Cutting Retirement Expenses

Posted on: March 30th, 2010 by

Financial Planner - RetirementThe most current statistics have pointed that having saved $1 million is still not going to be enough for retirement in the years to come.  With that in mind, there are still more ways that we can save our hard earned dollars:

1)  Take required minimum distributions – Those ages 70 1/2 or older must take required minimum distributions from retirement accounts each year.  The withdrawal amount is calculated by dividing you individual retirement account and 401 (k) balances by your life expectancy, as determined by the IRS.  The penalty for failing to take out the correct amount is a 50% tax penalty, plus income tax on the amount that should have been withdrawn.

2) Spend your taxable accounts first – You don’t have to pay income tax on the money in your 401(k)s & IRAs until the money is withdrawn; Many other types of accounts with gains are taxed annually regardless.  You should talk to your financial planner about spending money outside your retirement accounts first and setting up a withdrawal plan to minimize your tax burden.

3) Delay signing up for social security – You can begin signing up for social security benefits at age 62, but that does not mean that you should.  Benefit checks are actually cut 20-30% for those who claim their checks before what the Social Security Administration deems the full retirement age.  Soon-to-be retirees (born between 1943-1954) must wait until age 66 to claim their full entitlement.  For those born after 1954, the age gradually increases, culminating at 67 for those born after 1960.

4) Travel smart –  While you are working, you are generally forced to make your travel plans over weekends and over holidays, but when you retire, you will have the luxury to travel during the week and during off peak times.  You should take advantage of this.

5) Find age related tax breaks – Some states exempt pension income from state income tax.  Other locales offer age-related property tax exemptions or deductions.  You should contact your local CPA to see if you qualify for any of these credits.



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