Ask Terry Questions Investments for retirement

Investments for retirement

By Terry Savage on June 13, 2016 | Financial Planning / Retirement

I am retired at 60 years old with a yearly income of $20,000.00. I am considering liquidating all of my former company stocks ($200,000 value). My research reveals that those in the 10% and 15% income earning tax bracket will pay 0% capital gains tax on the stocks. Is this correct ?

Terry Says:   You’re correct that there is a zero capital gains tax for those in the lowest two brackets.  But that isn’t the only potential impact of taking huge gains in one year.  It could put you in a higher total tax bracket, depending on the size of the gain. And that could mean paying as much as 15 percent capital gains tax.  AND it could mean that you pay a much higher premium for Medicare coverage every month next year!

Consult with your accountant before deciding how and when to take the se gains.  It might be wiser to spread them out over several years.

And, by the way, what are you going to do with this money — put it in the bank?  That won’t help you if inflation returns.  A diversified stock portfolio has historically beaten inflation over the long run.  And at age 60, your life expectancy is likely another 30 years!  And at just 3 percent average annual inflation that would cut the spending power of your money in half in 25 years!  That’s why you need at least some portion of your investments in stocks.

And, finally, unless you have a much shorter life span in mind, that $200,000 is not likely to be “enough” to keep you in your current lifestyle over a 30 year period.  Have you worked with a financial planner to understand the implications of retiring at age 60?  You should!

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