NYSR16~RetirementArticle_JulyAugust

Yes

By Christopher Michelsen Financial Advisor, UBS Financial Services, Inc. you can retire someday

Y our financial life encom- passes more than your assets. It includes your goals for the future and how you want to live right now. When it comes to retirement, the decisions you make today can have a huge impact on what retirement will be like. Putting in a little extra effort now can pay off for you down the road. If you’re not already planning for your retirement, here are some tips to help you get started. Decide what’s important A good first step is to come to an agree- ment about your goals in retirement. Ask yourself, what do you want your money to accomplish? What do you dream about doing one day? And, here’s one question that couples often forget to consider: What’s happening now that can impact your finan- cial future? For example, are you helping support adult children or your parents? You should think through these important questions and then create a plan to pursue your goals.

Coordinate your strategy for Social Security

Even if you’re not counting on Social Security as a major source of income in retirement, it’s important to know that you have various options to consider. Making informed decisions before you start taking Social Security can lead to significantly higher benefits over the course of your retirement. Don’t forget long-term care planning Life expectancy continues to grow, and many of us are spending more years in retirement. This makes issues like healthcare and eldercare more important than ever. Start having conversations now about developing a long-term care plan. For example, do you envision staying in your home as long as you can? How heavily will you rely on family to provide your care? How do you intend to fund future health and long-term care costs? Here are answers to common questions we receive about retirement.

18 JULY/AUGUST 2016

Question: Is it more beneficial to become incorporated or a LLC in order to reap more benefits for Fortunately, when it comes to retire- ment saving, the amount someone can put away is a function of their income and not business structure. Qualified plan contribution limits are set by the IRS and are directly related by howmuch income someone earns and how old they are with respect to catch-up provisions. The decision to conduct business as an entity rather than as a sole proprietor is more a factor of limiting legal risk rather than taxability. When seeking to make the decision to incorporate or create a limited liability company (LLC) always consult your tax or legal advisor. Question: What is the minimum you should have in reserves before setting up a retirement account? Answer: A cash reserve is something that everyone should have on hand. In a business like real estate, where profes- sionals are likely not receiving the same paycheck every two weeks, I believe it is even more critical. How much reserves someone keeps on hand is a function of their historical business and how conservative they are. Three months of expenses is a good cushion for most. The thing to remember in terms of retirement savings is that you will need this money someday. This is similar to the structure that you have to save money for your potential income tax liability each year. continued on page 20 retirement? Answer:

Answer: Everyone’s retirement goals are different. Whether your plan is to travel, write a book, or just spend more time with the grandkids, it requires careful planning. Current expenses are the first place to look for a reference as to how much sav- ings you will need to have in retirement. Some of these expenses may change; the mortgage will likely be paid off and college tuition for children will no longer be in play, but many of the current expenses can remain. The next factor to consider is how long to anticipate being in retirement. Through the aid of modern medicine and technology, many people are spending far longer in retirement than they originally imagined. According to the U.S. Department of Social Security, a woman turning age 65 today can expect to live, on average, until 87 and a man to 84. This means that most people need to plan for 20 years or more of retirement. A third factor to take into consideration is inflation, how much things are going to cost down the road. Costs associated with such things as groceries, housing, cloth- ing, medical care and education will continue to rise. A long-term rate of inflation used in financial planning is 2.7-percent annually, according to the U.S. Bureau of Labor Statistics. Most of the things we buy today will cost more in the future. Again, everyone’s retirement goals are different, but the combination of all these factors will determine how much a person may need in retirement. Question: How will I know if I have enough to retire? Answer: The good news is that it is never too late to begin saving for retirement. Whether retirement is years away or looming on the horizon, it is always a good time to put a plan into action. The sooner you begin, the easier it is to help reach goals as there is more time to accumulate a nest egg that you will likely need to draw on in retirement. Saving for retirement should be done in a tax efficient manner by incorporating IRS qualified accounts. Options such as an Independent 401(k) or an IRA should be part of the plan based on your needs. IRS qualified accounts can help you to save money on a tax deferred basis, meaning that the money going into the account today has not had taxes paid. Down the road in retirement when the savings in these accounts is drawn upon is when the income tax will be paid. This strategy allows for accumulating a larger nest egg to grow in the near term and potentially paying income taxes in retirement at a lower tax rate. For example, a married couple who is in the 28-percent federal income tax bracket decides to save $20,000 each into their own 401(k) plans. This could benefit them in a few different ways. They will save $11,200 on their current federal tax bill (2 x $20,000 x 28 percent). Also, if their federal income tax bracket were to fall to say the 15-percent tax rate in retirement, this strategy would represent a significant overall tax saving on the income earned. More good news for those 50 years and older is that the IRS provides a catch- up provision above traditional contribution limits. For independent contractors investing through an Independent 401(k) Plan, the maximum contribution is $53,000. Those 50 and older have an available catch-up provision of $6,000, taking the potential tax deferred savings to $59,000 for 2016. The earlier you start the easier it is, as you have that many more years to accu- mulate contributions and spread out savings for the retirement goal you have set. Question: Is it too late for me to start now? I’m in my 50s.

