Retirement Planning in Fremont, CA

Chapter 1

What is retirement planning?

Your financial goals are at the heart of planning for retirement. It’s essentially the process of determining your dreams for life after your working years, considering your current situation, goals, needs, and wants, then formulating a plan to intersect the two.

Getting started late in the retirement game? Not to worry, a good, holistic financial plan considers everything, both now and in the future:

  • Current income and expenses
  • Assets and liabilities
  • Savings goals
  • Risk tolerance
  • Temperament
  • Future expenses
  • Life expectancy
  • Desired income
  • Medical needs
  • And a variety of other factors

It’s a plan for taking you from where you are now to where you want to be.

Retirement planning isn’t easy, especially during uncertain times. There are an almost endless number of variables to input, a high degree of ambiguity, customization, a small margin for error, and it’s all happening in the future – something difficult to predict.

  • Taxes
  • Asset allocation
  • Asset location
  • Rebalancing
  • Direct indexing
  • Tax-loss harvesting
  • Volatility
  • Market cycles
  • Government intervention
  • Global politics

Who has time to learn all of it? And if understood, can you trust what you know when everyone else is panicking? Plus, can you afford to be wrong?

From planning and investing to long-term care, wealth management can feel heavy and confusing – like being lost in an unfamiliar fog. Fortunately, retirement planning is not something you have to do alone.

Chapter 2

When should I start planning for retirement?

The best time to start planning for retirement was 20 years ago. The second best time is today. There are two primary reasons why the earlier you can begin, the better off you’ll be:

  • You may be able to take on greater risks.

Contrary to those at or near retirement age, preservation of capital is not your highest priority – appreciation is.

When you’re young, you’re able to take on more significant risks because the principal amount you have invested is smaller. Your highest earning years (and your highest retirement contributions) are likely ahead of you. Any money lost due to poor investment decisions can potentially recover through income generation.

Not everyone is in the same situation. This may allow you to take on greater risks in your portfolio. Of course, with higher risk may come increased volatility, but your ample time horizon may allow you to take a longer-term view of the market to alleviate some of your related stress.

The greater the investment risk can lead to a potential reward, but this cannot be guaranteed. At times, risk can lead to a lesser portfolio return. However, with a long time horizon, you should have opportunities to make up for any disproportionate effects on your retirement portfolio.

  • You’re giving compounding time to work. 

Compound interest is the interest you earn on your interest. In investing, it refers to the reinvesting of gains – in the form of appreciation, interest, or dividends – back into the principal sum of your original investment so that the following period’s profits are earned on the aggregated amount.

If you invest $100 at an interest rate of 10%, you will have $110 ($10 in interest) after the first year. The following year, your new balance will be $121 ($11 in interest). You earned an additional $1 in interest because of the interest generated in the first period – that $1 is compound interest. Compound growth is exponential, not linear.

Chapter 3

What if I’m already late to the game?

If you’re already in your 30s, 40s, 50s, or even later, you’re not without hope.

Yes, it’s far more manageable when you’re younger, but you can still enjoy all of your retirement dreams. The process will be the same; you will just have to speed up the accumulation process. This means making extra contributions, working hard to increase income, or lowering expenses.

Many choose to work for a few more years. Most people leave their jobs for retirement while in or near their peak earning years. You can substantially increase your total portfolio by making outsized contributions by delaying retirement. You may also consider taking on a part-time job to supplement your income.

It may also be an excellent idea to re-prioritize your list of retirement goals. Are there any adjustments you can make to take the pressure off needing extra savings?

If you’re behind, it may be even more vital for you to talk to a retirement planner to ensure you’re giving yourself the most significant opportunity for success, despite your late start.

Chapter 4

How to define your retirement goals

Your goals for retirement should drive your entire retirement planning process. You start with the end in mind, then reverse-engineer a path of actions and strategies that will get you there.

Where do you want to live?

Do you want to buy a second home or remodel the one you have?

Do you want to downsize?

Move out of the city?

Move into the city?

Do you want to see your family more?

Do you want to plan vacations with your siblings?

Fund a grandchild’s education?

What items are on your vacation bucket list?

Is there a cruise you’ve always wanted to go on?

Roadtrip across America?

Vagabond through Europe?

These are just some of the questions you may ask yourself to determine your dreams for retirement. The point is to find out the things that are important to you and make sure they’re a part of the plan.

Once those are established, you’ll want to determine the costs associated with the big items (houses, cars, philanthropy, vacations) as well as your desired annual income. Those figures will set the total portfolio value you will need to retire, setting your target retirement date and contributions until that date.

Based on your risk tolerance and current life situation, your financial advisor will determine your portfolio mix and which strategies to deploy to make your retirement goals a reality.

Chapter 5

Understanding different types of retirement accounts

There are two forms of investment accounts: Tax-advantaged and non-tax-advantaged.

