Don’t Let Taxes Ruin Your Retirement
June 4, 2006
You know that you should diversify your investments to reduce your investment risk, but did you know you should also diversify your investments for tax purposes?
401K and IRA accounts are taxed at your ordinary income tax rate, so if you’re in the 25% tax bracket when you retire, you’ll pay 25% (plus state income taxes) on every dollar you withdraw from your retirement accounts.
This can really put a dent in your budget, especially in your later retirement years. To avoid paying taxes on every dollar of income during retirement, why not start investing in Roth IRAs and taxable accounts now, instead of socking all of your money away in tax-deferred retirement accounts?
That way, when you are retired, you can decide which account to pull money out of first to keep your income taxes at a minimum and to make the most out of every retirement dollar.
Resources for furthur discussion on diversifying for tax purposes:
Ask the Expert ~ Taxing Withdrawals
Cut Your Taxes In Retirement – CNNMoney.com
How Much Do You Need to Retire?
May 9, 2006
How much do you need to retire? The answer is, it depends…
How much do you wish to spend during retirement? What will you do? Will you travel? Play golf every day? Where will you live? Florida? Small college town?
How much you spend during retirement is probably the most important consideration when you’re determining how much you’ll need to save for retirement.
Example: I have two clients, Client A and Client B. Client A has saved $1,000,000 for retirement and expects to spend $75,000 per year, which includes traveling, playing golf and living in a state with a modest cost of living.
Client B has only saved $500,000 for retirement, but he lives in a small town with a low cost of living and only expects to spend $40,000 each year during retirement (no golf, little travel, but some frills, such as taking family out to eat often). Both Client A and Client B can expect to receive the same amount of Social Security benefits.
Who do you think will fare better during retirement, Client A or Client B? Check back soon for the answer…
Financial Advisors in Kansas City – Beacon Financial Advisors is a fee-only financial planning firm located in Lee’s Summit, serving the greater Kansas City area. Services provided include retirement planning, investment advice, tax planning and comprehensive financial planning.
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