Working into Retirement
The Great Recession has many older Americans considering the prospects of going back to work after retirement or staying in the workforce past their normal retirement age. But working after retirement age is not a new necessity. According to the Social Security Administration, more than 30% of individuals between the ages of 70 and 74 reported income from earnings in 2010, the latest year data are available. Among a younger age group, those between 65 and 69, nearly 49% had income from a job.
Some remain employed for personal reasons, such as a desire for stimulation and social contact; others still want a regular paycheck. Whatever the reason, the decision to continue working into your senior years could potentially have a positive impact on your financial future.
Working later in life may permit you to continue adding to your retirement savings and delay making withdrawals. For example, if you earn enough to forgo Social Security benefits until after your full retirement age, your eventual benefit will increase by between 5.5% and 8% per year for each year that you wait, depending on the year of your birth. Although you can continue working after age 70, you cannot delay social security benefits past age 70. You can determine your full retirement age at the Social Security Web site (www.ssa.gov) or by calling the Social Security Administration at 1-800-772-1213.
Depending on the circumstances of your career, working could also enable you to continue adding to your retirement nest egg. If you have access to an employer-sponsored retirement plan, you may be able to make contributions and continue building retirement assets. If not, consider whether you can fund an IRA. Just remember that after age 70 1/2, you will be required to make withdrawals, known as required minimum distributions (RMDs), from traditional 401(k)s and traditional IRAs. RMDs are not required from Roth IRAs and Roth 401(k)s.
Even if you do not have access to a retirement account, continuing to earn income may help you to delay tapping your personal assets for living expenses, which could help your portfolio last longer in the years to come. Whatever your decision, be sure to apply for Medicare at age 65. In certain circumstances, medical insurance might cost more if you delay your application.
Work doesn’t have to be a chore. You may find opportunities to work part time, on a seasonal basis, or capitalize on a personal interest that you didn’t have time to pursue earlier in life.
© 2013 S&P Capital IQ Financial Communications. All rights reserved.
What Fees Are Associated With Your Retirement Plan?
There’s a little secret associated with your workplace -sponsored retirement plan. Usually that is a 401k. However, it can also be a 403b, a 457, or a SIMPLE IRA. Most participants think their plan is free – That it doesn’t cost them anything to join, contribute, and invest. Unfortunately, that’s not entirely true.
While employees typically aren’t charged any out-of-pocket costs to participate in their plans, participants do pay expenses, many of which are difficult to find and even more difficult to calculate. New regulations from the Department of Labor (DOL), which oversees qualified workplace retirement plans, should make it easier for participants to locate and comprehend how much they are paying for the services and benefits they receive.
Here’s a summary of the information you should receive.
These regulations have been hailed by many industry experts as a much-needed step toward helping participants better understand investing in their company-sponsored retirement plans. Why should you take the time to learn more about fees? One very important reason: Understanding expenses could save you thousands of dollars over the long term.
While fees shouldn’t be your only determinant when selecting investments, costs should be a key consideration of any potential investment opportunity. For example, consider two similar mutual funds. Fund A has an expense ratio of 0.99%, while Fund B has an expense ratio of 1.34%. At first look, a difference of 0.35% doesn’t seem like a big deal. Over time, however, that small sum can add up, as the table below demonstrates.
|Initial investment||Annual return||Balance after 20 years|
Expenses paid to the fund
Over this 20-year time period, Fund B was $11,161 more expensive than Fund A. You can perform actual fund-to-fund comparisons for your investments using the FINRA Fund Analyzer.
If you have questions about the fees charged by the investments available through your workplace retirement plan, speak to your plan administrator or your financial professional.
Note: Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so you may lose money. Past performance is no guarantee of future results. For more complete information about any mutual fund, including risk, charges, and expenses, please obtain a prospectus. Please read the prospectus carefully before you invest. Call the appropriate mutual fund company for the most recent month-end performance results. Current performance may be lower or higher than the hypothetical performance data quoted. The hypothetical data quoted is for illustrative purposes only and is not indicative of the performance of any actual investments. Investment return and principal value will fluctuate; and shares, when redeemed, may be worth more or less than their original cost.
Marriage affects your finances in many ways, including your ability to build wealth, plan for retirement, plan your estate, and capitalize on tax and insurance-related benefits. Here are some considerations to keep in mind if you are thinking of getting married or have just tied the knot.
If both you and your spouse are employed, two salaries can be a considerable benefit in building long-term wealth. For example, if both of you have access to employer-sponsored retirement plans, your joint contributions are double the individual maximums ($17,500 for 2013). Similarly, a working couple may be able to pay a mortgage more easily than a single person can, which may make it possible for a couple to apply a portion of their combined paychecks for family savings or investments.
Some (but not all) pensions provide benefits to widows or widowers following a pensioner’s death. When participating in an employer-sponsored retirement plan, married workers are required to name their spouse as beneficiary unless the spouse waives this right in writing. Qualifying widows or widowers may collect Social Security benefits up to a maximum of 50% of the benefit earned by a deceased spouse.
