34:["$","$L35",null,{"category":"$36","relatedArticles":[{"id":"cG9zdDoyNjI4NDE=","databaseId":262841,"postId":262841,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1417,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTQ3NA==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19474,"categoryId":19474,"link":"https://smartasset.com/planning-for-retirement/articles","name":"Retirement Planning","postCount":{"pageInfo":{"offsetPagination":{"total":577,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"planning-for-retirement","ancestors":{"nodes":[{"name":"Retirement","slug":"retirement","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Retirement","id":"dGVybTo5Mw==","slug":"retirement","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$37","date":"2024-09-20T23:17:05","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyNjI4NTE=","databaseId":262851,"altText":"A woman thinking about how much she will need to save for retirement.","date":"2024-09-20T23:15:25","fileSize":191410,"mimeType":"image/jpeg","modified":"2024-09-20T23:16:07","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/09/iStock-1857115772.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-9-20","readable":"September 20, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. 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In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":776,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDQ=","databaseId":144,"userId":144,"avatar":{"url":"https://secure.gravatar.com/avatar/e1f3d3a0e571088b1ba1f56a767f73d3?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Brandon is a Certified Financial Planner™ (CFP®), Retirement Income Certified Professional (RICP) and Enrolled Agent (EA) with more than 10 years of experience as a financial professional. 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The year 2050 is still decades away, but it’s not too early to start planning for a mid-century retirement. Understanding how much you will need to retire by 2050 depends on a range of factors, including inflation, expected lifestyle expenses and healthcare costs. Few if any of these important concerns can be forecast with accuracy and precision that far into the future. However, it’s still possible to prepare a useful plan to guide a 2050 retirement by evaluating current expenses and projecting them into the future, considering annual cost-of-living increases and all-important personal circumstances. A financial advisor can also work with you to create a personalized retirement plan for your goals and needs.

","

Who’s Retiring in 2050?

","

If you plan to retire in 2050, you’re likely part of Generation X or a millennial. A person who reaches full retirement age in 2050 would be around 41 years old in 2024. While birthdays arrive predictably, the evolving landscape of Social Security, mounting healthcare costs and your personal life expectancy are less-certain factors that help determine how much to save.

","

With traditional pensions becoming more scarce, 401(k) plans, IRAs and other retirement savings vehicles will play more important roles in funding retirement for this group than for previous generations. The difference is that while pensions are funded by companies and provide defined benefits, the other plans depend on workers voluntarily saving for a distant retirement.

","

Estimating Living Expenses in 2050

","

The first step in determining how much to save is estimating future living expenses. Most financial experts recommend planning for about 70-80% of pre-retirement income to maintain your standard of living. According to the U.S. Census Bureau data, median household income for individuals in their 40s is around $100,000 annually. Using this figure, we can estimate that a 41-year-old in 2024 might aim for $70,000 to $80,000 per year in retirement.

","

However, this figure is 2024 dollars. To account for inflation, we must project how much that same amount will be worth in 2050.

","

Accounting for Inflation

","

Inflation reduces the purchasing power of money over time, meaning that the amount you save today will buy less in the future. During the 20-year period from 2004 through 2023, the average annual inflation rate was approximately 2.5%. Using this rate and an inflation calculator, we can project that in 2050, this household will need approximately $151,200 per year to maintain a lifestyle equivalent to living on $80,000 in 2024.

","

Determining Total Retirement Savings Needed

","

","

With an annual retirement income target of $151,200, the next step is to calculate how much total savings will be needed. A commonly used rule of thumb is the 25x rule, which suggests that you should aim to have 25 times your annual living expenses saved for retirement. This is based on the assumption that a 4% annual withdrawal rate from a conservatively invested portfolio with a very high degree of likelihood will sustain your savings over 30 years of retirement.

","

As $151,200 times 25 is $3.78 million, this suggests that today’s 41-year-old will need approximately that much in retirement savings by 2050 to cover 30 years of retirement.

