Posts Tagged ‘Retirement’

Does Anything Change for Your Retirement After Marriage?

Thursday, November 12th, 2015

retirement marriage

It’s no secret that married couples in the US are eligible for a variety of nuptial benefits, like tax breaks, deductions, estate planning, and so on. But what most people don’t know if that there are retirement benefits as well, and some that single retirement savers are not eligible for. What those benefits are differ depending on what type of retirement plan you invest in, so let’s break them down.

401ks

If both people in a marriage are working and earning income both have a 401k can defer income tax twice as much cash as single people. Couples who are only able to save a limited amount can decide which 401k has the better employer contributions, and focus their savings efforts there, but the ideal situation would be getting matches from both employers. It’s silly to turn down free money. Between 1992 and 2010, married women’s contributions to retirement accounts increased from 20 percent to 38 percent, on average, according to a Government Accountability Office analysis of Federal Reserve data. And among dual-earner households ages 55 to 64 with 401ks or similar types of accounts, women contributed an average of 44 percent of the household’s deposits in retirement accounts.

Individual Retirement Accounts

According to IRS rules regarding IRAs, married couples have different income limits than individuals when it comes to their ability to make tax-deductible IRA contributions if they also have retirement accounts at work, such as a 401K. For example, the tax deduction for traditional IRA contributions is phased out for married couples with a modified adjusted gross income between $96,000 and $116,000, compared to between $60,000 and $70,000 for individuals. An individual who doesn’t have a workplace retirement account, but is married to someone who does have one can claim the tax deduction until the couple’s income is between $181,000 and $191,000. The adjusted gross income phase out range for Roth IRAs is $181,000 to $191,000 for married couples and $114,000 to $129,000 for unmarried individuals.

Social Security

Married individuals have Social Security claiming options that single people don’t, and they can use various strategies to maximize their benefit as a married couple. Spouses are eligible to receive Social Security payments worth as much as 50 percent of the retired worker’s benefit (if it’s more than they would get based on their own work record), and surviving spouses are entitled to up to 100 percent of the higher earner’s benefit. Married individuals can also claim spousal payments and benefits based on their own work record at different times in their lives. For example, a wife claiming Social Security payments based on her own work record might switch to survivor’s payments based on her husband’s work record when he passes away if his payment is higher than the one she is getting. Couples have an advantage in that they can play the game a little bit and try some strategies, a widow’s benefit is going to be based on whatever his final benefit is, so by waiting until age 70, if something does happen to him, she will get that higher benefit. Divorced spouses can get these payments too if the marriage lasted at least 10 years. In contrast, single people or divorced individuals whose marriage did not last a decade can only claim benefits based on their own work record.

Traditional Pension

Traditional pensions generally provide a steady stream of payments over the lifetime of the retiree and are also required to provide payments to a surviving spouse. However, more than a third of married households with pensions opted not to receive a spousal survivor benefit, often to get higher monthly payments, the Government Accountability Office found. But a worker who wishes to opt out of the spousal coverage needs written consent from the spouse. Some pension plans also give workers the option to take lump-sum cash payments instead of lifetime payments, which allows them greater freedom to spend or invest the money, but also results in the loss of the security of guaranteed monthly payments in old age.

Author: Tanya

How Could The Federal Rate Hike Affect Your Retirement?

Thursday, November 5th, 2015

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It hasn’t even been 24 hours since Fed Chair Janet Yellen told Congress that the Federal Reserve may be closer than ever to hiking interest rates for the first time in nearly a decade, and already, there’s already been an uproar from the market in anticipation. The Washington Post reported that mortgage rates have surged as of Thursday morning due to talks of the possible Federal rate hike from Chair Yellen. Although economic and job growth has slowed recently, Yellen told the House Financial Services committee the economy is performing well. But a decision on whether to hoist rates at the Fed’s Dec. 15-16 meeting will depend on economic reports in coming weeks, she said.

