Are you a “Solo Ager”? Here Are Some Things to Consider

A “solo ager” is someone who doesn’t have any family or close friends nearby as they enter retirement. Solo agers are becoming common, as a growing number of Americans live alone,* whether because they’re single, widowed, or divorced. Additionally, they’re child-free, or have adult children who live far away, leaving them to their own devices. If this includes you, there are some financial considerations to keep in mind. The most satisfied solo retirees are those who are well-prepared for retirement. These include financial and legal matters to come. If you don’t have children or a support system of close friends nearby, you face some specific challenges.

Who to Appoint to Make Financial Decisions

Settling some financial matters can be made more difficult without family around, as you need to find trustworthy people to help. Who will stand in for you and make decisions on your behalf if you become unable? It’s a tough question, but it has to be asked. Family and friends may not be the most suited for the roles of executor and proxy. Despite this, they’re often* the go-to choice. Before you ask someone to fulfill one of these important obligations, it’s crucial that you make sure they’ll be responsible. Be clear about what you’re asking of them. Filling these roles can also require the right skills and knowledge.

If you’re a solo ager and need a friend to be an executor or health care proxy, ask yourself: Do they have the time? Can you reliably say they’ll outlive you? Do they know how to manage money? And will you be able to compensate them?

Have a Checklist and Other Legal Directives

At minimum, solo agers will need a living will to enumerate their wishes about how they want to be treated in different situations. Basically, a living will is your written instructions concerning how you want to be treated in medical situations where you are unable to make decisions yourself. This could involve your wish to withhold life. For example, extending treatments such as CPR, a mechanical respirator, intravenous or tube feeding, dialysis, et cetera. All 50* states allow you to “express your wishes regarding medical treatment in terminal illness or injury situations, and to appoint someone to communicate for you in the event you cannot communicate for yourself.”

A healthcare proxy, meanwhile is a durable power of attorney that specifically names the person you choose to carry out your wishes and make medical decisions on your behalf if you’re unable. Your lawyer can help prepare these documents, and you should also make sure your family has been made aware of them. It’s also a good idea to provide copies to your regular physician and take them with you in the event you are admitted to a hospital.

What Local Professional Resources Can You Use?

Qualified financial professionals may be able to fill those roles typically held by family members. Your team of experts may include an elder law attorney to handle legal matters. Additionally, it may include a patient advocate or geriatric care manager to oversee health care decisions. And, a financial professional to manage financial affairs, and neighbors or friends in town who can help in a crisis.

Have a Financial Power of Attorney or Revocable Living Trust

Once you reach a certain age, you need to begin strategizing for a time when you may be more vulnerable. You may be very secure and independent now, but over time, that could change. While there are laws in place if you didn’t plan in advance for these things, generally speaking, you probably want to avoid having strangers who aren’t professionals having control over your money.

You may have been encouraged to select a financial power of attorney to oversee your money. But for a solo ager, you may be better served** with a solid revocable living trust which offers more flexibility and privacy. Check with an elder law attorney about which financial planning tool could best fit your needs.

*Sources: Right at Home, Kiplinger 

Methods of Generating Extra Income in Retirement

You’ve already said goodbye to your 9-5 job, and are enjoying retirement. But, maybe you retired early, and your Social Security check isn’t cutting it anymore. Maybe you need to support your adult children or your grandchildren. Life can sometimes get more expensive, rather than less, during retirement. And, obviously, a lot of the financial obligations you had when you were still working don’t stop once you retire. If you’re on a fixed income, this is a problem. Thankfully, finding some side hustles can be a great way to supplement your income without having to go back to work full-time. More and more seniors have begun employing this, either by choice or necessity. So, what are a few ways you might be able to generate extra income in retirement? Today, we will discuss.

Rent Out Your Space

If you’re an empty nester or haven’t downsized yet, you probably have a spare room at your house. Renting out that room on a short-term basis through websites like AirBnB or HomeAway can be a great way to earn passive income. Or, if you’re not comfortable having a guest live with you, you could rent out your entire home whenever you’re out of town.

