Many of us look forward to retirement as the reward for a lifetime of hard work. However, many retirees are caught off guard by the simple facts of their new life in retirement. Here are three things you should know about before you leave the working world for good.
Required Minimum Distributions may increase your tax burden
Once you reach age 72, you’re typically required to take money out of your traditional IRA and your traditional 401(k) plan each year. The IRS decides how much you must withdraw, and the purpose is to draw down these taxable accounts. Withdrawals from these account types are treated as taxable income, which means you’ll owe income tax on the amount distributed.
Medicare isn’t free
You’ll want to learn more about Medicare premiums, as they can eat up your Social Security increase. Most retirees are relieved to find out that their Social Security benefit can receive an inflation adjustment every year to help keep pace with rising costs. What few realize, however, is that rising Medicare Part B premiums may wind up chewing through most, if not all, of that entire increase. But, thanks to the “hold harmless” provision, hikes in Medicare Part B premiums can eat up all, but not more than the increase in a recipient’s Social Security check. You may also have additional out of pocket healthcare costs in retirement, or buy supplemental Medicare coverage.
Your risk tolerance may decrease
While everyone seems to understand that the markets fluctuate, the third thing you should know is that it gets substantially harder to wait out a bad market once you retire. While you’re working and adding money to your retirement accounts, your salary covers your costs of living. Therefore, it is much easier for you to power through a nasty bear market and wait for the ensuing recovery. So, while you’re still working, you can look forward to bear markets as an opportunity to buy great companies’ stocks on sale. But, once you retire and start pulling money from your portfolio to cover your costs of living, a down market takes on an entirely different meaning. If you need to sell stocks to pay your bills, a market slump may leave you with no choice but to sell at a low point and rapidly deplete your retirement assets.
In the end, whether you’re in retirement or working toward it, our team of experts can help you understand what needs to be on the top of your financial “to do” list this month. We can discuss your vision for retirement and your major concerns. Request your complimentary, no obligation review and we’ll help you to understand some of the things facing you in retirement that you may not know about already.
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Neither the named representative nor the named Broker/Dealer or Investment Advisor gives tax or legal advice.
Fixed index annuities are designed to meet long-term needs for retirement income. Early withdrawals may result in loss of principal and credited interest due to surrender charges. Distributions may be subject to ordinary income tax and, if taken prior to age 59 ½, an additional 10% federal tax. An income rider or benefit (sometimes called Guaranteed Lifetime Withdrawal Benefits, or GLWB) is an additional feature available with some annuities and generally optional and come with additional cost. Income benefits are designed to provide income options above and beyond the standard annuitization or free withdrawal features in annuities. All contract gains beyond the CAP rate are surrendered to the insurance company to pay for the expense of the product.
The views expressed are not necessarily the opinion of Royal Alliance Associates Inc, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Individual circumstances vary. Investing is subject to risks including loss of principal invested. No strategy can assure a profit against loss.