Is Withdrawing From IRAs Last The Best Approach?

Conventional wisdom says yes, but there are exceptions.

   

Shouldn’t you delay IRA distributions for as long as you can? According to conventional retirement planning wisdom, you should structure your retirement withdrawals so that money comes out of your taxable accounts first, then your tax-deferred accounts, and then finally your tax-free accounts. Roughly speaking, that means withdrawing income from investment funds, CDs, money market accounts and bank accounts before taking a dime from your IRAs.

 

The wisdom behind this is easy to discern. By postponing withdrawals from a traditional IRA and/or Roth IRA for as long as possible, you give the assets in those tax-advantaged accounts even more time to grow. You have to take required minimum distributions from a traditional IRA after age 70½, of course; if you have a Roth IRA, RMD rules are inapplicable while you are alive.1

Or should you disregard that approach? Under certain circumstances, it may be a good idea to tap your IRA(s) in the early stages of retirement. While it may seem unconventional, making IRA withdrawals in your 60s might potentially help you enhance your wealth in the long term.

 

How, exactly? If you start drawing down the assets in your traditional IRA before age 70½, your RMDs could eventually be smaller than they would be otherwise. Smaller RMDs mean less taxable income. Not only that, a smaller RMD might keep you in a lower income tax bracket; welcome relief if you have a large traditional IRA.

Can exemptions & deductions shelter the income? A study from Rider University in New Jersey sees merit in this unconventional strategy. In the big picture, the researchers at Rider feel it may help seniors to level out annoying fluctuations in adjusted gross income and taxable income over the long run.2

 

The key: sheltering some or all of the early IRA withdrawals with IRS standard deductions and personal exemptions. As an example, take a married couple in which both spouses are at least age 65. The spouses have done their homework and determined that their IRS deductions and exemptions will add up to (at least) $21,800 for 2012. If their taxable income before any IRA withdrawal would fall below $21,800, they could use “withdrawals from tax-deferred IRAs to create tax-free income,” according to Alan Sumutka, one of the researchers behind the Rider study.2

 

The Rider study compared 15 model scenarios. Each one used a hypothetical married couple (both 65-year-olds) retiring in 2013 with $2 million in investable assets, $80,000 in current living expenses and $30,000 arriving from Social Security. Within the mock $2 million portfolio, 70% of the assets were held in traditional IRAs, 20% in taxable accounts and the rest in Roth IRAs. The portfolio returned a steady 6% annually (again, these were model scenarios).2

 

What was the most tax-efficient model scenario in the bunch? It played out as follows: from age 65 to age 70, the couple drew down their traditional IRAs right to the limit of their combined deductions and exemptions. Then, they reached into their taxable accounts for the balance of the money needed to meet that $80,000 in expenses, incurring taxes of up to 15% on long-term gains. They didn’t tap their Roth IRAs.2

 

After age 70½, they altered their approach: they took required distributions from their traditional IRAs, withdrew money from taxable accounts until those were exhausted, and then they turned to Roth accounts with the remaining balances on the traditional IRAs representing the last of their retirement savings.2

 

After all that, the hypothetical couple still had $1.61 million in their portfolio at age 95. The conventional withdrawal strategy (taxable accounts first, then tax-deferred accounts, then tax-free accounts) left them with just $1.17 million at that age, and it also led to them spending 23 years in the 25% tax bracket.2

 

The Rider study found that this approach was ill-suited to very large portfolios (ones with assets above $8 million) and portfolios with roughly 50% in taxable assets. It was also a bad fit for couples with sizable taxable pensions.2

 

It is worthwhile to review your retirement assumptions. As the American vision of retirement has changed in the last generation, so have retirement planning precepts. The recession and the financial pressures facing the baby boomers have upended some of the conventional thinking. A talk with a retirement planner may lead you toward some new financial options and some good ideas worth exploring.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   

 

Citations.

1 – http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions#3 [8/2/12]

2 – money.msn.com/retirement-plan/when-should-you-tap-your-iras [11/16/12]

 

The Retirement Group is not affiliated with nor endorsed by fidelity.com, resources.hewitt.com, Hughes, Bank of America, Glaxosmithkline, Northrop Grumman, ING Retirement, Verizon, netbenefits.fidelity.com, hewitt.com, Pfizer, Raytheon, Merck, AT&T, ChevronQwestExxonMobil, access.att.com, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached athttp://www.theretirementgroup.com.

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Tips for Retirement

A few simple steps to help you get started on the right foot.

