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Don't Let These 5 Problems Trip Up Your Retirement Savings

Don't Let These 5 Problems Trip Up Your Retirement Savings

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Thursday, 05 April 2018 04:22 PM Current | Bio | Archive

If you’re approaching 65, you’re probably looking forward to retirement. But are you fully prepared to retire? If you’re still in your 40s or 50s, have you laid the groundwork to be able to retire when you reach 65? Many would-be retirees get tripped up by the same problems, making the same mistakes that thousands of other retirees make. Don’t let those same problems stop you from being able to retire when you want to.

1. Under/Overestimating How Much You’ll Withdraw

There’s a well-known rule called the 4% rule that many financial advisers use as a general rule of thumb when trying to figure out how much money a retiree can safely withdraw from retirement accounts. With the assumption that your retirement investments will make 7-8% per year or more in retirement, withdrawing 4% per year means that the money you continue to withdraw each year is normally just dividend and interest income. And with the average 65-year-old projected to live 20 years, withdrawing 4% per year from accounts that aren’t growing at all still gives over 20 years worth of money to live on.

The problem with that, of course, is that you have to have a pretty huge nest egg saved up to be able to live on 4% per year. If you have $1 million worth of savings, then a 4% annual withdrawal means living on $40,000 per year.

While many households may be able to make do with that, in many other areas of the country that could be cutting it very close for a retired couple. Property taxes alone could eat up a large portion of that money in many metropolitan areas. That means that you’ll either have to save up more than a million dollars, or you’ll have to withdraw a higher percentage of your savings each year.

Boosting that to 5% per year, which was the old standby in previous decades, is doable as long as your investments continue to perform. But what if they don’t? All indications are that the days of steady 8-10% annual growth may be a fading dream, and investors will have to get used to the new normal of permanently lower growth rates.

And once you hit 70½, you’ll be required to take minimum distributions from your retirement accounts. By age 73 you’ll start being forced to withdraw more than 4% of your account balance every year. And if you live long enough, you may be required to take out 8-10% or more of your account balance each year. Have you taken that into consideration?

2. Medical Expenses

Medical expenses are a big unknown. Even if you’ve been healthy until you reach 65, there’s no guarantee that you won’t face a major health crisis in the next decade or two. You need to start brainstorming now to figure out if the insurance you plan to carry will cover any unanticipated expenses.

If you develop colon cancer, or your wife develops breast cancer, or one of you falls and breaks a hip, what are the likely expenses you’ll incur? How much will insurance cover? Will you be enrolled in Medicare? Those are all questions you need to ask and have answers to before you retire so that you’re fully prepared.

Remember too that medical expenses continue to grow every year, and will likely outpace the rise in inflation in the future. Make sure that you build that in to all of your assumptions and calculations.

3. Debt

Hopefully you’ll have paid off any outstanding debts before you retire. But while student loans and car payments are normally paid off, more and more retiring households are entering retirement with substantial amounts of mortgage debt to pay off. Don’t let continuing debt payments derail your retirement. Try to pay off as much debt as possible before you retire so that you won’t have it hanging over your head in retirement.

4. Taxes

You may look at your retirement account balance and think that you’ve got plenty of money, but have you forgotten that you’ll have to pay taxes when you take your withdrawals? Roth IRAs and 401(k)s obviously aren’t subject to taxation at withdrawal time, but normal IRAs and 401(k)s are.

If you’re taking out $40-60,000 from your retirement accounts, you should expect to pay at least 10-15% of that total in taxes, or more if you have additional sources of income. Hopefully you took that into account when doing your budgeting, otherwise you’ll have to withdraw even more money and draw down your savings even further to make those tax payments.

And because all of that factors in to taxation of Social Security benefits and the size of Medicare premiums, failing to account for all of that could end up costing you thousands of dollars that you could ill afford to waste in retirement. That’s all the more reason to consult with a tax adviser and work through the tax ramifications of your retirement spending.

5. Overestimating Growth

Since your primary source of income in retirement will likely be what you have managed to save up for yourself, it’s important to remain invested in assets that can continue to work for you into retirement. And in an era in which average investment returns likely won’t reach their historical norms for the foreseeable future, it’s all the more important for retirees to invest in assets which will continue to gain as much as possible in retirement.

Gold is one of those assets, since it has acted as a hedge against inflation for centuries and continues to be trusted by many investors. Even better, gold has outperformed stock markets for the past several decades, and its continued demand should help it to outpace stocks well into the future.

With a gold IRA, investors can even benefit from gold’s protection while still enjoying the same tax benefits as with a traditional IRA, and they can even roll over existing retirement funds into a gold IRA. And when it comes time to take distributions, you can take that distribution either as cash or as physical gold. So if you want to make sure that your retirement assets continue to work for you once you stop working, take a look at investing in gold.

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Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.

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If you're approaching 65, you're probably looking forward to retirement. But are you fully prepared to retire? If you're still in your 40s or 50s, have you laid the groundwork to be able to retire when you reach 65? Many would-be retirees get tripped up by the same...
retirement, gold
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2018-22-05
Thursday, 05 April 2018 04:22 PM
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