Saving $1 Million for Retirement

How can you plan to do it? What kind of financial commitment will it take?

How many of us will retire with $1 million or more in savings? More of us ought to – in fact, more of us may need to, given inflation and the rising cost of health care.

Sadly, few pre-retirees have accumulated that much. A 2015 Government Accountability Office analysis found that the average American aged 55-64 had just $104,000 in retirement money. A 2016 GoBankingRates survey determined that only 13% of Americans had retirement savings of $300,000 or more.^1,2

 

A $100,000 or $300,000 retirement fund might be acceptable if our retirements lasted less than a decade, as was the case for some of our parents. As many of us may live into our eighties and nineties, we may need $1 million or more in savings to avoid financial despair in our old age. 

The earlier you begin saving, the more you can take advantage of compound interest. A 25-year-old who directs $405 a month into a tax-advantaged retirement account yielding an average of 7% annually will wind up with $1 million at age 65. Perhaps $405 a month sounds like a lot to devote to this objective, but it only gets harder if you wait. At the same rate of return, a 30-year-old would need to contribute $585 per month to the same retirement account to generate $1 million by age 65.³    

The Census Bureau says that the median household income in this country is $53,657. A 45-year-old couple earning that much annually would need to hoard every cent they made for 19 years (and pay no income tax) to end up with $1 million at age 64, absent of investments. So, investing may come to be an important part of your retirement plan.⁴

 

What if you are over 40, what then? You still have a chance to retire with $1 million or more, but you must make a bigger present-day financial commitment to that goal than someone younger.

 

At age 45, you will need to save around $1,317 per month in a tax-advantaged retirement account yielding 10% annually to have $1 million in 20 years. If the account returns just 6% annually, then you would need to direct approximately $2,164 a month into it.⁴

    

What if you start trying to build that $1 million retirement fund at age 50? If your retirement account earns a solid 10% per year, you would still need to put around $2,413 a month into it; at a 6% yearly return, the target contribution becomes about $3,439 a month.⁴

  

This math may be startling, but it is also hard to argue with. If you are between age 55-65 and have about $100,000 in retirement savings, you may be hard-pressed to adequately finance your future. There are three basic ways to respond to this dilemma. You can choose to live on Social Security, plus the principal and yield from your retirement fund, and risk running out of money within several years (or sooner). Alternately, you can cut your expenses way down – share housing, share or forgo a car, etc., which could preserve more of your money. Or, you could try to work longer, giving your invested retirement savings a chance for additional growth, and explore ways to create new income streams. 

 

How long will a million-dollar retirement fund last? If it is completely uninvested, you could draw down about $35,000 a year from it for 28 years. The upside here is that your invested retirement assets could grow and compound notably during your “second act” to help offset the ongoing withdrawals. The downside is that you will have to contend with inflation and, potentially, major healthcare expenses, which could reduce your savings faster than you anticipate.

So, while $1 million may sound like a huge amount of money to amass for retirement, it really is not – certainly not for a retirement beginning twenty or thirty years from now. Having $2 million or $3 million on hand would be preferable.

Mike Mead, EA, CTC
Alliance Financial & Income Tax
807 NW Vesper Street
Blue Springs, MO. 64015
P - 816-220-2001 x201
F - 816-220-2012
AFITOnline.com

Citations.

1 - investopedia.com/articles/personal-finance/011216/average-retirement-savings-age-2016.asp [12/8/16]

2 - time.com/money/4258451/retirement-savings-survey/ [3/14/16]

3 - interest.com/retirement-planning/news/how-to-save-1-million-for-retirement/ [12/12/16]

Building an Emergency Fund: Everyone should aim to have a cash reserve.

 We all would love to have a little extra cash on hand for emergencies. Saving up that cash can be a challenge – but with a little effort, that challenge can be met.  

  

Imagine a 30-year-old couple with no real savings. Let’s call them Kurt and Diana. Together, they earn about $8,000 a month, but their household finances are being squeezed by education debt, rent, and the high cost of living in an affluent metro area. They have about $300 in the bank between them, and they just learned they have a baby on the way. Their need to save has never been greater. How can they do it?

  

They have many options for building their fund, more than they first assume. Kurt has an old dirt bike gathering dust in his dad’s garage, and he is no longer into off-road motorcycling. Even in its dusty condition, it could easily be sold for more than $1,500. They each have gym memberships; Kurt drops his and Diana switches to a cheaper gym, leading to a 12-month savings of $500.

