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The Top 10 Reason Not To Plan For Retirement

April 25th, 2012 | No Comments | Posted in Retirement News

A different kind of Top Ten list.

You probably read or hear about some “Top Ten” list nearly every day. But take a moment to read this one. This list is different, and probably not the kind of list you’d expect a Financial Advisor to write.

Reason #10: “I’m too busy

I can’t tell you how often I hear this excuse. So many people want to plan for a better retirement, but they don’t have time. They think they’ll take care of it tomorrow, or the day after that … and before they know it, several years have gone by. The best advice I can give you is to stop procrastinating and start planning today.

Reason #9:   “It’s too soon

I don’t know how this happened, but many people have adopted the notion that you don’t have to start planning for your retirement until you’re almost there. This is totally incorrect. The truth is, the sooner you start planning, the better chance you stand of having the kind of retirement you want. It’s never too soon. Many people start planning in their early twenties!

Reason #8:   “It’s too late

If you’re already near or past your retirement eligibility date, you may think that whatever you’ve got is what you’re stuck with and it’s too late to do anything about it. Think again. If you’re unsure of what your options are, speak to a professional. Even if you’ve already retired, it’s important to consider how you’re receiving income and how long it will last.

Reason #7:   “I don’t need to

I’ve heard this excuse many times and it always baffles me. Many people think that because they’ve been diligent about contributing to a savings account, they’re all set. While saving for retirement is good, you also need a plan for income distribution once you enter retirement. Are you certain that what you’re saving will be enough? Have you considered your distribution plan? What about taxes? What about inflation? And are you sure your money will be properly invested? There may be other, better options for you and it may prove worthwhile to look into them.

Reason #6:   “I don’t have enough money to get started

This excuse seems marginal at first glance, but there is some truth behind it. You need to have money to save or invest money. However, unless your bills are exactly equal to or greater than your net income, you DO have enough to get started. Starting small is better than not starting at all, and if you plan well, you may eventually have more to work with.

Reason #5:   “My finances are a mess

This is all the more reason to seek out an advisor who can help you sort through and understand your assets. Perhaps you have a 401(k) from a former employer that has not been rolled over, a couple of savings accounts, a trust from a deceased relative, some stocks that your parents bought in your name when you were younger … a circumstance like this can be confusing, but leaving it as it is won’t improve the situation. Consider speaking with an advisor who can look at your complete financial picture, help you to understand it, and help you to develop a plan to help make your “financial mess” work for you.

Reason #4:   “The Government will take care of me

The bottom line is this … there’s a chance Social Security may not be available when you retire, and even presuming it is, it may not be enough to provide your ideal retirement income. If you’re planning to retire on Social Security alone, I would advise you to create a back-up plan at the very least.

Reason #3:   “Between my savings and my 401(k), I’ll be fine

Saving for retirement without an income distribution plan can be a mistake. How will you use that money once you have it? And while you may think you’ll have everything you’re going to need, have you considered inflation? Taxes? And furthermore, some people are living past 90. Will your assets last that long? If you outlive your income, what then? It’s a good idea to look ahead and plan properly.

Reason #2:   “I don’t want to think about it

Many people procrastinate simply because the thought of discussing financial matters (or growing old) is unappealing. I can certainly understand that. But consider this … if you bite the bullet now and put a firm plan in motion, you may not have to think about it again for quite some time.

Reason #1:   “I don’t know how

If you knew everything there was to know about financial planning, you’d probably be a financial advisor yourself. While it is possible to do everything on your own, that generally involves a great deal of research and a huge time commitment. If you’re putting off retirement planning because you don’t know how, consider speaking to a professional who does.

These are just some of the reasons why people don’t plan for retirement … but these are reasons, and not excuses. If you have retirement goals you want to reach, I would recommend you speak to a qualified Financial Advisor and set up an action plan. The sooner the better.

Are You Saving Enough For Retirement?

