State Taxation Of Social Security Benefits
In addition to federal taxes, some states tax Social Security benefits, too. The methods and extent to which states tax benefits vary. For example, New Mexico treats Social Security benefits the same way as the federal government. On the other hand, some states tax Social Security benefits only if income exceeds a specified threshold amount. Missouri, for instance, taxes Social Security benefits only if your income is at least $85,000, or $100,000 if you’re married filing a joint return. Utah includes Social Security benefits in taxable income but allows a tax credit for a portion of the benefits subject to tax.
Although you can’t have state taxes withheld from your Social Security benefits, you generally can make estimated state tax payments. Check with the state tax agency where you live for information about the your state’s estimated tax payment rules.
Update Your Profile Data
As you work through the various sites via your Password Manager, take a few minutes to ensure your personal profile data is updated on the various sites. If youve listed your work phone/email, make sure you update it to reflect your post-retirement contact information. If youve used your work email to sign up for newsletters, make sure you migrate them to your personal email.
I made a point of watching my work email throughout my final year and taking a few minutes to update any site which sent me emails to my work address. Its surprising how many different places youve used your work e-mail, and its impossible to remember them all.
Retiring In Your 30s Or 40s Isn’t The Only Way To Retire Early
In order to participate in FIRE, you don’t necessarily need to retire in your 30s or 40s. While FIRE followers are known for their extreme lifestyles, early retirement could mean retiring in your 50s or early 60s instead of when you’re 67 and able to collect full Social Security benefits .
Julien notes that for most people, changing their lifestyle so drastically could be out of the question. He encourages people, especially those with high salaries in dual-income households, to consider earlier retirement: You might be able to enjoy a higher quality of life for you and your children and also financially provide for other family members if you retire at 60 rather than at 40.
Tanja Hester, author of Wallet Activism and Work Optional, believes that FIRE can be more accessible to people if the focus isn’t just on full retirement. Saving and investing more of your income might give you the opportunity to take a career break or to be in semi-retirement.
Hester considers herself one of the lucky ones: She didn’t face any pricy medical expenses during her FIRE journey and while she wasn’t working in a traditionally high-paying field, she and her husband, Mark, ended up in relatively high-earning careers which allowed them to save more.
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Impact Of Inflation On The Cost Of Goods And Services
When saving for retirement, keep in mind that goods and services will cost more in the future. You can predict how much more goods and services may cost by looking at rates of inflation in past years.
Figure 1: How much a $100 item increases in cost over time because of inflation
| Year | |
|---|---|
| 2016 | $129.92 |
Bank of Canada Inflation Calculator. The average rate of inflation in Canada between the year 2000 and 2014 was 2.00%.
Can I Retire At 55 With $3 Million
Yes, you can retire at 55 with three million dollars. At age 55, an annuity will provide a guaranteed level income of $126,000 annually starting immediately, for the rest of the insureds lifetime. The income will stay the same and never decrease.
If the annuitant selected the increasing income option, they would receive $123,900 annually initially with the income amount increasing over time to keep up with inflation.
Either lifetime income option will continue to pay the annuitant, even after the annuity has run out of money. At the time of the annuitants death, the designated beneficiary will inherit the remainder of the annuity.
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Begin To Diversify Your Wealth
Most senior-level corporate executives have received company stock grants and equity options over the years. For this particular client, company stock makes up approximately 30% of her investments.
Even if you work for a successful company, it is inherently risky to have too much wealth tied up in any single company stock. The pandemic quickly jolted the stock prices of many sectors, including airlines and hospitality companies. An executive with company stock valued at $1 million today wouldnt want to see that number reduced by 20% to 30%, no matter the reason.
One strategy to help mitigate this risk is to sell your company stock as soon as shares vest. This move will reduce your exposure to company stock and the likelihood of paying additional capital gains taxes from holding the stock for a period of time and then selling later.
For example, consider a Restricted Stock Unit grant of 100 shares of company stock that vests three years after the grant. On the three-year anniversary of the grant when the RSU vests, you will report ordinary income for the value of the 100 shares, based on the stock price on the vesting date.
Generally, a portion of the 100 shares is withheld for taxes and you may receive approximately 75 shares as a result. Upon receiving the 75 net shares, your cost basis for the shares is equal to the fair market value of the 75 shares. In other words, you have zero capital gain or loss.
