A Traditional IRA: The Basics
June 19, 2013
Individual Retirement Accounts, or IRAs, have been a staple of retirement planning for the past 40 years. As a recent article reports, they are still a great way for individuals or couples to save for retirement. Currently, Americans have over $5 trillion invested in IRAs. Unfortunately, however, many Americans who are eligible to use IRAs are not contributing to them.
A person can start his or her own retirement plan through an IRA. An IRA is created through the government, and therefore carries strict rules regarding usage. In order to open an IRA, a person must have earned the type of income that would necessitate a W-2. There is a maximum yearly contribution amount of $5,500 for workers under the age of 50. For those workers over the age of 50, there is a $1,000 catch up provision.
Workers who contribute to an IRA may be eligible for a tax deduction equal to the amount they contributed. This deduction, however, will be limited by joint income if his or her spouse is eligible for a retirement plan.
Importantly, money in an IRA account grows on a tax-deferred basis. Once a person reaches age 70 ½, the IRS requires that he or she begin to withdraw money. Once you begin to withdraw money from your IRA, the withdrawals will be taxed as ordinary income. If you need to withdraw money before you reach age 59 ½, you will be subject to a 10% penalty, unless your withdrawal falls under one of the approved categories.
More Seniors Working into Retirement
June 12, 2013
When most younger Americans picture their retirement, they see themselves relaxing and enjoying warm weather on a golf course or perhaps behind the wheel of an RV. Unfortunately, the reality for most Americans of retirement age is just the opposite, as they are forced to work past age 65.
A survey of 3,600 workers published in a recent article revealed that, in May of 2012, 56% of workers stated that they plan to work after age 65. Additionally, 54% of workers responded that they will continue to work after they retire. Working into retirement does not have to be a reality for all seniors. The article suggests several things workers can do in order to provide themselves with the best possible chance at a long retirement.
First, it can be beneficial to put a higher percentage of your life savings into risky investments. Risky investments are typically a good way to compensate for low interest rates on “safe” accounts. For some retirees, reverse mortgages and annuities may also constitute a partial solution for a difficult financial situation.
Additionally, many senior citizens should consider scaling back on unnecessary expenses now. Scaling back may include reducing living expenses and re-evaluating retirement expectations and goals. Although it may be difficult to scale back on expenses, reducing unnecessary expenses now often means that seniors don’t have to forgo the things that are truly important later, like traveling to visit their grandchildren.
Retirement Planning for Single Women
May 22, 2013
Planning for retirement is important, especially for the many Americans who will retire unmarried. As a recent article points out, the segment who faces the greatest challenge in retirement is unmarried women. These women are anticipated to face challenges whether they retire divorced, widowed, or had never married.
Women experience the most hardship in retirement because they still tend to make less money than their male counterparts in the workplace. Moreover, women typically have shorter working careers than men because many take time off of work to raise children or care for their aging parents. Because women generally earn less money over their lifetime, they have less money and lower social security benefits when they retire.
Women also have an average life expectancy of five years longer than their male counterpart. A longer life expectancy means that they have more retirement years for which they will need to be provided for.
Unfortunately, the article notes that studies have shown women to be “less knowledgeable and more intimidated about financial issues than men.” It is therefore vital for women to learn about retirement planning early, and work with an expert to put a plan in place. One good resource for woman looking to learn about their finances is the Women’s Institute for a Secure Retirement.
Retirement Planning: Start Early
May 1, 2013
According to a recent article, there are two keys to retiring comfortably, planning and getting an early start. As the article explains, planning for retirement should be a lifelong process, rather than a one-time event. The article further offered several tips to aid Americans in creating or adjusting their retirement plans.
The first step is to establish a realistic timeline from now until your anticipated retirement. Those who begin retirement plans in their 20s and 30s should consider that they will likely have a longer time frame than others, and that their funding and variables are apt to change many times during this time frame. According to president of Golden Retirement Advisors, LLC, Jerome Golden, “The first plan you create, whenever that is, is going to be based on a bunch of variables and estimates that as you move closer to retirement, then the estimates get closer to the truth, your savings are real numbers and so on.”
