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Saving $1 Million for Retirement

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

Provided by your Blue Springs Financial Professional Mike Mead, EA, CTC

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

Who is Alliance Financial & Income Tax

EXPENSES FROM LOOKING FOR WORK MAY BE TAX-DEDUCTIBLE

If you are looking for work, some of the expenses you incur may be tax-deductible, provided that you are looking for work within the same field. Unfortunately, expenses incurred when searching for a job in a new field or a first job are not tax-deductible. 

If you are an employee, job-search expenses are deducted as miscellaneous itemized deductions on Schedule A. Thus, you have to itemize your deductions to gain any benefit. On top of this, miscellaneous itemized deductions are only deductible to the extent that they exceed 2% of your adjusted gross income. Self-employed individuals can deduct expenses related to acquiring new business on Schedule C. 

Travel Expenses – One of biggest expenses related to searching for a job is travel, which may be local or away from home. Deductions for travel expenses when driving locally for job interviews are generally limited to the cost of parking and tolls, plus mileage, which is deducted at the current mileage rate (53.5 cents per mile in 2017) for trips to and from potential job locations and job-placement services. 

If you travel outside your tax home (where you normally live and work) overnight, you may be qualified to deduct, in addition to the auto travel expenses described above, the full cost of overnight lodging and of various forms of transportation (air, bus, train and more), as well as half the cost of meals. 

Résumé Preparation – The costs of having a professional service prepare your résumé are deductible. In addition, you can deduct the costs of résumé reproduction, postageand envelopes for mailing. 

Job-Placement Services – You can generally deduct the fees paid to job-placement agencies when looking for a job.

A few additional tax issues might apply to your situation: 

Unemployment Income – Although some states don’t tax unemployment compensation, that income is taxable income for federal purposes. Generally, no income tax is withheld on unemployment benefits, which may lead to an unpleasant surprise at tax time. 

Health Insurance – If you acquired your insurance through a marketplace, and if your premiums are subsidized with the advance premium tax credit, it is important that you report any changes in circumstances to the marketplace; this includes increases or decreases in income, changes in eligibility for other coverage and changes of address. Advance payments are paid directly to your insurance company to lower the out-of-pocket cost for your health insurance premiums. Reporting changes will help you get the proper type and amount of financial assistance so that you can avoid getting too much or too little in advance.

If you have questions about job-search expenses or other issues related to changing employment, such as pension-plan rollovers and moving-expense deductions, please give our Blue Springs income tax preparation office a call.

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

Who is Alliance Financial & Income Tax

Dave Ramsey Endorsed Local Provider in Missouri

Mike Mead, EA, CTC, is the Endorsed Local Provider for Missouri income taxes services for the Dave Ramsey Show.

As Dave's Endorsed Local Provider, my team and I are committed, just as Dave is, to providing Biblically based, common sense education and empowerment, seeking to give HOPE to everyone from the financially independent to the financially distressed.

Alliance Financial & Income Tax  provides a faith driven and ethical approach for solving the tax, financial, and accounting challenges of today's marketplace. We strive to learn and understand individual and business financial information, build and maintain long lasting relationships, and provide the highest quality information, service, and products to help bring financial peace.

Dave Ramsey knows first-hand what financial independence means in his own life - living a true rags to riches to rags to riches story. By age 26 he had established a $4 million real estate portfolio (using mostly debt), only to lose it by age 30. He has since rebuilt his financial life and now devotes himself full-time to helping ordinary people understand the forces behind their financial distress and how to set things right - financially, emotionally and spiritually.

Dave rebuilt his financial life and is the host of the nationally syndicated radio program "The Dave Ramsey Show". His radio program is syndicated to more than 400 radio stations nationwide with more than 4 million daily listeners. He has also authored the New York Times best sellers The Total Money Makeover, Financial Peace, More than Enough, and most recently EntreLeadership.

Dave started his company to provide wealth management counseling to the public. The new Financial Peace University (FPU) is a 9-week program that helps people dump their debt, get control of their money, and learn new behaviors around money that are founded on commitment and accountability.  Financial Peace University is also available as a group curriculum to churches and organizations for on-site classes.

What is an ELP?

An Endorsed Local Provider is a tax professional in your area that has been personally chosen by Dave's team based on his or her integrity, professionalism, and experience. ELPs understand and believe in the financial principles that Dave teaches on The Dave Ramsey Show each day.

Why use Dave's ELP?

ELPs are contractually obligated to share the same financial philosophies with you that Dave teaches on the air everyday. Dave's team works with the ELPs everyday to make sure they serve his listeners with high standards of customer service and with the heart of a teacher.

 

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

Who is Alliance Financial & Income Tax