Planning financially for retirement may feel overwhelming. For some, that feeling is what keeps them from really focusing on and implementing a plan. If you haven’t started planning for your retirement – do yourself a favor and make TODAY the day you begin.

 

1. The earlier the better. 

Time is definitely one of your greatest allies. A person who begins contributing a modest amount to a retirement plan in their early twenties could end up on par with someone who contributes much more aggressively but does not start until their mid-thirties. Even if you have to start small, start now. Whatever amount you can afford to set aside for later, do it – and let it grow. If you don’t have the luxury of starting young, don’t waste time worrying about it. Start now. You’ll never again be younger than you are today.

2. Be smart about what you’ll need

Yes, it’s true – the senior discount is alive and well, and the general cost of living may be less for those who have retired. But don’t forget, there are other costs to consider. Your healthcare costs, for example, may be greater in retirement simply because you’re not as healthy as you were in your youth. Additionally, you’ll want to take inflation into account. If you plan your retirement based on the cost of living and income of your 30’s, by the time you hit your retirement years, you may find you greatly underestimated your needs.

3. Be smart about how long you’ll need it

When Social Security was being developed, in the 1930’s, a male retiring in the United States was really only expected to live about 12 years past his date of retirement. 2 However, the average life expectancy of a United States citizen has risen fairly steadily throughout the last fifty years. 1 Depending on when you retire, you may need to plan for 20 or more years of income.

4. Take advantage of tax-deferred contributions.

It sounds like a no-brainer, but sometimes people determine how much they can afford to contribute to a retirement account based on their net income, rather than their gross income. You may decide you can only afford $50 less per paycheck, net. But remember that some contributions, like those to your 401(k) for example, may be made with pre-tax dollars. That means you can afford to contribute a bit more from your gross income and still only “miss” $50 from your net income. This is an important consideration.

5. Take advantage of matching contributions.

If your employer offers a 401(k) match – consider scrimping here and there in order to take maximum advantage of it. It’s a very positive domino effect. The more you contribute, the more you earn in matching contributions (up to the maximum allowable amount). Think of it this way – if your employer offers a 50% match, then for every $100 you don’t contribute, you’re missing out on $50 in “free money”. You’re also missing out on the growth potential of that money as well.

6. Do the math. 

This might be the most important retirement tip of all. Block off some time to sit down and do some calculations. Consider the different levels of contributions you could make and calculate how far those could take you by the time you reach retirement. Once you see what you COULD achieve, you may be more motivated to increase your contributions.

7. Trim the fat.

Keep careful track of your spending for one month (if you bank online, you may have access to tools that help you do this). After one full month, sit down and take a careful look at what you spent money on. Did it all make sense? Was some of it frivolous? Any regrets? Taking a close look at exactly where your money is going is often the best way to discover areas that need improvement, and ways you could adjust your spending habits. Add up all the money you feel you spent unnecessarily, then add that amount to the contribution math you did previously … how much further might that extra monthly contribution have taken you?

8. Get help.

These retirement tips are intended to help you get started down a path toward, potentially, a more successful retirement. But they’re just that – a starting point. While it’s definitely important to educate yourself and understand your finances, seeking the assistance of a financial professional may be one of the best moves you could make.

1 -google.com/publicdata?ds=wb wdi&met=sp_dyn_le00_in&idim=country:USA&dl=en&hl=en&q=life+expectancy [10/29/10]

2 – http://www.newretirement.com/Planning101/Retiring_Too_Soon.aspx [10/25/10]

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, Pfizer, Verizon, Bank of America, access.att.com, Glaxosmithkline, Qwest, AT&T, ExxonMobil, netbenefits.fidelity.com, hewitt.com, Chevron, Hughes, Merck, Northrop Grumman, Raytheon, resources.hewitt.com, ING Retirement, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

IRA Rollovers

IRA ROLLOVERS FOR LUMP SUM PENSION PAYOUTS

 

Give those dollars the opportunity for further tax-deferred growth.

Presented by Patrick Ray

     

A big payout leads to a big question. If you are taking a lump sum pension payout from your former employer, what is the next step for that money? It will be integral to your retirement; how can you make it work harder for you?

Rolling it over might be the right thing to do. If you don’t have substantial retirement savings, that lump sum may be just what you need. The key is to plan to keep it growing. That money shouldn’t just sit there.

