I worked 34 years before I retired, and I have been retired from full-time work for 29 years. I have made some good decisions and some not so good, and I hope you can learn from both. I will discuss what I believe were good decisions first.
1. When you look for full-time employment, see if you can find an employer that offers a defined-benefit plan. Although most employers no longer offer defined benefit plans, unions are now being more aggressive and are insisting on them. Since I retired at 58, I have received over $700,000 in pension payments from my defined-benefit plan.
2. If your employer offers a defined-contribution plan, such as a 401(k), always contribute at least as much as is necessary to obtain the maximum employer match. By making maximum contributions to my plan, and receiving a 50% match, when I retired at age 58 the account was worth several hundred thousand dollars, which I rolled over into an IRA account.
3. Whenever your yearly taxable income is lower than usual, convert your traditional, non-Roth retirement plan into a Roth account. Try to avoid pushing your taxable income into a higher marginal tax bracket.
4. If you have reached your required beginning date — which means you are required to take required minimum distributions (RMD) from your traditional retirement accounts — use the qualified charitable deduction (QCD) to make charitable contributions before you take any yearly RMD. This will reduce the amount you have to withdraw to meet your RMD by the amount of your charitable contribution.
5. If you have earned income from self-employment, make sure you take all legal tax deductions. For example, many self-employed owners fail to take qualified health expenses, including premiums, such as Medicare premiums as deductions on their tax return.
6. If you have a hobby, or skills you enjoy, make every attempt to find a way to turn these hobbies and skills into profitable side income.
For example, even though I was employed full time at a major bank for 23 years, I was able to earn substantial income with considerable tax deductions from self-employment as a college instructor, a freelance writer for major magazines and newspapers, and writing books for major publishers. I was able to earn almost as much in these activities as I earned in my full-time positions. Because I had already been making retirement planning presentations at my bank, Dow Jones hired me as a consultant to conduct retirement planning seminars for its employees contemplating retirement. In addition, Dow Jones purchased retirement planning books I had written for distribution to their employees who attended their seminars. ( I provided the books at my cost.)
Also consider activities that will provide other benefits. For example, I became a contract bridge director so I could give lessons and conduct tournaments on cruise ships in exchange for free or very cheap passage, which otherwise would have been very expensive.
Not all my decisions were optimal. The following are some maxims that I didn’t always follow. If I had, the results would have been more favorable.
—Always make your new contributions to retirement accounts to Roth accounts rather than traditional accounts.
—Establish retirement accounts for non-working spouses with contributions from your earned income. Using this option, you can create an additional IRA for your spouse, using the same maximum annual limit.
—Allocate your retirement account assets to more than 50% in equities. I generally allocated no more than 50% of my retirement accounts to equities. Especially for young workers, allocating more than half of their retirement assets to stocks will maximize growth.
Bottom line: Take your time when you select an employer that you plan on working for a large number of years. Selecting an employer with excellent retirement benefits is very important.
(Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.)
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