Stay Ahead of Law Changes & Protect Yourself Against Being Audited: Corporate Transparency Act and Reasonable Compensation

How One More Year of Work Can Transform Your Retirement

Surprising Impacts of Delaying Retirement by a Year

What is retirement?

The definition of retirement is “the action or fact of leaving one’s job and ceasing to work.” While most of us intend to stop working entirely by age 65, many Americans must continue working in some capacity for the rest of their lives. The harsh reality is that most Americans don’t have enough savings to stop working. Retirement is a relatively new concept that has gained popularity in the last 100 years due to increased lifespans, employer retirement plans, and the creation of social security. Historically, the average American worked their entire life with little to no savings and had to rely on the support of their families when they got too old. The modern retirement age is 65 because this is the age of 100% social security benefits, Medicare eligibility, and pensions begin paying out. Many people wanting to retire before 60 will have to deal with the challenges of an early retirement including potential IRS penalties for retirement account withdrawals before age 59½. Time is an asset in retirement planning because the more time you have to save, the longer your retirement income will last.

 How much money do I need to retire?

Most Americans assume they will retire in their late 50’s to their early 60’s, but later realize that their retirement income doesn’t satisfy their expenses or will run out. Everyone’s ideal retirement looks different because it depends on many factors including monthly expenses, earnings on savings, age of retirement, and how long your money needs to last. First consider that the average person only needs 80% of their income as an employee because they will be able to save money on payroll taxes, savings accounts, and work-related expenses. While some of your expenses will be lower, you need to budget for new expenses such as travel, medical, and anything you want to spend money on. It’s also important to have your retirement funds invested with relatively low risk to stay liquid in a market slump. If you retire at 65, you should plan to save for 25 years of retirement to avoid running out of funds early. How much money you need to retire depends on your lifestyle, what you want to leave to descendants, and your age at retirement.

Can I retire early?

Retiring before age 65 is considered early retirement and can take some planning to achieve. While never working another day in your life might not be possible, you can plan to be financially independent enough to work on your own schedule. To determine if you can retire early you first need to figure out what your life looks like in retirement. There’s no one size fits all approach to reaching your goal, but there is some helpful advice listed in the following blog https://molentax.com/6-money-goals-to-hit-by-35-50-65/. One challenge in ending your career before you turn 65 is losing your employer healthcare and not being eligible for Medicare benefits. Reduced social security benefits can be taken as early as age 62, but don’t max out until you turn 70. As discussed earlier in the article, the IRS has penalties in place for early withdrawals from retirement accounts such as a 401k although there are exceptions. The average pension plan doesn’t begin to pay out until you turn 65, but many government employees can reach full retirement quicker. You might be able to retire early, but should you?

How much do I lose if I retire early?

If you want to retire young, Chris Hogan has an excellent blog about how to do that in 7 well thought out steps  To summarize this article, you should create a retirement budget, implement lifestyle changes, invest heavily, and work with a certified financial planner like our partners at Centric. I’ve already discussed the financial challenges of early retirement, but what will it cost you? According to a study by the National Bureau of Economic Research “working three to six months longer boosts retirement income by as much as increasing retirement contributions by one percentage point over 30 years of employment.” This means that you would have to increase your yearly savings significantly over many years to compensate for each year of early retirement. The study also found that delaying retirement provides more time to save for retirement, generate earnings on your accounts, maximize employer benefits, and increase social security benefits. If your version of early retirement includes working on your own schedule, you stand to lose the education and training benefits offered by your employer. Make sure you consider all the benefits you will lose before ending your career.

How is money in my retirement accounts taxed?

Money in a taxable savings account or money market account does not have to be taxed when you pull it out, but it also does not have the tax advantages of pre-tax retirement accounts such as tax-free growth. This means that any interest and dividends you earn will be taxed as ordinary income, and any gains from stock sales will be taxable. When you take out money from tax deferred accounts such as an employer 401k, a deferred compensation account, or a traditional IRA you will have to include all pre-tax contributions and earnings in your income. On the other hand, post-tax accounts such as a Roth 401k or Roth IRA can be withdrawn tax free when you turn 59½. Both have their pros and cons, so it is important to understand the best choice for you. Learn more about the subject in the following blog https://molentax.com/401k-versus-ira/.

