Your 50th birthday is a big milestone in your life, and once you’re past it, you need to ramp up your retirement planning. Hopefully, you’ve been doing at least some saving and building up a nest egg, even if you haven’t quite been hitting your goals every year. But no matter what your financial situation is like, you can make sure you’re on the right track with a few simple planning tips to use throughout your 50s.
1. Figure out Your Goals
If you’ve been contributing as much as possible to both your 401(k) and your IRA every month, then you’re likely in good shape and should continue doing that. If you haven’t, that should be your minimum monthly savings goal. Considering the tax benefits of those plans, you’re practically giving away money if you don’t contribute the maximum.
For your account goal when you retire, a common number that financial professionals mention is 10 times the amount you make in your final full year of working. Of course, this will depend on your income, your lifestyle and the expenses you expect to have. It’s best to err on the side of caution, though, considering how most people underestimate the amount they’ll need when they retire.
2. Plan to Get Rid of Your Debt
Many people in their 50s are still paying off their mortgages, and you don’t need to be as aggressive about that since this type of loan tends to have a low-interest rate. You’ll likely get a better return on money that you invest than if you had used it to pay extra on your mortgage. Just make sure that your mortgage will be paid off by the time you retire. If not, you should start paying extra to pay it off more quickly.
3. Determine Your Appetite for Risk
With your retirement plan, you’ll be able to invest your money in stocks and bonds, with stocks earning a historical average of a little over 10 percent annually, compared to about 5 percent for bonds. This obviously doesn’t mean that you want to go with an all-stock portfolio, though. You also need to be prepared for a worst-case scenario where the stock market crashes. It’s important to have a diverse mix of stocks and bonds just in case.
You can set up your portfolio conservatively or with a higher risk and reward. If you’re a bit behind in your savings, you may want to start favoring stocks to hopefully earn a higher return and get back on track. If you have a solid nest egg already, you may be better off playing it safe.
As everybody learns and many learn too late, the earlier you start planning for when you retire the better. But there are still steps you can take in your 50s to make sure that you’re set when you do decide to retire. The three steps above will put you on the right track.
Does your plan meet all your retirement needs? Schedule an appointment now with one of our advisors for a complimentary review of your retirement plan.
The Internal Revenue Service recently reported changes to the 401k and IRA. The agency’s announcements to Congress issues new regulations. Each alteration will impact retirement accounts and 401(k) contribution limits in 2021. Here are a few things Americans need to know regarding their announcement.
Most will want to wait for more detailed information from the IRS before taking any action. It would be best to learn as much as you can about the forthcoming changes. They will likely affect any significant decisions.
What Savers Can Expect
Most 401(k), 403(b), 457 plans, and Thrift Savings Accounts will be within the same framing as before. The current rules would allow people age 50 and over to save money $19,500, or $26,000 out of a traditional IRA. Likely, regulations will not change for SIMPLE retirement accounts. They typically maintain $13,500 contribution limits. The IRS allows individual retirement account contribution limits to remain at $6,000. Additional catch-up contributions for older contributors will also stay at $1,000.
There are a few changes that the IRS has announced regarding IRA and 401k contributions for 2021:
Tax Deduction Phase-outs for Traditional IRA Contributions
Taxpayers will be able to deduct traditional IRA contributions. To qualify, recipients may not participate in employer-sponsored retirement accounts. They also may not make above earnings limits. This change subjects employees to reduced or eliminated deductions. It also includes spouses covered by the same plan as the primary recipient.
There are a few other changes to be aware of when it comes to IRA and 401k contributions. Currently, making both employer and self-directed contributions to both accounts are workable. However, they may no longer be tax-deductible. The IRS will look to cut some of the current restrictions on Roth IRA contributions.
2021 Phaseout Ranges
In 2021, single taxpayers must consider the phaseout range will increase by $1,000. Ranges for spouses who file jointly with coverage from employer-sponsored plans have changed. It is now $66,000 to $76,000 and is set at $105,000 to $125,000. Limits to Couples’ workplace plans that only cover spouses individually are necessary. The traditional IRA contribution will require a higher phaseout range. The changes to IRA and 401k regulations are not necessarily the same for every situation. If separate plans cover both spouses, the range is consistent with 2020, remaining at $0 to $10,000. Look at the IRS publications for the most current regulations. Info regarding other aspects specific to your overall financial situation.
Roth IRA Contributor Prerequisites
Some of the changes include income limits for Roth IRA contributions. Their income phaseout ranges for 2021 include the following.
Roth IRA phaseout ranges:
• Single and heads of households – $125,000 to $140,000 (an additional $1,000 from 2020)
• Married couples who file jointly – $198,000 to $208,000,
• Married couples filing separately – $0 to $10,000 (unchanged)
Saver’s Credit income limits:
• Low- and moderate-income couples file jointly – $66,000 (an additional $1,000 from 2020)
• Heads of the household – $49,500
• Single individuals / married filing separately – $32,500
Rules for IRA and 401k contributions, when first released, will underline many adjustments. It is up to you to stay updated. If you are curious about what is in store for you, it is always wise to be alert. Remember, tax changes happen every year. The IRS has to release any changes to the public before they become active.