April 25th, 2012 | No Comments | Posted in Retirement News

Do you have a million dollars? At the moment, probably not. But if you invest and save diligently and let your assets compound, who knows? You may be a millionaire someday. In fact, you may need to be a millionaire someday. If you stay retired for 20 or 30 years – which could happen – it could take well over $1 million to fund that retirement. In fact, a recent study of Registered Investment Advisors recommended retirement assets of $1.5 million or more for baby boomers.1 This is why you should contribute the maximum to your 401(k) plan.

Your 401(k) is your friend. For years, employers have wondered: why don’t people contribute more to their 401(k)s? At the typical large company, the majority of employees contribute too little, and some find it a hassle to even fill out the paperwork. Most people don’t speak “financial” and don’t look at financial magazines or websites. It’s “boring.” So they mentally file “401(k)” under “boring.” But the advantages of a 401(k) should not bore you; they should motivate you.

Tax-deferred growth and compounding. The money in your 401(k) compounds year after year without tax penalties. The earlier you start, the more compounding you get. Let’s say you put $2,400 annually in a 401(k) starting at age 30, and for the sake of example, let’s assume you get an 8% annual return. How much money would you have at 65? You would have a retirement nest egg of $437,148 from putting in $200 per month. But if you started putting in that $200 a month five years later, you would have only $285,588. You can put up to $17,000 into a traditional or “safe harbor” 401(k) in 2012, and if you turn 50 or are older than 50 this year, you can put in an additional $5,500 in “catch-up” contributions. You can contribute up to $11,500 to a SIMPLE 401(k) for 2012, with “catch-up” contributions of up to $2,500 if you are 50 or older.3 These annual contribution limits are indexed for inflation.

Reducing your taxable income. Many employees don’t recognize this benefit. Your 401(k) contributions are pulled out of your wages before taxes are withheld (pre-tax dollars). So you get reduced taxable income and tax-free growth; you pay taxes on 401(k) assets when you withdraw them from the plan. With the new and increasingly popular Roth 401(k), the contributions are after-tax (no reduction in taxable income), but you can enjoy both tax-free compounding and tax-free withdrawals.

Why not take advantage? If you don’t contribute greatly to your 401(k), 403(b) or 457 plan, you are ignoring a great retirement savings opportunity. Talk to your financial advisor about your 401(k) and other great resources to save for retirement.

Citations.
1 – financial-planning.com/news/Garrett-retirement-scottrade-2665994-1.html [3/1/10]
2 – irs.gov/retirement/article/0,,id=96461,00.html [6/30/10]
3 – irs.gov/retirement/participant/article/0,,id=151786,00.html [1/11/11]

Zeroing In on Retirement

November 21st, 2011 | No Comments | Posted in Retirement News

If life is a journey, retirement is the destination where one hopes to enjoy long-awaited rewards for years of hard work. However, a successful retirement doesn’t just happen; it requires an aggressive plan of attack. That’s where retirement planning comes into the picture.

Pieces of the Puzzle

Retirement planning is like a jigsaw puzzle with many pieces. Once you fit together all of the interlocking pieces of the puzzle, you will be able to set up the best retirement plan for your specific needs. Following are four important pieces of the retirement planning puzzle:

  1. 1. Social Security — Most working Americans will receive Social Security benefits based on how long they worked, how much income they have earned, and at what age they choose to retire. In most cases, Social Security will not be enough to provide a comfortable retirement income.
  2. 2. Company-sponsored pension plans — An employer may fund a benefit that is taken as a monthly income by employees at retirement. A key factor in determining the amount of income you will receive is the age at which you choose to retire.
  3. 3. Employer-sponsored retirement plans — In defined contribution plans such as 401(k)s, the employee contributes a portion of his or her pre-tax income to the plan, and the employer may match a portion of the employee’s contribution. Not only do these plans present an immediate return on your money, but earnings also have the potential to grow tax-deferred.
  4. 4. Your personal savings — A disciplined savings program, in addition to any other retirement benefits, can help you accumulate and supplement retirement wealth.