Retirement Planning And Inflation
Inflation is the rising cost of consumer goods and services. In Canada it’s calculated using the consumer price index . TheCPI tracks how the price of more than 600 consumer goods and services purchased by Canadians changes over time.
In recent years, the average rate of inflation in Canada has been 2% per year. This means the cost of goods and services has been rising by 2% every year.
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What Is A Required Minimum Distribution
If you are a Plan 3 customer who is separated or retired, you must withdraw a minimum amount from your retirement investment accounts every year starting when you reach age 72. This minimum distribution of funds is required by federal income tax regulations. DRS calculates and pays out the minimum amount to you each year. This is to help you avoid the 50% tax penalty the IRS can impose if the minimum is not withdrawn. View RMD video.
The payments are automatically distributed to you, so no actions are needed for you to meet the requirements. But you can also choose to make the minimum withdrawals yourself. Here are the forms you need:
If you have investment funds in both the Self-Directed and the WSIB programs, your minimum payment will be withdrawn from your WSIB investment program account first. By completing the Plan 3 RMD form yourself, you can choose to have the money withdrawn differently.
Note: The SECURE Act has raised the RMD age from 70 ½ to 72 for most retirees. However, retirees born before July 1, 1949 will still have an annual RMD starting in 2021. DRS recommends that you consult a tax advisor for information on how the new RMD legislation affects you.
How Long Will My Money Last In Retirement
Shawn Plummer
CEO, The Annuity Expert
The challenge many of us will face as we retire is how do we make sure our money lasts as long as possible? This retirement planning guide is ideal for pre-retirees between the ages of 55-65, which will offer advice on:
- How to spend your savings in retirement.
- How not to run out of money.
- How to budget and manage money throughout retirement effortlessly.
This guide will also answer the following questions:
- Will I run out of money in retirement?
- How can I maintain my lifestyle?
- What happens if my health declines?
- How long will my 401k last?
This retirement plan is ideal for:
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Make A Retirement Budget
Have you yet? If not, get on it! You need to estimate how much money youll spend each month based on the lifestyle you plan to have in retirement. Be as specific as possibleyou dont want to base your financial stability on guesswork.
You may have to pay for things in retirement that are free for you right now. For example, some companies provide a gym membership. If you want to keep working out at the gym, youll have to write that into your budget. Want to travel more in retirement? Be sure to factor that in too! And keep in mind that inflation will make the cost of living rise gradually over time.
As you get closer to your retirement date, you can do a test run of your retirement budget for a few months. Is it enough? Too much? Try it out and make adjustments as needed.
In addition to your budget, youll want to build some cushion into your bank accounts by saving up an emergency fund. This will help cover one-time or unexpected expenses, like house repairs.
Understand Your Time Horizon
Your current age and expected retirement age create the initial groundwork of an effective retirement strategy. The longer the time from today to retirement, the higher the level of risk that your portfolio can withstand. If youre young and have 30-plus years until retirement, you should have the majority of your assets in riskier investments, such as stocks. There will be volatility, but stocks have historically outperformed other securities, such as bonds, over long time periods. The main word here is long, meaning at least more than 10 years.
Additionally, you need returns that outpace inflation so you can maintain your purchasing power during retirement. Inflation is like an acorn. It starts out small, but given enough time, can turn into a mighty oak tree, says Chris Hammond, a Savannah, Tenn., financial advisor and founder of RetirementPlanningMadeEasy.com.
Weve all heardand wantcompound growth on our money, Hammond adds. Well, inflation is like compound anti-growth, as it erodes the value of your money. A seemingly small inflation rate of 3% will erode the value of your savings by 50% over approximately 24 years. Doesnt seem like much each year, but given enough time, it has a huge impact.
You might not think that saving a few bucks here and there in your 20s means much, but the power of compounding will make it worth much more by the time you need it.
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What Investments Accounts Should You Use
Setting aside a certain amount of money every month is, of course, the most critical part of retirement savings. But you won’t reach your goal without putting that money into the market. One reason to invest is because you want to take advantage of the power of compounding, which is when gains grow on top of other gains. For instance, if you invest $100 in one year and it goes to $110 the next, your next year’s gains will be on top of the $110, not the original amount you put in. Over time, that compound growth can really boost returns. No matter what account you use, your investments will compound year after year.
How much you can save and what tax you may have to eventually pay, though, does change depending on the account.