It is also important to estimate what kind of income will be necessary to maintain the style of life you expect upon retirement. Consider whether you will travel the world, or take a more relaxing approach to your retirement. Whatever your dreams are, you will need to be sure that you have enough retirement income to finance them. If you are not sure how much income you will need, a good base number is 70% of your current income.
Finally, you must define a level of risk tolerance in your financial plans for retirement. Consider that investments will fluctuate, purchasing power may decrease, and interest rates may change.
Tax Tips For Soon-To-Be Retirees
April 24, 2013
Tax planning is perhaps one of the most important parts of retirement planning. Failing to plan for taxes in retirement can quickly become a costly mistake. A recent article in USA Today offers several tax planning tips for future retires.
It is vital to consider taxes when considering the size of your retirement savings. According to Robert Fishbein of Prudential Financial, “We look at our assets on a gross basis, which creates a wealth illusion.” Many people overestimate the amount of money they will have for retirement because they forget to calculate the taxes that will be taken out of it when they begin taking withdrawals.
Even for those who are close to retirement, it is important to diversify retirement assets by adding a Roth IRA. According to Fishbein, diversification is smart because it gives retirees tax-planning options and allows them to prepare for future tax increases.
Finally, it may not be wise for retirees to withdraw from social security during their first year of eligibility. If a person works for part of a year, then retires, the earnings may cause their social security to be taxed. People often retire during the middle of the year, potentially sparking this problem, because they choose to retire immediately when they turn 66.
Retirement Accounts: Early Withdraws Often Lead to Disastrous Consequences
March 27, 2013
It may be common knowledge that borrowing against 401(k) and 403(b) retirement accounts will hinder the growth of such accounts. Nevertheless, a recent study published in The New York Times reveals that twenty-five percent of households continues to withdraw funds early.
The study shows that, in 2010, employers and employees contributed $294 billion to defined-contribution plans such as 401(k)’s. Of this amount, approximately $70 billion was withdrawn early for uses other than retirement. According to authors of the study, employees most often break into their retirement savings after an economic shock such as an illness. This occurs because families don’t have adequate savings to deal with such emergencies. As the authors explained, “Insufficient emergency savings has the strongest association with breaching that we find.”
Of those who took a full distribution prior to retirement, a mere 8 percent took such distributions due to unemployment. The vast majority of those who took full, preretirement distributions cited “everyday basic financial management problems, from trouble paying bills to general expenses that they feel like they cannot keep up with.”
People must be cautious when making such withdraws, and carefully analyze whether the withdraw will seriously impact their retirement plans. If you are planning a large withdrawal, it is important to speak with a professional about your alternatives and future.
Tax Savings for Entrepreneurs
March 20, 2013
Today, more and more employers are enrolling their employees automatically in 401(k) plans. For those who are self employed, however, the options are different. As a recent article in Forbes explains, those who are self-employed often have to first decide to save for retirement, then “pick their way through a maze of different plans, each with its own benefits and gotchas.”
There are, however, some advantages for entrepreneurs when it comes to retirement planning. Those who are self-employed are able to save greater amounts of money than their salaried counterparts. As an example, if a 35-year-old entrepreneur made $150,000 in a single year, he could use a 401(k) to shelter up to $47,500. In contrast, a 35-year-old employee who made $150,000 in 2013 could only shelter a total of $23,500 through his 401(k).
There are many retirement tax shelters available to the self-employed. One such shelter is a solo 401(k). In 2013, a person could contribute $17,500 to their solo 401(k), or $23,000 if they are at or over age 50. If you should need the money sooner, you can borrow up to half of the balance in your 401(k), up to $50,000. Another advantage to having a solo 401(k) is that you have the ability to make Roth contributions. These contributions are made after tax, and all withdraws from Roth income are made tax free after age 59.5.
Retirement Planning: The Most Important Factor That You Are Overlooking
February 27, 2013
As a recent article in Forbes reports, when planning for retirement people often overlook the single most critical factor involved, life expectancy. Although no one can say for certain what their life expectancy will be, taking into account an approximation can help you make wise decisions for a comfortable retirement.