Married couples may transfer real estate and personal property to a surviving spouse with no federal gift or estate tax consequences until the survivor dies. But surviving spouses do not automatically inherit all assets. Couples who desire to structure their estates in such a way that each spouse is the sole beneficiary of the other need to create wills or other estate planning documents to ensure that their wishes are realized. In the absence of a will, state laws governing disposition of an estate take effect. Also, certain types of trusts, such as QTIP trusts and marital deduction trusts, are restricted to married couples.
When filing federal income taxes, filing jointly typically results in lower tax payments when compared with filing separately.
In certain circumstances, creditors may be able to attach marital or community property to satisfy the debts of one spouse. Couples wishing to guard against this practice may do so with a prenuptial agreement.
The opportunity to go through life with a loving partner may be the greatest benefit of a successful marriage. That said, there are financial and legal benefits that you may want to explore with your beloved.
High-Yield Bonds: Income Potential at a Price
These bonds — sometimes referred to as “junk” bonds — are a class of corporate debt instruments that are considered below investment grade, due to their issuers’ questionable financial situations. These situations can vary widely — from financially distressed firms to highly leveraged new companies simply aiming to pay off debts.
As the name “high yield” suggests, the competitive yields of these issues have helped attract assets. With yields significantly higher than elsewhere in the bond market, many investors have turned to high-yield bonds for both performance and diversification against stock market risks.
These are valid reasons for investing in high-yield bonds, especially long term. But as you read about what these issues could offer your portfolio, it’s also wise to consider how these bonds earned their nicknames.
In exchange for their performance potential, high-yield bonds are very sensitive to all the risk factors affecting the general bond market. Here are some of the most common risks.
The risk factors associated with high-yield investing make it imperative to carefully research potential purchases. Be sure to talk to your financial professional before adding them to your portfolio.
Note (1): Diversification does not ensure a profit or protect against a loss in a declining market.
© 2013 S&P Capital IQ Financial Communications. All rights reserved.
In a traditional IRA, your contribution will be deductible from your taxable income, and will grow tax-deferred . Income taxes will be paid when you take distributions at retirement. The immediate benefit is that a contribution will help you reduce your taxable income, and, therefore, your taxes. (For the 2012 tax year, you have until April 15 to make that contribution.)
For a Roth IRA, your contribution is not tax deductible . However, it will grow tax free, and distributions in retirement will not be taxable. Hence, your retirement income from the Roth would be tax-free.
The answer is entirely about what you expect your taxes to be when you retire. If you expect your tax rate to be lower in retirement than today, you may want to consider a regular IRA. That is because, you will be saving a relatively large amount in taxes today, and paying at a relatively low rate in retirement.
On the other hand, should you expect your tax rate to be higher in retirement than today, you may want to consider a Roth. That is because you would be paying at a low tax rate today, and saving even more taxes later on.
So, you might ask, how can you figure out what your tax rate will be in retirement? That is a different question altogether!
Check out out other retirement posts:
Alice in Wonderland and Financial Planning
“Would you tell me please, which way I ought to go from here”
“That depends a great deal on where you want to go” said the Cat.
“I don’t much care where ___” said Alice.
“Then it doesn’t matter which way you go,” said the Cat
“__ so long as I get somewhere,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat, “if only you walk long enough.”
If you are reading this blog post, chances are you are interested in financial planning. Alice has taken the first step: she knows she would like to get somewhere, she realizes that she does not know how to, and she has asked for advice.
Hopefully in real life you won’t have to rely on the Cheshire Cat for advice, or any Cat for that matter! Do remember though: if you walk long enough, you will eventually get somewhere.
Will it be where you want to?
Welcome to the Insight Financial Strategists LLC blog! As this is our inaugural post, let’s start with the basics. First, an introduction: Our company was created as a knowledge center tailored to helping you assess your specific financial planning needs. This personal approach to financial planning helps us in designing financial plans specific to your needs and financial goals.
All of us know about money and finance, but most of us don’t know it very well. We are often uncertain about how much we need to save for the future, and how we should invest it.
And if that weren’t enough, we often feel overwhelmed by fluctuations in the marketplace, the daily squawk box of financial news, and tax laws that are ever changing. Case in point: as we write this post, we stare at the Fiscal Cliff, we wonder what impact it will have on us, and we sit mesmerized.
Let’s face it: the world is a mess; it’s confusing, even frightening. And would it not be wonderful if we could turn to someone who could guide us through this confusing mess?
At Insight Financial Strategists LLC, our team offers you our deep and focused expertise and insight to guide you in making informed decisions and giving you a solid foundation of understanding on which to plan. Regardless of whether you are looking forward to your retirement years, are in the midst of a long divorce or just need to make sure you are doing the best you can with your current financial planning picture, Insight Financial Strategists can help you navigate confidently through it all.
Our team is small, allowing you to get to know us as we get to know you, without the fear of getting lost in the shuffle of a large corporation. Our services are one-on-one and we know the local landscape. Please feel free to visit the About Us page on our website to learn more about us.
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~ The Insight Financial Strategists Team