Reaching retirement is a goal we all strive for from the day we start working. It’s a time far off into the future with an unknown year, but it’s a goal nonetheless.
In what seems to happen in an instant, you are now retired. You have achieved the dream — or have you? It depends on how well you planned for this inevitable time in your life.
- Did you defer money into your Deferred Compensation Plan or IRA?
- Will all of your income be taxable, or did you use tax-free income programs, such as Roth IRA’s or tax-free municipal bonds?
- How much will you be receiving from your county pension plan?
- How old will you be by the time you retire?
Since this issue of Star & Shield is dedicated to retired PPOA members, this article will discuss some of the issues that you may be facing (or could face in the future), depending on what age you chose to retire and where you plan to live at retirement. (See page 10 for more on PPOA member retirement destinations.)
Many of you have used Deferred Compensation at some point during your career; this is a very efficient way to save for supplemental retirement income. However, if you have retired and are not age 59 ½ yet, it’s usually not a good idea to roll the funds from the Deferred Compensation account into an IRA. The reason is that withdrawals from the County’s Deferred Compensation Plan prior to age 59 ½ are taxed as ordinary income, but are not penalized. In most cases, withdrawals from IRA accounts are penalized if they are withdrawn prior to age 59 ½. There are some ways to make nonpenalized withdrawals from an IRA, but they are relatively complicated, and once you have started down this road, you can’t make any changes for five years, without penalties.
Many of you also have spouses eligible for Social Security Supplemental Retirement Benefits. It appears that many of you feel the need to start taking the income as soon as it is available. This may be a very costly mistake. In many situations, it may be better to wait as long as possible to take income from Social Security. The general rule is that your income will increase by 8 percent for every year you wait to start your Social Security income after age 62. Deferring income until age 70 may increase your income from Social Security by as much as 70 percent. If you want numbers that more accurately reflect your situation, the Social Security Administration has a tool on its website (www.ssa.gov) where you can enter various claiming ages and calculate how much income you will receive from Social Security. This may be a very useful tool in your retirement income planning.
Choosing a place to retire to is also a very important decision. Once a person starts looking for a retirement house outside of California, it is a completely different situation. If you are concerned about being able to retire comfortably, you may want to consider moving to any state except Hawaii. Most states have significantly lower costs of living, and the cost of real estate can be as much as 60 percent less than real estate in California. Just because it’s expensive to live in California doesn’t mean you can’t have a wonderful retirement elsewhere.
Taking time to review your current retirement income, future sources of income and alternative places to live are things that should be accounted for in your retirement planning. Doing an annual review of your retirement income needs and investment accounts is necessary to maintain your standard of living at retirement.
Other financial topics you should review include the need for long-term care insurance, Medicare Supplemental Insurance and life insurance.
As you can see, retirement is a time of unlimited possibilities and adventure, assuming you take care of your finances.
Feel free to call the Professional Peace Officers Insurance Agency at (909) 599-8627 for a no-obligation review of your retirement finances.