Solving for Variables in Retirement

Solving for Variables in Retirement Hilltop Wealth Solutions

Think way, way back to Algebra class. You had to solve for variables, typically labeled “x.” When there was just one unknown, this was pretty simple to do. But as more multiple variables started appearing, it got more complicated. Unfortunately, when planning for retirement, there are often several variables at play – an unpredictable market, potentially staggering long-term care costs, and the possibility of higher taxes in the future. Here are some tips on solving these variables in retirement.

Don’t Assume You’ll Time the Market Successfully  

It’s very difficult to time the market correctly. A major rebound could happen in a single day, making the probability of missing it high if you only follow a “timing-the-market” strategy. Consider the findings of a study on what would happen to a hypothetical $10,000 investment into an S&P 500 index fund from January 2002 to January 2022. Staying invested throughout the entire time period resulted in gains of 9.4%. But, missing the ten best days of the market resulted in gains of only 5.21% while missing the best 30 days resulted in gains of 0.32%.[1]

How Much Long-Term Care Will You Need?

While it’s hard to say what your health will be like decades from now, the need for long-term care may be more common than you think: Someone turning age 65 today has almost a 70% chance of needing some type of long-term care later in life.[2]

How Much Will You Pay in Taxes in Retirement?

Your tax bill might be higher than you’d expect in retirement. Depending on your income, up to 85% of your Social Security benefit can be taxed. Distributions from traditional IRAs and 401(k)s are taxed at ordinary income tax rates. If you have a pension, those payments could be taxed as well. All of your taxable income sources in retirement could add up, not to mention any capital gains you realize from selling stocks, bonds, property, or valuables. Don’t underestimate your tax burden, and don’t forget about tax planning in retirement.

By removing as many variables from the retirement equation as you can, you can gain a better sense of how much money you’ll have in retirement and what you can do to create a solid plan so that it lasts for the rest of your life. We can help you assess retirement unknowns and create a plan for the future. Sign up for a time to meet with us and discuss any uncertainties you have about your retirement plan.

[1] https://www.chase.com/personal/investments/learning-and-insights/article/tmt-february-eighteen-twenty-two
[2] https://acl.gov/ltc/basic-needs/how-much-care-will-you-need#:~:text=Someone%20turning%20age%2065%20today,for%20longer%20than%205%20years


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