Kurt also explores the possibility of working weekends or evenings as a barista in addition to his full-time job, a move that could bring in a couple of thousand dollars in the next few months. The pair sense they have a federal tax refund coming – and the average I.R.S. refund for the 2015 tax year was $2,860. They could put some or all of a four-figure refund toward their emergency fund, rather than toward paying down their student loans.¹

   

Ideally, Kurt and Diana’s emergency fund should be $25,000 or more (the equivalent of 3 or more months of living expenses). No, they are not going to come close to that this year. Or next year. They have started, though, and it looks as if they will soon have a few thousand dollars set aside for emergencies. Even having $1,000 could ease many acute financial pains.

   

There are numerous potential ways to boost your emergency fund. Some are simple: save $5 or $10 a week and deposit it, eat out less, drop those memberships and subscriptions, sell something, save the money the I.R.S. hands back to you. Some require more ingenuity and energy: getting a part-time job for supplemental income, renting out a room.

  

Perhaps the easiest way of all is to create an automatic transfer of a small portion of your paycheck into a dedicated emergency savings account each month. Saving will seem painless this way, and when you pay off a debt, you can direct the money you used each month to reduce it into your emergency fund instead.

    

Let us know if we can help.

Mike Mead, EA, CTC
Alliance Financial & Income Tax
807 NW Vesper Street
Blue Springs, MO. 64015
P - 816-220-2001 x201
F - 816-220-2012
AFITOnline.com

Tax Preparation Services

Blue Springs Income Tax Preparation

Let us help you save money by maximizing your deductions.

---

Our goal is to help you save your hard-earned money. We'll find all the deductions and tax credits for which you qualify.  We understand your situation can change overnight, which is why we offer year-round advice and assistance to navigate those changes.  When we prepare your taxes we not only complete that years' taxes,  but also provide tax support through the end of the calendar year.  Our skilled tax professionals have been tested by the IRS and can complete your returns for personal, S-Corp, C-Corp, partnership, non-profit, and trusts.

We can also complete:

• Extensions
• Amended returns
• S-corp elections

Tax prep FAQs

When will my return be completed?

• We will complete your return during your appointment if you bring all necessary information.

What do I bring with me?

• You will need to bring your tax information from last year.
• Our client questionnaire will assist you in gathering all other necessary information we will need in order to accurately and timely prepare your tax return.  Click here for client questionnaire. 

Do I have to make an appointment?

• No, you may drop-off your tax information at your convenience and complete a simple questionnaire.
• You may also mail or email your information to us and complete the questionnaire online.
• Average turnaround time for drop-off or mailed returns is approximately 2 days--dependent upon the complexity of your return and completeness of information provided.
• We will call or email you when your return is ready for review and pickup.
• If you would like to visit with one our tax experts you may schedule a time here.

Can my return be Electronically filed?

• Electronic filing (e-filing) is included in our service to you.  We will automatically e-file once your return is completed and paid for.  If you DO NOT want to file your return electronically, let us know and we can prepare and print a paper return.  (Additional fee applies)

How can my return go "green"?

• Because your return is filed electronically, there is no need to print paper copies.  We will give you a digital file in PDF format for you to keep for your records.  We will also archive an electronic copy in our secure offsite digital storage.  If you ever misplace your copy, you can call us to receive another digital copy free of charge.

How much does it cost?

• Our tax preparation fees vary per return.  We only charge for forms required by the IRS to file your return.  Our prices are very competitive with other tax preparation companies, and we fall well below the "big name" guys.  Call today for a quote!

When do I pay for the tax preparation?

• You pay for your tax preparation once we have your return completed.
• If you are getting a federal tax refund, we can have our fee to prepare your return withheld.
• We accept Cash, Check, MasterCard, Visa, and Discover

Can my refund be direct deposited?

• Yes, we can instruct the IRS and State to direct deposit your refund into your bank account.
• The IRS will generally deposit your refund into your account in 3-21 days from the date of the IRS acceptance of your electronic tax return.  Average refund range is around 10 days.
• You will need to provide a blank voided check or direct deposit authorization form (available on the tax prep forms page) for your account/routing number information when you utilize this option.
• If you have our tax preparation fee withheld from your federal refund, there is no delay in the date of direct deposit.

We looking to see you.

Mike Mead, EA, CTC
Alliance Financial & Income Tax
807 NW Vesper Street
Blue Springs, MO. 64015
P - 816-220-2001 x201
F - 816-220-2012
AFITOnline.com

There's a huge catch if the federal government forgives your student debt

There's a huge catch if the federal government forgives your student debt