Last Week’s Question of the Week: How much of a tax deduction will a taxpayer receive in 2018 when they contribute to a ROTH IRA? ANSWER: There is no up-front tax deduction for Roth IRA contributions, as there is with a traditional IRA.
HOST: Before we get to discussing the topic of the day, can you please remind our listeners as to whom Klaas Financial is, and exactly what it is that you do?
KLAAS FINANCIAL: Yes, so our firm, Klaas Financial is celebrating our 42nd year of business and as a mid-size Registered Investment Advisory firm with offices in Fitchburg and northern Illinois, we help clients every day sort out what their future retirement is going to look like.
On our weekly show here, we are always trying to focus on “how to retire better” and that brings us to a quick description on what true financial planning really is.
- We believe that your financial planner should act like the quarterback of a football team.
- Financial planning covers all areas of a person’s financial life including but not limited to: estate planning (wills & trusts), taxes, insurance (life/LTC/Health/P&C), Investments. Of course, we are not accountants or lawyers, so you should always check with your own.
It really involves being able to sit down and discuss with someone qualified, issues like we have been discussing today. So the question is what should you expect from your financial advisor?
- Discuss the potential need for consistent reviews of your financial or estate plans.
- Discuss how life changes and reviews can help keep your goals and portfolio working together.
- Discuss some of the potential benefits of working with someone who focuses on your entire financial plan and goals.
- There is no charge to have a complementary first call or sit-down meeting to see how we can help you.
HOST: So, I know you sometimes get fairly deep with some of the retirement planning ideas on this show, but it sounds like sometimes we just need to go back to the basics when we begin planning for our future?
KLAAS FINANCIAL:
Yes, so many of our listeners have heard our phrase: Simplify. Consolidate. Diversify. Simplify your structure of investments, consolidate the number of your accounts and advisors, diversify within your investments.
Today, we have another behavior we would suggest that our listeners partake in, so they can achieve their retirement goals. And that would be: “PLAN, BUDGET, SAVE, REPEAT & REVIEW”
PLAN: Planning for our own retirement futures is SO IMPORTANT! We actually get to see what planning really does for the future of our clients. If your plan is to have no plan, then unfortunately the results will very likely suggest the same. Work with someone today to begin developing what your plan should look like. Answer questions such as:
- When do I think I want to retire? How old do I want to be?
- Do I plan on working in retirement doing something different?
- Where do I want to live?
- What kind of income will I need in retirement?
BUDGET: Once your plan is in position, what kind of budget do you need to set up? Make sure your income is flowing into the right areas of your plan.
- Budget is a 6-letter word that gets some bad press. Many people are put off by the word budget because they associate it with spending restrictions and frugal lifestyles. That’s a misconception. Budgeting does not make you spend less, but allows you to spend smart. A good budget lets you focus your money on the things that are most important to you. By preventing you from overspending on less important items, a budget channels resources to areas that should be given priority.
- Are your emergency reserves in good shape?
- Are you reducing debt every month?
- Are you adding the maximum allowable into your retirement accounts?
HOST: What about saving? How much do I need to save for retirement?
KLAAS FINANCIAL: Here’s the magic answer: it depends. Save as much as you can. No one in retirement ever has told us that they wish they had saved less. The minimum would be probably 15% of your income.
The first thing you should do is determine the following:
- How much debt (if any) will I have as I enter retirement?
- How much income will I generate through pensions, Social Security, rental income, investments, and spouses working income?
- A common guideline is that you should aim to replace 70% of your annual pre-retirement income. You can replace it using a combination of savings, investments, Social Security and any other income sources (part-time work, a pension, rental income, etc.). The Social Security Administration website has a number of calculators to help you estimate your benefits.
- Consider how your expenses will change in retirement — health care and travel, are likely to increase but recurring expenditures will go down. You no longer need to dedicate a portion of your income to saving for retirement. You may have paid off your mortgage and other loans. And your taxes are likely to be lower — payroll taxes, which are taken out of each paycheck, will be eliminated completely.
Be sure to adjust based on your retirement plans. If you know you won’t have a mortgage, for instance, maybe you plan to replace only 60%. If you want to travel every year, you might aim to replace 100%, or even 110%, of pre-retirement income.
HOST: So, if I do as you say — Plan, Budget and Save — what’s next?
KLAAS FINANCIAL: This is where it gets pretty simple.
- REPEAT the process over and over again.
- BUT, you need to REVIEW the plan, and possibly ADJUST the BUDGET, and maybe also ADJUST the SAVINGS so that you will have a successful end result!
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.
