December 29, 2023January 2, 2024

Frequently Asked Questions About Retirement Planning

Retirement Planning FAQ

Retirement planning is typically something that most people only experience once, which fills the process with uncertainty. The extra free time from retirement provides a well-deserved break after a lifetime of hard work. Unfortunately, it comes at the expense of losing your primary income. To maintain a quality of life that’s worthy of your accomplishments, you must make crucial decisions. The best path forward is often shrouded in questions. To help demystify the process, we compiled a list of frequently asked questions about retirement planning.

What are the First Steps of Retirement Planning?

Retirement planning typically begins long before the big day. The most common first step is regularly contributing to retirement accounts such as a 401(k) or IRA. As workers grow the value of their accounts and the prospect of retirement becomes more tangible, they usually begin active discussions with a retirement planning financial advisor. The discussions focus on building a financial blueprint for the future that includes anticipated expenses, budgeting, investment strategies, and more.

When Can I Retire?

The official retirement age in the United States depends on birth year. For people born before 1938, the age is 65, but the age gradually increases until it tops out at 67 for people born in 1960 or later. These official retirement ages mark the beginning of penalty-free disbursements from retirement accounts, but depending on specific circumstances, individuals may retire earlier or later.

How Much Should I Save for Retirement?

The magic number for retirement varies from person to person. Factors such as lifestyle, risk tolerance, asset allocation, and retirement age influence the total amount you should save. As a general rule of thumb, some advisors suggest contributing 10-15% of their annual income to retirement savings. Meeting with a qualified retirement planning professional will help provide a more concrete number.

What Will Be the Source of My Retirement Income?

Without a yearly salary, income in retirement can be a significant source of anxiety. Freedom from the fees and penalties associated with disbursements from retirement accounts means that IRAs and 401(k)s can be a source of retirement income, but over-reliance on these accounts can derail long-term plans. Thus, we believe having a well-rounded portfolio is important. For example, income producing real estate investments or securities that pay dividends could provide consistent income throughout retirement.

Are Retirement Benefits Taxable?

Yes. Even in retirement, you are still not free from taxes. Depending on your filing status and income amount, you may need to pay taxes on up to 85% of your Social Security benefits. Disbursements from a traditional IRA, 401(k), or pension will be taxed as ordinary income. One exception to retirement benefit taxation is disbursements from a Roth IRA. Since taxes were paid at the time of contribution, this account can provide retirees with tax-free income.

Should I Take My Pension as a Lump Sum or Annuity?

The answer depends on the rest of your retirement plan. While it may make sense for some to take a lump sum distribution and roll the funds into a 401(k), others may benefit more from the steady income from an annuity. Among other considerations, you will need to consider your health, living expenses, and other income sources before deciding. Advice from a CERTIFIED FINANCIAL PLANNER^TMcan be very valuable when making this decision.

How Can I Account for Inflation During Retirement?

Much like taxes, inflation continues in retirement, and ignoring this variable in your retirement planning can lead to financial shortcomings. To help counteract these diminishing effects on your buying power, we believe that adding asset classes with the potential to outpace inflation is crucial.

When Should I File for Social Security?

Much like other aspects of retirement, the best time to file for Social Security is unique for everyone. Social Security eligibility begins at age 62, but for those wishing to optimize their income, waiting until the age of 70 provides significant benefits. Determining the right time to file depends on the strength of your retirement strategy, anticipated expenses, and the age at which you intend to stop working.

How Much Does Healthcare Cost in Retirement?

As we age, healthcare costs typically increase. During your career, your employer likely paid healthcare premiums for you. In retirement, however, you are responsible for this expense. Filing for Medicare when you reach the age of 65 will shoulder a portion of the burden, but Medicare plans can leave gaps in coverage. Determining how much of your savings to set aside for long-term healthcare is a complex, yet crucial, part of retirement planning. We recommend meeting with a qualified financial advisor to help you form a strategy.

Who Can Help Me Plan for Retirement?

Retirement is altogether exciting, rewarding, and complicated. Without a blueprint for your future, this period of tranquility can dissolve into turbulence. Early consultations with a retirement planning professional will help provide clarity and reduce uncertainty in your life after work. At Morgan Rosel Wealth Management, our staff of CERTIFIED FINANCIAL PLANNERS™, fiduciary investment advisors, and wealth management consultants can help you plan for a successful and enjoyable retirement.

Retirement PLanning Consultation

This commentary reflects the personal opinions, viewpoints and analyses of the MorganRosel Wealth Management, LLC (“MRWM”) employees and guests providing such comments, and should not be regarded as a description of advisory services provided by MRWM or performance returns of any MRWM Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. MRWM manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. MRWM may recommend the services of a third-party attorney, accountant, tax professional, insurance agent, or other specialist to clients. MRWM is not compensated for these referrals.

Frequently Asked Questions About Retirement Planning

Retirement Planning FAQ

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