Retirement planning appears to have altered little throughout the years. You work, save, and then retire. Even though the way it works is the same, savers today face some problems that savers in the past did not.
First, life expectancy is increasing, so you’ll need your money to survive longer – possibly into your 90s. Bond yields are also significantly lower than before, implying that you can’t buy a few fixed-income products and get a double-digit return. Then there’s the public health problem caused by the coronavirus pandemic.
Companies are increasingly switching from offering defined benefit pensions to defined contribution plans, which are more prone to market fluctuations and guarantee a certain amount of money in retirement.
- Also Read: 3 Reasons Certain Federal Employees Can Retire Years Earlier Than Their Peers Without Penalties
- Also Read: CSRS Retirement in 2024: Are You Making the Most of What This Classic Plan Has to Offer?
- Also Read: Roth IRA Basics for Beginners: What’s There to Learn?
After you retire, the pay will end, and while the annuity will begin, it will be smaller than the pay. You might have to go into your savings to cover your expenses.
One method is to accumulate a cash reserve before retiring. It would be best if you strived to save at least one year’s worth of spending. For example, suppose you estimate you’ll require $60,000 a year from your portfolio. In that case, you should deposit $60,000 into a money market fund or bank account.
You can set up recurring monthly payments to your checking account using a money market fund. In this manner, you will use money from your cash reserve to replace the paychecks you no longer receive.
Then you must figure out how to replenish the funds in your checking account. You could sell stocks or bonds every six months to restore your cash reserve. Withdrawals from your IRA or other retirement savings plans, such as the TSP, must begin after 72, and the funds can be deposited into your cash reserve.
Another method is to start with your taxable accounts. This allows your accounts to continue growing tax-free.
Suppose you retire before 59½ and begin drawing on your retirement assets before that age. In that case, you will typically face income tax and a 10% penalty. You’ll be past the 10% penalty after 59½. Then there may be instances when it makes sense to withdraw from your IRA, such as if your future tax bracket will be higher due to changing tax rules or mandatory IRA distributions.
If you wish for that comfortable retirement, you need to consider saving more today. No matter your current age, you can begin saving now. Every dollar you save today can make a huge difference tomorrow. It is also essential that you work with a financial planner on this journey.
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Bio:
Mark, a lifelong Tulsan graduated from Westminster College, Fulton, Missouri with a Bachelor of Arts in Accounting. Mark served in the United States Army as a Captain in the 486th Civil Affairs BN. Broken Arrow, Oklahoma and retired in 1996. Mark is married to his high school sweetheart Jenny and has four beautiful children. Mark’s passion for his work, which includes over 20 years in the Financial Industry started as an Oklahoma State Bank Examiner. Mark examined banks throughout Oklahoma gaining a vast knowledge and experience on bank investments, small business and family investments. Mark’s experiences include being formally trained by UBS Wealth Management, a global investment firm where he served as a Financial Consultant specializing in Wealth Management for individuals & families. Mark is a licensed Series 24 and 28 General Securities Principal and an Introducing Broker Dealer Financial Operations Principal. Additionally, Mark is a Series 7 and 66 stockbroker and Investment Advisor focusing on market driven investments for individuals, businesses and their families.
Mark specializes in providing financial knowledge, ideas, and solutions for federal employees, individuals, families and businesses. We serve as your advocate, and assist you in the design and implementation of financial strategies while providing the ideas to maximize your security and wealth. Our goal is to give you maximum control of your financial future. We provide the expertise to help you with personal issues such as: practical tax Ideas, risk management, investment solutions, and estate preservation.
Additionally, we’ve counseled hundreds of employees on their transitions from careers in federal government, and private industry to their next life stage, whether that is retirement or a second career. We specialize in devising strategies that roll your TSP, 401(k), pension plan, to a suitable IRA to meet your objectives.
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