3 Financial Lessons for Retirees Nearing Retirement

When it comes to retirement planning, educating yourself can keep you from making big mistakes. Here are three key lessons that everyone preparing for their golden years should know.

1.Plan ahead to maintain your standard of living in retirement.

As you begin to consider retirement, take a thorough review of your monthly expense needs. When many people retire, they want to maintain the same standard of living or even increase it! Which is why retirees need a plan.

A retirement plan is a written income plan includes income and tax planning, social security strategies and long-term care and estate plans. Start saving early to ensure you have enough money in your accounts to sustain your lifestyle in retirement

You should also plan for shifts in the market and inflation to avoid getting caught off guard. Since March, inflation has hit a couple of  40-year highs. While many are feeling it at the gas pump and grocery store, retirees are concerned about the implications on their nest eggs.

Let’s talk about how that might impact your individual situation.

2.You’re still going to be paying income taxes, maybe more than you think.

One of the most common mistakes that some people make is assuming they will be in a lower tax bracket in retirement, but some retirees find themselves in a higher tax bracket. Distributions from retirement accounts like traditional IRAs or 401(k)s are considerable taxable income. Depending on how much you plan to withdraw, you could be bumped into a higher bracket.

Another reason for a potential increase in your tax liability is having fewer deductions. You won’t be able to claim your children as dependents, and if your home is paid off, you won’t be able to deduct the interest from your mortgage.

There are tax strategies that will minimize taxes in retirement. One way is to consider a ROTH conversion. This method will shift money from a traditional retirement account to a Roth IRA, which allows your money to grow tax-free. The one drawback is that you will need to pay the taxes on that money at the time of the conversion.

3.Your Social Security benefits might be taxed.

Social Security is a steady source of income for many retirees in their golden years- but many people don’t realize that those benefits are subject to income tax. If you are planning to work in retirement or your income is above certain income thresholds, some Social Security beneficiaries could pay federal taxes on up to 50% or 85% of their benefits.  

You can avoid larger taxation on your benefits by keeping your income under the tax thresholds the IRS lays out. An effective way to do this is by using a Roth IRA or Roth 401(k). This retirement account isn’t subject to taxes because the funds were taxed when you contributed. As long as you wait to take distributions until you are at least 59 ½ years old, these payments won’t affect your taxable income.

Education is key to preparing for life outside of the workforce and reaching your retirement goals. Don’t be afraid to ask us questions. This is your retirement plan, and you should feel like you have every resource available to make informed decisions.

Don’t be afraid to think big, dream big and plan ahead of time!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

LPL Financial and Wealth Horizon do not provide tax advice or services.

Work with Certified Industry Professional

Jerrí Hewett Miller CFP®, RICP, BFA


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