Focus On Participating In The Market Rather Than Beating It
Most FIRE followers choose low-fee index funds over riskier, more volatile investments like individual stocks or cryptocurrency. Index funds are essentially a basket of different stocks that are intended to mimic the performance of a major stock index, like the S& P 500, which tracks the performance of the 500 largest companies in the U.S. .
“The best advice I have is the conventional wisdom in the financial independence community is that it’s better to participate in the market than to try to beat it,” says Ed Ditto of Early Retirement Dude. “And one of the best ways to do that is to buy low cost index funds. You’ll find that the Vanguard S& P 500 ETF is the darling of the FIRE set.”
According to Investopedia, the average annual return for the S& P 500 in the 50-year period from 1970 to 2020 has been 10.83%.
If you’re looking for a way to get started investing, you should consider opening an investment account with a trading platform like Vanguard, E*TRADE or TD Ameritrade. These platforms don’t charge commission fees for executing the trades of different securities.
These platforms will, however, charge fees, known as expense ratios, for the money you invest in funds. Expense ratios are fees charged for managing the fund and are lower for passively managed funds than actively managed ones. The expense ratio is typically expressed as a percentage. If a fund charges a 0.15% expense ratio, you’ll have to pay $1.50 per year for every $1,000 you invest.
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How To Invest For Retirement If Youre Over 60
Retirement planning is a key component in holistic financial preparation for you and your family. However, many people find themselves nearing retirement age with little to show for their many years of work. While it may feel like you are heading toward retirement without the necessary tools in place to provide for yourself, dont panic.
- SEE MORE The 4 Phases of Retirement
The good thing about retirement planning is that until the day you retire, you can prepare and optimize, based on the current state of the economy, for potentially greater return. Even if youre over 60, it isnt too late to start. In order to maximize your retirement savings and live the life you desire, implement these strategies:
Is Early Retirement Worth It
Most folks would agree retiring early brings a lot of perks. Who wouldnt love a little more rest and relaxation in their lives?
But before you order party favors for your big celebration, theres one last consideration to take into accountand it could be a big one. How much money are you giving up by taking your foot off the gas a few years early?
Lets go back to our full-retirement example above and assume you invest $575 a month every year starting at age 25. Here are two ways retirement could play out for you:
-
Retire fully at age 60, and you could be sitting on a $2 million nest egg.
-
Keep workingand investingfor another five years, and you could retire with more than $3 million at age 65!
Is it worth more than $1 million to retire early? Thats a question only you can answer. But if you plan right, that choice is yours to make. Isnt that what retirement should be aboutfinancial security that gives you options?
If you love your job and want to continue working another 10, 15 or 20 years, do it because you want to, not because you have to. If you have bigger plans for the second part of your life, you can pursue them and feel financially secure to make that big move.
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How Federal Taxes On Social Security Are Calculated
Once you start collecting Social Security benefits, you’ll get a Social Security benefits statement in the mail each year in January showing the total amount of benefits you received in the previous year. To figure out how much, if any, of the total amount may be taxed, the first thing you need to do is calculate your “provisional income.” Your provisional income is generally equal to the combined total of 50% of your Social Security benefits, your tax-exempt interest, and the other non-Social Security items that make up your adjusted gross income .
For single people, your Social Security benefits aren’t taxed if your provisional income is less than $25,000. The threshold is $32,000 if you’re married and filing a joint return. If your provisional income is between $25,000 and $34,000 for a single filer, or from $32,000 to $44,000 for a joint filer, then up to 50% of your Social Security benefits may be taxable. If your provisional income is more than $34,000 on a single return, or $44,000 on a joint return, up to 85% of your benefits may be taxable.
The IRS has a handy calculator that can help you determine whether any of your Social Security benefits are taxable and, if so, how much. Once you know how much is taxable, that amount is included on Line 6b of Form 1040 and becomes part of your taxable income. That income is then taxed with other income according to your tax bracket.
Can I Retire Early
Have you ever wanted to retire early after a rough week at work? Weve been there.
When you spend 40-plus hours a week at a J-O-B, its easy to feel like your life will never be yours. But you dont have to wait until you reach 65 to reclaim your days.
So, can you retire early? With a little hard work and sacrifice, your dream of retiring to the beach could be within your reach. Start now and, before you know it, you could be sitting by the shore!
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