FAQs
The annual increase in the cost of living (as measured by the Consumer Price Index) has fluctuated, but has averaged between 4% and 5% over the past 20 years. While recent inflation has declined to 2% to 3% annually, it is important to use inflation estimates for future income needs.
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Assume you retire at age 60 and need $4,000 per month retirement income. Assuming 5% inflation, at age 65 you will need $5,105 to buy the same goods and services. At age 70, this amount will rise to $6,515.
At age 75, you will need $8,315 to maintain the same purchasing power as $4,000, fifteen years earlier.
With today’s technology, there are many financial strategy computer programs that are reasonably accurate. Please seek the advice of a financial professional or Certified Public Accountant (CPA) that is experienced in retirement preparation.
A self-employed person pays twice as much as an employee pays. However, because the employer pays a matching amount, the combined rate paid by the employer and the employee is equal to the self-employment tax. But there are special tax credits you can take when you file your tax return that are intended to lower your overall rate.
Usually there are three choices, each with different advantages and disadvantages:
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Leave it invested in what the company offers
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Annuitize for pension payment that may or may not be adjusted for inflation
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Roll over to an IRA or other pension fund, paying no taxes, and continue to defer the income tax.
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While many investors do leave pension balances in a company sponsored account, many individuals prefer an IRA for a number of reasons.
First, the choices in the company account are usually limited to a handful of investment accounts while an IRA offers an almost unlimited number of alternatives and the ability to make changes frequently and easily.
Second, many retired investors find the service from a former employer or from a voice menu reached toll-free number to be less than adequate service.
Perhaps the most important reason retired investors choose an IRA is the personal attention and advice offered by a Financial Professional who is knowledgeable about the investment markets, financial strategies, and the needs of the retiree.
It is true. If your company writes YOU a check for your pension or 401(k) balance they must withhold 20%.
For many retired Americans the largest financial risk is the cost of health care, either in a hospital or long-term care provided in a facility or at home.
Remarkably, many individuals work for up to forty years accumulating wealth, and then spend only a minimal amount of time analyzing and projecting their income at retirement. A financial plan through a Financial Professional will focus on retirement strategies.
This is a common concern for most hard-working professionals. We continue to be pressed with reduced time and attention and to those personal concerns which are usually at the end of our list. Working with a personal CFO can help segment and direct the next steps to put all the pieces together with an advanced plan. In this, the planning extends to all your concerns and a time table that makes sense and falls within your parameters to get this accomplished.
This is a multi-step process. The first is to know what it is that you want to achieve with your 401(k). Yes, we all want a return that enriches us rapidly, yet the reality takes a long-term disciplined approach. The 401(k) is a function of what your objectives are, what risk you are willing to take within the 401(k), how long you have to save and how much you are saving within the plan. This encompasses several variables that would need to address such as the employer match as well as how much debt and what cost that debt is costing you.
This is probably the greatest pressure one will have to face when getting out of school. It is unfortunate that people are faced with this amount of debt. This is where resources need to be applied to facilitate a disciplined approach to paying off the debt yet also participating in saving, purchasing and living one’s life. Depending on the amount of debt a time line would have to be determined along with current interest rates and how to facilitate the best rate possible for the debt. Depending on course of study and discipline, the government also offers service in underserved areas in the country for a specified period to forgive student loan the debt.
To reduce the monthly burden, it is first important to list or itemize what it is you spend each month. A good but arduous task is to list every item that you spend each day for a month. This gives you a good sense of where the money is going. Secondly, incorporate this into a list that includes mortgage, insurance, utilities etc. so you understand both your fixed costs and your variable costs. You will find that writing this down will help you become aware of your expenses. Take the net income you bring home each month and compare that to what you are spending. This is the first step in getting a handle on your spending habits and from there you will see clearly what changes you will have to make.