","

Social Security Considerations

","

Social Security will likely provide significant income in retirement, though it’s unlikely to cover all expenses. According to the Social Security Administration, the average monthly benefit for retired workers in July 2024 was about $1,920, or $23,040 annually. Assuming Social Security benefits continue to grow with inflation, for an average worker this amount could increase to around $43,800 per year by 2050, based on a 2.5% annual cost-of-living adjustment.

","

If Social Security provides $43,800 per year, our hypothetical person would need to cover the remaining $107,400 of annual expenses from personal savings. Adjusting the 25x rule for this lower target to account for Social Security, the total retirement savings goal could drop to approximately $2.69 million by 2050.

","

Adjusting Savings Contributions

","

Given an approximate savings target of $2.69 million, the next step is determining how much a 41-year-old needs to save each year going forward to meet that goal. Assuming our hypothetical pre-retiree has already saved $200,000, they’ll need to save aggressively.

","

Assuming an average annual return of 6% on their investments, our hypothetical saver would need to sock away approximately $30,000 per year to reach $2.69 million in savings.

","

Don’t Forget About Healthcare Costs

","

One of the most significant costs for retirees is healthcare, and these expenses are expected to rise significantly by 2050. A 2024 Fidelity report estimated that a 65-year-old person may need up to $165,000 to cover their healthcare expenses in retirement – up 5% from a year before. Given the rising costs of medical care, a 41-year-old person in 2024 could expect this figure to grow considerably by the time they reach retirement.

","

This is why it’s important to factor healthcare expenses into retirement planning, either by saving more or purchasing long-term care insurance. Without proper preparation, healthcare costs can deplete retirement savings quickly.

","

Retirement Planning Caveats

","

While it can be concerning to envision running out of money in retirement decades in the future, saving for retirement can have real present costs including extra hours of work, luxuries foregone and vacations not taken. Thoughtful retirement savers balance current income demands with the likelihood that their future personal needs will actually require retirement savings balances indicated by benchmarks, many of which are quite risk averse.

","

For example, a 2023 survey by BlackRock and the Employee Benefit Retirement Institute found that on average across all wealth levels most retirees still had 80% of their pre-retirement savings almost two decades after they stopped working. A third had more assets than when they first retired. This suggests, among other things, that retiree spending is variable and may be less than commonly used guidelines.

","

Bottom Line

","

","

Planning for retirement by 2050 may seem overwhelming, but starting early can make the process more manageable. By estimating future living expenses, accounting for inflation and understanding the role of Social Security, you can begin setting realistic savings goals. Whether aiming for an approximate savings target of $2.69 million, consistent contributions and smart investment choices are key. Don’t forget to consider healthcare costs, which are projected to rise significantly.

","

Tips for Retirement Planning

","$4e","

Photo credit: ©iStock.com/Prostock-Studio, ©iStock.com/LaylaBird, ©iStock.com/Inside Creative House

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\n","featuredImage":{"id":"cG9zdDoyNjkyNzM=","databaseId":269273,"altText":"","date":"2024-11-21T09:41:24","fileSize":203085,"mimeType":"image/jpeg","modified":"2024-11-21T09:41:27","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/11/iStock-902863704.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-11-21","readable":"November 21, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxOTY=","databaseId":196,"userId":196,"avatar":{"url":"https://secure.gravatar.com/avatar/7eaae8752922e4afcde743b2103c2edf?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Jaclyn is the Director of Economic Analysis at SmartAsset and a CERTIFIED\r\nFINANCIAL PLANNER™. With a bachelor of arts in economics from The College of New Jersey, she evaluates data for trends that affect your financial life. As a spokesperson for SmartAsset, she has been cited by Bloomberg, CNBC, Business Insider, Fox News, The Hill and many more. 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The rules around Spousal Social Security benefits have several nuances, but some policies are crystal clear. One is that a spouse must specifically request to begin receiving spousal benefits. That is, it’s not automatic. Another certainty is that a spouse will only receive the spousal benefit if it is a larger amount than the benefit they would receive based on their own work history. In your case, your spouse would be eligible for a spousal benefit only if they request it and their own benefit amounted to less than 50% of the benefit you would be entitled to at full retirement age: so, if your wife’s benefit is $1,475 or less, in this case. Here are the rules to know.

