Earn 4000 airline miles with WorldPerks Visa

Travel Articles
Inn of the Month
Flight Deals
Hotel Deals
Car Rental Deals
Cruise Deals
Vacation Deals
Hot Deals
Travel Tips
Fashion
Home
Health and Beauty
Product Reviews
Store Guide
hotel guide
bars & nightclub guide
spa guide
restaurant guide
Events Calendar
About Us
Advertise
Contact Us
Related Links
Welcome to GenxRevealedLike this site, tell a friend.Spread the word.

Money: Questions about early retirement

Congratulations--you have just been offered a retirement incentive package from your employer that will allow you to retire earlier than you had planned. By accepting the incentive package, you will receive an additional number of years of participation in your retirement plan, which will allow you to receive a higher pension benefit.

How many of you have received or are about to receive this offer? How many of you have thought about the economics and tax consequences of taking "early retirement." This article will try to help you through the decision-making process to come to a conclusion with which you will feel comfortable. Once you have received the offer, many questions will need to be answered. One of your first questions should be: If you accept, what does this mean in dollars and cents to your pension? If married, will you elect a joint annuity with your spouse, which may reduce the monthly benefit but assure your spouse a means of support after your death. Should you elect a single life payout? This increases your monthly benefit but all pension payments cease at your demise. Will the monthly benefit be sufficient to satisfy your financial needs during retirement? When will you start collecting Social Security benefits? How much will you receive in benefits? What are the income tax consequences to all of the above decisions? Generally speaking, a defined benefit pension plan pays a participant a monthly stipend over that individual's life and, if married and a joint survivor annuity is elected, over the life of the participant's spouse. The amount of dollars an employee receives depends on a number of factors, such as the participant's compensation, the percentage of benefit as outlined in the employer-sponsored pension plan--that is, 30 percent or 35 percent of pay--and how many years the employee must be employed in order to receive 100 percent of the benefit. Your employer or the administrator of the plan should be able to tell you exactly how much of an increase in retirement dollars you will receive as your incentive to retire early. If married, you must elect whether a joint annuity or single life annuity is better for you. Once you choose, then to help make your decision, you should answer questions as to how much you think you will need to be as comfortable in your retirement as you are now. The general rule of thumb is that you will need about 70 percent of your current income in your retirement years to maintain your current standard of living. This decrease is partly due to lower federal and state income taxes, as well as lower Social Security taxes, and less daily expenses for things such as lunches, commuting, and parking. Your clothing budget also could decrease, as well as any gifts you have made in the past for fellow employees' retirement, baby gifts, engagement gifts and such. Will your spouse continue to work after you retire?

Will you be receiving Social Security immediately upon retirement or will you have to wait until you reach age 62--or, if you so decide, age 65? Individuals can start to receive Social Security benefits at age 62; however, this amount will be at a reduced level from the maximum. You receive the maximum benefit allotted to you if you do not take benefits until age 65 (increasing to age 67 in gradual steps).

If you opt for a single life annuity, you may find that you have extra revenue coming in by which, if you currently are married, you can buy life insurance that will meet the needs of your spouse upon your death. Many investment counselors will suggest that this is a better retirement strategy.

After you have chosen your monthly benefit and after you have reviewed all of your other sources of annual income, the next step should be a projection of what the tax consequences of your elections will be. Defined benefit pension payments are subject to tax as ordinary income. In many cases, you can have the payer of these benefits withhold income taxes. However, interest income you receive from savings accounts, bonds or certificates of deposit, dividend income from stocks or mutual funds, capital gains, income from rental income, partnerships, trusts, and Social Security generally do not have income taxes withheld. Thus, if you do not properly plan when filing your income tax return in April, the balance due with the return may be subject to penalties for underpayment of estimated taxes. The Internal Revenue Code requires a taxpayer to have paid in by the time the return is filed at least 90 percent of the balance due. For most taxpayers, the payments generally are done through withholdings. However, once retired, withholdings may not be sufficient to meet the 90 percent test and the payment of quarterly estimated taxes will become necessary. These quarterly estimated tax payments can be made as if the income is earned ratably over the 12 months of the calendar year or if in a disproportionate amount, on an annualized income basis. The payment dates are no later than April 15, June 15, Sept.15 and Jan. 15. Once you have computed the tax, both federal and state, and subtract this from your total income, you will now have a net after-tax income to determine the 70 percent test mentioned earlier. If the after-tax income does not meet this 70 percent test, you may have to continue to work. If you are at least age 62 and decided to take Social Security benefits early, remember that if you receive earned income above $9,120, you will start to lose $1 in Social Security benefit for every $2 of earnings over the $9,120 amount. If you are age 65 to 69, you would lose $1 in Social Security benefit for every $3 of earnings above the annual exemption amount ($14,500). If you are 70 or over, you may earn any amount without having Social Security benefits reduced. Upon receiving a retirement incentive package from your employer allowing you to retire earlier than you planned, you should sit down and calculate your current financial condition, as well as what you can expect in the future. Determine your ability to live in a manner in which you will be comfortable.

If the retirement incentive package meets your needs financially, and there are things that you would like to do that you have been unable to do all your working years, then retirement may well be for you!

 


Promotional Links
Apply for a WorldPerks® Visa® today!

 
Our Sponsors
 
Spa Gift Certificates
Great site to buy spa gift certificates. Redeemable at 650 US day spas. Full directory online. Make spa wish dreams come true. Massage, facial, all spa services.
 
Origins
Origins multi-sensory skin, body, face and hair care products plus essentials like aromatherapy, massage oil, salt scrubs. Choice of free sample with order.
 
See your message here...