Taking Affirmative Action

Your first step of affirmative action is to assemble the pieces of your financial puzzle to determine if they are sufficient to provide a comfortable retirement. If so, keep up the good work. Set your sights on the retirement of your dreams. Early planning can help you avoid having to make financial sacrifices during your retirement. If you currently expect a funding shortfall, develop long-term strategies to meet your goals.

Although Social Security and your company’s pension plan offer relatively fixed benefits, you may be able to enhance your 401(k) contributions and personal savings. Regular contributions and tax-efficient choices can help you build financial security over time.

If you can, maximize contributions to your 401(k) or other employer-sponsored plans. [Note: Contributions to your 401(k) come from pre-tax salary, and tax on both contributions and earnings are deferred until you retire.] Individuals under age 50 may defer up to $16,500 in 2011, and those 50 and older may defer up to $22,000.

Contribute to an Individual Retirement Account (IRA). Up to $5,000 may be contributed in 2011. Those age 50 and older may make additional contributions up to $1,000. If you qualify, all or a portion of your contribution may be tax deductible.

“Don’t Put Off ’Till Tomorrow What You Can Do Today”

Whether you are in your 30s, 40s, or 50s, now is the time to start planning for your retirement. Your financial professional would welcome the opportunity to help you determine your future needs and devise a strategy to meet those needs. The sooner you put your plan of attack into action, the better your chances of securing a future of truly “golden” years.

Copyright © 2011 Liberty Publishing, Inc. All Rights Reserved. RPGA0U-AS

Your Retirement Plan—Ready to Roll(Over)?

November 21st, 2011 | No Comments | Posted in Retirement News

Simply stated, a rollover happens when you “roll over” assets/funds from one qualified retirement plan directly into another. You must enact this transaction within 60 days of receiving the funds from the original plan, or you will face a penalty. The transfer is done tax free. There are several rules governing rollovers. Any part of the taxable portion of a distribution from a qualified plan, annuity plan, or tax-sheltered annuity (TSA)—other than a minimum distribution—may be rolled over tax free to an Individual Retirement Account (IRA), annuity, or other qualified plan. However, if the distribution is in the form of certain periodic payments, a rollover is not allowed.

How to Make a Rollover

Rollovers can be done in two ways:

Option 1: You (the plan participant) may receive the distribution yourself, but you must reinvest it into an IRA or qualified plan within 60 days. This form of distribution (where you actually receive cash) is subject to a 20% withholding requirement. This 20% withholding rate is imposed by law on distributions that are eligible for rollover but that aren’t transferred directly to an eligible transferee plan. The employer must withhold taxes for these distributions. This means that employees receiving direct distributions will receive only 80% of their account, since 20% is withheld. However, the withheld funds may be refunded after the employee files his or her tax return, as long as the distribution is rolled over into another IRA or qualified plan within 60 days. Since the 20% that is withheld is treated as a taxable distribution, the employee will need to make up the withheld 20% from his or her own funds to achieve a 100% tax-free rollover; otherwise, the 20% withheld will be treated as taxable. In addition to the income taxes owed on that 20%, the employee will also be required to pay a penalty tax of 10% if he or she is under the age of 59½.

Option 2: To avoid the 20% withholding requirement, the employee may request a direct trustee-to-trustee transfer to an IRA or qualified plan. Annuities or qualified plans must allow payees of eligible rollover distributions to choose a direct trustee-to-trustee transfer. However, a
qualified plan is not required to accept this form of transfer. This type of transfer is considered a distribution option, so that spousal consent and other similar participant and beneficiary rules of protection will apply.

There are many factors to consider in deciding when and how to use a rollover. Getting knowledgeable assistance from a professional can make the difference between a “rocky” rollover and a smooth, effective one.

Copyright © 2011 Liberty Publishing, Inc. All Rights Reserved. RPIIRA0-AS

What Happens if You Should Die Without a Will?

May 12th, 2011 | No Comments | Posted in Retirement News

By Keith A. Woerner, Esq., PRIMESolutions Advisors, LLC

There is a great deal of confusion concerning what occurs when someone dies without a Will. You will hear opinions ranging from the state keeping a decedent’s property to the idea that whoever is placed in charge of the estate decides how assets will be distributed.

