Comprehensive retirement planning Archives

For many, retirement is an exciting milestone. You’ve worked hard to prepare for this moment, and now’s the time to reap the rewards. But have you ever considered how you’ll spend your newfound free time?

Many people focus on the preparation it takes to get to retirement without putting in the time to consider what they want to accomplish once there. If you don’t plan on picking up a new job anytime soon, retirement is essentially a seven-day weekend—and that’s a lot of time to fill.

Here’s how we recommend recent retirees build a life they love in retirement.

Yes, You Can Spend Your Money

In fact, we encourage it! You spent decades saving diligently and sacrificing short-term indulgences to build your nest egg. Now that you’ve done it, it’s time to (strategically) spend it.

But changing your mindset from saving to spending isn’t as easy as flipping a switch. It’s emotional to start drawing from your hard-earned savings. Watching the number go down when you’re so used to seeing it grow can be emotional. Many retirees fear spending and wonder if they’re spending too much.

With proper planning and strategizing, however, you can push past the fear of running out of money in retirement. Being over-conservative with your spending actually deprives you of the things you’ve spent years looking forward to.

Like a fad diet, being too strict with your spending tends to backfire. If you don’t find balance, you run the risk of abandoning the plan altogether. It’s a much more effective approach to create a realistic spending plan that keeps you focused and informed while allowing you to enjoy yourself within reason.

Let the Numbers Support Your Spending

It’s not that it’s impossible to overspend in retirement, but if you’re worried about overspending, start by determining how much you’re able to spend in the first place. Having a number in front of you is a way to ease your anxieties and create a guideline for your spending habits in retirement.

Our team at Legacy Wealth Advisors uses financial planning software that provides clients with real-time projections. Together, we’ll look over possible scenarios to help you analyze how much you can safely spend year after year.

From there, we build a withdrawal strategy that’s tailored to your projected spending. Within that withdrawal strategy, we keep your future tax obligations in mind—especially since taxes can threaten your retirement wealth. Throughout the year, we use tax-focused strategies to protect and preserve your wealth.

How to Spend Where It Counts

Not all spending is created equal. In retirement, focus on making intentional spending decisions that align with your goals. That starts, of course, with deciding what those goals are.

Ask yourself, “What type of lifestyle do I envision for retirement?”

Are you itching to travel the world, or do you want to spend winters in a warmer climate? Are you happy living in your same community, or do you want to move closer to kids and grandkids?

Feeling fulfilled in retirement means using your money to fund the things that matter most to you. Spending without a plan or purpose can take away from that feeling of fulfillment.

Understanding your goals gives you a foundation for spending your money intentionally.

Remaining Motivated When Everyday Feels Like Saturday

During your working years, you probably thought, “I wish everyday could feel like Saturday.” The week’s stress seems to go away, your time is your own, and thoughts of work are far, far away.

But the reality of a seven-day weekend looks a bit different. Without the obligation of a 40+ hour work week, it’s up to you to create a new routine that brings you joy and fulfillment.

Find things that fill your time and build out your schedule—classes at the local community center, exercise groups, learning courses, volunteer opportunities, etc. Once you have a regular routine, spend your free time with loved ones. Making it a point to socialize with your family, friends, and community members can be an effective way to keep loneliness and isolation at bay.

Building Your Retirement Lifestyle With Legacy Wealth Advisors

When finding your new purpose in retirement, it’s helpful to nail down your spending and savings strategy first.

Here at Legacy Wealth Advisors, we work closely with those nearing or entering retirement to build a tailored withdrawal strategy and identify their biggest lifestyle goals for retirement. If this is something you’re looking to address, don’t hesitate to reach out to our team today.

^{Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted.}

^{All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Legacy Wealth Advisors does not offer tax planning or legal services but may provide references to tax services or legal providers. Legacy Wealth Advisors may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters.}

A Roth IRA is an unassuming powerhouse that brings a lot to the investment table.

With tax-advantaged growth, they may play an essential role in developing a well-rounded retirement income strategy. But what else makes these accounts so special?

Below we’re reviewing the basics of Roth IRAs and how you can make the most of them throughout your lifetime.

What’s a Roth IRA?

With a traditional IRA, the money you contribute is tax-deductible (unless you earn above the IRS thresholds or are covered by a workplace retirement plan), making it effective for reducing your annual taxable income. Plus, the funds in the account grow tax-deferred. However, your withdrawals in retirement are subject to ordinary income tax.

A Roth IRA works the opposite way.

You contribute to a Roth IRA with after-tax dollars, which won’t lower your taxable income. The advantage of a Roth IRA is that money in the account grows tax-free, and eligible withdrawals are also tax-free.

