Retirement planning requires determining what the goals of the individual or couple on during this phase of their life and making sure that the appropriate means are available to achieve them. It focuses on investing, insurance and eventual asset distribution. One of the main issues with retirement planning comes from the need for ensuring that a person has enough income and it is a mix of tax-deferred and tax-free income.
Social Security is one the main ways in which a person receives income after their working life has ended. Social Security benefits are dependent on the salary and wages of the worker prior to retiring. It also depends on the length of time that the person worked. Every individual must work and pay payroll taxes for at least 10 years to be fully eligible for his benefits.
An individual can make up for the lack of income provided through Social Security by investing in retirement accounts. Many companies offer employer-sponsored programs such as 401(k)s or 403(b)s. The person also has the option to invest in a traditional Individual Retirement Account (IRA), a Roth IRA or both.
As the employer-sponsored plan and a traditional IRA typically provide tax-deferred income, whereby income taxes will be due when distributions are made from the account, income from a Roth is generally tax-free. This is because the dollars used to invest in it are after-tax dollars. Annuities can also provide tax-free income, other than capital gains. It is good to plan for a mix of both.
After the age of 65, a person will receive Medicare to help cover some of the costs of their medical expenses. However, this is rarely enough and requires significant out-of-pocket payments. There are also other insurance considerations to take into account, such as long-term care needs and life insurance. The latter is of considerable importance if the person has a lot of debt or any young dependents for which he is responsible.
During the later years, a plan should be created that enables the person to begin gifting away excess assets. The purpose is to avoid the estate tax, if applicable. However, they do not want to incur a gift tax either when they are giving it away. Therefore, planning is necessary.
A professional can help ensure that retirement planning is done correctly and that all of the appropriate bases are covered. The most important aspect is guaranteeing that income is available throughout the life of the retiree. However, there are also other considerations. Protection from asset depletion because of an unforeseen financial risk is also extremely important.
Social Security is one the main ways in which a person receives income after their working life has ended. Social Security benefits are dependent on the salary and wages of the worker prior to retiring. It also depends on the length of time that the person worked. Every individual must work and pay payroll taxes for at least 10 years to be fully eligible for his benefits.
An individual can make up for the lack of income provided through Social Security by investing in retirement accounts. Many companies offer employer-sponsored programs such as 401(k)s or 403(b)s. The person also has the option to invest in a traditional Individual Retirement Account (IRA), a Roth IRA or both.
As the employer-sponsored plan and a traditional IRA typically provide tax-deferred income, whereby income taxes will be due when distributions are made from the account, income from a Roth is generally tax-free. This is because the dollars used to invest in it are after-tax dollars. Annuities can also provide tax-free income, other than capital gains. It is good to plan for a mix of both.
After the age of 65, a person will receive Medicare to help cover some of the costs of their medical expenses. However, this is rarely enough and requires significant out-of-pocket payments. There are also other insurance considerations to take into account, such as long-term care needs and life insurance. The latter is of considerable importance if the person has a lot of debt or any young dependents for which he is responsible.
During the later years, a plan should be created that enables the person to begin gifting away excess assets. The purpose is to avoid the estate tax, if applicable. However, they do not want to incur a gift tax either when they are giving it away. Therefore, planning is necessary.
A professional can help ensure that retirement planning is done correctly and that all of the appropriate bases are covered. The most important aspect is guaranteeing that income is available throughout the life of the retiree. However, there are also other considerations. Protection from asset depletion because of an unforeseen financial risk is also extremely important.
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