Everyone knows that saving for retirement is an essential element in securing a worry-free future. But what many don’t know is that several parts of retirement aren’t as straightforward as stocking away a percentage of your income every month. Having professional help to navigate the ins and outs could be the difference between a comfortable and uncertain life after work. It all starts with knowing how to find a financial advisor that matches your needs. However, before you decide, it is beneficial to understand a few critical things about your finances after retirement.
Defining the Source of Your Income
Knowing where your primary source of income flows from after you leave the workforce plays a significant role in how it is taxed. Besides possible work after retirement, three main places can generate income.
- Social Security Benefits- comprehensive federal benefits.
- IRA’s- Traditional 401K, Roth, or Rollover.
- Personal Investments and Savings- Stocks, savings accounts, CDs, ETC.
The amount that these sources are taxed varies depending on your gross income and if you are filing separately or jointly.
Different Tax Brackets
The amount of tax you may owe depends on how much income you expect each year but can also vary by state. There are currently nine states that don’t charge an income tax at all for earned income. However, if you don’t reside in one of the tax-free states, you will need to know which tax bracket you fall under to know what to expect when it comes to taxation. Figuring out which column you fall under isn’t as simple as adding up what you make, as different types of income will be taxed accordingly. Social Security, for instance, is taxable from zero up to 85%. But IRAs follow their own set of rules.
Understanding Social Security
Many individuals question why they are required to pay tax on money that was already deducted from their yearly earnings. However, Social Security doesn’t work as a personal savings account. You won’t get back exactly what you put in. Chances are more likely you will withdraw more. Currently, those making between 25,000 and 34,000 a year for a single filer can be taxed up to 50% on their benefits. However, there are many ways to reduce your tax rate, like waiting to collect your benefits or setting up a tax withholding before you retire.
Do You Need a Financial Advisor
There’s nothing wrong with managing your own accounts. Some retirees have successfully planned out their private funds. However, with the changing laws and economy, it can be hard to keep up. So, you need to know how to find a financial advisor for yourself. Whether you choose to find assistance with your bank or from an independent advisor, make sure you pick someone that aligns with your specific needs. Not all financial advisors are equipped to handle the complex world of retirement income, so make sure you do your research.
Many individuals find that it is beneficial both monetarily and time-wise, to seek advice in other ways before choosing the perfect financial planner. If you aren’t quite sure what you need to look for, professionals like the advisors at Retire Wire can provide tips on how to secure the best specialist to help so you can live worry-free before and after retirement.