","

A financial advisor can help you develop a plan for making the most of your Social Security retirement benefits.

","

Social Security Spousal Benefit Basics

","

Social Security provides retirement support for spouses of beneficiaries in the form of spousal benefits. Someone who is married or has been married to a Social Security recipient can receive up to 50% of the spouse’s benefit. The size of the spousal benefit usually is based on the amount you would receive if they claimed their benefits at full retirement age, which for most people is 67.

","

Your wife may be eligible for spousal benefits if she is at least age 62, and the you as the main wage-earner in the couple have already filed for Social Security benefits. One exception exists for spouses who have been divorced at least two years: They don’t need to wait for their former partner to file for benefits first. Another exception covers someone caring for a minor or disabled child. These individuals can claim spousal benefits without reaching age 62.

","

The amount of the spousal benefit is limited to 50% of your benefit if you were to claim at full retirement age. If your wife claims spousal benefits before reaching her own full retirement age, it will reduce her benefit by an age-based percentage. At the earliest typical claiming age of 62, for example, the maximum benefit is 32.5%, rather than 50% of the primary Social Security recipient’s benefit.

","

A Spousal Benefits Example if You’re Entitled to $2,950

","

For a primary wage earner with a full retirement benefit of $2,950, the maximum spousal benefit would be $2,950 times 50%, or $1,475. This spousal benefit cap does not change based on when the primary earner claims their benefits. If the primary earner waited to claim their benefit until it was higher at age 70, for instance, the maximum spousal benefit would still be half of their full retirement age benefit of $2,950.

","

If your wife claims the spousal benefit before reaching her own full retirement age (remember, generally age 67), the maximum spousal benefit would be reduced. For example, she filed for the spousal benefit at age 62, the $1,475 maximum amount would be reduced by 32.5% to $991.20.

","

It’s also possible that the Social Security Administration (SSA) rules that the spousal benefit claimant is not eligible at all. For example, if your wife’s work record entitled her to a benefit of $1,000 per month at age 62, her own benefit would be higher than the $991.20 that is the maximum they would be eligible for after applying the 32.5% reduction to the maximum spousal benefit. In this case, since she qualifies for a higher benefit on her own work record, the SSA likely would not allow her spousal benefits.

","

The age of the primary beneficiary when claiming Social Security benefits could also be a factor. If the $2,950 benefit is based on their claiming at age 70, the maximum spousal benefit for their partner would be lower than $1,475. That’s because the cap on spousal benefits is set based on the primary earner’s benefit at full retirement age, which would be lower than the benefit at age 70.

","

Your own personal circumstances may determine the best course of action for your Social Security benefits. Consider using this free tool to match with a financial advisor and discuss your goals.

","

Bottom Line

","

A spousal benefit is generally only paid after you as the primary breadwinner begin claiming benefits and your wife contacts Social Security to establish eligibility and request the spousal benefit. Eligibility also typically depends on your wife having already reached age 62. The amount of the benefit is capped at half of the primary earner’s full retirement benefit and may be less if your wife has not reached full retirement age yet when she makes the claim. And the spousal benefit may not be paid at all if your wife would qualify for a higher benefit based on her own work record.

