A FINANCIAL expert has shared his top three tips for couples looking to retire early.
Health is an important factor that must be taken into consideration when planning these golden years.
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Many Americans dream of retiring early, but making that happen requires careful financial planning.
That’s where James Conole comes in.
He is a certified financial planner (CFP) and creator of the Root retirement planning tool.
In a recent YouTube videohe looked at the hypothetical scenario of a 50-year-old couple, Matthew and Sarah, who wanted to retire at 55.
James pointed out that planning to retire early can be quite different from planning to retire at a normal age.
He said: “In general, there are three fundamental things that need to be addressed because they may be substantially different than if you retired at a more traditional age.”
1. HEALTH INSURANCE
First, Matthew and Sarah would have to consider how they would pay for health care when they lost access to their employer-subsidized plans.
Americans don’t qualify for Medicare until age 65, meaning the couple had a potential 10-year window during which they would have to purchase their own insurance plans.
“This is one of the key differentiators between an early retirement strategy and a traditional retirement strategy,” James said.
2. INVESTMENT STRATEGY
Matthew and Sarah decided they wanted a gross income of $7,500 to live on in retirement.
Fortunately, they had almost $2,000,000 invested in the market.
For this to last, James advised being “hyper-focused” on having a portfolio that beats inflation over time.
“One of the risks of retiring early is actually being too conservative with your investments,” he said.
“If you are very conservative and have 40, 50 years of retirement ahead of you, you will not be able to beat inflation.”
3. TAX STRATEGY
Finally, Matthew and Sarah would need to be strategic about withdrawing their retirement funds to avoid paying more taxes than necessary.
In the early years of their retirement, they would be in a low tax bracket.
Where to save retirement money
There are several different places you can put the money you have saved for retirement. Each has different tax advantages, but not all are available to everyone.
401(k) – an employer-sponsored retirement account. Contributions are made pre-tax and many employers will match a certain percentage of your contributions. Taxes are paid when funds are withdrawn in retirement.
Roth IRA – an individual retirement account. Contributions are made after taxes, but withdrawals in retirement are not taxed.
TSP (Thrift Savings Plan) – a retirement savings and investment plan for federal employees and members of the uniformed services. They work similarly to 401(k)s, but may have more limited investment options.
Pension – an employee benefit that obliges the employer to make payments to the employee upon retirement. Pensions are becoming increasingly rare.
But when Social Security controls and required minimum distributions take effect, you could face a six-figure tax bill.
However, they could make use of the standard marriage filing joint deduction of $29,200 per year.
James estimated that this and other tax planning strategies could put an additional $1.7 million in his final tax-adjusted portfolio.
See how another couple retired in their 30s with just $870,000.
And check out the answers to 13 Social Security questions that can help prevent you from making “tragic mistakes.”
This story originally appeared on The-sun.com read the full story
