Years ago, when you first started your career, you might have given a little thought to retirement. It was a distant future that you imagined, but you set a few goals and then set aside retirement planning for a later date. You might have assumed that you would eventually meet these retirement goals without giving them much more thought, but in reality we all need to revisit our decisions every few years. As we plan for the future, we could find that our vision of retirement changes quite drastically!
Due to policy changes to Social Security, federal income taxes, retirement plans and more, we can’t assume that our retirement plans are set in stone. It’s important to adjust your savings plan every few years. Then of course you have to factor in the rising cost of health care, inflation, and your own fluctuating standard of living. What you wanted twenty years ago is not likely to equal what you want today – and will want in the future.
Consider the following recent changes to retirement planning, and adjust your plan to accommodate them.
Stay updated on Social Security rules and regulations. This past fall, Congress passed a budget that changed the way some married (and even divorced) couples will file for Social Security. In the past, the higher-earning spouse could suspend their benefits and allow them to grow larger while the lower-earning spouse claimed their spousal benefits. Under the new law, this “file and suspend” strategy has been axed. If you were counting on this creative filing strategy, you and your spouse will need to find another solution.
Take maximum advantage of the Saver’s Credit, if you’re eligible for it. This tax credit helps middle-income workers save for retirement, by offering a credit on the federal income tax return. If you have just missed the eligibility threshold in the past, remember to check again each year because it can and does change. In 2016, the income threshold for claiming the Saver’s Credit was increased to $30,750 for singles and $61,500 for couples filing a joint return.
Consider the rising cost of health care. Almost everyone noticed higher health insurance premiums in 2015, and those costs are expected to keep rising. Out-of-pocket costs are rising, too, and will affect you more and more as you get older. Remember that you can’t count upon flat health care costs in retirement; they will probably rise each year.
Maximum Social Security benefits are flexible. You might believe that your Social Security taxes go into a special account which is used to fund your retirement one day. But that isn’t the way it works, and your estimated benefits can fluctuate. In fact, the maximum benefit is down 24 dollars this year*. You won’t know your exact benefit amount until just before you retire.
Don’t count on cost of living adjustments. At the start of most years, Social Security recipients enjoy a slight cost of living adjustment (COLA). In fact, these adjustments are so frequent that most people assume they are guaranteed – but they are not. In 2016, Social Security did not issue a COLA because the inflation rate remained near zero. Your checks will probably increase during many years, but you can’t count upon it.
Any of these changes can affect your retirement plans throughout the years. Stay on top of current trends by calling us to schedule an appointment. We can assess your current financial plan and help you make adjustments as needed.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.