You’ve worked hard all your life to support yourself and your family, but now you’re retired and you’re living on a fixed income. You earned a good living and planned well, so you’re not worried about outliving your savings, but you still want to maximize your income and live as well as you can. So, the question becomes, “Now what?” How do you maximize your retirement income without exposing yourself to unnecessary risks or compromising your lifestyle?
We’ll help you answer these questions by addressing the following topics:
- Using optimal tax strategies to maximize retirement income
- Planning to reduce the risk of healthcare costs
- Social Security planning
Creating Optimal Tax Strategies
It’s important to be tax efficient with your investments to maximize retirement income. As you already know all too well, taxation doesn’t end when your career does, but keeping the right assets in the correct investment vehicle will help you be more tax efficient. It’s best to put assets that produce income into tax deferral accounts like IRA’s. Assets like stocks, which grow mostly through capital appreciation, need to be in taxable accounts to take advantage of the lower tax rate for long-term capital gains.
Contributions to 401(k) plans are tax deferred. You are allowed to continue to defer taxes on these savings when they are moved to an IRA. It’s best to move these funds via a direct custodian to custodian transfer. Otherwise, your rollover will be subject to a mandatory 20% withholding if you receive the money directly via what is known as a 60-day rollover. A word of caution: if you don’t deposit the rollover into an IRA or a retirement plan within 60 days, the entire IRA will be subject to taxes and penalties. IRA rollover rules are tricky, so proceed with caution. You can explore other opportunities for tax savings during retirement by clicking here. It’s important to consult your tax advisor before executing any tax strategies to make sure they are right for your situation.
Strategic planning to protect your assets from healthcare cost
An unforeseen healthcare problem can play havoc with the best-constructed retirement plan. The cost for healthcare is one of the greatest expenses you will face in retirement. According to Healthview Services, the lifetime cost of insurance premiums and deductibles for a 65-year-old couple retiring today is $404,253, and this number doesn’t include the potential cost of long term care.
You can explore more detailed strategic plans to pay for healthcare right here. Most retirement plans should begin by accounting for the costs associated with anticipated healthcare and insurance needs in your future. Having adequate health insurance and long term care insurance are important financial tools to help mitigate the outrageous costs of medical care.
Having a good understanding of your Medicare and other health insurance options is essential to putting together the right protection plan for you and your family, while also protecting your retirement income. There are a number of choices with Medicare coverage, and they can get quite confusing. Therefore, don’t hesitate to discuss your options with your trusted financial professional first.
Being smart about Social Security
According to the Social Security Administration, 48 percent of married couples and 71 percent of unmarried persons receive 50 percent or more of their income from Social Security. Making the right decisions about Social Security will greatly improve this benefit. Generally speaking, it’s recommended that you not collect Social Security benefits while you are still working. In addition, you can increase your social security benefit by 8 percent for each year you wait past your Full Retirement Age (varies by your year born) up to age 70. Your health and need for income, as well as other factors can influence which strategy is best for you. If you are widowed or divorced, other strategies can come into play. This is a complex topic with many variables, but fully understanding your needs will help you and your financial professional devise a strategy that is appropriate for your personal situation.
Good planning can help improve the likelihood that you will have the income you need for retirement. Even though you’re not working during retirement, you can still maximize your income, protect what you’ve worked so hard for, and have the peace of mind you deserve.