Taxes

Look forward and plan your financial future

Roseville, Calif. – When you’re finished filing your annual tax return, you’re only half done. There’s a second – and perhaps more important – task to consider. In addition to looking backward to review the prior year’s finances, it’s also time to look forward and plan your financial future.

As tax season wraps up, there may be no better time to update or plan your retirement strategy. Using your taxes as a starting point, you can perform a quick checkup to see if you’re on the right track to meet your retirement goals.

According to financial experts at SchoolsFirst Federal Credit Union, the largest credit union in California and fifth largest in the United States, here are two important questions to consider after filing your return:

  • Will you receive a refund? If so, in addition to adjusting your withholding for next year, you may want to add that extra cash to your retirement account or establish an emergency fund.
  • Do you owe more in taxes? If so, this may be the right time to consider how you can lower your tax liability. Choosing the right type of retirement account, such as a pre- or post-tax savings account, could help you reduce your income tax now or in the future.

With these questions answered, you can consider retirement planning as the logical next step after filing your return. Whether you already have a plan in place or not, tax season can be a valuable time to review your situation and make important decisions.

According to Jessica Jamison, vice president, retirement planning and administration, at SchoolsFirst FCU, developing a solid retirement strategy often involves weighing current and future needs against your long-term goals. Based on her experience working with SchoolsFirst FCU Members, Jamison provides the following insights:

Think ahead. Before developing plans for retirement, you must first consider your long-term financial goals. Think about what expenses you expect to have during retirement, as well as your primary sources of income.

Jamison recommends talking with a trusted advisor to determine how much income you’ll need in retirement and where your primary sources of income will be. SchoolsFirst FCU Member Tammy Giordano, currently an administrator for the Brea Olinda Unified School District in Brea, Calif., says she met with a retirement planning advisor at SchoolsFirst FCU soon after she joined the private school district sector over seven years ago. Going in with a game plan in mind, her experience in determining a strategy and selecting the right products was relatively worry-free.

Jamison points out that Social Security income alone isn’t enough for most people. And workers who will have pension income, such as school employees, need to know that a pension will replace only 60-70% of their income.

Time is on your side. Unless it isn’t.

The earlier you begin saving for retirement, the better prepared you’ll be. It’s well known that those who begin saving early in their careers, and maintain the proper discipline, typically have more options and greater control over their lifestyles upon retirement.

Those who are closer to retirement age now should evaluate their plans each year and make sure the results are in line with goals and objectives. Work with your financial advisor to make necessary adjustments to meet your goals.

Your health may be as important as your wealth.

Longevity is a key factor in planning for retirement. As people are living longer, the average number of years spent in retirement has grown. This means most people will need to plan for a larger nest egg to support their long-term needs.

Health is also a factor in spending. On average, retirees spend more on medical care and health insurance during retirement than they did while working. It’s important to consider this shift in spending when budgeting for your retirement years.

Things may not go as planned.

As you evaluate the status of your retirement plan, you may find that it’s time to play catch-up. Tax season may represent an opportunity to make an additional contribution, especially if you receive a refund. Experts agree that it’s usually better to allocate extra cash toward your future than it is to make an impulse purchase today.

SchoolsFirst FCU Member Giordano suggests that most major life changes – getting married, having children, sending the kids off to school, getting a pay raise, etc. – also may create the opportunity to reassess your retirement plan. “When our household expenses declined after our children went to college, I found it extremely beneficial to add the extra money to the retirement plan to offset taxes,” Giordano said.

Emergency fund

Another consideration is to make sure you have an adequate emergency fund on hand, which will help you resist the temptation to withdraw money from your retirement accounts. Jamison recommends that everyone maintain enough cash to cover two to three months of expenses. This fund should be separate from your retirement accounts, and it should provide the liquidity you need in unexpected situations.

“Retirement planning can be intimidating for many people,” says Jamison. “The key is to plan ahead, make informed decisions, and maintain discipline. In the long run, you’ll be glad you did.”

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