To get the most rental income possible, you’ll want to read up on advice from people already renting out space. There are plenty of articles out there on how to improve your listing, take better photos, and get more bookings. Keep in mind there are both local and state regulations on AirBnBs, so make sure you’re familiar with those.

Work as a Substitute Teacher or Tutor

Have you ever worked as a teacher? Would you say that you have a passion for education? Across the nation, there is a great demand for substitute teachers. Additionally, this part-time position offers flexible hours and minimal requirements. In most school systems, becoming a substitute teacher only requires a bachelor’s degree; no prior teaching experience is necessary. Additionally, the pay is respectable, especially for a side gig. The average salary for substitute teachers is $20 per hour, or about $42,000 annually. Should you possess a postgraduate degree, you might perhaps increase your income by taking on a part-time role as an adjunct instructor at a community college. Or, if you would prefer working one-on-one with students, there is also a demand for tutors.

Sell Things You Already Own

When it comes to selling things online, one man’s trash is another man’s treasure. Popular online marketplaces such as OfferUp, Etsy, eBay, Facebook Marketplace, and others may be veritable goldmines for anyone trying to get rid of unneeded stuff around the house. You may get more money than you’d imagine by selling some of the items you no longer need, whether they be jewelry, antique furniture, artwork, retro clothing, or classic cookware.

Look through other listings that are similar to yours to get a sense of the market price. Examine the item’s condition carefully. If it’s newer than others like it on the online marketplace, you may be able to charge more. Alternatively, you might make a quicker sale by setting the price lower than it is for similar items that have been offered for a while. Additionally, if you can transport the item to a customer’s home yourself, they might agree to pay you a little extra. It actually pays to be accommodating when it comes to meetup places and availability. Additionally, be open to negotiating the price.

Drive for Uber or Lyft

There are many driving jobs available if you have a reliable car and are a decent driver. One flexible method to earn extra income in retirement is to drive for rideshare services like Uber or Lyft. Your earnings are determined by the number of rides you take, and you will receive your money by direct deposit once a week (or more frequently, if you’d like). You also have the freedom to decide how often and when to work. Do you dislike driving at night? You don’t have to!

Leverage Your Talents

One of the most useful methods of earning extra income in retirement is to use the skills you’ve picked up during your time working. Whether you worked as a nurse, an accountant, a graphic designer, a paralegal, et cetera, you can find methods to monetize your skills in some way after leaving your full-time work behind. There are numerous ways to generate money online using your skills, thanks to online spaces such as Flexjobs, Upwork, and PeoplePerHour, which make it easier than ever to search for available work, schedule your availability, and get paid. Even typical job search sites, such as Indeed, include contract job postings. Almost every skill out there can be put to use on the online marketplace.

Struggling to Save Extra Income For Retirement?

If you’re approaching retirement and running out of money is a major concern for you, you wouldn’t be alone. Thankfully, we can help. We can walk you through options to safeguard your retirement income while earning interest on it at a reasonable rate over time. This way, you can hopefully avoid running out of money in retirement and having to go back to work full-time. Reach out to us to learn more; schedule a meeting with us so we can get to know you and your situation, or reserve a seat at one of our seminar events or online webinars.

Source: Bankrate

Tax Breaks For Retirees in 2024

Retirees should take advantage of all available tax breaks. This is especially the case if you’re living on a fixed income; every penny counts, because you rely solely on it to make ends meet. However, it isn’t always easy to maintain your retirement savings. It’s easy to ignore significant tax breaks and other opportunities to increase retirement savings. It’s vital to closely assess your specific tax situation. Learning about often-overlooked retiree tax benefits might also be advantageous. And today, that’s what we’re going to teach you all about. Curious to learn more? Keep reading.

Bigger Standard Deduction Starting Age 65

As you approach retirement age (65), your standard deduction grows, putting more money in your pocket. For example, in 2023, the standard deduction for individual taxpayers was $13,850. For joint filers, it was $27,700. However, once you reach the age of 65, your standard deduction increases by $1,850 for single taxpayers and $1,500 for married couples.

