Have you given your retirement much thought lately? According to the Employee Benefit Research Institute, nearly 50% of Baby Boomers and Gen Xers are at risk of not having enough retirement income to cover even basic expenses and uninsured health care costs. That figure jumps to 70% when you look at the low-income households in America. The reality of retirement hits us at different stages of our life, but the questions always seem to be the same. Will I have enough? How should I be invested? Will I have to pay taxes? If you’re like me, I don’t want to hear the cookie-cutter answer: “it depends.” I already know that the answer will be different for each person. I just want to know what tools and calculations are available to show me how to create an educated estimate. At the end of the day, we cannot predict the future and the exact figure in our retirement account, not to mention the expenses we’ll have. But we can make smart calculations to help us find the answers to these five retirement questions. Am I on track to retire? You can use online retirement calculators to show your projected savings, but the figure might look like it’s all over the place. I used three different calculators and got a range of $500,000 to $3,000,000 as my projected savings. Why was it so different? Because some calculators assumed variables like inflation and contributions, while others allowed you change those manually. The best retirement calculator will take these factors into consideration: age, income, contributions (and increases), inflation, investment return, retirement age, Social Security income and income replacement during retirement. AARP and CNN Money have very good calculators, but calcxml has my favorite calculator for projecting your retirement balance. Don’t be afraid to use all of these to get a good idea of how much you should be saving in order to get on track for retirement. Should I be invested more aggressively? This question always seems to come up, especially if someone is a little behind with his or her retirement savings. Before you change your portfolio to 100% stocks, make sure you ask yourself if you’re being as aggressive as you can be with your current retirement contributions. Your strategy of slowly increasing your contributions year after year will make a much bigger impact on your savings than chasing a high return in the market. You might have heard of the recommendation that your exposure to stocks should be equal to 110 or 120 minus your age. For someone who is 30 years old, their portfolio might include 80-90% stocks based on this rule of thumb. It’s not the most scientific approach, so it’s wise to meet with a financial planner . If you’re not even sure where to start with assessing your risk tolerance, you can take a risk tolerance quiz provided by Rutgers University. What’s is the RMD? If you or your parents are nearing age 70, you might have received a letter regarding a required minimum distribution (RMD). The RMD will affect nearly every retiree. It’s basically an IRS rule that says you must start drawing money from your retirement accounts by age 70 ½. If you don’t start, you’ll end up paying penalties of 50% on the money you fail to withdraw. You can calculate your RMD by using the life expectancy tables provided by the IRS in publication 590. What if I inherit a retirement account? Your options will vary depending on whether you inherited the account from a spouse or non-spouse (parent, sibling, extended family, etc.). Inheriting an IRA from a spouse gives you the most flexibility and allows you to treat it as your own. You can add to the account or rollover the IRA to another retirement account, as long as it was inherited from a spouse. If you inherit an IRA or 401(k) from a non-spouse, you’ll need to follow strict rules on distributing the money and maintain its ‘inherited’ status. In other words, you won’t be able to move it into your own IRA – it must stay as an inherited IRA. Will I have to pay taxes on my retirement money? The quick answer: yes. Withdrawing pre-tax money from your retirement account is considered to be taxable income. What you do with your money throughout the year can lower your taxable income, so have a conversation with your tax preparer as to how you can lower your taxable income during retirement. You might consider giving to a charity or starting a business , which can lower your taxable income for the year. Of course, your Roth IRA has already been taxed, so you can withdraw those funds tax-free during your retirement years. Have you had any retirement questions come up recently? Share them in the comments! Happy senior couple image from Shutterstock Related Articles: Tax Treatment for Inherited IRAs Can You Afford Retirement? Should You Use Retirement Savings For Your Kid’s College? Should you convert your IRA to a Roth? Tim is a personal finance writer at Faith and Finance a Christian financial help blog that provides financial insights for individuals, businesses, and churches. Outside of finance, Tim enjoys spending time with his wife, playing the saxophone, reading economics books, and a good game of RISK or Catan. Find him on Twitter and Facebook .
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5 Retirement Questions You Might Have Right Now