How to approach the lead-up to retirement-and beyond
Charles Zackary King, MBA
Accounting/Bookkeeping, Payroll Professional/ Tax Preparer, Consultant, Real Estate Agent Insurance Agent, and Owner of SYTM Accounting and Consulting, Inc.
As you approach retirement, each move-and misstep- carries a lot more weight.
Risk: Lifestyle creep
The final year of your full-time career often coincide with your peak income. But as your earning grow, so can your expenses and if you're not saving at the same rate, it could be difficult to sustain your lifestyle into retirement. Many savers assume they'll need less income in retirement because they'll no longer be saving for retirement. However, some expenses, such as health care and travel, could actually increase.
When estimating retirement expenses, most people should plan to spend as much as they do preretirement. For example, a couple that earns $300,000 annually will need roughly 15 times that amount, or $4.5 million, to sustain their standard of living over a 30 year retirement. They won't need all that money on Day 1.but they'll need it eventually. And if they're not increasing their savings in proportion to their rising income, they could be forced to make some difficult decisions down the road.
Solution: Ramp up savings
Assuming you're already maxing out your 401(k), IRA or both consider putting additional savings in:
Taxable Investments: Unlike tax deferred savings, which are taxed as ordinary income, withdrawals of long-term gains from your taxable accounts are assessed at0%, 15% or 20%, depending on your income (plus a 3.8% surtax for higher earners). What's more, you're not required to take minimum withdrawals beginning at age 73 as you are with tax-deferred accounts, giving you greater flexibility over your income and your tax bracket.
a qualified employer plan: Some work place retirement plans allow after-tax contributions above and beyond typical annual contribution limits, up to a combined maximum (employee plus employer contributions) of $66,000 in 2023 ($73,500, including catch up contributions, for those age 50 or older).
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