Chapter 4: Executing Your Plan

Chapter 3: Creating Projections

Tax Liability To find out what your after-tax monthly income will be during retirement, it is best to check with your CPA, tax preparer, or run an estimate of your tax liability online.

The website SmartAsset.com provides an excellent retirement calculator and tax information for all 50 states.

Click on the “Taxes” tab at the top and select “Retirement Taxes Calculator” from the drop-down menu. Scroll down on the next page until you see the map (Figure 4.1).

Figure 4.1 Map of states to determine tax-liability in retirement.

Select the state where you plan to retire and then enter the following information (Figure 4.2):

  • Total annual Social Security income
  • Retirement-account income from your investments
  • Annual wages if you plan to work
  • City and State of retirement
  • Year of birth
  • Filing status
  • If applicable Pension (private or public)

If you are eligible for a public or private pension, there is a section where you can add the amount of your annual-pension income to the calculation (Figure 4.2). Keep in mind, the tax liability for public pensions may be different if the public pension you earned in one state differs from the state you choose to retire.

The tax liability for public pensions differs from state to state so, if you are moving to a state where you did not earn your public-pension benefit, you may want to input it as a private pension for the purpose of this tax calculation (Figure 4.2).  

Figure 4.2 Example of input information for retirement tax-liability calculation in California

Once you’ve entered the information, scroll down on the same page to see your results under the “Your Tax Breakdown” section. It will automatically calculate and display your federal-, state-, and local-tax liability.

Enrolling in Social Security is rather simple and can be done online or in person at your local Social Security Administration office. If using a computer:

1. Go to www.SSA.gov

2. Scroll down on the homepage until you see and click “my Social Security”.

3. Click the blue box that reads “Sign In or Create an Account”.

4. Either sign in or create an account.

In order to create an account you need:

  • a valid email address
  • a Social Security number
  • a U.S. mailing address
  • be at least 18 years of age

Once logged in to “my Social Security”, you will find step-by-step instructions to enroll in and determine your Social Security benefit.

Note: If you’re eligible for a monthly-annuity or lump-sum from your pension and are ready to retire, then contact your employer’s benefits department to request an enrollment packet.

Most employers require forms be completed and submitted several months in advance of a beginning-withdrawal date. You are encouraged to check with your benefits department to determine the timeline for your retirement start-date.

Investments Investing can be easy! However, the hardest decision retirees face is how to invest. There are two main categories of investments, securities and annuities, although many people own a combination of the two.

Securities are for people with a high-risk tolerance who seek the potential for high returns. It is prudent to have access to other financial resources when you own securities, because of the potential to lose money. If you are investing in securities, you may wish to hire an advisor or develop a process to help you manage your investments.

Annuities are for people with a moderate- to low-risk tolerance whom are comfortable with lower returns. Annuities typically offer guarantees to either protect the initial investment or provide a monthly income that cannot be outlived. Annuities tend to be a good fit for people who do not want to worry about managing their own investments.

Meeting Your Shortfall Once you know how much money you have to invest to cover your shortfall for retirement, you can seek out investments that meet your risk-tolerance, target rate-of-return, and desired monthly retirement-income.

Consider rolling your employer plan to an IRA after you retire. There are many benefits of investing in an IRA over an employer-sponsored plan because employer-sponsored plans have many restrictions but IRAs offer the following benefits:

  • Flexibility
  • Easier to calculate
  • Availability
  • Fewer statements to track
  • Control
  • Investment simplification
  • No withdrawal restrictions
  • Account consolidation
  • Immediate access to funds
  • Plan Portability
  • More investment options
  • Permission not needed to make changes
  • Access to professional advice
  • Adjust tax withholding on distributions