Business & Finance

Guest Column: What is your Number? 3 Key Steps to Retirement Planning

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Carletta O. Beckwith, CPA
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I am not referring to your telephone number, but rather your retirement number.  How much money will you need? So many people are saving for retirement but are not quite sure if they are on track to live their chosen lifestyle in their golden years.  

It is staggering to know that most individuals are unprepared financially for retirement.  One study revealed that more than one-half of individuals were relying solely on Social Security for retirement income.  Another credible source revealed that Americans do not save nearly a fraction of what is required for retirement.  

The key to retirement planning is to start saving early.  Saving in your 30’s or earlier will enable you to put aside small sums of money and will help to ensure that you do not outlive your money.  However, it is never too late to start saving for retirement.  Adequate planning can ensure that you are not financially dependent on others.  

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There are 3 keys steps to retirement planning

1) Estimating Your Retirement Income

Most people have at least two sources of retirement income – social security and savings and investments.  Some of the fortunate few have pension income as well.  

Figure out how much you can expect in the way of Social Security retirement income. To do this, you should file a "Request for Earnings and Benefits Estimate" with the Social Security Administration. This form can be obtained from SSA by calling their toll-free number: 800-772-1213. You can also request a benefits statement online through the Social Security Administrations Web Site.

Planning Tip: You can also request a benefits statement online through the Social Security Administration’s web site.

Note: Many people are being sent estimates of their future Social Security benefits without having to make a request. You may have received such an estimate in the mail.

Social Security benefits will depend on how long you worked, the age you start receiving benefits, and your total income earned during your working career.

If you can wait until your full retirement age (65 to 67, depending on your year of birth) to commence receiving benefits, your retirement benefit will be larger than if you decide to receive benefits early at age 62. In the year 2027, the full retirement age will increase gradually to age 67.

Caution: Be aware that Social Security benefits may be subject to income tax. The basic rule is that if your adjusted gross income plus tax-exempt interest plus half of your Social Security benefits are more than $25,000 for an individual or more than $32,000 for a couple, then some portion of your Social Security benefit will be subject to income tax. The amount that is subject to tax increases as the level of adjusted gross income goes up.  Up to 85% of your social security can potentially be taxed depending upon your other income.

Related Guide: Also, if you earn income while you are receiving Social Security, your benefit may be decreased. 

Pension Plans: Estimate how much you can expect to receive from a traditional pension plan or another retirement plan. If you are covered by a traditional pension plan and you are vested, ask your employer for a projection of what you can expect to receive if you continue working until retirement age or under other circumstances, for example, if you terminate before retirement age. You may already have received such an estimate.

If you are covered by a 401(k) plan, a profit-sharing plan, a Keogh plan, or a Simplified Employee Pension, make an estimate of the lump sum that will be available to you at retirement age. You may be able to get help with this estimate from your employer.

Tip: If you are in the military or formerly served in the military, contact the relevant branch of service to find out about retirement benefits.

2) Establishing Goals For Retirement

Determine how much income you will need (or want) after retirement. Once you have determined this amount, you can figure out how much you will need to put away to have a big enough nest egg to fund your desired income level.

Many people don't realize that their retirement could last as long as their careers: 35 years or longer. Your nest egg may have to last much longer than you might think. Remember that the earlier you retire, the more you will have to save. If you want to retire at age 55, you'll have to save a lot more than if you retire at age 65.

A general guideline is that you will want to have at least 70 percent of whatever income stream you have before retirement. If you have any special needs or desires, for example, a desire to travel extensively-the percentage should be adjusted upward. The 70 percent figure is not a substitute for a thorough analysis of your income needs after retirement but is only a guideline.

3) Deciding on Investments

Generally, the longer you have until retirement, the more of your savings should be invested in vehicles with a potential for growth. If you are very close to or at retirement, you may wish to put the bulk of your savings into low-risk investments. However, this formula is subject to your own financial profile: your tolerance for risk, your income level, your other sources of retirement income (e.g., pension payments), and your unique needs.

Please contact me today for a free consultation to assist with your retirement and other financial planning needs.

Carletta Beckwith CPA LLC is a firm that provides premiere income tax preparation, tax planning, and financial planning services. Carletta Beckwith is a licensed CPA and CFP® and shares her extensive industry knowledge to deliver superior customer service and personalized attention to her clients.  To learn more about the services she provides visit www.beckwithcpa.com or contact her at info@beckwithcpa.com.

IRS Circular 230 disclosure: Any tax advice included in this written or electronic communication was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.  

Disclaimer: Nothing in this document should be relied on and you should seek professional advice if you are in need of tax information or advice.  This publication should not be a substitution for personal tax advice as every tax situation is different.  You should obtain personal tax advice from a Certified Public Accountant or other tax professional to address your specific tax needs.

All information in the above document is for educational purposes and is not a substitute for financial advice or financial planning.  You should seek the assistance of a Certified Financial Planner for financial planning advice.

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.

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