Higher HSA Limit Starting Age 55

The maximum contribution to health savings accounts for people 55 and older has been increased by $1,000. This adjustment has the potential to increase retirees’ future healthcare savings. For example, a retiree in the 24% tax rate may be able to save an additional $240 in taxes due to the raised HSA level. This is a great example of how crucial healthcare funds are, particularly in retirement.

Higher Tax-Filing Threshold

Your tax-filing threshold is your minimum gross income required to have to file a tax return. Fortunately for retirees, this level has been raised. In 2023, the threshold for single filers 65 years old or older was $14,700, or $28,700 for joint filers (both 65 and older). Before reaching the age of 65, the threshold is only $12,950 or $25,900. For some retirees, this higher threshold may mean not having to file a tax return at all. 

Catch-Up Contributions Starting Age 50 

Catch-up contributions allow people 50 and older to finance their retirement accounts beyond the regular limits. Making the most of these contributions could provide significant benefits. For example, in 2023, the maximum permitted 401(k) catch-up contribution amount was increased to $7,500. In the long run, this may result in a significant rise in portfolio growth.

Elderly Credit

Certain taxpayers aged 65 and older may be eligible for the elderly credit. This credit has the potential to reduce their overall tax payment by up to $7,500. Single people without dependents must have a gross income of less than $17,500. However, if you file jointly as a married couple and are both over the age of 65, your total gross income is instead limited to $25,000.

IRA Deduction

Depending on your filing status, adjusted gross income, and age (if you’re 50 or over), you may be able to raise your IRA deduction by $1,000. This might help a retiree in the 22% tax bracket to save an additional $220 on their tax bill.

Qualified Charitable Distributions

contributions made directly to a nonprofit organization from an IRA are known as “qualified charitable distributions.” Taking these tax-free dividends can reduce a retiree’s total taxable income. For example, a $5,000 charitable donation may reduce their taxable income, resulting in saving up to $1,200 on taxes for someone in the 24% tax bracket.

Taxes and Retirement in 5 Steps

One of the most important components of planning for retirement is to take advantage of tax breaks, as well as other tax-saving methods. To ensure you’re prepared for retirement income taxes, you must:

Recognize how your retirement income sources will be taxed. What sources of income will you have when you retire? Pensions, Social Security income, or IRA and 401(k) income are all possible options. Next, learn about the tax implications for each type. For example, depending on your provisional income, your Social Security benefits may be subject to partial taxation. Traditional IRAs and 401(k)s are typically taxed at ordinary income rates.

Be ready for RMDs. After the age of 73, you will be subject to RMDs. Consider how these withdrawals will influence your total taxable income.

Try to limit yourself to a single tax bracket. Taking withdrawals across a number of years could be an effective way to mitigate the impact of higher tax rates.

Create a withdrawal strategy that minimizes taxes. Use multiple tax-deferred and/or tax-free accounts to provide flexibility. Next, decide which accounts to withdraw funds from first and how much to withdraw in order to minimize the impact on your taxes. Consider investing in index funds or municipal bonds, which generate the least amount of taxable income.

Regularly review and adjust your strategy. Changes in tax rules may have an influence on your retirement strategy, and you may need to make modifications over time. Furthermore, your retirement goals and financial situation may change over time. Regularly assess your retirement strategy to ensure that it still fits your circumstances.

We recommend contacting us if you’d like to discuss your retirement goals and learn more about tax-free or tax-deferred retirement options. Attend one of our seminars or call us to schedule an appointment. However, if you have any specific tax-related questions, you should contact a competent tax professional. 

Source: Yahoo Finance 

Working During Retirement?

Many Americans choose to continue working to some extent during their retirement. It may seem counterintuitive, but remember: if you’re generally healthy and suffer from no chronic illnesses, your life expectancy could be as high as 92+ years. So many retirees who only planned for a 20+ year retirement may need to reconsider their financial strategy.