","

Tips

","$61","

Photo credit: ©iStock.com/shapecharge

"],"experts":null,"link":"/social-security/claim-2950-social-security-wife-spousal-benefit","published":{"datetime":"2024-11-21","readable":"November 21, 2024"},"shareInfo":{"title":"When I Claim My $2,950 Social Security, Will My Wife Automatically Get a Spousal Benefit?","origin":"/retirement/claim-2950-social-security-wife-spousal-benefit"},"isNewsArticle":true},{"id":"cG9zdDoyNjY2MzY=","databaseId":266636,"postId":266636,"author":{"node":{"id":"dXNlcjo5NA==","databaseId":94,"userId":94,"avatar":{"url":"https://secure.gravatar.com/avatar/72c05cde57f4d7ee65af27e91a5315c2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Eric","fullName":"Eric Reed","lastName":"Reed","name":"Eric Reed","postCount":{"pageInfo":{"offsetPagination":{"total":907,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"ereed","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTQ3OQ==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19479,"categoryId":19479,"link":"https://smartasset.com/social-security/articles","name":"Social Security","postCount":{"pageInfo":{"offsetPagination":{"total":123,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"social-security","ancestors":{"nodes":[{"name":"Retirement","slug":"retirement","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Retirement","id":"dGVybTo5Mw==","slug":"retirement","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$62","date":"2024-11-01T06:00:00","excerpt":"

Inflation has more or less finally been tamed. That’s the main takeaway from Social Security’s 2025 cost-of-living adjustment, announced by the Social Security Administration earlier this month. A financial advisor can help you build an income plan for retirement and decide when to claim Social Security. Find an advisor today. Every year the SSA adjusts […]

\n","featuredImage":{"id":"cG9zdDoyNjcyNjM=","databaseId":267263,"altText":"","date":"2024-11-01T14:38:44","fileSize":65654,"mimeType":"image/jpeg","modified":"2024-11-01T14:38:44","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/11/social-security-cards-with-us-one-hundred-dollar-bill-100.jpg_s1024x1024wisk20coi0eWDKavIL4nxreQRp14PU94ZYpbgBuCkGnf5n6F6s-1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-11-1","readable":"November 1, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":{"url":"https://secure.gravatar.com/avatar/9be66d92947dd5b190bf90987b5e85f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. 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Inflation has more or less finally been tamed. That’s the main takeaway from Social Security’s 2025 cost-of-living adjustment, announced by the Social Security Administration earlier this month.

","

A financial advisor can help you build an income plan for retirement and decide when to claim Social Security. Find an advisor today.

","

Every year the SSA adjusts monthly Social Security payments to keep up with overall inflation. The agency makes this adjustment in the third quarter, announcing each the fall rate increases that will kick in the following January.

","

While inflation dropped to 2.4% in September, the SSA will increase payments by 2.5% in 2025. For example, for every $100 a retiree received in 2024 they will receive $102.50 in 2025.

","

The rate increase will bump the average Social Security retirement benefit from $1,873 per month (as of September 2024) to $1,919 in 2025. (Although readers should note that average Social Security benefits may also fluctuate due to a variety of external circumstances.) For most retirees, this increase will begin with their first benefits payment in January 2025. For SSI recipients, this increase will begin with their last payment in December 2024.

","

The rate increase will coincide with the SSA’s annual income cap increase. Effective January 2025, earnings of up to $176,100 will be subject to the Social Security tax. This is an annual increase, again, to keep up with inflation. As always, earnings above the cap are not subject to the Social Security tax, meaning that this tax effectively decreases with additional earnings.

","

Inflation And Social Security Increases

","

","

Social Security benefits are increased based on the Consumer Price Index as calculated by the Bureau of Labor Statistics. Specifically, the SSA uses a figure known as the CPI-W (the Consumer Price Index for Urban Wage Earners and Clerical Workers). This is an inflation index that has more upward pressure, since it measures price changes in more expensive urban areas.

","

The purpose of this annual rate increase is to eliminate a form of longevity risk brought on by inflation. Inflation can erode the spending power of stagnant savings. Even at the Federal Reserve’s target rate of 2%, prices will double roughly every 35 years. For an ordinary retiree, without some offsetting increase, this means that a steady retirement income can effectively halve over the course of even a moderately long lifetime.