Source: https://www.marketwatch.com/story/401-k-and-ira-changes-for-2021-where-and-how-can-you-contribute-next-year-11603748200
During his run for President, President Elect Joe Biden released a 110 page document to shade more light of his economic plan and the implications it has on retirement. So, what does the next 4 years look like for the impact it has on several factors such as the tax code, savings for retirement as well as social security.
TAX POLICY
Joe Biden’s tax policy plan with regards to retirement involves increment of taxes on the wealthy in a bid to raise revenue. These taxes could be raised from 37%-39.6%. Capital gainers especially those in the stock markets and real estate could also have their tax rates increased. Capital gainers that make about one million dollars in profit, could have their tax rates increased from the current 20 percent to about 39.6 percent which is almost double.
Doing this could help a lot with your retirement savings. This is so because withdrawals for IRA and 401(K) are not subjected to taxes for capital gains. Instead, they are only subjected to regular income taxations.
If you are making an income of a million dollars and have retirement investments that are non-qualified, then you may need to make changes.One way to achieve this is by delaying any withdrawals until when you stop working.
SOCIAL SECURITY
The American social security was in question during the campaign, with experts stating that it might not go beyond 2035. Because of this, President Elect Joe Biden’s policy has put in place measures that will at least work to ensure that it lasts longer and get back on track. Biden plans on doing this using the approaches discussed below:
Expansion of Social Security Benefits
• This plan involves new benefits which is minimum for people who have worked for 30 years. These will be subjected to a poverty level of about 125%.
• The second way the social security benefits will be expanded is using monthly increased benefits for some retirees.
• A 20% increment is also expected for widows and widowers.
• Older retirees are also set to benefit by receiving an increment to cover for their health costs and savings that have gotten depleted. This however applies only to retirees who have at least 20 years of receiving the benefits for social security.
Terminating any kind of social cuts
• The Biden plan will work on doing away with any cuts in social security. This includes cases where the retirement age was raised and only Americans of low income were getting benefits from the program.
• Biden also plans on making it unlawful to repay the loans for federal students using the income from social security.
iii) The “donut-hole” Approach
• Here, Biden plans on subjecting the highest earners to increased taxes.
• For now, only $137,700 of the annual earnings for employees are subjected to taxes for security payroll.
• In Biden’s new plan, earnings that will be exempt from taxes related to social security will be between $137,000 and $400,000. What this means therefore is that any earnings beyond $400,000 will be taxed.
RETIREMENT SAVINGS
Despite the fact that Biden has put every measure in place to ensure that the social security is expanded and more stable, his plan also reiterates on the importance of making savings either in the IRA OR 401(K).He plans to encourage savings through the following measures…
Creating incentives for Employees and their Employers
• About 40% of the US Economy is accounted for by businesses that are small. These businesses are often quite reluctant about giving their employees benefits for retirement, citing costs and other administrative issues.
• Through the SECURE Act plan therefore, the Biden plans on giving small businesses more tax breaks. This is in a bid to help them organize for a retirement plan for their employees so that they can invest more on their future.
• The Biden plan also called for automatic 401(K) to encourage making savings especially for the employees who are not attached to any sponsored employer plans.
Contributions of Caregivers
• Deferrals of up to a particular amount in one’s account for retirement are often allowed by the current law.
• For instance, the limit for contribution for 401 (K) for this year, 2020 is $19,500.
• Sometimes however, unavoidable circumstances may subject an individual to go for temporary leave.
• During that window period, they may thus be unable to make contributions to the required amounts.
• The Biden plan takes care of such individuals by offering them a chance to bridge the gap when they get back to the workforce. This is achieved by ensuring that their limits for annual contributions are raised, hence enabling them to catch-up comfortably.
401(K) Tax Benefit Equalization
• The Biden plan allows for anyone with deferrals for tax 401(K) to use contributions from pre-tax to rapidly grow their accounts. When it comes to such an individual’s time to retire, they shall use these taxes which will depend mostly on their annual earnings at the given time.
• Biden’s team also worked to ensure that the tax benefits for those with 401(K) accounts are equalized.
• The plan also proposes using a flat tax credit. This will be a major relief especially because the contributions for retirements are tax-deductible. When you file your returns therefore, they will not be considered as income that is taxable.
• The Biden plan will work to ensure that your taxable income is not inclusive of any other tax credits. What this means is that irrespective of the fact that your full salary will be taxed, your tax bill will be exclusively dependent on the contribution you have in your 401(K) account.
Does your plan meet all your retirement needs? Schedule an appointment now with one of our advisors for a complimentary review of your retirement plan.
