Human beings love to pay attention to the bad stuff and ignore the good. It is wired into our DNA. If you are a caveman the good stuff doesn’t matter when a woolly mammoth is about to sit on your family.
So here is a quick reality check to remind you that investing in stocks and bonds isn’t all about crashes and recessions.
Year to date returns:
Remember that awful recession in 2008? Worse one we’ve seen in 30 years? By the end of that year, stocks were down 37%. But that was only one year. Here we are, in one year, making nearly ⅔ of what you would have lost in 2008. And let’s not forget your money would have quadrupled between 2009 and now if you stuck it out in the markets.
The stock market actually does actually go up sometimes (no matter what the media focuses on). In fact over the past 200 years it has averaged around 10%.
Retirement Tax Information You Need to Know
One of the biggest (and happiest) surprises many retirees enjoy is how little they are taxed once they retire.
Note: I am not a CPA. I am not licensed to give tax advice, so I am just going to give you some really juicy tax facts.
So let’s take a look at what taxes you can expect to pay during your golden years.
- State income tax. If you live in Florida, there is no state income tax.
- Social security payroll tax. You do not pay into the social security system once you stop working. That saves you 6.2%.
- Medicare payroll tax. You do not pay taxes into Medicare once you stop working. That saves you 1.45%.
- Federal income tax. This is the main tax you will be paying once retired. I have more good news! You may be in a lower tax rate than you expect.
Generically what I’ve found is:
If you are married and bring in less than $5000/mo you will pay NO income tax.
If you are single and bring in less than $3000/mo you will pay NO income tax.
Let’s look at a scenario.
Bob and Lisa Wiggins are in their 60’s and retired. Each month they receive income from:
Bob’s social security- $1500/mo
Lisa’s social security- $2000/mo
Mary’s teacher’s pension- $1000/mo
Withdrawals from Bob’s IRA- $500/mo
This equals $5000/mo. When they file their tax return they will owe no income tax, no state income tax. Nothing. That is $5000 cash in their pocket. That is amazing news!
What is happening here? A big part is due to the fact that social security is only taxed if you reach a certain level of income.
This concept is incredibly important to understand. Why? Many people with whom I speak are terrified of living on less income once retired than while working.
Let’s say Bob and Lisa were making $90,000 combined while working. That could be a big problem, right? $7500 a month was coming into the household while working, but only $5000/mo once retired.
But at work, by the time they paid social security tax, medicare tax, federal income tax, and contributed money into their 401k’s they were bringing home around…$5000/mo. So really their net income is the same in both scenarios. Also great news!
What happens if you make more than $5000/mo? Taxes can still be pretty manageable.
If you bring in $5000-$6000 taxes are around $200/mo. $6000-$7000 is around $400/mo.
If you want to look into your own retirement tax situation, Turbo Tax has a very helpful tax calculator.
Bottom Line: You may have more money in your pockets each month than you were expecting.