Best Money Saving Tip For Retirement

Understanding the IRS annual tax bracket can be the best money saving tip for retirement.  You can reap benefit by keeping up with the IRS tax bracket which can change every year.  For those who do not have ROTH IRA accounts to tap into during retirement, you will most likely must pay the IRS taxes on your retirement income.  Your retirement income could come from IRAs, 401K, Social Security, rental income, brokerage accounts, savings accounts, bonds, pension and many more.  All these retirement income can be taxable, meaning you will need to file tax you may owe in April.  Keeping your taxable income at or under 15% tax bracket will help you minimize the total tax you pay during your retirement.  By knowing the IRS annual tax bracket, you can control the withdraw amount from your retirement source of income to minimize the taxes you pay to the IRS every year.




The federal income tax consists of seven rate brackets: 10%, 15%, 25%, 28%, 33%, 35%, 39.6%.  These rate bracket depends on your filing status (Single or Married Filing Jointly) and income level.

Single (2016)

Taxable Income

Tax Rate

$0—$9,275

10%

$9,276—$37,650

$927.50 plus 15% of the amount over $9,275

$37,651—$91,150

$5,183.75 plus 25% of the amount over $37,650

$91,151—$190,150

$18,558.75 plus 28% of the amount over $91,150

$190,151—$ 413,350

$46,278.75 plus 33% of the amount over $190,150

$413,351—$415,050

$119,934.75 plus 35% of the amount over $413,350

$415,051 or more

$120,529.75 plus 39.6% of the amount over $415,050

 

Married Filing Jointly (2016)

Taxable Income

Tax Rate

$0—$18,550

10%

$18,551—$75,300

$1,855 plus 15% of the amount over $18,550

$75,301—$151,900

$10,367.50 plus 25% of the amount over $75,300

$151,901—$231,450

$29,517.50 plus 28% of the amount over $151,900

$231,451—$413,350

$51,791.50 plus 33% of the amount over $231,450

$413,351—$466,950

$111,818.50 plus 35% of the amount over $413,350

$466,951 or more

$130,578.50 plus 39.6% of the amount over $466,950

Most of us probably cannot generate more than $100,000 from our retirement sources so the saving really comes into play for the 15% tax rate versus 25% tax rate.  The advantage here is obvious…  If you are married, then your combined source of retirement income for both you and your wife needs to be less than $75,300 to stay within 15% tax bracket.  Anything over will be taxed at 25% rate.  So, if your combined retirement income is $100,000, then you will pay the IRS $10,367.50 (15% rate) + $6175 (25% rate) = $16542.50.  If you can defer $24,700 to later years, then you can save $2470 in taxes by staying under the limit of 15% tax bracket.




Top 5 Ways to Minimize Income Tax in Retirement and Stay Under the 15% Tax Bracket

Retirees generally have many sources of income, and they all need to be monitored carefully so you can avoid paying high taxes. 

  • Reduce expenses can help you stay under the 15% tax rate because it causes you to withdraw less from your retirement fund. 
  • Minimize mortgages before retiring.  One of the biggest monthly expenses is the mortgage.  If you can figure out a way to get rid of your mortgage, then it will help you live with less, thus reducing your withdraw from your retirement fund.
  • Generate dividend income or long-term capital gains as they are taxed at 0%, 15%, or 20% depending on your tax bracket.  If you can stay under the 15% tax bracket, then your dividend income will not be taxed, which can be huge benefit for your retirement.
  • Donate to charity helps.
  • Take investment losses when necessary.

Did you know…

Social Security income is taxed but if the combined income is below $32,000, then you do not have to pay any tax on your Social Security benefit.  However, as your income increases, your tax on the Social Security benefit increases.

File a joint return, and you and your spouse have a combined income that is

  • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
  • more than $44,000, up to 85 percent of your benefits may be taxable.




Top Three 401K Decisions I Made When Starting a New Job

I have stayed with same company for past 17 years but later this month I will be starting a new job with a different companyAs you can imagine, I have several concerns and one of the concerns deals with 401(k) retirement plan.  There are three primary decisions I need to make related to my 401k retirement plan. 




Continue reading

Foolproof Tips for Millennials to Gain Early Retirement

Photo Credit: pixabay.com

Photo Credit: pixabay.com

Starting early is always the key to improving your financial status. As time is on the side of millennials, investing and gain financial freedom quickly should be a key objective.

