You’ve worked the majority of your life. And, you deserve to have many blissful years ahead, which is why it’s so important to have a plan. The first step is education: There are many facts you might not know about retirement, from how your Social Security benefit can be taxed to how you should factor in travel expenses.
Here are five important facts to know about retirement.
Your Social Security Benefit Can be Taxed
Once you qualify for benefits, you will probably feel a little more confident, because you can rely on a monthly Social Security check for the rest of your life. And while this is true, you might be surprised by how much of your benefit you actually get to keep.
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Your Social Security benefit can be taxed — up to 85% of it, in fact. If your provisional income as an individual is over $34,000 or over $44,000 as a couple, up to 85% of your benefit is taxable. And, you only have to receive $25,000 in provisional income as an individual or $32,000 as a couple for half of your benefit to be taxed. On top of this, 13 states impose taxes on some or all Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.
There’s No Age Limit for Contributing to a Roth IRA
While you cannot contribute to a traditional IRA after the age of 70½, you can contribute earned income to a Roth IRA for the rest of your life. You also never have to take required minimum distributions from a Roth IRA. For 2019, the Roth IRA contribution limit is $6,000 for people under 50 years old, and $7,000 for people 50 years of age and over. Remember that after-tax dollars are contributed to a Roth, and qualified distributions are tax-free.
Americans 65 and Older Can Take a Larger Tax Deduction
You don’t have to be retired to take advantage of a slightly larger standard deduction. Once you turn 65, your standard deduction as an individual increases by $1,300 and for a couple filing jointly where both members are 65 or older, it increases by $2,600 for the 2019 tax year. If you’re choosing between itemizing your taxes and taking the standard deduction, this is something to keep in mind.
Retirees Don’t Necessarily Take Travel Expenses into Account
Many people look forward to traveling when they retire. But, according to a Merrill Lynch survey, about two-thirds of people 50 and older say they haven’t set aside funds for a trip. This seems silly when we consider how much time we spend planning where we’ll go on vacation and what we’ll do there. After all, there are more expenses in retirement to plan for than just food and shelter.
About One-Third of Retirees Who Live Independently Also Live Alone
Older adults who live outside of a nursing home or hospital are said to live independently. Almost a third of these adults live alone, according to a study from the Institute on Aging. The study found that the older people get, the more likely they are to live alone. And women are twice as likely as older men to live alone. This fact has financial implications, considering the high cost of and likelihood of needing long-term care.
The Takeaway: Stay Informed and Make a Plan
They say that knowledge is power, and when it comes to retirement this can be especially true. Knowing what your expenses and your income will be are the first steps in creating a comprehensive retirement plan. You don’t need to be an expert on all-things retirement, a financial professional can help guide you through this new stage of life.
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