December 22, 2022 at 4:33 p.m.

Planning for retirement

Any age is a good age to start

By Stacey [email protected] | Comments: 0 | Leave a comment

MADISON, Wis. – Whether a person is 25 or 55, it is never too early or too late to start planning for retirement. Some people dream of traveling the world when their working days are done. While for others, relaxing on the couch and reading a good book might be all the excitement they need. No matter what a person’s goals are, planning for retirement can be overwhelming.
“You don’t need to start with a large chunk of money,” Sarah Wiersma said. “Rather, putting it away slowly and consistently is going to be your best bet.”
Wiersma, a financial advisor at Ameriprise Financial Services LLC, offered retirement planning advice Dec. 1 during a Professional Dairy Producers Dairy Signal webinar.
“There are a lot of options when planning for retirement,” Wiersma said. “It’s all a matter of what’s right for you, and that may include a combination of things.”
Wiersma recommends a Roth IRA or a traditional IRA as a good starting point. In a Roth IRA, contributions are made after having paid taxes on the money. The funds then grow tax deferred. Once a person reaches 59 years, 6 months and has had the money in the IRA for at least five years, those funds come out completely tax free.
“For a lot of people, that is a huge benefit, especially if you’re starting younger,” Wiersma said.
In a traditional IRA, pre-tax contributions can be made to provide an immediate tax break. The funds grow tax deferred, and when they are pulled out at retirement, the money is considered taxable income.
“The traditional IRA is an option if you don’t meet the requirements for a Roth IRA or if you really need that tax deduction for the year for your income taxes,” Wiersma said.
A person under age 50 can put up to $6,000 per year in either type of IRA. A person over age 50 is allowed to put in up to $7,000 per year. Those numbers will increase in 2023 to $6,500 for under age 50 and $7,500 for over age 50.
“If you have a business and want your retirement plan to benefit not only you but your employees as well, then you may need to look at something bigger, like the SIMPLE IRA,” Wiersma said.  
This plan allows larger contributions than a Roth or traditional IRA – $14,000 for people under age 50 and $17,000 for those over 50. In 2023, those numbers will jump to $15,500 if under 50 and $19,000 if over 50.
“There is a matching element with the SIMPLE IRA similar to a 401k,” Wiersma said. “You could match 3% for any employees participating. Or if you don’t want to worry about matching, you could give all employees who qualify a 2% contribution, for example.”
A SEP IRA is an option that works well for a self-employed individual who is the only person in his or her business. This type of IRA allows a person to put in up to 20% of their income. This option offers flexibility in that contributions can be made in bigger lump sums versus per paycheck.
A 401k plan is the option that allows for the largest contribution – $20,500 if under age 50 and $27,000 if over age 50. Next year, those amounts will increase to $22,500 for under age 50 and $30,000 for over 50. Wiersma said she does not see many farmers use this option as there is a great deal of additional testing, reporting, requirements and costs that go along with it.
“Usually, you can get by with a SIMPLE IRA instead,” she said.
Contributions can be made to Roth, traditional and SEP IRAs up until the tax filing deadline of April 15. Therefore, 2022 contributions can be made well into next year. SIMPLE IRAs must be set up between Jan. 1 and Oct. 1.
To avoid paying higher taxes in the future, a person may consider transferring money in traditional funds over to a Roth IRA. The account holder pays taxes on that money now, but then any future gains happen in the Roth IRA, and those gains come out tax free.
“When doing a Roth conversion, you’re moving money out of an account you’re going to have to pay taxes on eventually,” Wiersma said. “Don’t let the market recovery of those funds happen there. Rather, have it occur in an account where you don’t pay taxes.”  
When it comes to investing money for retirement, options should be customized according to what is best for the individual.
“You can do this on your own or you can work with an advisor,” Wiersma said. “If you’re not comfortable with the market and don’t want to take risk, you can open up retirement accounts at your local bank. You could do a savings account or IRA CDs. Historically, stocks and bonds, specifically stocks, have gotten better returns.”
For people who are young, starting small is what Wiersma recommends. A Roth IRA is what she finds to be the best solution in which an individual makes monthly contributions or puts in a lump sum. Wiersma said it is important to line up potential investment returns with a person’s goals. A person must also decide what level of risk they want to take.
“What do you want your future to look like?” Wiersma said. “That’s a big unknown for many people, and it will adapt and change over time. Talk to somebody who is going to be able to give you unbiased advice about the steps you need to take based on your goals and where you are now in life.”
A person must also consider how much of their own money they want to put in versus how much they want the market to return. Those not starting early will need to increase the amount they are putting in and setting aside.
“Obviously the more risk you take, the more potential return and the less you might have to put in to meet your goals,” Wiersma said. “There may be a year or two where you don’t put money in, and that’s OK. I have many clients who say, ‘This year was a very good year for me, what extra can I do?’ Then the next two or three years, maybe they can’t make any contributions or will lower it drastically. Every little bit you can do makes such a difference in the long run.”
Wiersma said to make sure an accountant is part of retirement discussions. The accountant knows a business’s books and can ensure the legality of actions being taken.  
“As a farmer, are you paying yourself a salary?” Wiersma said. “Do you have a draw? You can only make contributions from income, which is your salary. It’s not from your draws. So that’s a big area where things might have to be restructured with your accountant to make sure it’s going to fit within the rules.”
A difficult market this year has caused concern for some of Wiersma’s clients.
“It’s very easy to make the decision to get out when times are tough, but it is 10 times harder to make that decision to get back in,” Wiersma said. “You have to stick with it because you can’t time the market; it’s time in the market.”
When the market is down, Wiersma said to think of it as an opportunity.
“If saving for retirement is something you haven’t thought about, now is a great time to do it,” Wiersma said. “It’s a volatile market and economy we’re living in, but when the market’s down and you’re not close to retirement, view it as the market is on sale. I don’t know when the market is going to come back, but I know it will.”
People in their 50s can also take advantage of buying in at a lower rate as many in this age group still have time before they need to pull the money for retirement.  
“When everybody is getting fearful is usually the time to be adding, but it’s definitely not the time to be making changes,” Wiersma said. “Part of my job is making sure you’re not doing the wrong things at the wrong time.”
Conversations vary depending on how close a person is to retirement. An individual in their 60s or 70s will take a different approach than someone in their 40s.
“Make sure your investments are ready for whatever stage of life you’re in,” Wiersma said. “How your money is allocated should be appropriate for when you’re going to need it, so that no matter what market we go through, you can sleep at night.”
Despite a farmer’s busy days, it is important to think about what life after farming will look like. To ensure a financially comfortable future, do not delay in saving money for retirement.
“The most important part is to just get started,” Wiersma said. “And, it’s never too late to start.”

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