Even tame inflation whittles away at the value of money over time. Most corporate pension payments aren’t inflation-indexed, so those monthly payments eventually purchase less and less. Lump sums are just as susceptible: if you receive $100,000 today, that $100,000 will buy 50% less by 2028 assuming consistent 3% inflation (and that is quite an optimistic assumption).1,2

Putting it in the bank might cause you some financial pain. If you just take your lump sum payout and deposit it, all that money will be considered taxable income by the IRS. (There are very few exceptions to that rule.) Moreover, you won’t get the whole amount that way: per IRS regulations, your employer must withhold 20% of it.2,3

Don’t you want to postpone paying taxes on those assets? By arranging a rollover of your lump sum distribution to a traditional IRA, you may defer tax on those dollars. You can even defer tax on a distribution already paid to you if you roll over the taxable amount to an IRA within 60 days after receipt of the payout.3

    

In doing so, you are keeping those assets in a tax-deferred account. They can be invested as you like, and that money will not be taxed until it is withdrawn. (You may only transfer a lump sum distribution from a company pension plan into a traditional IRA – you may not transfer it to a Roth IRA.)4

 

If you are considering taking a lump sum payout, make sure you position that money for additional tax-deferred growth. Talk to a financial professional who can help you with the paperwork and get your IRA rollover going.

 

Patrick Ray may be reached at (800) 900-5867 or pray@theretirementgroup.com.

http://www.theretirementgroup.com.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – money.cnn.com/2012/09/01/pf/expert/pension-payments.moneymag/index.html [9/1/12]

2 – http://www.kiplinger.com/article/retirement/T037-C000-S002-pensions-take-a-lump-sum-or-not.html [9/11]

3 – http://www.irs.gov/taxtopics/tc412.html [1/4/13]

4 – http://www.fool.com/retirement/manageretirement/manageretirement2.htm [1/21/13]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement,  Hughes, Northrop Grumman, AT&T, Qwest, Chevron, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Patrick Ray is a Representative with FSC Securities and may
be reached at http://www.theretirementgroup.com.

Counting on Your Husband’s Retirement Income? Three Things Women Should Know

Women face special challenges when planning for retirement. According to the Department of Labor,1 women are more likely than men to work in part-time jobs that don’t qualify for a retirement plan. And women are more likely to interrupt their careers (or stay out of the workforce altogether) to raise children or take care of other family members. As a result, women generally work fewer years and save less, leaving many to rely on their husbands’ savings and benefits to carry them both through retirement.

But this reliance creates risk–risk of divorce, risk that retirement funds won’t be adequate to last two lifetimes (a risk that falls disproportionately on women, who outlive men on average by five years), 2 and risk of bad retirement payout decisions. Here are three things you should know if you’re relying on your husband’s savings to carry you through retirement.


Qualified joint and survivor annuities

If your husband is covered by a traditional pension plan at work, one of the most important retirement decisions the two of you may make is whether to receive his pension benefit as a “qualified joint and survivor annuity” (QJSA). While the term sounds complicated, the concept is simple: should you elect a benefit that pays a higher amount while you’re both alive and ends when your husband dies (a single life annuity), or a benefit that pays a smaller amount during your joint lives but continues (in whole or in part) to you if your husband dies first (a QJSA)?
In order to fully understand your choices, it may help to first go over how a traditional pension plan works. Typically, you’re entitled to a “normal benefit,” payable for your lifetime and equal to a percent of your final pay, if you work for a certain number of years and retire at a certain date. A plan might say that you’ll get 50% of your final pay for life if you work 30 years and retire at age 65. If you work fewer years, your benefit will be less. If you retire earlier than age 65, your benefit will also be less, because it’s paid for a longer period of time.

For example, assume Joe is covered by a pension plan at work, and his plan contains the exact formula described above. Joe retires at age 65. He’s worked 30 years, and his final pay was $100,000. He’s entitled to a normal benefit of $50,000 per year, payable over his lifetime and ending at his death (a single life annuity).

But in order to protect spouses, federal law generally provides that if Joe is married, the plan can’t pay this benefit to Joe as a single life annuity unless his spouse, Mary, agrees. Instead, the benefit must be paid over Joe and Mary’s joint lives, with at least 50% of that benefit continuing to Mary for her remaining lifetime if she survives Joe. (That’s why it’s called a “joint and survivor annuity;” and it’s “qualified” because it meets the requirements of federal law–“QJSA” for short.)