The correct answer is that for those people who have not taken the time to prepare a Will, the state has already done it for you. This is referred to as “intestacy”, and each state has a standard format that determines who inherits property where there is no Will. While the rules vary from state to state, they are all set up based on who are the survivors.

For example, in Pennsylvania the state first looks at whether there is a surviving spouse. How much the surviving spouse would receive is then determined by whether there are any surviving children or parents. While an individual may think they will receive their spouses’ assets, they may end up having to share those assets with other family members.

The issue takes on more significance for families with minor children. When there is no Will stating who should be appointed to act as the guardian of a minor child the matter must be decided by a judge. This may or may not end in the same result as what the parents would have decided, but it undoubtedly will be a much more costly process.

The second issue that parents of minor children must address is when would they want their children to have unlimited access to any assets they may inherit. When life insurance death benefits, retirement accounts or perhaps proceeds from the sale of a house are included, the estate can add up to a substantial amount. Without a Will a child will have unlimited access to their inheritance when they turn 21 years old. Most 21 year old are ill-equipped to take on the responsibility for making those kinds of financial decisions. A parent may wish to designate someone to assist the children with these decisions for a period of time.

Of course a person needs to also consider the impact on how property is titled and how beneficiary designations are completed as part of this process.

In summary, unless you want the state to have the final say in who receives your estate, you should take the time to prepare a Will.

Reference to Medical Power of Attorney/Living Will and Durable Power of Attorney?

Coming next month. . . “What is a Living Will?”

Should You Pay Off Your Home Before You Retire?

April 21st, 2011 | No Comments | Posted in Retirement News

Before you make any extra mortgage payments, consider some factors.

Should you own your home free and clear before you retire? At first glance, the answer would seem to be “absolutely, if at all possible.” Retiring with less debt … isn’t that a good thing? Why not make a few extra mortgage payments to get the job done?

In reality, things are not so cut and dried. There is a fundamental opportunity cost to consider. If you decide to put more money toward your mortgage, what could that money potentially do for you if you were to direct it elsewhere?

In a nutshell, the question is: should you pay down low-interest debt, or should you invest the money into a tax-advantaged account that could potentially bring you a strong return?

Relatively speaking, home loans are cheap debt. Compare the interest rate on your mortgage to the one on your credit card. Should you focus your attention on a debt with 6% interest or a debt with 15% interest?

You can usually deduct mortgage interest, so if your home loan carries a 6% interest rate, your after-tax borrowing rate could end up being 5% or lower.

If history is any barometer, your home’s value may increase over time and inflation will effectively reduce the real amount of your mortgage over time.

A Chicago Fed study called mortgage prepayments “the wrong choice”. In 2006, the Federal Reserve Bank of Chicago presented a white paper from three of its economists titled “The Tradeoff between Mortgage Prepayments and Tax-Deferred Retirement Savings”. The study observed that 16% of American households with conventional 30-year home loans were making “discretionary prepayments” on their mortgages each year – that is, payments beyond their regular mortgage obligations. The authors concluded that almost 40% of these borrowers were “making the wrong choice.” The white paper argued that the same households could get a mean benefit of 11-17¢ more per dollar by reallocating the money used for those extra mortgage payments into a tax-deferred retirement account.1

Other possibilities for the money. Let’s talk taxes. You save taxes on each dollar you direct into IRAs, 401(k)s and other tax-deferred investment vehicles. Those invested dollars have the chance for tax-free growth. If you are like a lot of people, you may enter a lower tax bracket in retirement, so your taxable income and federal tax rate could be lower when you withdraw the money out of that account.

Another potential benefit of directing more funds toward your 401(k): If the company you work for provides an employer match, then you may be able to collect more of what is often dubbed “free money”.

Let’s turn from tax-deferred retirement investing altogether and consider insurance and college planning. Many families are underinsured and the money for extra mortgage payments could optionally be directed toward long term care insurance or disability coverage. If you’ve only recently started to build a college fund, putting the assets into that fund may be preferable.

