Retirement is an exciting time – or it should be! I say this, because while many people, after years of commuting to work, punching the clock and spending time at an office and away from family, anxiously wait for the time when they can replace an employment check with a retirement check, the decision to do so can be stressful. There are a lot of concerns about retirement. Because there is a lot of conflicting information when it comes to that time in your life. But here’s some hope. All you need is a little retirement planning help.
We get a lot of questions about retirement here at our San Antonio financial planning office: When should I take Social Security? How does Medicare work? Will I have enough money to live comfortably in retirement?
We also get a lot of questions about IRA deposits, specifically, “How does the process of getting a check actually work?”
Here’s the normal process:
First, you will need to determine the amount of money you want after income taxes. To calculate the after-tax amount, take the dollar amount of income and divide it by (1 - your tax bracket).
For example, let’s say Maria wants to withdraw $10,000 from her IRA. She would request a distribution from her financial institution in the amount of $12,500 ($10,000/1-0.20). The 0.20 is equivalent to 20 percent, and this is the most common scenario I find. However, if you are in a higher tax bracket, you may need to increase the withholding to 25 or 30 percent. The formula will work the same.
Also, if you are not yet 59-½ years old, it is important that you tack on an additional 10 percent for premature distribution fees (not recommended).
Then, make sure you tell the financial institution the exact amount of the gross distribution, how much you want to have withheld and what amount you will expect to hit your bank account. Being clear on these three numbers will ensure everyone is on the same page.
Next, the financial institution (bank, insurance company, investment firm) will send the withholding directly to the IRS and you will settle-up when you file your tax return. Hopefully, the amount you withheld is more than needed so you won’t be faced with a balance due. If you want to be more accurate, visit the IRS website and determine what bracket you find yourself subjected to. Keep in mind that the rate referenced in the IRS charts does not consider deductions or exceptions, so someone typically pays less than the rate disclosed. This is often referred to as the effective tax rate.
Finally, you will need to provide the financial institution with your bank routing number and account number. The transfer of funds will typically be submitted through an Automated Clearing House (ACH) directly to your bank account. You can also set it up where the transition is made every month so you can expect a deposit in your bank just as though you were working. (If you prefer, you can have a deposit twice a month.)
Once everything is set up, you can change the withholding, amounts or banking information at any time. Of course, the less you mess with it, the more you can relax. And the more you relax, the more you are free to fly around the country (on a budget, of course).
PIVOT-ing Into Retirement
The truth is, much of the stress that comes with retirement stems from the fact that most people don’t have a proven plan that they can follow to secure their and their family’s future. I know that’s true, because I’ve worked with thousands of families that have been in very similar situations.
So, here’s the best retirement planning help I can give you: Based on my more than 10 years of experience as a Certified Financial Planner, I no longer believe in retirement. In fact, retirement is not something I see my clients doing at all. I don’t want my clients to retire. I want them to PIVOT.
What Does PIVOT Mean?
You have hopes. You have dreams. And if you’ve really thought about what you want to do in your post-work years, doing nothing is probably not the dream. I work with a couple who retired at the same time. When I asked them what the best part of retirement was, both the husband and wife told me it wasn’t stock market performance or asset allocation. They said it was the fact that they could actually plan and cook a great meal, go for a walk in the middle of the day, volunteer if they wanted to and go to the grocery store when it’s not crowded. They were able to spend more time together and with their grandchildren. They both had lower stress and more sleep.
What this shows you is that retirement is not just investments. It’s your life. And that’s why I call this time in your life PIVOT-ing. You simply transfer your energy into a different lifestyle; you’re not taken out of service.
The best thing you can do is make an investment in the future. As has often been said, the best time to plant a tree is 20 years ago. But the second best time is today. Now is your time. If you put off retirement planning or want to make sure you have a solid plan in place, you should seek retirement planning help from a certified professional. A good financial advisor can give you the confidence, clarity and plan you need to finally live the life you’ve been dreaming of after your working years.
This material is provided by PAX Financial Group, LLC, the opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.