Now, here’s where it gets a little complicated. Because the QJSA benefit is potentially paid for a longer period of time–over two lifetimes instead of one–Joe’s “normal benefit” will typically be reduced. Actuaries determine the exact amount of the reduction based on your life expectancies, but let’s assume that Joe’s benefit, if paid as a QJSA with 50% continuing to Mary after Joe’s death, is reduced to $45,000. This amount will be paid until Joe dies. And if Mary survives Joe, then $22,500 per year is paid to her until she dies. But if Mary dies first, the pension ends at Joe’s death, and nothing further is paid.
The plan will usually offer the option to have more than 50% continue to you after your spouse dies. For example, you may be able to elect a 75% or 100% QJSA. However, the larger the survivor annuity you select, the smaller the benefit you’ll receive during your joint lives. So, for example, if 100% continues after Joe’s death, then the payment to Joe might now be reduced to $40,000 (but $40,000 will continue to be paid after Joe’s death to Mary if she survives him).
You can rest assured that the QJSA option will be at least as valuable as any other optional form of benefit available to you–this is required by federal law. In some cases, it will be even more valuable than the other options, as employers often “subsidize” the QJSA. “Subsidizing” occurs when the plan doesn’t reduce the benefit payable during your joint lives (or reduces it less than actuarially allowed). For example, a plan might provide that Joe’s $50,000 normal benefit won’t be reduced at all if he and Mary elect the 50% QJSA option, and that she’ll receive the full $25,000 following Joe’s death. It’s important for you to know whether your spouse’s plan subsidizes the QJSA so that you can make an informed decision about which option to select. Other factors to consider are the health of you and your spouse, who’s likely to live longer, and how much other income you expect to have available if you survive your spouse.
You’ll receive an explanation of the QJSA from the plan prior to your spouse’s retirement, which should include a discussion of the relative values of each available payment option. Carefully read all materials the plan sends you. A QJSA may help assure that you don’t outlive your retirement income–don’t waive your rights unless you fully understand the consequences. And don’t be afraid to seek qualified professional advice, as this could be one of the most important retirement decisions you’ll make.


Qualified domestic relations orders

While we all hope our marriages will last forever, statistics tell us that about 50% of marriages in the United States will end in divorce.3 And since more men are covered by retirement plans and have larger retirement plan balances,4 the issue of how these benefits will be handled in the event of a divorce is especially critical for women who may have little or no retirement savings of their own. Under federal law, employer retirement plan benefits generally can’t be assigned to someone else. However, one important exception to this rule is for “qualified domestic relations orders,” commonly known as QDROs. If you and your spouse divorce, you can seek a state court order awarding you all or part of your spouse’s retirement plan benefit. Your spouse’s plan is required to follow the terms of any order that meets the federal QDRO requirements.
For example, you could be awarded all or part of your spouse’s 401(k) plan benefit as of a certain date, or all or part of your spouse’s pension plan benefit. There are several ways to divide benefits, so it’s very important to hire an attorney who has experience negotiating and drafting QDROs–especially for defined benefit plans where the QDRO may need to address such items as survivor benefits, benefits earned after the divorce, plan subsidies, COLAs, and other complex issues. (For example, a QDRO may provide that you will be treated as the surviving spouse for QJSA purposes, even if your spouse subsequently remarries.) The key takeaway here is that these rules exist for your benefit. Be sure your divorce attorney is aware of them.


You can have your own IRA

While it’s obviously important for women to try to contribute towards their own retirement, if you’re a nonworking spouse, your options are limited. But there is one tool you should know about. The “spousal IRA” rules may let you fund an individual retirement account even if you aren’t working and have no earnings. A spousal IRA is your own account, in your own name–one that could become an important source of retirement income with regular contributions over time.
How does it work? Normally, to contribute to an IRA, you must have compensation at least equal to your contribution. But if you’re married, file a joint federal income tax return, and earn less than your spouse (or nothing at all), the amount you can contribute to your own IRA isn’t based on your individual income, it’s based instead on the combined compensation of you and your spouse.

For example, Mary (age 50) and Joe (age 45) are married and file a joint federal income tax return for 2012. Joe earned $100,000 in 2012 and Mary, at home taking care of ill parents, earned nothing for the year. Joe contributes $5,000 to his IRA for 2012. Even though Mary has no compensation, she can contribute up to $6,000 to an IRA for 2012 (that includes a $1,000 “catch-up” contribution), because Joe and Mary’s combined compensation is at least equal to their total contributions ($11,000).

The spousal IRA rules only determine how much you can contribute to your IRA; it doesn’t matter where the money you use to fund your IRA actually comes from–you’re not required to track the source of your contributions. And you don’t need your spouse’s consent to establish or fund your spousal IRA. (The spousal IRA rules don’t change any of the other rules that generally apply to IRAs. You can contribute to a traditional IRA, a Roth IRA, or both. But you can’t make regular contributions to a traditional IRA after you turn 70½. And your ability to make annual contributions to a Roth IRA may be limited depending on the amount of your combined income.)

