A lot of people retire with around $300,000 in assets, and one nice
thing about being at that level is you might pay surprisingly little in
taxes. I like to think of it as going on a camping trip:
If you're traveling light, you can move a lot faster. You might not
eat as much, but as long as nothing really bad happens,
it can certainly work out. Of course, having more resources makes it easier
to adapt to those changes and absorb challenges that might come up,
but it's not always feasible for everybody to keep working. If you're wondering
how often it happens, the fact is that people retire with more and
less than $300,000 in assets. If we look at the Federal Reserve's Survey
of Consumer Finances, the average retirement savings, and that includes
people with a substantial amount of money who bring up the average,
is around 426,000, but the median or the middle of all the people
in those responses is much lower at a 164,000 in retirement savings.
That. Tells us that there are a lot of people retiring with assets
that are above and below 300,000. Whether you think it's a lot or
a little, it's something that people do. In. The next couple of minutes,
we'll go over some examples of specifically how this might look and we'll
look at the taxes, and we'll go over some tips that can help
improve your chances of making it a success. Let's start with Social Security.
The Social Security Administration tells us that the average benefit is
1,500 or so per month, and for a couple, they get around 2,600
per month, so is that income taxable? It depends how much other income
you have. So for single people, if you're
below 25,000 and combined income, and we'll go over what that means,
you don't pay income taxes on your Social Security benefits. For people
filing jointly, that number is 32,000 to avoid paying taxes on Social Security.
If you look at your combined income, that is a combination of your
adjusted gross income. A lot of things can go into that,
but for a lot of retirees, we're talking about withdrawals from your IRA,
and that's going to be just your pre tax IRAS, so those Roth
accounts, Roth IRA, for example, as long as you satisfy all of the
IRS requirements, you don't pay income tax, and that's not counted in this
combined income. So your combined income is your AGI plus one half of
your Social Security benefits. You might have non taxable interest, but
we put that all together to get your combined income. As we get
into these details, it's critical to remember, a friendly reminder, This
is just a short video so we can't possibly cover everything and it's
not specific to you, so I hope you'll do a lot more research
and hopefully check with a professional before you make some decisions.
Now, let's take a closer look at what Social Security might look like
in this case. If we have 12,000 of withdrawals, and if you're wondering
where that comes from, I just used the rough 4%
rule of thumb, and that might be too high, but in this case,
that's actually a good thing because we want your taxable income to be
a little bit high just to see what the taxes might look like
for you, but you might need to withdraw less, you could potentially do
more depending on a lot of other factors in your income and your
expenses, but the point is, we just have 12,000 here of pre tax
IRA withdrawals. We are using a married couple, so half of their Social
Security benefit, the total household Social Security benefit, is a little
over 15,000. So when we combine those, it's 27,500, which is below that
32,000 threshold, and that means that this couple would not be paying income
tax on their Social Security. So what about federal income tax?
In this case, we just have an over simplified example here,
but we've got that Social Security income, not taxable, plus those 12,000,
1,000 bucks a month of withdrawals, that 12,000 is going to be the
only thing that shows up as potentially taxable income on their return.
But for a married couple, we've got the standard deduction that can reduce
their taxable income, and in fact, that more than covers their 12,000 of
withdrawals, so in this case, they've actually got plenty of room,
they could go ahead and take more income if there's an opportunity to
do that. For example, it could be a nice time to do some
Roth conversions where they take pre tax retirement accounts and convert
that to after tax Roth money to potentially take it out tax free
later, not that they're paying a lot of taxes right now anyway.
But if it works out, it makes sense, those are the types of
things I work on with clients to see if there are some opportunities somewhere.
Now at a 300,000 ish level, then your spending is really going to
be critical. So it depends on where you live, if you live in
the Northeast, it might be hard, you might be paying property taxes that
eat up most of your income, but in middle America or in other
inexpensive areas, you can certainly make it work. The key thing is that
this income needs to last for the rest of your life,
so you want to do some careful planning to make sure that that's
going to happen, and for most people, again, at this level,
you're probably not going to just live off the interest. You might have
heard of your parents or grandparents doing that. Interest rates are a lot
lower these days, so it's just hard to do, so what you end
up doing is actually spending down your assets over time, and again,
we want to make sure that those assets last for the rest of
your life. So that's why you do some careful planning. As you do
that, you really want to look closely at healthcare expenses, because that
can be a big expense, especially if you retire before age 65,
when you're eligible for Medicare, buying your own health insurance can
really get expensive. So I hope you'll research that before you actually
make the leap, if you're getting ready to stop working, then I've got
other articles and information that cover exactly how much to expect to
spend on healthcare in retirement. I'll put that in the description below.
Long term care is something that can certainly derail a retirement plan,
so you do want to at least think about that if that comes
up, something you're going to need to deal with. Now, let's get into
some tips on how to improve your chances in retirement. You may have
the opportunity to work longer, and I know that sounds crazy,
but just hear me out here. It can really have a dramatic effect
on your retirement readiness, and that's for a couple of reasons.
One is that you might have more working years that go into your
Social Security calculation, especially at your higher earning years, so
you're not in your youngest entry level years, perhaps you might have higher
earning years and that improves your Social Security monthly income. Another.
Thing it does is it gives you the opportunity to set aside more
money, if you can add that to your retirement savings, maybe you're getting
a match from your employer. So that can be extremely helpful.
Another thing, which might be kind of morbid, but it does shorten the
number of years that you need to fund because you're going to be
working longer. That brings you closer to your expected date of death...
Forgive me for bringing that up. But the fact is the fewer number
of years you need to fund withdrawals, the easier it is to do
that, and you don't need as many resources and you have more ability
to adjust to surprises. All that said, we know that not everybody can
continue working. There could be health issues, there could be changes at
the biggest levers you can pull in retirement planning, is to adjust your
spending. Now at some point, you just bring it down so low that
there's no more juice left to squeeze, but if you can find ways
just to even temporarily reduce some spending that can go a long way
in improving your chances. For those of you who own a home,
there may be an opportunity to use some home equity, maybe you like
that idea or not so much. It depends if the home is going
to go to somebody else, but you can look at all those things
and figure it out, and in fact, it might be a great opportunity
to downsize and cash out some of that so you can add it
to your retirement savings. If you found this video helpful, please leave
a quick thumbs up, that's a signal to me to keep putting out
information like this, so I truly appreciate it. Thanks and take care.