","

While inflation has been quite low for most of the 21st Century, recent years have reminded Americans that it can be very real. In 2021 and 2022, in fact, high inflation triggered some of the largest benefit increases ever. In those years, the SSA increased payments by 5.9% and 8.7%, respectively. In 2024, benefits rose just 3.2%.

","

This rate increase is known as the COLA (cost-of-living adjustment). It’s designed to offset the inflation-related longevity risks for Social Security payments. That said, retirees should remember that this helps only with their Social Security benefits. It’s essential to include inflation planning in your private savings as well. A good retirement account needs some modest growth to offset price increases, otherwise even a steady income will effectively decline year-over-year.

","

And if you need help creating a retirement plan designed to meet your needs, consider speaking with a financial advisor to see how they can assist.

","

Action on Your Part

","

","

For retirees, no action is necessary.

","

The SSA applies its benefit increase automatically each year. The COLA will be reflected in the first applicable monthly benefits check. You will also receive a letter in the mail notifying you of the rate increase, and you can check your benefits via mySocialSecurity online.

","

The annual COLA is also not the only way to increase your Social Security benefits. If you continue to work after taking benefits, the SSA will continue tracking your applicable earnings each year. If these earnings increase your Social Security credits and applicable benefits, the agency will adjust your payments accordingly. This can be particularly useful for retirees with fewer than 35 years of earnings or particularly low-earning years during their working life.

","

A financial advisor can help you plan for Social Security and integrate your benefits into a retirement income plan that corresponds with your assets and spending needs.

","

Bottom Line

","

The Social Security Agency has announced its annual benefit increase. This COLA – 2.5% – will be significantly smaller than it was in 2021 and 2022, when high inflation was raging. This signals that inflation has finally returned to more normal levels.

","

Social Security Planning Tips

","$74","

"],"experts":null,"link":"/social-security/social-security-increase-2025","published":{"datetime":"2024-11-1","readable":"November 1, 2024"},"shareInfo":{"title":"Social Security to Increase by 2.5% for 2025: What Retirees Should Know","origin":"/retirement/social-security-increase-2025"},"isNewsArticle":true},{"id":"cG9zdDoyNjUzOTg=","databaseId":265398,"postId":265398,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1417,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTQ3Ng==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19476,"categoryId":19476,"link":"https://smartasset.com/roth-and-traditional-iras/articles","name":"Roth & Traditional IRAs","postCount":{"pageInfo":{"offsetPagination":{"total":148,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"roth-and-traditional-iras","ancestors":{"nodes":[{"name":"Retirement","slug":"retirement","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Retirement","id":"dGVybTo5Mw==","slug":"retirement","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$75","date":"2024-10-17T13:29:40","excerpt":"

Americans living abroad can still benefit from a Roth IRA for retirement savings, just like those in the U.S., but there are some extra considerations. Both expatriates and U.S.-based savers need earned income to contribute, but foreign income exclusions may affect eligibility for those living overseas. Expatriates should also be aware of how foreign tax […]

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Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":776,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDQ=","databaseId":144,"userId":144,"avatar":{"url":"https://secure.gravatar.com/avatar/e1f3d3a0e571088b1ba1f56a767f73d3?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Brandon is a Certified Financial Planner™ (CFP®), Retirement Income Certified Professional (RICP) and Enrolled Agent (EA) with more than 10 years of experience as a financial professional. He runs his own independent financial planning firm called Belonging Wealth Management, where he helps clients plan out their retirement distributions, minimize taxes, build financial plans and more. He also holds a PhD in Finance from Hampton University, and spent years as an Assistant Professor of Finance at both Louisiana College and East Texas Baptist University.\r\n\r\nBrandon's areas of expertise include financial planning, retirement planning, taxes, Social Security, investing, annuities, general personal finance and more. 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As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. 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","

Whether you live abroad or in the U.S., a financial advisor can help you create a personalized retirement plan.

