Do you want to retire in the next five years?
Buckle up and place your tray tables in an upright and locked position as you could see a perfect storm of events that no other generation has faced.
Below are three major threats that could put your financial security at risk in retirement.
Threat # 1: Inflation rears its ugly head
Inflation robs you of your purchasing power in retirement.
What was once an affordable everyday expense has become an unthinkable luxury over time. Inflation was not on the radar for decades because interest rates were at historic lows. But the economic impact of the pandemic combined with government spending has changed that.
Now inflation is rising faster than economists forecast. Much faster.
In April alone, the inflation rate rose to 4.2%. To give you some context, this was the fastest increase since the 2008 financial crisis. But that's not the biggest story here. Inflation has accelerated every month this year.
According to economist and inflation expert Peter Schiff, if you extrapolate the first four months of this year, we could see consumer prices rise by 20% in 2021.
Some economists claim the US is on the verge of its worst inflation spike in decades.
-Market observation
So here is what this really means to you. Let's say you predicted that in retirement you will need $ 4,000 to $ 6,000 a month. But when you factor in inflation, that number could climb to $ 5,000 to $ 7,000 a month.
And because you are withdrawing more money every month to maintain your retirement lifestyle, you risk running out of all your savings far too soon.
Threat # 2: Generating income is harder than ever
For generations, traditional fixed income options like CDs, savings accounts, and bonds have served retirees well.
Unfortunately, those days are over.
Interest rates have been close to 0% for more than 13 years. If you invested $ 250,000 in a year-long CD today, that would make about $ 125 a month. And that before taxes.
Retirees looking for higher returns are forced to invest in a fully valued stock market. Obviously, this is a dangerous alternative at this stage of the game. However, this is not the only challenge in generating retirement income today.
70% of Americans fear surviving their money in retirement more than death itself.
–Forbes
We are living longer than ever before.
It is commonplace to know several people who are in their late 80s or 90s, or even celebrated their 100th birthday. That means your hard-earned savings will have to last a lot longer, right?
Because of this, it's important that you have a strategy in place to generate income (from a variety of sources) that will last as long as you do. Otherwise you could be 85 years old, full of life and broke.
Threat # 3: Taxes could be your biggest retirement expense
Taxes could be the greatest threat to your financial security in retirement. Like most people, you may think that you will pay less tax in retirement.
This makes sense as you will no longer be earning a paycheck. But unfortunately, for most hardworking Americans, that won't be the case.
Here's why.
If you add up the taxes on your IRA and 401K withdrawals, social security benefits, and investment income, you could pay a lot more taxes in retirement than you expected.
57% of Americans seldom consider how much they are going to pay
or pay taxes in retirement.
– Nationwide
One more point is worth mentioning here. Most people don't know, but taxes are now lower than they have been for 40 years.
But that could change very soon.
We have been through a lot in the past few years, taking on trillions in additional debt. But we all know that money doesn't grow on trees – someone has to pay for it. Chances are we will all pay for it through tax hikes. And that would be especially painful and out of date for anyone who is retired or about to retire.
Summary
These are unprecedented times of great challenge. But believe it or not, you have more control over these challenges than you know. For example, you have more control over how much tax you pay in retirement than at any other point in your life.
And if you followed some simple tax planning strategies now, you could save yourself tens of thousands, if not hundreds of thousands, of dollars in retirement. The window of opportunity to save taxes could soon be closing. So don't wait
If you've saved $ 200,000 or more for retirement and want to know exactly how much money you can see in retirement taxes, schedule a free retirement tax analysis with one of our trustees by clicking here or by calling 801-216-3683 .
Ryan Thacker and Tyson Thacker are the founders of B.O.S.S. Retirement solutions with 6 offices throughout the greater Salt Lake City area. They are three-time winners of the Utah Best of State Award.
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Consulting services from B.O.S.S. Retirement Advisors, an SEC registered investment advisory firm. Insurance products and services sold through B.O.S.S. Retirement solutions. The information contained in this material is for informational purposes only and no statements contained herein constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions and should not be construed as advice relating to the particulars Tailored to a person's needs. Get advice from an independent lawyer or tax advisor on legal and tax issues. Our company is not affiliated with the US government or any government agency.
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Ryan Thacker and Tyson Thacker for B.o.s.s. retirement provision