Feb 3, 2021

Thinking of Retirement - Start Now

Whether someone retires at 62, 65 or later in life, it is pretty certain that Social Security monthly payments will not be enough to maintain a great life style.  In fact, since Medicare is means tested and many people buy Medigap Policies and or end up paying high deductibles even with Medicare Advantage Plans, a lot of Social Security payments will go to pay for medical expenses one way or another.  So anybody thinking of retirement needs to start long before the day comes when someone decides to call it quits. 

Fortunately, many employers offer 401K savings plans, which allows the employee to make contributions and investments while working that are tax free.  Companies often match some or all of the employee's contribution, but even if the employer provides no match, a 401K is a great way to begin saving for retirement.  Those monies can be accessed with no penalty at 59 1/2.  It is then when these monies come out of the investments that income taxes are paid.  If the employee lives in or moves to a tax free state, state income taxes can be avoided.   

The Senior must begin accessing a percentage of these monies at 70 1/2 because government wants the taxes owed all those years to start going to government.  In the meantime, those investments grow for years without any income tax due, which is terrific advantage.  When retirement does come, arrangements can be made to pull out a monthly amount to fund retirement.  Since many people live to be 90 or more, it is critical that there be enough money in savings one way or another to last a life time.  

If the employer does not offer a 401K, an employee can invest in a private IRA.  There are certain limitations and there are two types.   There is the Roth IRA, which involves monies that have been taxed when earned; but they grow tax free and will incur no income taxes when the monies are taken out at retirement.  And then, there is the regular IRA that functions just like a 401K.  The money goes in pre tax and then is taxed later when taken out of investments in retirement.  In all cases, investing in various mutual funds is the greatest way to spread risk.  

Clearly, Retirement Planning should start at a young age; but for sure no later than 50 years old.  Social Security will not be enough to live comfortably.  Everyone will need far more additional income to live a great life style in retirement.  Unless someone inherits a lot of money, it means saving money one way or another while working over a life time.