In this economically problematic day and age, the concept of retirement is no longer easy and worry-free, but rather a time that requires intensive income planning to ensure that you will not run out of funds during that period. Planning well, which includes identifying how much you need to live on during retirement and what tools you will need to earn those resources, will allow you to deal better with any financial concerns that you will encounter and increase your chances at experiencing an ideal retirement period. Here are a few things employees and near-retirees have to realize before establishing an income plan for retirement:
When you retire will affect how much you will earn in retirement. Prior to exiting the workplace, you will have to determine if your funds are adequate for your golden years. Retiring early means you will have less time to save money and more years of expenses to cover. If you are active and in fairly good health, you will probably have a long life expectancy of a couple of decades or so after your actual retirement. Think twice if you are thinking of early retirement because you may have to withdraw from your nest egg earlier than you expect.
Income taxes will still be around when you retire. For example, people who plan on getting most of their funds from an IRA or a 401K will still need to pay income taxes on all withdrawals, the amounts of which will still be pegged at normal income tax rates. Income such as that which comes from bond payments, CDs or Certificates of Deposit, and stock dividends may also be subject to taxes (unless the bonds you have are municipal and tax-free).
You may also have to pay taxes on Social Security benefits. If you are married and have a combined yearly income of over $ 31,999, around half of your benefits may be taxed. If your joint income goes beyond $ 44,000, 85% of the benefits will be taxed.
Prior to retirement, you will need to realize that not working does not mean no income (and no taxes). As 401K and IRA withdrawals require tax payments, you may not be far from the taxable limit for benefits from Social Security, for example. Try to postpone retirement to delay drawing from your nest egg, and consider the effects of taxes on your overall funds to strengthen your income planning efforts for your golden years.