When planning an investment time horizon, for instance, most people focus on the length of time they have left before retirement. However, unless you plan to cash in and spend your investments immediately upon retirement, the money will continue to grow. Depending on your age at retirement, this growth could continue over more than 20 years. Consider this, for a typical couple aged 65, the odds are one-in-two that one spouse will live to be 92-years-old.
For a quick and free estimate of life expectancy, visit livingto100.com. This site provides personalized life expectancy estimates based on user-entered information such as lifestyle, family history, and health problems. Once you have a general idea of your life expectancy, you can make more informed choices about your retirement planning.
Some considerations you may wish to make are how to allocate your investments, whether you are saving enough for your entire retirement, how your pension should be distributed (annuity or lump sum), and whether you should annuitize a portion of your assets.
Recent Polls Reveal the Tide is Turning Regarding Retirement Living
August 3, 2012
Where do you plan to live when you retire?
50-somethings and near retirees used to dream of moving to Arizona, California or Florida when they retired; planning to give up the responsibilities of mowing lawns and shoveling snow for a more leisurely life of regular golf-games and walks on the beach; but recent studies indicate that this trend to move to traditional “retirement states” is changing.
According to a recent article in CBS MoneyWatch, retirees are reconsidering where they want to spend their golden years. “Among U.S. workers age 55 and older, almost two-thirds — 62 percent — think that when they retire they will continue to live in their current state of residence. . . That’s up 20 percent from a similar survey taken just two years ago.”
While some of this change has to do with different states’ income tax and estate tax laws, the CBS article points out that most of it has to do with a shifting attitude toward retirement. “More and more Americans [are moving] away from the traditional definition of ‘all play and no work’ during their retirement years to start second careers or continuing to work in some manner. In fact, 50 percent of [survey respondents] report that they work part-time or are starting new businesses or careers.”
What this means is that more and more retirees are looking to make only small changes as they move from full-time work to part-time retirement. Many are staying in their city of residence and choosing to simply give up a larger family home in lieu of a smaller two-bedroom home. Some retirees are moving away from their lifetime city of business and residence to move closer to family and work remotely as contractors.
Wherever you choose to spend your retirement, you’ll want to know your state’s rules and regulations regarding gift and income taxes, estate planning, powers of attorney, health care, and government resources. Contact our office—or your own local elder law attorney—to ensure that you’re familiar with local laws, and taking advantage of every opportunity available to senior residents.
What Do Current Retirees Have to Say About Retirement?
July 27, 2012
There are plenty of articles out there about how to prepare for retirement, what to expect in your retirement, how difficult it may be, how easy it may be, what to tell your kids, what to tell your parents, and on, and on, and on. What we don’t often find is the first hand perspective of current retirees who are living through it right now. This recent article in the Huffington Post attempts to remedy that.
The author of the article cites a poll of current retirees as well as current workers, and states that what they found “may surprise you: When it comes to key ‘markers’ of an enjoyable retirement, their real-life experience soundly beats the expectations of today’s workers… As revealed by our poll, today’s retirement reality is that many retirees, at all wealth levels, feel financially secure, have preserved the choice not to work anymore, can readily buy things they want, and have filled their lives with family time and favorite leisure activities.”
Unfortunately, their studies also found that because of the national financial crisis of the past few years, current workers may not find it so easy to achieve this retirement bliss. What current retirees often say is that while every worker needs to take responsibility for their own retirement, many retirees feel that they could not have achieved their level of comfort without the support of their employers. “More than 90 percent of retirees believe that employers should educate workers about the realities of longevity in retirement. An equal number agree that employers must offer workplace plans that can deliver a steady stream of retirement income.”
Pensions are quickly becoming a thing of the past, but many employers still offer basic retirement contribution plans such as 401(k)s, and the longer workers remain enrolled in such a plan the better off they’ll be. Asset managers and financial advisors can help as well, by offering more educational opportunities, as well as “better workplace savings products that provide true lifetime income streams throughout retirement.”
The bottom line seems to be that the biggest factors in having a healthy population of retirees are education and responsibility; not only on an individual level, but for employers as well.