When Should I Start Planning My Retirement

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There is no better time than now. If you’re just starting in the workforce or have been working for years you need to start planning for your retirement and make as much of your retirement as you can tax-free. Proper planning today can save you thousands of dollars in unnecessary taxes during your retirement.

Most financial planners and advice columns constantly push it on you that you should be saving as much as you can for retirement because you have the huge power of time on your side for compound interest. The difference between starting retirement savings at 20 vs. 30-35 could be double the amount down the road! Most postpone retirement savings, especially if your employer doesn’t have a 401(k) or other sponsored plan. For the most part, financial advisors agree that you should contribute whatever the employer will match. Hey, that’s free money!! Take advantage of it.   

Many people see a 401(k) plan as a perfect retirement plan. They put too much money into them because they are not educated on the pitfalls and the tax consequences of these plans. You get to enjoy the benefit of tax-deferred growth, however they are fully taxable on withdrawals in retirement. Many people don’t learn how much of a deal this is until it’s just too late.  It’s also considered “provisional income” or what the IRS tracks that could make up to 85% of your Social Security income taxable. Sounds crazy, right?!  Other incomes that affect this provisional income calculation is part time employment income, rental income, municipal bond interest, just to name a few.

It’s hard to think 30-40 years down the road, but what you are doing today could easily affect how much you pay in taxes then, when you likely will not have the tax deductions that you have today, such as deductions for your children, mortgage interest, and the deduction for your qualified plan.   

So, if you plan the right way, you can make sure that you have the right amount in your 401(k) or future IRA to spin off an income that is under this taxable threshold when combined with a tax standard deduction and personal exemptions, which was $20,000 last year (married) and has historically been adjusted for inflation. 

Anything over the amount you find that is planned to be put into your qualified retirement plan, the excess can be used in Roth IRA’s and LIRP, or Life Insurance Retirement Plans. Both type of plans do not effect taxation of Social Security. Many people are unfamiliar with the LIRP, but it can be life changing! They are customized to your financial plan and goals, and have the tax-deferred growth and tax-free income advantages of the Roth IRA, IAW IR codes 7702 and 70-E, but have additional benefits as well.
  
They can protect your income from stock market downturns (NO RISK of loss!), in some cases outperform most stock brokerage accounts, protect your assets from lawsuits, probate, increase the value of your estate, provide long term care illness and disability coverages, and even guarantee you a lifetime income.  They are completely flexible with payments into, and withdrawals out of, with very little of the regulations that surround IRA’s.  All of this does not come for free, but the fees involved are much less than the costs of fees and taxes from a brokerage account or qualified plan. 

Remember this, it is not how much money you have in retirement, it is how much money you have after taxes. Start your planning now!

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