Let’s also remember that money you keep outside the mortgage is money that is easier to access.

What if you owe more than your house is worth? Prepaying an underwater mortgage may seem like folly to you – or maybe you really love the house and are in it for the long run. Even so, you could reallocate money that could be used for the home loan toward an emergency fund, or insurance, or some account with the potential for tax-deferred growth – when all the factors are weighed, it might look like the better move.

Think it over. It really comes down to what you believe. If you are bearish, then you may lean toward paying off your mortgage before you retire. There is no doubt about it – when you pay off debt you owe, you effectively get an instant return on your money for every dollar. If you are tantalizingly close to paying off your house, then you may just want to go ahead and do it because you love being free and clear.

On the other hand, model scenarios may tell you another story. After the numbers are run, you may want to direct the money to other financial priorities and opportunities, especially if you tend to be bullish and think the market will perform along the lines of its long-term historical averages.

No one path is right for everyone. If you’re unsure which direction may be most beneficial to you, speak with a PRIMESolutions advisor.

Citations.
1 chicagofed.org/digital_assets/publications/working_papers/2006/wp2006_05.pdf [8/06]
2 montoyaregistry.com/Financial-Market.aspx?financial-market=will-you-have-an-adequate-retirement-cash-flow&category=3 [2/27/11]

Asset Allocation Made Simple

April 21st, 2011 | No Comments | Posted in Retirement News

As you accumulate retirement assets, the most important decision you need to make is how the assets are going to be invested. The allotting of your retirement assets across stocks, bonds, money market, and other investments is referred to as asset allocation. Your asset allocation decision, more than any other decision, will determines how fast your retirement account will grow. Is it difficult to do? Not really, but like most investment issues you do need to know some basics.

   • Invest for the Long-term: Once you set your allocation, be patient. Discipline yourself to
     maintain your allocation through down markets as well as up markets.

   • Invest for Growth: Equity mutual funds (stocks) need to be an important part of your
     allocation, even in retirement. Don’t worry about short-term ups and downs in the stock
     market. Over time, stocks have usually outperformed all other types of investments while
     staying ahead of inflation. Make equity mutual funds the core of a long-term investing strategy.

   • Know Yourself: Understand your tolerance for risk. Ask yourself, “Can I sleep at night with my
     retirement dollars allocated this way?” If the answer is no, make a change. Don’t create undo
     emotional stress.

   • Diversified Your Portfolio: This is what good asset allocation is all about. Don’t put all your
     assets into one asset class. Spread them among different asset classes and investment
     styles. Doing so will spread your assets over an assortment of investments and should
     reduce your risk. You can learn more about asset styles by clicking here.

   • Review Annually: Take the time once a year to review your life circumstances and long-term
     goals. Based upon the results of your review, adjust your allocation. Even if nothing has
     changed, you may need to rebalance your portfolio to bring it back into line with your allocation
     objectives.

You must make your own allocation decisions based upon your individual situation, but we can give you some general “rule of thumb” asset allocations based upon age. You can use these as a starting point. We assume retirement at age 65.

   • Age: Less Than 40 — 100% in equities. Of this, 40% invested in large cap. growth funds, 25%
     small cap. growth funds, 25% in large cap. value funds, and 10% international.

   • Age: 40 to 50 – 80% in equities and 20% in fixed income. Of the equity portion, 40% invested
     in large cap. growth funds, 25% small cap. growth funds, 25% in large cap. value funds, and
     10% international.

   • Age: 51 to 55 – 70% in equities and 30% in fixed income. Of the equity portion, 40% invested
     in large cap. growth funds, 25% small cap. growth funds, 25% in large cap. value funds, and
     10% international.

   • Age: 56 to 60 – 50% in equities and 50% in fixed income. Of the equity portion, 40% invested
     in large cap. growth funds, 10% small cap. growth funds, 40% in large cap. value funds, and
     10% international.