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, Pfizer, Verizon, Hughes, netbenefits.fidelity.com, resources.hewitt.com, Raytheon, Merck, Bank of America, hewitt.com, access.att.com, AT&T, Qwest, ING Retirement, Northrop Grumman, ExxonMobil, Chevron, Glaxosmithkline, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Retirement Savings Income: Beyond Annuities

One of the challenges of investing during retirement is providing for annual income while balancing that need with other considerations, such as liquidity, how long you need your funds to last, your risk tolerance, and anticipated rates of return for various types of investments. Annuities may be seen as a full or partial solution, since they can offer stable income or guaranteed lifetime payments (subject to the claims-paying ability of the issuer). However, they’re not right for everyone.

A well-thought-out asset allocation in retirement is essential. While income investments alone are unlikely to meet all your needs, it’s important to understand some of the most common non-annuity investments that can provide income as part of your overall investment strategy.

Bonds: retirement’s traditional backbone

A bond portfolio can help you address investment goals in multiple ways. Buying individual bonds (which are essentially IOUs) at their face values and holding them to maturity can provide a predictable income stream and the assurance that unless a bond issuer defaults, you’ll receive the principal when the bond matures. (Bear in mind that if a bond is callable, it may be redeemed early, and you would have to replace that income.) You also can buy bonds through mutual funds or exchange-traded funds (ETFs). Depending on your circumstances, funds may provide greater diversification at a lower cost than individual bonds. However, a bond fund has no specific maturity date and therefore behaves differently from an individual bond, though like an individual bond, its price typically moves in the opposite direction from interest rates.

Consider the issuer

Bonds are available from many types of issuers, including corporations, the U.S. Treasury, local and state governments, governmental agencies, and foreign governments. Each type is taxed differently. For example, the income from Treasury securities (unlike corporate bonds) is exempt from state and local taxes but not from federal taxes.

Bonds issued by state and local governments, commonly called municipal bonds or munis, are just the opposite. Often a staple for retirees in a high tax bracket, munis generally are exempt from federal income tax (though specific issues may be taxable), but may be subject to state or local taxes. Largely because of that tax advantage, a tax-free bond typically yields less than a corporate bond with the same maturity. You’ll need to compare a muni’s tax-equivalent yield to know whether it makes sense on an after-tax basis.

Think about bond maturities

Bond prices can drop when interest rates and/or inflation rise, because their fixed income will buy less over time. Inflation affects prices of long-term bonds–those with maturities of 10 or more years–the most. One way to keep a bond portfolio flexible is to use so-called laddering: buying bonds with various maturities. As each matures, its proceeds can be reinvested. If bond yields are up, you benefit from higher rates; if yields are down, you have the option of choosing a different maturity or investment.

Certificates of deposit/savings accounts

Certificates of deposit (CDs), which offer a fixed interest rate for a specific time period, usually pay higher interest than a regular savings account, and you typically can have interest paid at regularly scheduled intervals. A CD can be rolled over to a new CD or another investment when it matures, though you may not get the same interest rate, and you’ll pay a penalty if you cash it in early. A high-yield savings account also pays interest, and, like a CD, is FDIC-insured up to $250,000.

Stocks offering dividends

Dividend-paying stocks, as well as mutual funds and ETFs that invest in them, also can provide income. Because dividends on common stock are subject to the company’s performance and a decision by its board of directors each quarter, they may not be as predictable as income from a bond.

However, dividends on preferred stock are different; the rate is fixed and they’re paid before any dividend is available for common stockholders. That fixed payment means that prices of preferred stocks tend to behave somewhat like bonds. Preferred shares usually pay a higher dividend rate than common shares, and though most preferred stockholders do not have voting rights, their claims on the company’s assets will be satisfied before those of common stockholders if the company has financial difficulties. However, a company is often permitted to call in preferred shares at a predetermined future date, and preferred stockholders do not participate in a company’s growth as fully as common shareholders would.

Pass-through securities/REITs

Some investments are designed to act as a conduit for income from underlying assets. For example, mortgage-related securities represent an ownership interest in mortgage loans made by financial institutions. The most basic of these, known as pass-throughs, represent a direct ownership interest in a trust that consists of a pool of mortgages. Examples of pass-throughs include securities issued by the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association.

