Income Strategies for Retirement
Courtesy Barlow Capital Advisors, Denton LIVING WELL Magazine
Will I have enough money in retirement? It’s a question Americans are asking. The good news is that you may be able to retire with confidence and enough assets — if you get organized. That means thinking about what you want retirement to be, reviewing your current investments and benefits, and taking maximum advantage of some investment vehicles designed to provide retirement income. The key is to set clear retirement goals and pursue them.
Because each individual’s idea of the perfect retirement is different, everybody will have different financial needs. Determine what yours will be based on your vision of being retired. Don’t accept the conventional wisdom that says all of us will require 60 to 80% of our income when we stop working. Instead, try to estimate a budget for your specific vision of retirement.
Once you have a sense of your financial needs, look at the benefits you’re confident you’ll receive. Make sure you know what you’ll get from your employer. This typically will take only a quick visit to the human resources department.
Also, review your savings and investments. Then check on your Social Security benefits. You can use the benefit calculators at the Social Security Web site www.ssa.gov.
When you know your goals and estimated expenses and income, you can create a written retirement plan that covers investments held in retirement and nonretirement accounts. As you do, it’s a good idea to look at several sources of income that you can use to save and invest.
Begin by considering using an Individual Retirement Account— traditional IRA or a Roth IRA. Traditional IRAs tend to work best for people who believe they’ll be in a lower tax bracket during retirement and meet the criteria for making tax-deductible contributions. Earnings and contributions are taxable as ordinary income when withdrawn, and withdrawals prior to age 59½ may trigger a federal 10% penalty. Payments from the account must begin when the investor reaches age 70½.
The Roth IRA generally appeals to people who want tax-deferred earnings and are OK with the idea of making after tax contributions now in exchange for tax-free distributions in retirement and who expect to be in the same or a higher tax bracket when they retire.1 Holders of Roth IRAs often use them because they also may need access to their savings. The Roth IRA requires no minimum distribution during the investor’s lifetime. With both IRAs, investors make periodic contributions and direct how the money will be invested.
Annuities2 also may have a place in your portfolio. An annuity is a contract between you and an insurance company in which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. Annuities are designed to be long-term investments used for retirement. They have contract limitations, fees and charges.. There are limitations on the amount of funds that may be withdrawn without a charge, and withdrawals reduce annuity contract benefits and values. Additionally, withdrawals of earnings are subject to ordinary income tax, and a federal 10% penalty may apply to withdrawals taken prior to age 59½.
Annuities have two basic forms — fixed and variable. Fixed annuities appeal to conservative investors because they deliver a fixed payment at a regular interval. Variable annuities generally offer a range of investment options, and the value of your investment will vary depending on the performance of the investment options you choose, which may directly impact the payments you are able to receive.
Proper planning may help you get the retirement you desire, if you know what you want and what your options are — and pursue both with resolve and clarity.
This article was written by Wells Fargo Advisors and provided courtesy of Dan and R. Brennan Barlow in Flower Mound, Texas at (972) 539-1400.
1 For Roth IRAs, qualified distributions are federally tax-free, provided a Roth account has been open for at least five tax years and the owner has reached age 59½ or meets other requirements. Qualified Roth IRA distributions are not subject to state and local taxation in most states.
2 Insurance products are offered through non-bank insurance agencies of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.
Wells Fargo Advisors/ Wells Fargo Advisors Financial Network is not a legal or tax advisor.
The accuracy and completeness of this article are not guaranteed. The material is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.
Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), and Member SIPC. Barlow Capital Advisors, LLC is a separate entity from WFAFN.
