Retirement Planning

While retirement may seem like an event in the distant future, now’s the time to nurture your nest egg so you can enjoy a more financially secure life later on. When it comes to investing for retirement, the two most popular choices are Traditional and Roth IRAs. Both have certain tax benefits and specific rules for withdrawing money.

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Traditional IRAs

Savings in a Traditional IRA are tax-deferred until the money is withdrawn, meaning you'll need to prepare for the tax implications for your withdrawals. Contribute until you reach 70 1/2 if you or your spouse has earned income included on your annual tax documents. At age 70 ½, the IRS requires you begin taking annual minimum withdrawals from your Traditional IRA account, but you can start withdrawing penalty-free at age 59 ½. Also consider there are penalties that come into play when you fail to take the required minimum distribution. Several factors, including your IRA account balance and projected life expectancy, go into determining what “minimum” actually means for you.

Roth IRAs

Contributions to your Roth IRA are taxed before they are invested, so generally, these withdrawals will be tax-free. But there are some exceptions. If your Roth IRA account is at least five years old and you’re over age 59 ½, you won’t pay taxes on your withdrawals. If you’re withdrawing money from your Roth IRA before you reach age 59 ½, you’re subject to a 10% early withdrawal penalty tax on the investment gains only. You never will be penalized for withdrawing the amount of your original contributions, no matter your age, and the IRS doesn’t require you to take annual withdrawals. Also, as long as you have earned income being reported on your annual tax documents, you can contribute to a Roth IRA.

Keys to Budgeting in Retirement

Once you've reached retirement, you'll need to budget and manage your money intelligently to keep your finances in order and ensure you maintain your path into retirement.

  • Create a reasonable spending plan: Living in retirement means monitoring your spending and planning accordingly for inflation to ensure that your investment earnings and additional cash flow meet your needs. If you set goals you can’t meet, you’ll quickly become frustrated or you’ll create an extreme penny-pinching reality that you won’t enjoy. And what’s the point of retirement if you can’t enjoy it? Start by setting goals that are reasonable so you can watch yourself make progress.
  • Find an easy way to track your spending: Keep tabs on how you spend your money, but don’t feel like you have to track every single penny if that’s not your personality type. If you’re able to see where your money goes each week or month, you’ll be able to analyze your spending more accurately. This practice is a great way to feel good about the progress you’re making while you adjust your spending plan and goals.
  • Work with your spouse or partner: It’s important to involve your significant other in this process so you both agree on the plan. Without cooperation, a spending plan can drive people apart because a lifestyle will be forced on one person without his or her input. It’s important to give each other some cushion as you implement this plan, and get comfortable with its effects on your daily lives.

Make the most of your retirement years by creating a budgeting plan that allows you to experience life with less worry.