While rates are most likely rising next month, this makes us question whether or not these changes will affect retirement in any adverse way. There’s some speculation that Federal Reserve doesn’t want Americans to retire, that they want to keep rates as low as they have to encourage spending, and deter saving in order to prolong retirement. While there might be some truth to that, it is far from the grand conspiracy that some claim it to be. And unfortunately, no one can say with certainty whether the effects of a hike will be mostly positive or negative until it happens. For those who hope to retire someday, that uncertainty is disconcerting at best.

When it comes to long-term debt, increased rates directly affects how much it costs banks to borrow from one another, and subsequently, to consumers, the cost of borrowing will also increase. For those who have say, a variable rate mortgage loan or are in the market to borrow money for a large purchase, the fed rate hike will make borrowing slightly more expensive. The best thing to do if you’re in either of those situations is to either lock in today’s low rates or work to eliminate potentially expensive debt that could eat away at retirement savings.

With equities, experts say that in preparation of a hike, that investors should do what’s called ‘sector rotation’ within portfolio and should think about selling some stocks from industries that perform well during falling rate environments, such as apparel, retail, construction, durable goods and autos, and buying stocks in industries that perform well during rising rate environments, such as energy, consumer goods, utilities, food and steel products.

Experts suggest that when it concerns bonds, investors should get out and look for safer options. The reason for this is because history shows when interest rates go up, bond values go down, and since most people use bonds to protect their money, when interest rates go up, bonds will no longer hold the title of safe. As the Fed begins to solidify its plans, retirement savers will need to move some of that money into other securities to offset the price drop.

Retirement savers should not be afraid when the Fed initiates its first interest rate hike in more than nine years. Our economy and markets have been through them many times before and weathered the storm. As always, asset allocation within your self-directed IRA, or 401K, and persistence remain the most important ingredients to retirement success.

Here are the Stats: Why You Should Start Retirement Planning Today

Thursday, October 22nd, 2015

Retirement stats

According to the 2014 Survey of Household Economics and Decisionmaking, conducted by the Federal Reserve, American’s are very ill-prepared for retirement. A whopping 38% of the more than 5,800 respondents answered that they had no intention of retiring, or planned to work for as long as possible. 31% of non-retirees had no retirement savings or pension whatsoever, including a quarter of the people in the survey age 45 and up.

If this trend keeps up, and we’re unable to make up this deficit, a big majority of American’s could be forced to rely on Social Security in their would-be retirement years, or may have to work passed the desired age. The biggest issue with working well into retirement age is that unfortunately you can’t know for sure that your health, or your employer will accommodate you working 60 and beyond.

The problem with us relying on Social Security is that ideally, it’s only meant to make up %40 of retiree’s income. With people living longer than before, and baby boomers beginning to retire, it’s no wonder that Social Security is making headlines lately with talks of it possibly drying up.

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Fortunately, there are several options when it comes to retirement planning, 401K’s and pensions offered through your employer, the rollout of myRA through the government, individual IRA’s and Self-Directed IRA’s hosted through IRS approved custodians, SEP IRA’s for self-employed people or small business owners, and more.

Talking with your financial advisor is important when making retirement decisions, they’ll give you an objective view on where you are, and what can be done to help you reach your goals. The most important thing is to not throw your hands up in defeat. Small victories and goals can be met, and make a big difference in the long run.

Click here to open an IRA today, and click here and fill out the form on the right to get more information on how you can get started today.

Author: Tanya

The Right Way to Take Your IRA Withdrawals

Thursday, October 15th, 2015

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What most workers are thinking about before retirement is what’s happening now, in their day-to-day lives. What some of those working towards retirement don’t think about often enough is after retirement. The process, the questions, the uncertainty. But Donna Rosato at Time (found on Twitter at @RosatoDonna) has written about that very topic in a piece that was published yesterday, Oct 14th.


Q: I need to start taking my minimum required distribution from my IRA soon. Is there any tax advantage to taking it in monthly installments as opposed to taking a lump sum once a year? —Sherwood Kahmer, Garnet Valley, Pennsylvania

A: There is no tax advantage to taking your required minimum distribution (RMD) in one lump sum annually vs. installments throughout the year. But the timing of your distribution is important, says Mark Copeland, a founding partner at Signature Estate & Investment Advisors in Irvine, Calif.