New York State REALTOR ® 19

continued from page 19

Question: If you already have a traditional IRA, can you still open an Independent 401(k) Plan? Answer: Yes, you can have multiple IRS quali- fied retirement accounts including IRAs and 401(k)s. There is no limit to the number or the type of accounts a person has. One thing that you have to be care- ful of is keeping track of these different accounts. Often keeping track of one account can be enough to deal with, let alone having multiple. The good news is that all of these different qualified accounts are portable, which means that it is possible to move the monies from one account type to another without creating a taxable event. The money can go from an IRA to a 401(k) all the while never being distributed and, therefore, not taxed. It is important that you always follow the guidelines of whichever plan provider is being used to ensure that transitions are smooth and timely. One thing to keep in mind is that if money is distributed from any of these quali- fied plans for 60 days, it is considered a taxable distribution and the money will be added to earned income in the year in which this occurs. “Even if you’re not counting on Social Security as a major source of income in retirement, it’s important to know that you have various options to consider.”

Question: What is the difference between a traditional IRA and a Roth IRA? Answer:

This is a great question that comes up often. When contributing to most IRS qualified plans, e.g. IRA, SEP, 401(k), the money that goes into the account is on a tax deferred basis. This means that deductibility of a traditional IRA contribution is based on your modified adjusted gross income and the current year income is reduced by the amount contributed, therefore reducing that year’s tax liability. Once the money is distributed from that account in retirement, income taxes will be paid in that tax year. When money is contributed under the Roth provision, taxes have already been paid on the money in that tax year. There is no immediate benefit in the form of reducing taxable liability in the current year. In retirement (for an individual 59.5 years or older) when the money is distributed there will be no tax as the tax was paid when initially contributed, as long as the Roth IRA account is held for at least five years. ● Editor’s Note: Christopher Michelsen is a financial advisor with UBS Wealth Management, a NYSAR Member Perks partner. He has worked with domestic and international clients through the past two recessions and six equity market corrections. He is based in UBS New York office, working with a team of professionals who develop wealth management solutions for entrepreneurs, real estate professionals and busi- ness owners. Michelsen graduated fromNew York University with degrees in business and economics. He joined UBS in 1999 and moved to UBS Wealth Management after more than a decade at UBS Investment Bank. He is a member of the International Real Estate Federation Board of Directors. Christopher Michelsen is a Financial Advisor with UBS Financial Services Inc. a subsidiary of UBS AG. Member FINRA/SIPC in 1251 Avenue of the Americas, New York, NY. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc. Neither UBS Financial Services Inc. nor its employees (including its Financial Advisors) provide tax or legal advice. You should consult with your legal counsel and/or your accountant or tax professional regarding the legal or tax implications of a particular suggestion, strategy or investment, including any estate planning strategies, before you invest or implement. Depending on your needs we can help you implement your retirement strategies through both our brokerage and advisory capabilities. As a firm providing wealth management services to clients, we offer both investment advisory and brokerage services. These services are separate and distinct, differ in material ways and are governed by different laws and separate contracts. For more information on the distinctions between our brokerage and investment advisory services, please speak with your financial advisor or visit our website at ubs.com/workingwithus.

20 JULY/AUGUST 2016

Page 1 Page 2 Page 3

Made with FlippingBook - Online Brochure Maker