Posts Tagged ‘Retirement’

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

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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

Let’s Talk About the Pros and Cons of President Obama’s “myRA”

Monday, September 28th, 2015

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(image credit to The Monday Face)

In the State of the Union of January 2014, President Obama announced his plans to introduce a program called “myRA” which stands for My Retirement Account. It’s specifically built for workers who may not have a current retirement account, but would like to start building a nest egg. Here are a few of the specifications for opening a myRA.

How does it work?

The account is essentially a Roth IRA, so the contributions that you make each month are made tax-free, and through direct deposit (which means that your work will first have to offer the program). Your contributions are made automatically on whatever day works best for you, like a certain day of the month, or multiple paydays within a month. If/when workers switch jobs, the account stays with you since your employer isn’t administering the account, so no worries on that front.

The funds that you deposit are invested in government savings bonds, and backed by the U.S Department of the Treasury, so savers can never lose their principal investment. The cap on myRA contributions are $5,500, a year under current limits, just like with regular Roth IRAs.

Who’s eligible?

This new program is mainly aimed at low to middle-income americans who don’t have access to employer-sponsored retirement plans. With no fees to maintain the account, and no fees to open the account, it’s ideal for the target demographic. But all workers may invest in a myRA, including those who would like to supplement an existing 401k plan, as long as their household income falls below $191,000 a year.

What are the downsides?

One of the main downsides is that it’s not a long-term retirement plan. The myRA plan is mainly meant as a kickstarter for your retirement, because once a participant’s account balance hits $15,000, or the account has been open for 30 years, they will have to roll it over to a private sector Roth IRA, where the money can continue to grow tax-free. Another downside is interest that the account will gain, you’re not going to have a huge amount of earnings on this account. The White House said the accounts will earn the same rate as the Thrift Savings Plan’s Government Securities Investment Fund that it offers to federal workers. That fund earned around 1.5 % in 2012, and had an average annual return of 3.6% between 2003 and 2012.

The lack of investment control that the account holder has might also be a downside for some. As we said above, the funds are invested in government savings bonds, and so subsequently, the opportunity for workers to have some investment freedom is out the window unfortunately.

The truth is that no one thinks this alone will fix the fact that millions of Americans have little-to-no retirement savings, but retirement advocates are cheering on the new program as an important step in the right direction.

Author: Tanya