Our team at Trost Financial is constantly asked about retirement planning. We created a list of our most frequently asked questions. Our hope is that this will provide a clearer picture for you on your retirement planning. Knowing that retirement looks different for everyone, we create customized retirement plans based on each client’s specific needs.

How Much is Enough to Retire?

The 80% rule assumes a retiree needs approximately 80% of his or her pre-retirement income to sustain the same lifestyle in retirement. How can you expect to spend less money in retirement, when your day is not filled with working? We find that people end up spending more money in retirement and should plan for such. Retirees tend to fill their time with travel, especially to spend time with family.

What are Some Reliable Income Sources in Retirement?

Social Security Benefits: are one source of income used in retirement. However, depending on your current income, Social Security may only replace a small amount of income during retirement. It is important to meet with your financial advisor to discuss the pros and cons of delaying initial payments on Social Security and its impact on future retirement planning.

Pension Plans: Some employers offer pensions, and, upon retirement, the employer will offer you a lifetime payout or a lump sum distribution. We recommend that you consider the options available when comparing these options. We have found that the monthly payout option may not always be the best choice because of the impact to the retiree’s estate or spousal income upon the retiree’s passing. However, in recent years employee retirement accounts are used with greater frequency than pensions. We can work together to determine which option makes the most sense given your situation.

What are the Tax Implications of Retirement Accounts?

Many older Americans are surprised to learn that they might have to pay taxes on their Social Security income. Depending on your income, this amount ranges from 50- 85%. There are also taxes on pension income and on any withdrawals from any tax-deferred investments, retirement plans or other tax-deferred investments.

When it comes to a Traditional IRA, you will owe tax on the earnings portion of the withdrawals at your income tax rate. When you receive income from a Traditional 401(K), 403(B), or 457 Salary Reduction, you will owe income tax on those amounts. We recommend verifying all tax planning with your CPA. We work in partnership with those professionals to get you the best results.

If you have a Roth IRA, you will pay no tax at all on your earnings as they accumulate or when you withdraw following the rules. This is because all contributions to a Roth IRA are post-tax.

How Do I Invest in Retirement?

While in retirement, continuing to invest can create another source of income, whether it be through earnings or dividends. It is important to consider tax efficiency, diversification, risk mitigation, and cash reserve maintenance when determining your investment strategy.

Continuing to invest is a great way to maintain diversification of the assets that will create income during retirement. Fixed costs should be covered by investments that do not fluctuate much with the market such as pensions, Social Security, savings, CDs, treasury bills and bonds. All investments carry risk and need to be understood and analyzed prior to making your choices. Trost Financial will work with you to make the best decision possible.

If you have any further questions or are ready to start planning for your retirement, please reach out to Trost Financial!