First, a little background on how RMDs work. At age 70½, you must start taking money out of your IRA and other tax-advantaged investment accounts such as 401(k)s, according to IRS rules. After years of waiting, Uncle Sam wants to collect the taxes you’ve deferred on your contributions. You must take your distribution by April 1 of the year following the calendar year in which you turn 70½. But after that, you can wait until December 31 of each year to receive the money.

You can choose to take the payments monthly, quarterly, or annually. You’ll pay the same amount of income tax no matter when you receive the money. But taking payments earlier in the year is a “lost opportunity,” says Copeland. “The longer you keep the money in a tax-deferred account, the more time your investments grow without the drag of taxes.”

In fact, most people do take the money in one lump sum at the end of the year, says Copeland. You shouldn’t wait till the last minute to do the paperwork though. If you don’t take the distribution by the December 31 deadline, you’ll pay a 50% tax penalty in addition to regular income tax on the amount that should have been withdrawn. A surprising number of people wait to the very end of the year.

You’ll also pay a penalty if you underestimate how much you owe in taxes. Withdrawals from traditional IRAs are taxed as regular income, based on your tax bracket for the year in which you make the withdrawal. How much you must withdraw depends on the account balance and your age. The IRS has a worksheet that can guide you through it. Or you can use a calculator like this one from T. Rowe Price to estimate your distribution (you must take a minimum amount but you can always take out more). To make paperwork easier, you can also have the taxes withheld from your distribution (10% will automatically be held for federal taxes if you choose this option, but you can elect to have more than 10% withheld).

Of course, there may be good reasons to take the money earlier in the year or in installments. Maybe you need it to cover day to day living expenses, or want the consistent cash flow from monthly distributions.

If you have a complex investment portfolio, there may be advantages to taking withdrawals quarterly; consult with a tax adviser.

The bottom line: “You can’t avoid the taxes, but keep what you don’t need tax deferred for as long as you can,” Copeland advises.

Biggest Retirement Mistakes That Can be Easily Avoided

Thursday, October 1st, 2015

Retirement mistakes 2

You’ve probably heard it all over the news lately, that people nowadays, of all ages, are simply not saving enough — if any — for retirement. Earlier this week, we talked about President Obama’s retirement plan called “myRA” and with tools such as a myRA, there’s hardly a reason not to get your head on straight and getting to planning.
What we’re going over today corresponds with last week’s blog, and we’re going to talk about today is retirement mistakes that are easily avoided.

Passing up money on the table

If you’re lucky enough to work for a company that offers a 401k program with a matching contribution, we cannot say this with enough enthusiasm, take FULL advantage. The main reason most people don’t take full advantage of a match is they either don’t know how it works, or don’t know how much they can get out of it. The problem is that every company does it differently, some match dollar for dollar up to a certain limit, and others match up to 50% of contributions.
Missing out on those dollars really adds up fast. It can be up to $1000 that you’re missing out on yearly (again, depending on what your employer offers), and that in turn can boost your nest egg by tens of thousands over several decades of saving, plus compounding interest.
The solution is that you need to talk to your human resources department. Write them out a detailed email, have all your questions up front, get all your bases covered, and then sign up, and start saving.

Not fully participating in your planning

The biggest issue with this is that you don’t know where your money is going, or how it’s doing. Don’t give someone else the reigns to your financial future. You may right now have an advisor, and that’s wonderful, but think about how much better two heads are over just one. If you’re watching out for yourself, and your financial advisor is as well, then I’d say that you’re in for a pretty stellar retirement.
Though, getting yourself to that point is where some hard work comes in. You have to choose yourself, pay yourself, and be kind to yourself. It’s all about self-education and responsibility.

Ignoring the obvious

As the song by Dusty Springfield goes, you’re wishin’ and hopin’ and thinkin’ and prayin’. And as we all know, that is no way to get anything done. Ignoring the fact that you will have to retire, or even putting off retirement planning is a surefire way to get you into some deep water. We at Accuplan challenge everyone to either schedule a meeting with a financial advisor, or just a serious sit down by yourself, and really start planning today, because wishful thinking can be dangerous.

Author: Tanya