Certain types of investment trusts–for example, REITs that buy, develop, manage, or sell real estate–don’t owe taxes as long as they pay out at least 90% of their net income to investors. That payout has traditionally made them popular as an income vehicle and portfolio diversifier (though diversification alone does not guarantee a profit or ensure against a loss). There are many types of REITs, so be sure you understand how the one you choose functions before investing.

Automated inflation fighting

Some investments are designed to fight inflation for you. Treasury Inflation-Protected Securities (TIPS) pay a slightly lower fixed interest rate than regular Treasuries. However, your principal is automatically adjusted twice a year to match changes in the Consumer Price Index (CPI). Those adjusted amounts are used to calculate your interest payments.

That inflation adjustment means that if you hold a TIPS until it matures, your repaid principal will likely be higher than when you bought it (the government guarantees it will not be less). However, you can still lose money if you sell a TIPS before maturity. Inflation rates change, and other interest rates can affect the value of a TIPS. If inflation is lower than expected, the total return on a TIPS could actually be less than that of a comparable non-indexed Treasury. Also, federal taxes on the interest and increases in your principal are owed yearly even though additions to principal aren’t paid until a TIPS matures. Inflation-linked CDs function much like TIPS, but you’ll generally owe federal, state, and local taxes each year.

Some mutual funds are managed with an eye toward inflation. A mutual fund that invests in inflation-protected securities pays out not only the interest but also any annual inflation adjustments, which are taxable each year as short-term capital gains. Some funds target inflation by mixing TIPS with floating rate loans, commodity-linked notes, real estate-related investments, stocks, and bonds.

Distribution funds

Some mutual funds are designed to provide an income stream from year to year. Available as part of a series, each fund designates a percentage of your assets to be distributed each year as scheduled payments, usually monthly or quarterly. Some funds are designed to last over a specific time period and plan to distribute all your assets by the end of that time; others focus on capital preservation, make payments only from earnings, and have no end date. You may withdraw money at any time from a distribution fund; however, that may reduce future returns. Also, payments may vary, and there is no guarantee a fund will achieve the desired return.

Many choices

New ways to help you translate savings into income are constantly being created. These are only a few of the many possibilities, and there’s more to understand about each.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, hewitt.com, Merck, Bank of America, access.att.com, AT&T, ING Retirement, Pfizer, netbenefits.fidelity.com, Glaxosmithkline, Northrop Grumman, RaytheonHughes Verizon, Qwest, ExxonMobil, resources.hewitt.com, Chevron, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Right Beneficiary

Who should inherit your IRA or 401(k)? See that they do.

 

Here’s a simple financial question: who is the beneficiary of your IRA? How about your 401(k), life insurance policy, or annuity? You may be able to answer such a question quickly and easily. Or you may be saying, “You know … I’m not totally sure.” Whatever your answer, it is smart to periodically review your beneficiary designations.

Your choices may need to change with the times. When did you open your first IRA? When did you buy your life insurance policy? Was it back in the Eighties? Are you still living in the same home and working at the same job as you did back then? Have your priorities changed a bit – perhaps more than a bit?

While your beneficiary choices may seem obvious and rock-solid when you initially make them, time has a way of altering things. In a stretch of five or ten years, some major changes can occur in your life – and they may warrant changes in your beneficiary decisions.

In fact, you might want to review them annually. Here’s why: companies frequently change custodians when it comes to retirement plans and insurance policies. When a new custodian comes on board, a beneficiary designation can get lost in the paper shuffle. (It has happened.) If you don’t have a designated beneficiary on your 401(k), the assets may go to the “default” beneficiary when you pass away, which might throw a wrench into your estate planning.

How your choices affect your loved ones. The beneficiary of your IRA, annuity, 401(k) or life insurance policy may be your spouse, your child, maybe another loved one or maybe even an institution. Naming a beneficiary helps to keep these assets out of probate when you pass away.

Beneficiary designations commonly take priority over bequests made in a will or living trust. For example, if you long ago named a son or daughter who is now estranged from you as the beneficiary of your life insurance policy, he or she is in line to receive the death benefit when you die, regardless of what your will states. Beneficiary designations allow life insurance proceeds to transfer automatically to heirs; these assets do not have go through probate.1,2

You may have even chosen the “smartest financial mind” in your family as your beneficiary, thinking that he or she has the knowledge to carry out your financial wishes in the event of your death. But what if this person passes away before you do? What if you change your mind about the way you want your assets distributed, and are unable to communicate your intentions in time? And what if he or she inherits tax problems as a result of receiving your assets? (See below.)

How your choices affect your estate. Virtually any inheritance carries a tax consequence. (Of course, through careful estate planning, you can try to defer or even eliminate that consequence.)