The most common form of non-tax-advantaged account is an individual investment account. This is the most straightforward account to open. You deposit after-tax dollars, and all gains are taxed. However, there are no contribution limits, and you possess total investment control over the investment selection within.

The major tax-advantaged accounts are 401(k)s, 403(b)s, traditional IRAs, Roth IRAs, and Thrift Saving Plans. These accounts are your secret weapons for reaching your retirement goals.

Each of these accounts has annual contribution limits, the maximum amount you can deposit every year. As a general rule of thumb, you should maximize any account on which the IRS has set a contribution limit whenever possible.

401(k)s, 403(b)s, and TSPs

401(k)s are the most common form of retirement account. 401(k)s are investment accounts offered through employers to their employees and allow contributions to be made pre-tax. This means you don’t have to pay taxes on any money deposited into the account until you withdraw it.

Additionally, many employers offer “matching” contributions. Any dollar contributed by an employee will be matched by their employer up to a specific limit, typically 3-6% of gross pay. This is the closest thing to free money you will ever see. If your employer offers a matching program, consider contributing enough to maximize the match.

Similar accounts are 403(b)s and Thrift Savings Plans (TSPs). 403(b)s are like 401(k)s, except they’re offered to certain educators as well as public and non-profit employees. TSPs are for Federal employees.

Each of these accounts is a tax-deferred account, meaning you won’t pay taxes on the money invested until you withdraw it. When you remove these funds in retirement, you may be in a far lower tax bracket than when you originally made the contributions.

Traditional IRAs

Traditional IRAs behave very similarly to 401(k)s. Pre-tax dollars are contributed and grow tax-free and are taxable upon withdrawal. Since these are individual retirement accounts, you will have much more freedom over what securities you choose to invest in within your traditional IRA than you do in your 401(k).

If your employer doesn’t offer a 401(k) or you’ve already maximized your contributions, consider opening a traditional IRA.

Roth IRAs

You contribute to your Roth IRA with after-tax dollars, unlike the above accounts. The benefits come later: If you wait to take withdrawals until after reaching age 59½, you may not have to pay taxes if you meet all the requirements. Again, you will have investment control over this account.

There are some exceptions to taking early withdrawals penalty-free from Roth IRAs (for first-time home buyers, higher education costs, and a few other scenarios).

Health Savings Accounts (HSAs)

A Health Savings Account is a savings account for medical expenses, both now and in the future. The money saved in an HSA can also be invested in various mutual funds, depending on your account provider. HSAs enjoy triple-tax savings: You contribute pre-tax dollars, the money invested grows tax-free, and you’ll never pay taxes on withdrawals for qualifying medical expenses. You may also want to learn why you need to include retirement insurance.

**You may only contribute to an HSA if you have a qualifying High Deductible Health Plan (HDHP)**

Chapter 6

Tax considerations when retiring

There is a lot of money to be saved – or lost – with proper tax planning. Good financial planners know how to help improve the performance of your portfolio and will also know when you should bring in the help of a tax professional or estate attorney.

Tax considerations are where you’ll want to make sure you have a good understanding of the details on your retirement accounts mentioned above. They’re all taxed differently – some with slight differences, others with more significant differences – and knowing when you should be withdrawing from which account could mean the difference in tax liability.

Some accounts, including Traditional, Rollover, SEP, SARSEP, and simple IRAs, have Required Minimum Distributions (RMDs), which force you to withdraw a minimum amount annually after currently reaching age 72. You may not want to take withdrawals at all before other reserves deplete.

Chapter 7

Understanding Social Security benefits

Social Security Benefits Form Concept

Did you know your Social Security benefits will likely be taxed?

With Social Security comes nuance. After spending years contributing to the social program, you want to ensure you receive every dollar you’re entitled to – but they don’t make it easy.

Several factors play a critical role in the total benefits you receive during your retirement years. Here are a few you need to know about:

  • Understanding full retirement age – Your full retirement age is the age at which you qualify for 100% of your Social Security benefits.
  • Considering the effects of life expectancy – Longevity is one of the most important (and hard to predict) considerations in deciding when to start taking Social Security.
  • Deciding when to collect – You can choose to begin collecting before, at, or after reaching your full retirement age.
  • Facing an income gap – Will Social Security provide you enough income to live on, or will you need to add other sources?

Keep in mind: For most, the benefits received from Social Security are nowhere close to supporting them financially. You will need to have the income to provide for yourself and see the money coming from Social Security as just one component funding your lifestyle.

Our retirement planning Fremont, CA team, provides dependable advisory services in the bay area. Working with a Certified Financial Planner a CFP® professional and a registered representative may help you get ahead sooner than later.

Investing involves risk including the loss of principal

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Humanity Wealth Advisors and LPL Financial do not provide legal advice or tax services.  Please consult your legal advisor or tax advisor regarding your specific situation.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.