Is my other retirement income taxable?

People tend to think social security income is not taxable, but this is a common misconception. With no other taxable income your social security won’t be taxable, and you probably won’t be required to file a tax return. However, the more taxable income you have the more taxable your social security income becomes. Profit from self-employment is taxed at your top tax bracket plus 15% self-employment tax, but not every dollar earned is taxable. The income you earn as an entrepreneur is only taxed after your tax deductions, so you should try to be as profitable as possible while taking excellent records of your expenses. I specialize in working with small business owners to accurately report their income and expenses, as well as educating them in how to avoid paying too much income tax. I am passionate about helping my clients reach their financial goals. Contact me or one of the other skilled advisors at Molen & Associates for a free 15-minute consultation to see if we are the right tax firm for you.

Austin Long
Tax Advisor, EA

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

Want to deduct your dog? Here’s how?

Three Ways to Deduct Your Dog, Cat, or Other Animal Expenses Owning a pet is often an expensive yet rewarding experience, with annual costs for dogs ranging from $1,270 to $2,800. While the love and companionship pets provide are invaluable, the IRS views their...

Claim $1600 Stimulus Check – IRS 2025 Rebate & Eligibility

As millions of Americans continue to grapple with financial challenges post-pandemic, questions surrounding the $1600 stimulus check, IRS 2025 payments, and the Recovery Rebate Credit are trending once again. Whether you missed out on a past stimulus payment or are...

Bookkeeper vs. Accountant: What’s the Difference?

Bookkeeper vs. Accountant: What's the Difference? Managing your business’s finances is essential for long-term success, but understanding the roles of a bookkeeper and an accountant can be confusing. In the debate of Bookkeeper vs. Accountant: What's the Difference?,...

How to Set Up Your IRS Online Account with ID.me (Step-by-Step Guide)

ID.me and the IRS Login System ID.me is a third-party identity verification service that the IRS uses to provide secure access to certain online tools and services. If you need to access your IRS account online, such as to view your tax records, get your transcripts,...

What Is the One Big Beautiful Bill Act? Key Tax Changes for 2025 and Beyond

Debt, Deductions, and Cuts: The Fiscal Impact of the One Big Beautiful Bill If you’re a taxpayer, business owner, or financial advisor, the “One Big Beautiful Bill Act” (OBBB) could impact your tax strategy in major ways. Passed by the House of Representatives in May...

5 Signs Your Business Needs Accounting Help

5 Signs Your Business Needs Accounting Help Running a successful business requires more than a great product or service—you need a solid handle on your finances. However, many small business owners and self-employed professionals find themselves overwhelmed by the...

Tax Implications: Employees vs. Contractors

Tax Implications: Employees vs. Contractors When growing your business, deciding whether to hire employees or engage independent contractors is a critical choice with significant tax implications. Understanding the difference between these two worker classifications...

Maximize Your QBI Deduction Before It’s Gone: Act Now!

Maximize Your QBI Deduction Before It’s Gone: Act Now! Introduced by the Tax Cuts and Jobs Act (TCJA), the Qualified Business Income (QBI) Deduction has become a cornerstone tax break for business owners. However, this valuable deduction is scheduled to sunset after...

Outsourced vs. In-House Bookkeeping: Which Is Best?

Outsourced vs. In-House Bookkeeping: Which Is Best? As a small business owner or self-employed professional, keeping accurate financial records is critical for managing cash flow, preparing taxes, and driving growth. When it comes to bookkeeping, you have two main...

Cash vs. Accrual Accounting: Which is Best for Your Business?

Cash vs. Accrual Accounting: Which Method is Right for Your Business? Choosing the right accounting method is one of the most important financial decisions a small business owner can make. Whether you’re just starting out or looking to refine your bookkeeping process,...

Request an Appointment Today

3 + 9 =

Call us at

Share This