With a Roth IRA, you choose to pay taxes now to avoid paying them later. This is a significant benefit to those who expect to move into a higher tax bracket later in life.

Tax-Free Distribution Requirements

To avoid penalties when taking distributions, the account must be open for at least five years, and you must be 59.5 or older. You could face tax penalties if you don’t meet either of these requirements.

However, there are a few exemptions. You can withdraw from your Roth IRA penalty-free if you:

Have a qualifying disability
Use the withdrawals to pay for qualifying higher ed costs
Are purchasing your first home
Use the withdrawals to pay for medical expenses that exceed 7.5% of your AGI

4 Big Reasons Why Roth IRAs Are Useful

Here are a few reasons why Roth IRAs may make an effective addition to your retirement income lineup.

Reason #1: You Can Withdraw Contributions At Any Time

With most retirement savings accounts, you can’t touch the funds without penalty unless you meet the age requirements.

What’s special about a Roth IRA is that you can withdraw the contributions you’ve made to the account at any point. Note that you cannot touch the earnings without incurring a tax penalty. This makes it especially important to track how much you contribute to your Roth IRA yearly.

Reason #2: Distributions in Retirement Are Tax-Free

Tax planning is critical for retirees, and amplifying your tax-free retirement income bucket gives you more freedom and flexibility in retirement. If you have a higher-income year, maybe with more realized gains or the sale of a home, drawing from that tax-free bucket supplements your income while keeping taxes at bay.

Remember, creating a tax-efficient plan for your retirement income helps extend the life of your investments.

Reason #3: Roth IRAs Don’t Have RMDs

Roth IRAs are the only type of retirement account that doesn’t have required minimum distributions (RMDs).

For traditional IRAs and 401(k)s, the IRS determines a set amount that account holders must withdraw each year—the formula considers the account balance and life expectancy. Depending on your birth year, your RMDs may begin the year you turn 73 or 75.

Since the funds in these accounts are tax-deferred, RMDs are subject to ordinary income tax. But with a Roth IRA, you don’t have to worry about RMDs—you can withdraw your funds in retirement when you need to.

Reason #4: They Make a Great Addition to Your Estate Plan

If you’re looking for a tax-efficient way to pass money to your loved ones, look no further than a Roth IRA.

Distributions from an inherited Roth IRA remain tax-free, and spouse beneficiaries can hold onto the account for as long as they like. If a non-spouse beneficiary inherits the account, they will need to withdraw all funds from the account within 10 years unless they are:

Disabled or chronically ill
Under the age of 18
Less than 10 years younger than the original account owner

But, Not Everyone Can Directly Contribute to a Roth IRA

For 2024, the total contribution limits for all of your Traditional IRAs and Roth IRAs are $7,000 per person, or $8,000 per person over the age of 50.

Roth IRAs do have income limits. If your modified adjusted gross income falls within the income phase-out range, you’re eligible to contribute a lesser amount. If you earn above the phase-out ceiling limit, you are not eligible to contribute at all.

For 2024, the phase-out ranges are:

Single taxpayers and heads of household: $146,000 to $160,999
Married, filing jointly: $230,000 to $239,999
Married, filing separately (if you lived with your spouse at anytime during the year):
$0 to $9,999

How to Bypass Roth IRA Income Limits

There are ways for high earners to bypass Roth IRA income limits.

A backdoor Roth IRA and mega backdoor Roth IRA involve contributing to a traditional IRA or 401(k) before converting the funds into a Roth account. These can be fairly complex and may increase your tax liability in the year you make the conversion, so consult with a tax professional and financial advisor first.

Another option is to do an in-service rollover from your 401(k) to a Roth IRA. Not all plan providers allow in-service rollovers, however. Consult with your HR department or plan sponsor to determine if this is a viable option.

Make Your Roth IRA Work For You

Roth IRAs are effective tools for building wealth and growing your tax-free retirement income bucket.

In most cases, it makes sense to contribute to a Roth account when you’re in a lower income tax bracket than you anticipate being in during retirement. Or, if you believe taxes overall will increase by the time you retire, paying them sooner rather than later makes a lot of sense.

As you continue saving for retirement, don’t hesitate to reach out to our team. We’re here to help address all areas of your wealth, including your retirement savings strategies.

^Sources:

¹^{Publication 590-B (2023), Distributions from Individual Retirement Arrangements (IRAs)}

Disclaimer:

Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted.

All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Legacy Wealth Advisors does not offer tax planning or legal services but may provide references to tax services or legal providers. Legacy Wealth Advisors may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters.

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7-Day Weekend: How Retirees Can Build A Great Lifestyle