","

Roth IRA Contribution Rules for Overseas Citizens

","

A Roth IRA is a retirement savings account that offers valuable tax benefits. While contributions are made with after-tax dollars, growth is untaxed and qualified withdrawals are also tax-free.

","

To contribute to a Roth IRA, you must have earned income, which typically includes wages, salaries and self-employment income. For U.S. citizens living overseas, this requirement can be complicated by the foreign earned income exclusion (FEIE).

","

This exclusion allows qualifying taxpayers to exempt some income from U.S. federal income taxes. In 2024, it can apply to the first $126,500 of earned income.

","

It’s possible to exclude all your foreign earned income under the FEIE. However, if you do that you may not have any eligible income left to contribute to a Roth IRA. Therefore, it’s essential to carefully calculate your income and consider how much to exclude.

","

Contribution limits for Roth IRAs represent another area`for expats to keep in mind. These limits are the same for overseas citizens as for those living in the U.S. For 2024, the maximum contribution is $7,500 but you can contribute another $1,000 if you are aged 50 or older.

","

However, these limits are subject to phase-outs based on modified adjusted gross income (MAGI). For overseas citizens, the MAGI calculation can be affected by foreign income, housing exclusions and deductions. It’s important to accurately determine your MAGI to ensure you do not exceed the allowable contribution limits, which could result in penalties.

","

Roth IRA Tax Rules for Overseas Citizens

","

","

Withdrawals from a Roth IRA are generally free of U.S. income taxes, provided certain conditions are met, such as the account being open for at least five years and the account holder being over 59 1⁄2 years old.

","

Overseas citizens must also consider the tax laws in their country of residence. Some countries may tax Roth IRA withdrawals. Understanding the tax treaty between the U.S. and your country can help you avoid double taxation and ensure compliance with local tax laws.

","

Additionally, you must bear in mind that U.S. citizens living abroad must still comply with U.S. tax reporting requirements, including those related to Roth IRAs, like filing the foreign bank account report (FBAR) if your foreign financial accounts exceed certain thresholds.

","

Living overseas often means dealing with foreign tax systems, which can complicate your Roth IRA contributions. The U.S. has tax treaties with many countries that can help mitigate double taxation. Additionally, you may be eligible for foreign tax credits, which can offset your U.S. tax liability.

","

Choosing Between Traditional vs. Roth IRAs When Living Overseas

","

Expats can also save for retirement using a traditional IRA as well as a Roth IRA. Both types of retirement accounts offer benefits as well as potential tax implications.

","

Traditional IRAs allow you to make tax-deductible contributions, which can lower your taxable income in the year you contribute. However, withdrawals during retirement are taxed as ordinary income.

","

Roth IRAs, on the other hand, require you to pay taxes on contributions upfront while giving you the ability to make qualified withdrawals in retirement tax-free. This can be a money-saver if you expect to be in a higher tax bracket later.

","

Living overseas introduces additional factors such as currency and exchange rate risks that can affect your retirement savings strategy. Fluctuations in exchange rates can change the value of your contributions and withdrawals.

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A Roth IRA might offer some stabilizing effect, as the tax-free withdrawals can provide a hedge against currency devaluation. Conversely, with a traditional IRA, the tax implications of withdrawals could be more complex if exchange rates shift unfavorably.

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When deciding between a traditional and Roth IRA, consider your long-term financial goals and retirement plans. If you anticipate returning to the U.S. for retirement, a Roth IRA might be more advantageous due to its tax-free withdrawal benefits. However, if you plan to remain abroad, the decision may hinge on the tax laws of your host country and how they interact with U.S. tax regulations.

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Bottom Line

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Expatriates who wish to maintain their retirement savings can use Roth IRAs, but there are additional considerations to keep in mind. One is maintaining the ability to contribute to a Roth IRA while living abroad by not excluding too much foreign income. Americans living abroad also need to keep in mind the risks of being exposed to double taxation under the rules of their home and host countries. Currency fluctuation adds another level of risk to saving for retirement while living in another country.

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Retirement Planning Tips

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