Assets Should Be Included in Your Financial Future
When the time comes to start thinking about retirement, many people feel unprepared. According to the National Financial Education Council, as many as two-thirds of Americans don’t have enough retirement savings to maintain their current standard of living in retirement.
A recent study found that only about one in five Americans thought about retirement as far ahead as five years ago. In other words, many people have yet to start planning for their post-work years. As a result, many turn to investments and financial advisors for help.
Not everyone understands the importance of planning for retirement as soon as possible. In fact, not having enough assets when you retire can be worse than not having any retirement savings at all. Here’s why everyone should have assets as they plan for their financial future.
1. Assets Provide an Emergency Fund
With an unexpected expense, having an emergency fund can help you get back on track.
This is especially important for people who have many debts and are living paycheck to paycheck. It’s helpful for people living on fixed incomes that don’t allow them to save money.
If you don’t have enough savings, you may find yourself in serious financial trouble if something unexpected happens. This is why it’s so important to build up your emergency fund as soon as possible. The longer you wait, the more expensive it will be when you need it. If an emergency arises at the wrong time, your money could be gone before you know it.
2. Assets Provide a Tax Advantage When You Retire
A property owner who makes the accounting choice to depreciate property from its original fair market value can have a tax deduction. This is called depreciation recapture.
If you don’t have enough assets, you will be taxed at a higher rate when you retire. Your taxable income will be higher, and your Social Security benefits may be taxed or reduced.
On the other hand, your taxable income is lower if you have enough assets to live off of in retirement. This means that money from your IRA or 401(k) is taxed lower than money from your paycheck. Those benefits are taxed at a lower rate if you take a traditional pension. And this can lower how much income tax you owe when you retire.
3. Assets Are Critical to Your Retirement Plan
The key to a successful retirement is having enough money when you stop working. If you don’t have enough money saved for a comfortable retirement, living comfortably can be difficult in your golden years. For example, the average Social Security benefit for retired workers is less than $16,000 per year. This means that a typical retiree will only be able to afford about one-third of the food they would normally eat and less than half of the health care.
Even though many retirees rely on their savings as their primary source of income, they often don’t have enough savings to maintain their current standard of living in retirement.
4. Assets Help You Maintain Your Standard of Living in Retirement
People who don’t have enough assets in their retirement plan are more likely to struggle financially in retirement. The National Financial Education Council found that people who were less than age 50 and had less than $50,000 saved for retirement were three times as likely to live below the poverty line in their old age as those with more than $200,000 in savings. This is because they’re more likely to outlive their savings.
As a result of not having enough assets in their plan, they will be forced to rely on Social Security and other government benefits for the rest of their lives. These programs aren’t designed to be a significant source of income or an alternative to retirement savings. It’s estimated that by 2034 these programs will only provide about half of what people need to maintain their current standard of living in retirement. If you don’t have enough assets for your future financial needs, you’ll be forced into relying on them early in retirement.
The above four points are just a few of the many reasons it’s important to have enough assets in your retirement plan. It’s also important to remember that having more than $1 million in retirement savings can be the difference between living comfortably and struggling in your old age. You should consider having an emergency fund and a retirement plan.
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