Discover smart retirement planning, pension benefits, wealth distribution, investment management, Social Security, family values, and tax considerations. Tailor your financial journey with Menninger & Associates Guided Planning Strategies (GPS).
- Smart Retirement Planning: Pre-tax 401(k) Benefits
- How Pensions Contribute to Financial Security
- Wealth Distribution in Retirement
- Investment Management 101: Maximizing Returns While Managing Risk
- Social Security in Your Retirement Planning
- Generational Values in Family Financial Planning
- Understanding and Managing Your Cost of Living
- Tax Considerations: Planning for RMDs in Retirement Accounts
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Smart Retirement Planning: Pre-tax 401(k) Benefits
Contributions to a traditional 401(k) are taken directly out of your paycheck before federal income taxes are withheld. Because the contributions are pre-tax, it lowers your total taxable income which means you might owe less in income taxes, regardless of whether you itemize or take the standard deduction. It may even put you in a lower tax bracket! Your pre-tax contributions are then tax-deferred until you choose to withdraw them in retirement. The premise is that in retirement you’ll likely be in a lower tax bracket than if you were taxed on the money now.
Even if you change jobs, the money you’ve contributed to your 401(k) and its earnings belong to you. Depending on your plan type, there are different ways to keep your retirement plan invested and growing on a tax-deferred basis. If you’ve left an employer, but still have an old 401(k) with them, find out what your options are for leaving it in plan or moving it somewhere else.
Starting to save early and contributing consistently is essential to preparing for retirement, even if it feels lightyears away. With a 401(k), you can make automatic contributions directly from your paycheck. It makes saving a simple and effortless process. And, since the deduction is taken before you get paid, you won’t miss the money. When it does cross your mind, you should feel great that you’re taking the right steps to secure your future!
How Pensions Contribute to Financial Security
There has been a lot of talk in the media recently about retirement insecurity. For a while now, reporters have been talking about how pensions are “disappearing” and being replaced by 401(k) plans. Then, with the recent economic downturn, many Americans’ retirement savings accounts took a big hit.
You may wonder what this means for your retirement security. The good news is, for those who have earned the guaranteed lifetime benefits provided by group pension plans, you are in a far better position to weather the tough economic storms that come your way.
Pensions do a great job of providing modest, secure retirement benefits—and they remain quite popular among Americans. Public pensions make sense for taxpayers, too, because they are still a good deal. As if that weren’t enough, pensions also help boost the economy. It’s a classic “win-win” situation for employees, employers, taxpayers, and local business owners.
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Wealth Distribution in Retirement
Retirement is at your doorstep. This is where all that money you’ve saved and all the investments you’ve made finally pay off. Since you no longer have regular paychecks from your workplace to rely on, this is where the wealth accumulation and preservation stages become your saving grace.
The wealth distribution stage is more conscious than calculated like the other stages. You have to remember that the way you choose to distribute your money will impact how it lasts. Speaking with an experienced wealth manager can help you prepare for this stage.
Investment Management 101: Maximizing Returns While Managing Risk
Investment management begins with identifying one’s financial goals, and then developing a plan to pursue those goals. In doing so, it also involves evaluating their investments. In short, if one were to obtain a high rate of return, their portfolio could provide remarkable growth over time. However, if you want a high rate of return, you need to be prepared to take a lot of risk. Conversely, if you want little to no risk, then you probably won’t get very much for a rate of return. Well, most people are somewhere in the middle.
It is important to note that the single largest component of risk is time horizon. If you don't need the money for decades, then you potentially can afford to take risk. However, if you need the money in less than a year or two, then it may be prudent to take much risk.
Social Security in Your Retirement Planning
No matter how distant retirement feels, Social Security will still be around when you stop working, although it may look different than it does now. Understanding how the program works will help in your retirement decision-making.
There are three main funding sources for Social Security. Income taxes are the biggest one, which make up 89% of the program’s total funding.1 This means that as long as people are working and paying their taxes, Social Security will have a reliable influx of money to keep the program running – and you should include it in your estimated retirement income.
Social Security benefits are based on your lifetime earnings and are adjusted to account for changes in average wages. To estimate what you may receive, the program bases your benefits on your 35 highest-earning working years. Even though retirement may feel far off, you can review your status and make sure your earnings are correct at the Social Security Administration’s website.
Having a strategy that makes the most of your Social Security benefits can help give you confidence for the years ahead. For further tips and financial advice about how to develop a plan for the future, connect with a certified financial planner today.
Generational Values in Family Financial Planning
You should communicate with your kids and with your grandkids the values behind your planning. It’s not about the planning, it’s not about the trust, it’s not about the gifting; it’s the values that you want to impart to them because there may come a time in life where they have friends that are financially irresponsible, maybe even your kids were not the best financial stewards of their money, and you want to impart to your grandkids that wisdom and those values that you have.
You can not only impart your wisdom and your values to your grandkids, but how to help save for college education, how to get started working and saving money from their paycheck. It’s so important that you help teach those lessons to grandkids, tell them stories, and give them practical ways to save. Then, when it comes to that legacy, share your values.
Understanding and Managing Your Cost of Living
Cost of living is quite simply the measure of expenses related to living your life in the area where you call home. Everyone has costs associated with living life. Those costs can vary quite a bit from one city to another. There will be cities where the cost of living is higher than where you live now. There will also be cities where the cost of living is lower than where you live now.
Keeping on top of your finances is critical to getting the best out of life. An annual financial plan can help you make better use of your money, ensuring that you live comfortably, are able to deal with any unexpected expenses, and are on the right path to achieve longer-term financial goals and secure a decent income in retirement.
Tax Considerations: Planning for RMDs in Retirement Accounts
Contributing to retirement accounts such as a Traditional 401(k), Thrift Savings Plan, and a Traditional IRA while in working years have a nice advantage - taxes are not paid on the contribution to these accounts which lowers the current year tax liability. The retirement accounts will grow over time and are a key aspect of a family’s financial plan. However, there’s a specific point in retirement when the IRS steps in to say the years of completely tax-free growth are over.
At that point, the IRS requires retirees to withdraw a portion of their retirement account each year and pay taxes on the distribution. This mandatory withdrawal is the required minimum distribution (RMD). If the retiree forgets to take their RMD or does not withdraw enough funds from their account, penalties can be harsh. In addition, rules for RMDs often change, and it is important to keep up to date on this important retirement planning topic. Our goal is to provide a basic understanding of RMDs to help along your financial journey.
Essentially all tax-deferred accounts such as 401(k)s (both Roth and Traditional), Traditional IRAs, 403(b) plans, 457(b) plans, and SEP IRAs. RMDs are not required for Roth IRAs during the account owner’s lifetime. However, if someone inherits a Roth IRA, they will need to take RMDs.
