How much money, and what you’ll need that money for, are two of the key considerations you’ll need to address when considering retirement.
CPA Jamie Block of Mercer Advisors discussed what you need to be retirement ready Monday during News 8 at Sunrise.
“The first thing you need to do is figure out how much you are spending each month, tabulate all those expenses,” said Block. “Then from that, subtract the income that you receive; social security, pensions, and so forth. That difference needs to be funded by your investment accounts; your 401(k), IRA, bank savings, etcetera. The conservative rule of thumb is 4%, so remember that 4%. If you take those investable assets, multiple that value by 4% that amount should be able to cover that difference. If not, you’re not ready to retire just yet.”
When it comes to retiring, Block said there are some expenses people forget to consider. “One thing that a lot of people forget is health insurance. They have been covered by their employer up to retirement and they forget, oh no what do I do now. If you retire at age 65 or older it’s not a problem you can be covered under Medicare. However, if you retire early you need to make sure you have enough saved because it can be very expensive to cover health insurance then.”
She provided this example. “If you go on the New York Exchange for health care, and look up the Monroe County plan for a couple, the premiums for a bronze level plan is over $700 a month. Now you have to be very careful because bronze plans only cover 60% of your expenses, so make sure you put in your budget the extra 40% for co-pays, co-insurance, and deductibles.”
As it turns out, some retirees could miss out on tax savings. “A very important tax fallacy I hear is, oh I pay no income taxes isn’t that fantastic, and I say no, it may not be,” Block said. “So you might be giving up some of those deductions that are freebies from the government. So, in 2018 the standard deduction is going to be $12,000 for individuals and $24,000 for married couples. So you want to make sure you have at least that amount of income so you can get those deductions used up, potentially even a little more because you can use up lower brackets, like the 10% and 12%. The ways you can do that is using raw conversions, you can take money out of your retirement plan if you are over 59 and a half without penalty, or just recognize some capital gains that might be at 0 percent tax federal.”
Block said if you are not certain what you should do, contact your certified public accountant, your professional financial specialist, or your certified financial planner. As fiduciaries, they are tasked with working in your best interest.
To reach Block for more insight on this or other matters, visit merceradvisors.com.
For more smart money decisions, visit the New York State Society of CPA’s website, nysscpa.org/getmoneysmart.