Retirement Planning Published June 20, 2017 By by 1st Lt. Emily Rautenberg 514th Air Mobility WIng Public Affairs JOINT BASE MCGUIRE-DIX-LAKEHURST -- – During the previous Advanced Financials workshop at the Military and Family Support Center, Christopher Tomolonis taught attendees about investment options. Continuing the conversation of investing for the future, the latest workshop, June 4, discussed preparing for retirement and different factors to consider. Tomolonis, a wealth management advisor based out of Jersey City, began by reviewing the main areas of investment he covered last session. He lined up three metal buckets on the table. The first, he said, could represent an Individual Retirement Account or a 401(k). IRAs are “pre-taxed,” meaning money is taken out of your income check before taxes are applied to it, and the accounts grow tax deferred. A 401(k) functions just like an IRA, but is typically managed by an employer who offers matching benefits. Money is not meant to be withdrawn from an IRA until the age of 59.5, otherwise a penalty of ten percent can be invoked. At the age of 70.5, however, withdrawing money from an IRA actually becomes mandatory. The Internal Revenue Service determines a Required Minimum Distribution, or minimum about that must be taken out of the account each year. Since taking money out of an IRA is considered “income,” it is important to consider how much this RMD is and whether it will cause an individual to be in a higher tax bracket. Tomolonis stressed that it is extremely important to consult with an accountant or professional financial advisor before making these kinds of investment decisions as everyone’s financial situation is different. Raising another of the metal buckets, Tomolonis said another investment area is a Roth IRA. A Roth IRA is similar to a regular IRA, except money is taken out of a person’s income after taxes have already been applied. There is also a ten percent penalty applied if money is withdrawn before the age of 59.5, but only on the “gains” the money is making. The money that a person actually invests can be considered, “liquid” and can be taken out if needed. There is no requirement to take money out of a Roth IRA at a specific age. Roth IRAs are still fairly new in the financial world, having only been instituted in 1997. Now, many people opt into both a 401(k) and a Roth IRA. For some, this is because they do not want to be forced to withdraw all of their money from the markets, and they want an opportunity for their money to continue to grow. Having different accounts also allows for more diversity of investment avenues. Again, it is important to determine if this is a good financial decision for you as an individual by consulting a professional about your personal finances. The last bucket, Tomolonis said, could be a house or other owned property. Planning to have a mortgage paid off before retiring helps to ensure fewer expenses, as well as provide a potential income source if you decide to downsize or move to a retirement community. Unfortunately, property tax, homeowner’s insurance, and utility costs will, of course, continue! In New Jersey, however, if you are making less than about $80,000 per year after the age of 62 years old, it is possible to “lock” your property tax, meaning it cannot continue to increase year to year. Additionally, if you own a significant amount of equity in your home, another option during retirement is to opt into a “reverse mortgage.” Essentially, the bank “buys” your home from you, but at a much lower cost than what the home might be worth, and allows you to continue to live in the house for the rest of your life. Again, this option is not available until the age of 62, and requires a lot of analyzing with a financial planner to determine if this is a smart decision for you or not. “There are many other buckets of money, too,” Tomolonis said. “Brokerage accounts are an example.” For more information on these investment opportunities, please see the article linked at the bottom. After reviewing these “investment buckets,” Tomolonis discussed other income sources and factors to consider in retirement planning. “The greatest pension we all have is Social Security,” he said. “Everyone always ask me when I should start drawing Social Security. It’s a tough call. There are actually only seven people in the country who can legally give advice on Social Security.” Social security can be filed for at the age of 62.5, but some recommend waiting until 67 or 70 if you can, since there is a chance you will get a higher percentage then. That being said, one of the biggest and most unpredictable factors during retirement is your own health. It is impossible to know how long you will live, so determining the exact age to start taking social security is tricky. You can, however, figure out a good estimate of your individual benefits by utilizing the calculator on the Social Security website, www.ssa.gov. At the end of the day, however, it is up to you to decide. “If you need it, take it,” Tomolonis said. “But if you don’t, and maybe you’re still working, you might want to consider waiting.” Additionally, because health is such an unpredictable factor in retirement, healthcare needs to be planned for. Medicare can be used after the age of 65, and for military members who choose to use it, TRICARE for Life is available at the age of 60. One in four seniors end up in long term care facilities, Tomolonis stated. This is a very eye-opening statistic. By spending a few hundred dollars per month on health insurance, however, you could potentially save thousands of dollars later on. The last “money bucket” Tomolonis discussed was a pension. For some people may have pensions instead of or in addition to IRAs through their employers, but those that do not, it is possible to create your own “private pensions.” Last session, Tomolonis discussed annuities, which are investments made through insurance companies. Many people do not realize that 401(k)s, Social Security, etc. are all technically annuities. “When investing in an annuity,” Tomolonis said, “you can defer your payment, and you can create your own personal pension.” Again, it is important to meet with a professional about your specific situation to determine the best way to generate more wealth and plan for the future. Military OneSource provides free financial planners. At the end of the day, however, developing a plan and sticking to it is the most important investment move someone can make for their retirement. “When you’re getting ready to retire, planning your budget and lifestyle are everything,” said Tomolonis. “A written plan is so much more effective. The most valuable tool in my practice is financial planning software.” It requires a lot of work on the individual’s part, Tomolonis said, but it is so important. After getting all of your income sources and expenses documented, the planning phase can really begin. Tomolonis’s next workshop will cover Estate Planning, which will include topics such as writing wills and granting power of attorney. If you missed any of the previous workshops, links to write-ups of them can be found below: Getting Financially Fit - https://514amw.usaf.afpims.mil/News/Articles/Article/1100805/getting-financially-fit/ Investing 101 - https://514amw.usaf.afpims.mil/News/Articles/Article/1187817/investing-101/