This week, readers continue to search for answers to their most pressing financial questions. Here are the ones that I felt could benefit a cross-section of our readers:
Last week I discussed several strategies for maximizing your social security benefits. This week I’ll examine some of the nuances of how your Social Security benefits are taxed and how you might be able to reduce those taxes.
- No taxes on Social Security. For joint filers with combined income below $32,000 ($25,000 for single filers) there is no federal taxation of Social Security benefits.
- Taxes on up to 50% of Social Security. Joint filers with combined income between $32,000 and $44,000 ($25,000 to $34,000 for single filers) may have to pay income taxes on up to 50% of their Social Security benefits.
- Taxes on up to 85% of Social Security. For joint filers with combined income above $44,000 ($34,000 for single filers) then you may pay taxes on up to 85% of your benefit. No one pays federal income tax on more than 85% of his or her Social Security benefits.
Eighty million Baby Boomers are headed for retirement and for many, Social Security will be the centerpiece of their retirement income plan. Today, I’ll reveal three little-known strategies that just might put thousands of dollars in your pocket.
Last week, I began a discussion about retirement planning for those of you in your twenties, thirties, forties and fifties. This week I’ll address the special challenges of those in their 60’s for whom retirement is just around the corner. If you fall into this category, it is vital that you clearly understand where you are now financially compared to where you need to be at retirement. Sticking your head in the proverbial sand is not considered a viable solution. Start by getting an estimate of how much money you’ll need to support your retirement years by visiting the Resource Center at www.welchgroup.com; click on ‘Links’; then ‘Retirement Planning Calculator’. Once you have this number that represents your required capital need, you may discover that you’ll need to reduce it since it will likely be larger than you can realistically accumulate in the time you have left. Here are a few strategies to consider:
Keep on working. There’s an awful lot to be said for continuing to work beyond ‘normal’ retirement age. By the way, who decided what ‘normal’ retirement age was? In the days before pensions, families lived together and everyone contributed according to their ability for their entire lives. Being productive during your mature years keeps you mentally alert and physically active and can extend life by years or decades. My father, at age 91, continues to work five days a week. Financially, he could have quit decades ago but there is no doubt that his productive lifestyle has benefited him as well as whose he interacts with on a daily basis. If you like what you do, consider continuing to work as long as you are able and are enjoying yourself. I recently worked with a physician client who loved his medical practice but hated being on call several evenings a week. He worked out a deal with his fellow partners to reduce his income so the money could go to younger physicians who were happy to take his call for extra money. I have another client who certainly could retire right now but who I am encouraging to continue working on a consulting or project basis. Why? Because he loves the work; his bosses love him and he definitely wants to stay active. However, he would like to step down from the 40-plus hour requirement of his current circumstances. What arrangement might you work out with your employer? You might be surprised at their flexibility. You’ll never know unless you ask.
Downsize your lifestyle. Most of us have created a lifestyle way beyond what is needed for a comfortable retirement. Step back and take a fresh look at all the things you could do to reduce your lifestyle expenses. Could you sell your home and buy one that is smaller, newer, and had lower maintenance costs? Could you move to an area of town or region of the country where housing costs are lower? Look at all the ways you spend money and consider what is truly necessary for you to enjoy your retirement years. Stay tuned for an upcoming column on a concept I call, Zero-Based Budgeting…a strategy for re-framing your required lifestyle.
Next week, I’ll complete this discussion of retirement strategies for pre-retirees.
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