Page 32 - Keralite Magazine _new 1 copy

KERALITE
Most of the advise you get from the retirement
experts are, “ the sooner the better” and save “as
much as you can.” It is recommended that you
save/invest 10% or 15% of your income starting from
your first job. If you started your savings at 30, and
saved $3,000 per year for the next 30 years, your
money would grow to about $300,000, assuming a
7% annual return, which is realistic, considering that
stock appreciation averaged more than 9% since
1926. This is not to say that setting aside $3,000
annually will do the trick. No; it has to be much
more than that. If you are not comfortable to do it
alone, get the help of a financial planner, who would
be willing to accept a fixed annual fee inclusive of
all transactions made in your account. But, be
aware that you still need to attain the ability and
assume the responsibility to understand what is
happening in your accounts.
The 401(k) plan or comparable plans is a major
component in your financial equation and, now, the
predominant form of workplace retirement benefit.
Under 401(k) plan, you could defer paying current
income taxes for up to $18,000 a year. Most
employers may o er you a contributory matching
plan up to a certain percentage of your gross
income. Not maxing out this kind of matching
programs is equivalent to throwing money away.
Those who are over 50 years or older are eligible
also to make a catch-up contribution up to an extra
$6,000 per year, tax deferred. You may also be
eligible to contribute to your own or a spousal IRA
of up to $5,500 ($6,500 if are 50 years or older) if
you meet certain requirements. One thing to
understand here is that you can’t tap into any of
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these accounts before age 59 /2 without paying
regular income taxes and a penalty on the amount
withdrawn.
The Social Security tax rate is 12.4%, split evenly
between workers and the employer. Medicare tax is
2.9% split evenly as well. For 2018, your maximum
earnings subject to such taxes is $128,700. These
taxes are the source of income for Social Security
2018
program and Medicare. Social Security benefits you
receive are calculated based on the amounts you
paid in, the number of years of your participation as
a taxpayer, and the age at which you start claiming
the benefits. To be eligible for social security
benefits, you must have accumulated at least 40
quarters of work in “covered employment.” To a
claimant, up to his highest 35 years’ income at the
job is used to calculate his social security benefits.
So, in order to receive the highest social security
benefits allowable by law, you should have paid into
the system the maximum allowable amount of
social security taxes based on the annual income
threshold set by the program, every year for 35
years and wait to start claiming the benefit until
your full retirement age, which comes between 66
and 67 years. The earliest age you can sign up to
receive social security benefits is 62, at a 25%
reduced benefit. And, every year, after you reach
the full retirement age, your benefit is increased by
8% of the previous year’s benefit amounts, until you
reach the age 70. By delaying to claim benefit from
age 62 to 70, your monthly benefit increases by at
least 75%. A widow or widower receives up to the
full benefit amount of the deceased spouse if it
were higher than that of the survivor. Claiming the
retirement benefit earlier than your full retirement
age reduces it for the rest of your life. Remember
that starting age 70½, you are required to pay
income taxes on set amounts (RMD) from your tax
deferred plans. The above description gives you an
idea as to how you can apply di erent strategies to
maximize your monthly benefit.
Like Social Security, Medicare is also governed by a
dizzying number of rules. However, a retiree has no
choice but to have a working knowledge of
Medicare to stay on track. At age 65, Medicare kicks
in as your primary health insurance program for life.
Even if you still are covered under your employer’s
heath plan, that health plan then becomes your
secondary coverage. There are 4 basic components
for Medicare that all retirees need to be familiar
with.
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