When saving for retirement, you may feel secure because you’re putting aside earnings into a pension plan. However, what you may not realize is that some of that money is going to be spent even before it reaches your bank account.
There are 3 ways in which your pension can disappear:
1. Taxes. Having a work-related pension is important because no matter how many years you worked, government social security programs won’t meet all of your post-retirement needs. As helpful as your pension is, be aware that some type of pension plans are taxed as ordinary income when you start taking withdrawals.
2. Debt. If you still have debts (mortgage, credit cards, or other loans) when you retire, they will need to be paid before your discretionary expenses. If you are having a hard time making ends meet before you retire, imagine how much more difficult it will be post-retirement on a smaller paycheck.
3. Charity. Retirement shouldn’t spell an end to your charitable donations. If you are careful to give 10, 15, or 20 percent of your income to charity during the years before your retirement, why should you stop post-retirement? To paraphrase the beggar from Fiddler on the Roof, “Just because you’ve retired, I have to suffer?” Depending on your pension and other income-producing investments, you may not be able to make as generous donations as you once did, but certainly charity shouldn’t stop when you retire.
Remember that numbers can be deceiving – after taxes, paying off debt, and giving charity, the amount of your pension may not match the amount deposited in your bank account. While this sounds drastic, adequate planning can help make up the shortfall.
So before your retirement income is spent before you actually retire review the figures so that you can be prepared. To make this easier, use these easy-to-use calculators to work out how much you are spending on existing loans, mortgages, and more.
About the Author: Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd, a financial planning firm located in Jerusalem. He specializes in working with clients in New York, Florida, and Israel and is a licensed financial professional both in the U.S. and Israel. Securities are offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, SIFMA. Accounts held at Pershing LLC., Member NYSE/SIPC, a subsidiary of The Bank of New York Mellon Corporation. Neither Profile nor PRG gives tax or legal advice. Before immigrating to Israel, it is advisable to consult with a tax attorney who is knowledgeable about Israeli law. Doug’s newest book The Expatriates’ Guide to Handling Money and Taxes is available at www.expatguidetomoney.com. He hosts a weekly finance show, Goldstein on Gelt, on internet radio. Listen live or download podcasts. Toll-free from U.S. 1-888-327-6179, Jerusalem: (02) 624-2788. Follow on Twitter: @DougGoldstein or contact at firstname.lastname@example.org.
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