If you are simply naming your spouse as your beneficiary, the tax consequences are less thorny. Assets you inherit from your spouse aren’t subject to estate tax, as long as you are a U.S. citizen.

When the beneficiary isn’t your spouse, things get a little more complicated for your estate, and for your beneficiary’s estate. If you name, for example, your son or your sister as the beneficiary of your retirement plan assets, the amount of those assets will be included in the value of your taxable estate. (This might mean a higher estate tax bill for your heirs.) And the problem will persist: when your non-spouse beneficiary inherits those retirement plan assets, those assets become part of his or her taxable estate, and his or her heirs might face higher estate taxes. Your non-spouse heir might also have to take required income distributions from that retirement plan someday, and pay the required taxes on that income.4

If you designate a charity or other 501(c)(3) non-profit organization as a beneficiary, the assets involved can pass to the charity without being taxed, and your estate can qualify for a charitable deduction.5

Are your beneficiary designations up to date? Don’t assume. Don’t guess. Make sure your assets are set to transfer to the people or institutions you prefer. Let’s check up and make sure your beneficiary choices make sense for the future. Just give me a call or send me an e-mail – I’m happy to help you.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – smartmoney.com/taxes/estate/how-to-choose-a-beneficiary-1304670957977/ [6/10/11]

2 – http://www.dummies.com/how-to/content/bypassing-probate-with-beneficiary-designations.html [1/30/13]

3 – http://www.nolo.com/legal-encyclopedia/estate-planning-when-you-re-married-noncitizen.html [1/30/13]

4 – individual.troweprice.com/staticFiles/Retail/Shared/PDFs/beneGuide.pdf [9/10]

5 – irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes [8/1/12]

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, Chevron,  AT&T, Qwest,  Hughes, Northrop Grumman, Raytheon, ExxonMobil,  Verizon, Bank of America, Glaxosmithkline, Merck, Pfizer, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may
be reached at http://www.theretirementgroup.com.

Building an Emergency Fund

BUILDING AN EMERGENCY FUND

 

Creating a financial cushion for stressful times.

Presented by «representativename»

 

How would you respond to sudden financial demands? We all define “emergencies” differently, but we are not immune to them. How can we plan to stay afloat financially when they occur?

 

Most households are not financially prepared for an emergency – not even close. A recent study from the National Foundation for Credit Counseling found that 64% of Americans had less than $1,000 in funds earmarked for a crisis.1

 

While the recession did its part to siphon emergency funds from families, attention must be paid to rebuilding those funds. It may be difficult; it may be inconvenient. That doesn’t make it any less of a priority.

 

Emergencies tend to be linked to long-term debt. Having a designated emergency fund can help you attack that debt. When most people think of financial emergencies, they think of medical problems and burdensome costs that their insurance won’t fully absorb – but there are other paths to long-term debt, such as a sudden layoff, a natural disaster, a family issue with financial underpinnings or even an abrupt need to move to another metro area, for whatever reason.

 

How large should the fund be? You decide. An old rule of thumb is six months of net income or six months of expenses. If you are snickering or laughing out loud at your chances of saving that much, you aren’t alone. If your prospects of building a five-figure emergency fund seem remote, try to create one equivalent to two or three months of net income. Any amount is better than none.

 

How do you do it without hurting your standard of living? Few of us have a lump sum we can just reassign for emergencies. So consider these subtle savings opportunities.

> You could pay cash whenever possible, opening the door to incremental savings that credit card companies would otherwise take from you. A few dozen bucks can become a few hundred bucks, then a few thousand bucks over time. Incidentally, in a nationwide survey conducted by Chase Blueprint and LearnVest, 31% of people polled cited credit card debt as a major barrier to achieving financial objectives. The credit card debt carried by this 31% averaged about $5,000. Clearly, living on credit cards will thwart your effort to build a rainy day fund.2

> You could vow not to spend frivolously, thereby retaining money you might be tempted to throw away on impulse.

 

> You could sell stuff – stuff somebody else, maybe down the street or across the country, might want. Incidental shipping and handling costs could seem irrelevant next to the cash you generate.

 

> You could arrange direct deposit or start a seasonal savings account. The psychology behind both moves is simple: you are less likely to spend money if it doesn’t pass through your wallet.

 

Here’s how not to do it. Try to avoid building a crisis fund through self-defeating methods. For example:

 

> Don’t start an emergency fund with a loan. Do it with your own accumulated savings, bonus money from your job performance, royalties – whatever the origin, use money you have made or and/or saved yourself, not money you have borrowed from lenders or relatives.