Millennials can start as early as now in terms of investing for their retirement, especially if they are planning to quit the rat race early. Continue reading

Best Retirement Investments for 401K

Creating the best retirement investments for your 401k retirement savings can be challenging because there is no one investment that can be considered as the best.  My best retirement investment strategy can be very different from your best retirement investments.  That’s why I think there is no such thing as the best retirement investments that we can all agree on.  However, it is important to understand the different options you have when it comes to building your personal very best retirement investments for your 401K and/or Individual Retirement Account (IRA).

Immediate Annuity

Immediate annuities definition states “a form of insurance or investment entitling the investor to a series of annual sums”.  To some retirees, buying an annuity is the best retirement investment. Immediate Annuity are very similar to the pension plans where you receive guaranteed income until your death. You can even set it up so that you or your spouse receive guaranteed income for life. To some people, immediate annuity is like purchasing an insurance that provides a constant stream of income, which is exactly what you need if you are a retiree. However, you do have to release a lump sum to the insurance company, who will have complete control over and you will never get it back in exchange for the annual income for life. Immediate Annuity can be the best retirement investment strategy if you need a guaranteed income or if you are the one who has difficulty in saving (spends money too fast) or if you are projecting to live a long life. People like me, who is expecting some pension income and/or Social Security income, will most likely stay away from any form of immediate annuities.

Rental Real Estate

Rental property can be considered the best retirement investment. Many people turn to real estate and turning into a rental property because it can, similar to annuities, provide a stable source of income during your retirement. However, you need to expect to be involved with maintenance of the property and to run into unexpected expenses especially related to repairs or replacement. I think to be successful with rental real estate as your best retirement investment, the rental income must be about 20% greater than the mortgage including property tax and home insurance. For example, if your mortgage, tax and insurance included, is $1800, then your rental income should be about $2160. Beware that renting out a property is an investment where the property value can go up or down. Therefore, you really need to put the time in learning prior to adding rental real estate to your best retirement investments list. I currently have some experience with rental property as I have been doing it for past six years. I am always willing to help you so feel free to send me questions. If I cannot answer or guide you in the right direction, then I have a very close friend who is a successful realtor that I can leverage on.

Retirement Income Funds

Retirement income funds are a great option for your retirement strategy and to me it is the best retirement investment strategy. When you invest in retirement income funds, they allocate your money with diversification of stocks and bonds and are managed by professionals with the ultimate goal of producing monthly income for the investors. The best part about the retirement income funds is that you as the investor control your principal and can tap your money without any penalty. Obviously, the income from your retirement income funds will decline as your withdraw increases.

Best Mutual Funds For IRA

We believe the best mutual funds for IRA are the ones that provide safety to your retirement savings.  We have worked our entire lives to save for the retirement and cannot afford to take high stake risks after retirement.  Many retirement investors look for the safest mutual funds by searching for the best retirement planning tools.  By utilizing these retirement planning tools, these people believe they will help them save for retirement and help them to make retirement assets last for lifetime.  Therefore, picking the safest mutual funds as part of their retirement investing is one of the optimal retirement strategies and one of the best retirement plans.  Experts say one of the safest mutual funds are the retirement income funds.

Retirement income funds are funds that provide a steady stream of income, i.e. 4%, year in and year out.  They handle asset allocation and ensures your money doesn’t run out.   Retirement income funds come in three main types.

  • Target ­date retirement funds
  • Income replacement funds
  • Managed ­payout funds


Major benefit from retirement income funds are the way they are designed to deliver a stable and consistent payout and at the same time keep pace with inflation.  These funds are fairly easy to invest and work well for those who want to make investment decisions and actions on their own without involving financial adviser.

Many savvy investors include retirement income funds as they are preparing for retirement and formulating their retirement strategies.  As you can imagine, retirement income funds are popular because they help create a simple retirement plan.  Many retirees believe they are the best mutual funds for IRA.

However, there are disadvantages of retirement income funds despite being considered as the best mutual funds for IRA.    One big negative is that there are no guarantees as they can lose money or cut payouts at any time, reducing the income.  This can turn into a major problem for the retirees especially when the living expenses go up, which will drive down your standard of living.  As a result, picking the safest mutual funds from your optimal retirement strategies can require more due diligence we might think and should make you think twice before rushing into your retirement investing.


Consider the following retirement income fund called Vanguard Target Retirement Income (VTINX).  The fund is a fund of funds, meaning it invests in other mutual funds. It has gained an average 5.4% a year over past 10 years and has a very low expense ratio of 0.16%. This is a stable mutual fund and could be one of the best mutual funds for IRA.

For example, Vanguard’s Target Retirement Income fund’s worst performance was a 16% loss from February 2008 – 2009 when the Standard & Poor’s 500 index lost 43% the same period