tax-planning-for-retirement

Most of us dream of retirement – a time of your life when your hard work pays off and you can leave the rat race behind for a time of peaceful leisure. In order to have that dream retirement, you have to be prepared financially so you’re not thrown into financial stress or having to delay retiring by several years. To help you plan for retirement and good living, our CPA firm is sharing some tips for you to help you get ready, whether you plan on retiring in three years or it’s still 30 years down the road.

What Do You Want from Retirement?

You may be dreaming of retirement and the day when you don’t have to set your alarm clock, but beyond that, what does retirement look like for you? Do you want to travel the world or will you be caring for grandchildren? Maybe you would like to gradually retire by stepping down from full-time work to part-time.

The average amount of time someone is retired is around 20 years, and how you choose to spend that time affects how you can plan for it.

Planning Your Financial Needs

Most financial experts estimate that you’ll need 70 to 90 percent of your pre-retirement income to keep up with your standard of living once you start working. The average Social Security check is around $1500 per person, though if you delay retirement, you may receive more. Any additional money you would need to bring in would come from a defined contribution plan, such as your 401(k), IRA, or other savings and investments.

Other things to consider are:

  • Debts during retirement. Will you still be paying a mortgage, student loans for children, car payments, or credit cards?
  • Housing. Do you plan on staying in your home or will you downsize to something less expensive and easier to maintain?
  • What kind of health insurance will you have?

Having an in-depth understanding of your finances and creating a realistic budget is essential to a successful retirement. Even if you may not have a lot saved up right now, knowing your available funds, potential funds, and outgoing expenses can help you set up a plan that allows you to experience an enjoyable, comfortable retirement.

Knowing When to Start Saving

A general guideline is that it’s never too early to start saving for retirement. Most people in their thirties aren’t saving for retirement, but are more concerned with student loans, marriage, and having children. However, in order to have the recommended 10 times your final salary by age 67, you need to start early.

Go over your budget and understand your recurring expenses and see where there’s a “black hole” of spending. Is it going out to eat a few times a week, $100 “date nights” with your partner, or buying books and movies? If you can trim those down by half by finding free entertainment, eating at home, and utilizing the library and put that money into your retirement (or split the money by putting some extra on debt and some into a Roth IRA), you can start making big strides toward financial security. Also, if your company offers an employee-sponsored plan, make sure you’re putting in the employer match at minimum.

Not sure where you can trim money from your budget? Consider working with a financial or debt counselor who can provide resources and help you determine your best options.

Integrating Purpose into Retirement

Retirement and good living do go hand in hand, but it takes more than vacation and television. In fact, disenchantment and depression are common problems affecting senior citizens. Work often offers community and a sense of purpose, and without those things, many people struggle, especially if they don’t have close friends of family nearby.

This doesn’t mean you should keep working for a sense of purpose, but it does mean that it’s important to find activities that “fill your bucket,” so to speak. These could include:

  • Volunteer work for a cause you’re passionate about;
  • Think of activities you haven’t done in years and give them a try;
  • Take a class in a topic you’ve always been interested in at the local community college;
  • Find community activities to meet people and stay social;

Meet With a Financial Planner

Retirement is a big step, and whether you want to retire in a few years or it’s still a ways away, having a professional sit down with you and analyze your finances and help with planning decisions can give you the clarity you need. With an experienced professional who can see the path you are on right now and whether that will take you to the retirement you dream of, they’ll be able to provide you with steps you can take to get closer to your goals.

Understand How Retirement Benefits Are Taxed

If you plan to retire in the next few years, it’s important to factor in your taxes when planning your retirement. Social security and pension income are funded with pretax income, so they are taxable when you receive the funds while IRA withdrawals are also subject to federal income tax. Tax planning for your retirement income and investments can ensure you’re not surprised by a cut to your income.

Schedule a Consultation with Our Tax Planners

At our CPA firm, we offer experienced tax planning and consultation services to help you take control of your retirement finances. Let us sit down with you and help you get on a path to enjoying your golden years. We serve areas throughout North Carolina including Raleigh, Wake Forest, Wilson, Apex, Durham, and Cary. Schedule a consultation today, we offer telephone and video conferencing, as well as in-person meetings. Call  (919) 872-0866 or fill out the contact form below.

Contact Form

We would love to hear from you! Please fill out this form and we will get back to you shortly.
  • This field is for validation purposes and should be left unchanged.