Although it might take away from the time you have to travel or enjoy other retirement hobbies, there are quite a few benefits to continuing work during retirement. A retirement job may allow you to delay dipping into your savings. This, in turn, may give you more time to save up for retirement. In the case of some types of retirement plan accounts, older workers are eligible to contribute more money than younger people. Furthermore, assuming you’re past full retirement age, you may be able to begin taking Social Security benefits while also receiving income from work. Or, you may want to delay taking Social Security in order to get more out of it later on.

Key Takeaways

Today, we’re going to dive into a list of reasons why you may want to consider continuing work in retirement. In order to make the most of your retirement job, you should:

Delay 401(k) Withdrawals

Traditional 401(k) and IRA distributions are typically required after age 72, and income tax is due on each withdrawal. These are known as required minimum distributions (RMDs). However, if you continue working past age 72 and don’t own 5% or more of the company you work for, you might be able to continue to defer withdrawals from your plan, and the resulting tax bill, until April 1st of the year you retire. You will still need to take RMDs from IRA and 401(k) plans from previous employers.

Make Catch-Up Contributions

Workers aged 50+ are eligible to make “catch-up” contributions to their retirement accounts, and qualify for a bigger tax deduction. Older employees can save up to $75,000 more than younger employees, totaling a $30,500, in their 4o1(k) plan account. Making a $7,500 catch-up contribution to a 401(k) plan could save you up to $1,800 in taxes if you are in the 24% tax bracket. IRAs also allow older workers to make catch-up contributions worth an additional $1,000 per-year.

Boost Your Social Security Earnings

Social Security payments are calculated based on the 35 years during which you earned the most. If you earn a higher salary now than you did earlier in your career, you could boost your Social Security payments going forward. If you file for benefits and then continue to work or get a retirement job, those earnings will result in a recomputation as long as they replace one of the years of earnings in the 35-year calculation. This strategy is especially useful if you haven’t yet worked for 35 years and have had one or more zero-earning years factored into your benefit calculation. The Social Security Administration will automatically adjust your benefit if your additional earned income qualifies you for higher Social Security payments. 

Consider Delaying Your Social Security Payments

If you continue to work into your 60s and earn enough to pay the bills, you may be able to delay Social Security benefits. We’d recommend this, as monthly benefit payments are increased for each month you wait to start collecting benefits. In other words, the longer you wait, the better the benefits later down the line. This caps at age 70, however, so you should begin taking benefits by then. These higher payments last for the rest of your life, and can be passed on to a surviving spouse who gets a lower payment. Your Social Security statement gives you a personalized estimate of how much you will receive if you begin Social Security payments at various different ages. 

Don’t Forget to Sign Up For Medicare, But Watch Out For Higher Medicare Premiums

You become eligible for Medicare starting at age 65, regardless of employment status. Remember to sign up for Medicare during the seven-month initial enrollment period. This window begins three months before the month you turn 65, and ends 3 months after that month. The government adds a late enrollment penalty to your Medicare Part B and D premiums if you sign up too late. And, unfortunately, the higher premiums for late enrollment will last for the rest of your life. If you continue working after reaching age 65 and receive group health insurance through your employer, you will need to sign up for Medicare within eight months of leaving the job or the health plan in order to avoid the penalty.

However, having a retirement job could result in more expensive Medicare premiums. If you earn more than $103,000 ($206,000 if you’re married), you will have to pay higher monthly rates for both Medicare Part B and D. For 2024, your costs for Medicare Parts B and D are based on the income of your 2022 tax return.

Find a Better Work/Life Balance

Obviously, few retirees want to keep working full-time. You may be able to gradually reduce your hours at your current job and phase into retirement. Or, sometimes retirees take a break to relax for a while before getting a new part-time retirement job. Most older workers want a more flexible schedule in order to properly enjoy their retirement. Or, you may be able to find a temporary or seasonal job. This could allow you to earn income while also giving you far more time to enjoy your hobbies and spend time with loved ones. Additionally, many jobs now allow you to work from home. 