   • Age: 61 to 65 – Reduce equities by 5% per year and increase fixed income by 5% per year so
     that at retirement you have 25% in equities and 75% in fixed income. Of the equity portion,
     40% invested in large cap. growth funds, 10% small cap. growth funds, 40% in large cap.
     value funds, and 10% international.

Remember, this information is provided as general guidance on the subject of asset allocation and is not provided as legal, tax or investment advice. Individual situations vary. Please be sure you consult with your tax, legal or financial advisor for more detailed information and advice.

Apply for Social Security Now … or Later?

April 21st, 2011 | No Comments | Posted in Retirement News

When should you apply for benefits? Consider a few factors first.

Now or later? When it comes to the question of Social Security income, the choice looms large. Should you apply now to get earlier payments? Or wait for a few years to get larger checks?

Consider what you know (and don’t know). You know how much retirement money you have; you may have a clear projection of retirement income from other potential sources. Other factors aren’t as foreseeable. You don’t know exactly how long you will live, so you can’t predict your lifetime Social Security payout. You may even end up returning to work again.

When are you eligible to receive full benefits? The answer may be found online at socialsecurity.gov/retire2/agereduction.htm.

How much smaller will your check be if you apply at 62? The answer varies. As an example, let’s take someone born in 1949. For this baby boomer, the full retirement age is 66. If that 61-year-old baby boomer decides to retire in 2011 at 62, his/her monthly Social Security benefit will be reduced 25%. That boomer’s spouse would see a 30% reduction in monthly benefits.1

Should that boomer elect to work past full retirement age, his/her benefit checks will increase by 8.0% for every additional full year spent in the workforce. (To be precise, benefits increase by .67% for every month worked past full retirement age.)2 So it really may pay to work longer.

Remember the earnings limit. Let’s put our hypothetical 61-year-old baby boomer through another example. Our boomer decides to apply for Social Security at age 62 in 2011, yet stays in the workforce. If he/she earns more than $14,160 in 2011, the Social Security Administration will withhold $1 of every $2 earned over that amount. $14,160 is the 2011 earnings limit, unchanged from 2010.3

The earnings cap disappears at full retirement age (66 in this case). If our boomer keeps working past 66, he or she may keep 100% of Social Security benefits regardless of earned income level.3

How does the SSA define “income”? If you work for yourself, the SSA considers your net earnings from self-employment to be your income. If you work for an employer, your wages equal your earned income. (Different rules apply for those who get Social Security disability benefits or Supplemental Security Income checks.)4

Please note that the SSA does not count investment earnings, interest, pensions, annuities and capital gains toward the current $14,160 earnings limit.4

Some fine print worth noticing. If you reach full retirement age in 2011, then the SSA will deduct $1 from your benefits for each $3 you earn above $37,680 in the months preceding the month you reach full retirement age.4 So if you hit full retirement age early in 2011, you are less likely to be hit with this withholding.

Did you know that the SSA may define you as retired even if you aren’t? This actually amounts to the SSA giving you a break. In 2011 – assuming you are eligible for Social Security benefits – the SSA will consider you “retired” if a) you are under full retirement age for the entire year and b) your monthly earnings are $1,180 or less. If you are self-employed, eligible to receive benefits and under full retirement age for the entire year, the SSA generally considers you “retired” if you work less than 15 hours a week at your business.2,4

Here’s the upside of all that: if you meet the tests mentioned in the preceding paragraph, you are eligible to receive a full Social Security check for any whole month of 2011 in which you are “retired” under these definitions. You can receive that check no matter what your earnings come to for all of 2011.4

Learn more at socialsecurity.gov. The SSA website is packed with information and user-friendly. One last little reminder: if you don’t sign up for Social Security at full retirement age, make sure that you at least sign up for Medicare at age 65.

Citations
1 – socialsecurity.gov/retire2/agereduction.htm [7/11/10]
2 – socialsecurity.gov/retire2/delayret.htm [8/16/10]
3 – ssa.gov/pressoffice/colafacts.htm [10/21/10]
4 – ssa.gov/pubs/10069.html [1/10]

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