Real Life Resources

Retirement Planning Pays Off

People are living longer than ever these days. Whether you work until 65 or pack it in early to pursue other interests, there’s a lot to sort out along the way.

Healthcare Costs

It’s what everyone’s talking about. A few points to consider:

  1. Medicare, the government health plan for those 65 and over, is only a foundation. Supplemental policies through one’s employer are a plus, and a Medigap policy can bridge the two.
  2. Half of those over 75 have some sort of disability. A Long-Term Care policy can aid in preserving assets in the face of Alzheimer’s or other debilitating illnesses. The costs add up fast: A semi-private room in a nursing home in the New York City area can cost upwards of $120,000 a year, and even a home health aide charges at least $20 per hour.
  3. Naming a healthcare proxy to make decisions if you are incapacitated by illness is a smart step to take.

Funding Your Later Years

To make sure you don’t outlive your money, take a good look at your assets. In retirement, people generally rely on several income streams:

  1. Social Security: Full retirement age is going up. Now it’s 67 for those born after 1960. Delaying benefits until at least full retirement age, and possibly up to age 70, will increase future benefits. Up to 85% of benefits may be taxable as ordinary income.
  2. In employer-sponsored—or defined-contribution– plans such as 401(k)s, 403(b)s and SEP plans, benefits depend on the amount and investment return. Earnings grow tax-deferred until paid out of the plan, and contributions are generally deductible.
  3. The fast-disappearing traditional pension is called a defined benefit plan. Unlike with the defined-contribution plan, the retirement benefit is specified, and the employer takes on the investment risk.
  4. Contributions to an Individual Retirement Account (IRA) are generally deductible if you and your spouse do not have an employer plan and you meet certain income tests. Mandatory distribution rules apply from age 70 ½. For a Roth IRA, there is normally no mandatory distribution requirement (unless the account is inherited). Earnings in both types of IRA accounts grow tax-deferred.
  5. Other income sources include stocks and bonds, annuities, real estate, money market funds and regular savings accounts. Some people choose to work on a part-time basis, though this can affect the amount of your Social Security benefits and taxes due.

Estate Planning

Decide how you want to pass on your assets to the next generation, or to charitable organizations. A financial professional can advise you how to give Uncle Sam his due without paying more than you need to in taxes.

Time really does fly. You owe it to yourself to plan carefully for your retirement. After a lifetime of hard work, it’s time to enjoy the fruit of your labor!

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