During your twenties, retirement may seem too distant for attention.  Even so, the best time to begin planning for retirement is during your early years in the work force.

Why should you begin planning at this stage of the game?

• People are living longer, and you need savings to last up to 20 to 30 years or more.
• Early planning and savings increase your chance of achieving your retirement goals.
• Accidents or other unforeseen circumstances may interrupt your future earnings and savings.
• Investments need time to grow through compounding, which generates earnings on the reinvestment of interest or dividends.

There are four main tasks for retirement planning in your twenties:

• Evaluate your desired retirement living situation and goals:  If you plan to travel the world when you retire, your needs will vary significantly from those who would like to retire to live a quiet life in the country.  Your retirement plans aren’t set in stone; they evolve over the years as you mature, but having a direction is first and foremost.
• Determine your financial needs:  Have an idea of how much money you need to retire comfortably based on your goals.
• Create a plan to reach these goals.  Gone are the days of hefty company pensions and large inheritances. Retirement planning is a surefire way to reach your goals.
• Set a budget:  Make it realistic and  include retirement savings.  If you have access to an employer sponsored 401K plan, put it to good use – not only does it defer taxes on savings, but employers often provide a percentage match to your investment.

Beginning to plan for retirement is just one step in establishing a comprehensive estate and retirement plan and builds a solid foundation that will serve you well in your later years.  An estate planning attorney can assist you with many aspects of these plans, including drafting a will, disability planning, inheritance planning, incapacity planning and more.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

Individual Retirement Accounts, IRAs, have been an important retirement planning tool for the past 35 years.  Originally intended for small business owners, self- employed workers and workers not covered by an employer’s pension plan, IRA’s can now be used regardless of the coverage under another plan. 

The traditional IRA allows contributions that are initially tax deductible from your gross income.  Both the contributions and their earnings grow tax-deferred, meaning taxes are not levied until the funds are accessed.  Normally the funds aren’t accessed until after retirement, and the tax savings are recognized under the assumption that a worker’s retirement income will be lower than that of the ‘working’ years.

For example, if you contribute $2,000 to an IRA and you are in the 28% tax bracket, you will save $560 on taxes that year.  When you begin taking distributions, if you are in the 15% tax bracket, you will be taxed $300 on that same $2,000 – meaning your tax savings are ultimately $260.   

While anyone under the age of 70-1/2 may contribute to an IRA, you must have earned wages, self-employment income, social security income or tips to participate.  Income from a partnership business, pension, rental income or interest income is not eligible for traditional IRA contributions.  The limits for annual contributions are relatively low when compared to an employee sponsored plan such as a 401K, only $5,000 annually, with an additional $1,000 allowed for people who are 50 or older, known as a ‘catch up’ contribution. 

The deductibility for a traditional IRA is also somewhat limited and depends on both annual income and whether you or your spouse participates in an employee sponsored plan.  When you reach the age of 70 ½, you are required to begin drawing distributions from your IRA account, but there are methods to spread the distributions to your advantage. 

An IRA, or any retirement plan for that matter, should be addressed within an estate plan.  Discuss options with a knowledgeable estate planning professional to not only maximize the savings in your IRA account, but to minimize any potential tax liability.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

It is estimated that more wealth will be passed on to the baby boomers over the next 10 years than has been passed on during any other time in U.S. history.  While estate planning may have helped reduce the tax and gift implications, another aspect to consider is inheritance planning, particularly in the case of family owned businesses.

Family business owners face the challenge of coordinating both the business and family estate plans while ensuring family harmony, the ongoing health of the business and creating the proper strategy to keep the wealth intact while reducing the burden on beneficiaries.  Creating a business succession strategy and inheritance plan is going to involve asking and answering some tough questions for all parties.  These questions include:

• Will the beneficiaries want to run the family business?
• What is the current financial condition of the company and what is its anticipated financial condition should ownership change?
• Is there enough liquidity in the business to run it during the time of transition?
• Is the ownership and management structure set up to facilitate the transfer of ownership?
• Do the beneficiaries have the work ethic and experience to run the business?
• Will there be any ‘sibling rivalry’ that will adversely affect the business?

It is important to plan properly to protect inheritance assets, particularly in the case of family businesses, from the factors that can reduce the asset, such as capital gains taxes, income taxes, probate costs and fees.  An “inheritance plan” should be a major part of a family’s estate plan, when there’s a family business involved, make sure this plan involves business succession strategy.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

Many people count on social security to be part of their retirement income, but often don’t know the details or how much to expect.  Following are several frequently asked questions regarding this program:

What determines how much social security I’ll receive when I retire?

There are two main factors that determine the monthly benefit that you will receive:  you’re earnings throughout your working career and the age you begin receiving your benefits.  You are eligible to receive benefits at the age of 62, but they will be reduced according to your retirement age, which is based on your birth year, the earlier you begin to take retirement, the lower your benefit will be.

What is the best age to begin receiving social security benefits?

This is a decision that should be based on your personal situation.  It should be weighed carefully whether it would be better to receive benefits early with a smaller monthly amount or wait for the larger monthly benefit payment at a later date.  Some of the factors to consider in this decision are:

Other retirement income sources;

• Whether or not you plan to work part time or full time during your retirement.
• Your health;
• Your financial needs; and
• The amount of your benefits.

What is the difference between the monthly benefit at 62 and the monthly benefit at full retirement age?

The earliest you may begin collecting benefits is age 62.  If your estimated full benefit amount is $1,000, you would receive approximately $750 at age 62, $1,000 at your full retirement age (which differs based on the year of your birth) and approximately $1,300 at age 70.  These benefit amounts would not normally change throughout your retirement years, unless you are working during retirement.  In that case, after you reach full retirement age, social security reevaluates your benefit amount to give you credit for any months in which you did not receive your full benefit because of your earnings.

How can I find out how much my monthly benefits would be from social security when I retire?

The Social Security Administration mails this information annually.  In your Social Security statement is the estimated monthly benefit amounts you and your family may qualify for now and in the future.  This information is based on your earnings and years worked, and changes during your lifetime.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.

You can minimize your tax liability through proper tax planning. Here are some top tips for saving taxes.

Reducing Income

This is the easiest way to lower your taxes. Adjusted Gross Income (AGI) is one of the key elements that help determine your tax. AGI is a key value for all your financial planning. It includes your income from every single source. For example, if you contribute money to your retirement account you automatically lower your adjusted gross income. And, therefore, reduce your tax liability.

Increase Your Tax Deductions

Taxable income is the amount you get after you have subtracted your deductions and exemptions from  your AGI. Many people can take advantage of the standard deduction. Your standard deduction also depends on the number of dependents you have and whether you are married or not.

Others can  take advantage of itemized deductions for things like state and local taxes, expenses for health care, personal property taxes (such as car registration fees), gifts to charity, mortgage interest, job-related expenses, investment-related expenses, and tax preparation fees. One of the best ways to do this is to keep track of your itemized expenses through the year and then compare them with your standard deduction when filing your return. You can then decide which deduction to go for. The three biggest itemized deductions include gifts to charity, mortgage interest and state taxes.

Take Advantage of Tax Credits

You can also get Tax Credits for  a long list of things including adoption, child care expenses, and college expenses. There are two education-related tax credits. The Hope Credit is for students in their first two years of college. The Lifetime Learning Credit is for anyone taking college classes.

Your tax advisor can give you more information and strategies for reducing your taxes.

The Alpern Law Firm is a member of the American Academy of Estate Planning Attorneys.