Every person has certain goals that they would like to achieve during his retirement phase. Usually, there also exists an ideology about the kind of life that the person will lead. Retirement planning is about establishing these goals and ensuring that there is sufficient income to cover the lifestyle. When looking at investments, the planner makes sure that there is a good mix of tax-deferred and tax-free income. When examining insurance, she must ensure that all of the financial assets of the individual and his family are protected.
Social Security is one means by which the government seeks to help a person save for after he stops working and distributes part of their income on a monthly basis during this phase of his life. If a worker was employed for 10 years and paid the Social Security tax during this period, he will be fully eligible. However, the amount of monthly income due depends on the wages or salary earned while working.
Rarely is Social Security income enough to cover the full needs of the individual. Therefore, he should elect to also contribute to a retirement account either through his employer or on his own. Employer-sponsored programs such as the 401(k) or 403(b) are good options from which payroll deductions may be invested. Traditional and Roth Individual Retirement Accounts (IRAs) are also available at many banking or investment institutions.
Planning for a mix of tax-deferred versus tax-free income requires examining the accounts that a person will receive distributions from. Employer-sponsored plans, such as the 401(k) and 403(b), plus traditional IRAs generally produce income that is taxable during retirement because they are tax-deferred. The Roth IRA generates income that is tax-free. Another option for this is an annuity, whereby only the capital gains are taxed because the person invests with after-tax dollars.
Although a person begins to receive Medicare after they turn 65, it is often not sufficient to cover all of their medical needs or costs. Out-of-pocket payments for this government provision can often be quite high. There are other insurance needs to address as well, such as life insurance and long-term care possibilities. The first is particularly important when a person either has young dependents or debt.
During the later years, a plan should be created that enables the person to begin gifting away excess assets. The purpose is to avoid the estate tax, if applicable. However, they do not want to incur a gift tax either when they are giving it away. Therefore, planning is necessary.
A professional can help ensure that retirement planning is done correctly and that all of the appropriate bases are covered. The most important aspect is guaranteeing that income is available throughout the life of the retiree. However, there are also other considerations. Protection from asset depletion because of an unforeseen financial risk is also extremely important.
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