Our daily roundup of retirement news your clients may be thinking about.
Unknown to many seniors, up to 85% of Social Security benefits will be subject to federal taxes if their provisional income — that is, income outside Social Security plus half of their benefits — exceeds a certain threshold, according to this article on personal finance website Motley Fool. Retirees may also owe taxes on withdrawals from traditional retirement accounts, pension payments as well as investment gains. Clients can reduce the tax bite by converting traditional assets into a Roth before they start taking required minimum distributions and holding on to investments for at least a year to get the lower long-term tax rates on capital gains.
Now may be a good time for seniors to convert some assets in their traditional retirement accounts before reaching the age at which they are required to take mandatory distributions, according to this Q&A article from MarketWatch. That's because of the lower income tax rates under the new tax law. "If the present tax rate upon conversion (P) is less than the tax rate that would apply when funds came out of the account in the future (F), a conversion is a winner," according to the article.
An expert says that seniors should expect their expenses to remain unchanged in retirement, according to this article on Motley Fool. While some of the expenses will be gone, others like health care and entertainment costs could increase after they retire, says the expert. "When you think about the things that you're spending money on right now, there's really no reason to think that they're going to drastically drop just because you're a little bit older and not reporting into an office."
Seniors who are unsure about their retirement can still improve their prospects by avoiding potential pitfalls as much as possible, according to this article from CNBC. They should also boost savings as much as they can and consider taking a side hustle. Working longer is also another strategy, as this will enable seniors to save more, preserve their nest egg and delay Social Security for bigger benefit payouts.
