’s capital gains you have one that is going to be taxed later when you take money out of it in general and you’re going to be having a third bucket that’s a tax free bucket with Roth IRAs Roth 401ks and different types of accounts that are going to be very beneficial to you.
So we have the three different buckets but I would actually argue there’s going to be a fourth bucket that you should look into and make sure you have money filling up that bucket what is that bucket it may be one that you are not as familiar that you can be drawing from in retirement life insurance you see specific types of policies have the ability to basically save money and encapsulate money within those policies themselves and we can take money out of there as part of the loans tax-free so the best aspect if we have taxation in retirement, how can we manage each of those buckets so even that fourth bucket that you may not have thought of in order to receive tax-free income if we have some tax-free income we have some taxable income with capital gains income and we have your traditional IRAs 401Ks that are still subject to tax, but if we can look at each one uniquely there may be opportunities to reduce your taxes in retirement the exact way that you have been understanding it for the past at minimum 20 years so with that there’s been a lot of strategies that we have gone through here and just knowing where you’re at for retirement and the things you don’t know is going to be helpful to make sure you have a long prosperous healthy and a retirement that you will have the joy to make sure that you going to outlive the money you saved.
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The commentary presented herein contains the opinions of Lions Wealth Management, Inc., a State of Minnesota Registered Investment Advisor. This information should not be relied upon for tax purposes and is based upon sources believed to be reliable. No guarantee is made to the completeness or accuracy of this information. Lions Wealth Management, Inc. shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions contained herein or their use, which do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes, and therefore are not an offer to buy or sell a security. Investments in securities are subject to investment risk, including possible loss of principal. Prices of securities may fluctuate from time to time and may even become valueless. This information has not been tailored to suit any individual.