Learn more about the benefits of working into retirement here.

Source: U.S.News.

The 4% Rule and the $1000 Rule

How should you prepare for retirement? How much money do you need to save in advance? Exactly how much income will you need each year? As you approach retirement, you will want to evaluate your options when it comes to your income. During your retirement, you’ll receive income from Social Security benefits, as well as possibly retirement account distributions, a pension, or some other source. One popular strategy for your retirement income is “the $1,000 per month” rule. This rule states that for every $240,000 that you have set aside, you can receive $1,000 per-month assuming you withdraw 5% of your savings each year.

With the $1,000 per month rule, you’ll need at least $240,000 in savings if you plan to withdraw 5% of your savings each year. If you’re planning on taking out $2,000 every month, at a withdrawal rate of 5%, you’ll need to set aside $480,000. For $3,000, you should aim to save $720,000. 

Following through on this strategy involves creating investments and developing passive sources of income: The income could come from investments, dividends, rental properties, or other sources that require little to no effort. 

Advantages of the $1000 Rule

The more money you have access to in retirement, the better, especially in times of rising costs and high inflation. $1,000 a month can provide you with a level of financial security, as it covers a portion of regular expenses. You can also take some comfort in knowing what to expect. If you retire at age 65 with a nest egg of $480,000, you can set up your monthly budget based on withdrawing $2,000 monthly. You may even be motivated to save more to receive a higher level of passive income in retirement. This strategy does, however, have some limitations. 

Savings can help you prepare for the future. However, reliance on investments exposes you to risk; your portfolio balance will rise and fall based on the state of the market. In the event of a market downturn, your portfolio balance could drop, and when retirement arrives you might not have enough money to last you using the $1,000 strategy. So, you may want to take out less money per year to ensure your funds last longer.

The 4% Rule

The $1,000 per month rule is actually a variation of the 4% rule. The 4% rule has been a financial planning rule of thumb for many years. The rule states that retirees can deduct 4% from their portfolio each year (adjusted for inflation) and not run out of money for at least 30 years. “Retirees who had a mix of 50% stocks and 50% bonds and who lived on about 4% each year would be unlikely to run out of money in retirement.” Like the $1,000 rule, however, the 4% rule has some limitations. Not all retirees want a 50-50 mix of stocks and bonds. Additionally, some people may need more or less money in a given year. These rules are guidelines, intended to ensure that you save enough for retirement and don’t withdraw funds too quickly. 

The 4% Rule is Back

For a long time, the 4% rule was considered the gospel of retirement strategies. But, in recent years, that changed. Many financial advisors warned that you were likely to run out of money by starting with that rate. Based on the state of the economy a few years ago, the recommendation was changed to 3.3%. Thanks to higher interest rates and bond yields recently, though, it may be safe for new retirees to spend 4% of their nest egg in their first year of retirement (and then adjust that amount for inflation in subsequent years).

Using this method, someone who retires right now with a $1 million portfolio with 40% of it in stocks and 60% in bonds would spend no more than $40,000 from that portfolio in 2024. Assuming inflation rises by 3% next year, the investor would give themselves a raise up to $41,200 in 2025, regardless of the performance of the market. 

In the case of those already retired, meanwhile, they should stick with the recommended withdrawal amount they began their retirement with (adjusted for inflation) rather than switching to 4% now. 

We Can Help

Investing in the market is a tricky process. The performance of a stock will change as time goes on. If you want to prevent losses as much as possible, you should do your research, and invest in the right stocks at the right times. This is tricky–It would be best to work with a qualified financial advisor with an “active” approach to money management. We can help with this. 

Reach out to American Principal Wealth Management today: you could reserve a seat at one of our educational seminar events, where we’ll disclose potentially helpful information regarding planning for retirement. Or, you could reach out to us to schedule a one-on-one meeting so we can review your retirement strategy and discuss your financial future. Help us help you–Contact us today. 

Sources: U.S. News, Wall Street Journal, The Balance