 

> Don’t do it using payday loans or cash advances. High-interest short-term loans and cash advances on credit cards are often pitched as rescues to struggling households. Thanks to their absurd interest rates, payday loans are not financial “life rafts” by any means. Cash advances on credit and debit cards come with disproportionately high fees. Sadly, people who go in for these loans and advances once commonly go in for them again.

 

> Don’t refrain from paying certain bills. Let’s say that you have eight debts you have to pay per month. If you only pay three of them each month and carefully alternate which debts get paid down, can you create an emergency fund with the money you avoid paying? Well, yes – but you may imperil your credit rating in the process.

 

If you don’t have a designated emergency fund, you can build it up in the same way that you probably invest: a little at a time, with relatively little impact on your lifestyle. It can be done. It should be done.

«representativename» may be reached at «representativephone» or «representativeemail».

«representativewebsite»

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

Citations.

1 – http://www.learnvest.com/knowledge-center/5-ways-to-start-an-emergency-fund/ [8/14/12]

2 – http://www.foxbusiness.com/personal-finance/2012/11/01/seven-reasons-why-need-to-create-emergency-fund-now/ [11/1/12]

 

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T,Glaxosmithkline, Merck,  Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil,  Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may
be reached at http://www.theretirementgroup.com.

 

 

Is it Better to Retire now or Later?

Should You Retire Now, Or Later?

Financially, there are reasons why you may want to work a bit longer.  

 The case for working past 65. Increasingly, baby boomers are urged to work until full retirement age or beyond. (Social Security defines “full” retirement age as 66 for those born from 1943-1954; it incrementally rises to 67 for those born in 1960 or later). If your health and workplace allow this, it may be a good idea for a few notable reasons.1

Your Social Security payments will be larger. Researchers from UCLA and Duke University jointly conducted a study and found that about 80% of Americans sign up for Social Security before full retirement age. In fact, 50% of Americans claim their federal retirement benefits either at age 62 or within two months of losing or quitting a job they hold at age 62 or older. The rush to get Social Security comes with a distinct penalty, though.2

As an example, take a hypothetical pre-retiree named Sharon. Born in 1952, Sharon wants to retire next year at age 62. If she leaves work and claims Social Security benefits in 2014, she will end up getting 25% less in monthly benefits than if she had waited until her full retirement age of 66.3

  

You have a chance to save more. Most people need to save more for retirement. Why not give yourself more years to amass extra funds for the next stage of life? They may even prove to be your peak earning years. If you have considerable retirement savings, think about the boost your nest egg could get from just two or three more years of growth and compounding.

Additionally, the longer you work, the shorter your retirement becomes. If you work two or three years longer, that is two or three years less of retirement that you have to fund.

  

You can pay down debts. Do you have a dream of retiring debt-free? Why not give yourself a better chance to realize it? Too many people are approaching retirement with significant debt – not just mortgage debt, but also business and education loans, auto loans and high credit card balances. This is becoming a major headache for baby boomers.

In a recent Securian Financial Group survey, 67% of those polled anticipated retiring with an outstanding mortgage. Credit card debt may seem easy to manage, but consider that most cards charge interest rates of 15% or more. In retirement, will your investments give you that kind of return? Retiring with your house paid off also puts you in position for a reverse mortgage should you need another income stream.2,4

 

You can keep your health insurance. If your employer sponsors a health plan, leaving work at age 62 is a definite risk when you aren’t eligible for Medicare until age 65. Unless you want to shop for your own health insurance or live without coverage for up to three years, it makes sense to stay on the job.4

You have a chance to delay RMDs from your workplace retirement plan. Owners of traditional IRAs, SIMPLE IRAs and SEP-IRAs must take Required Minimum Distributions from those accounts after turning 70½. It doesn’t matter whether you are working or retired; you must do it. That isn’t the case with qualified retirement plans such as 401(k)s, 403(b)s and 457(b)s. With some exceptions, you can wait until the year in which you retire to take your first RMD from those accounts. So each year you work past 70 potentially represents another year in which you don’t have to take an RMD from a qualified retirement plan and see your income taxes jump as a result. No RMD also means a bigger account balance that may benefit from another year of compounding and investment returns.4,5

 

You may even be happier. Working provides a sense of purpose and accomplishment. If you don’t have a new passion or objective in mind when you end your career, you may start to feel a bit adrift.

A 2012 report from the American Psychological Association’s Center for Organizational Excellence found that workers older than 55 enjoy their jobs more than any other age group. Asked why they stayed at their particular job, 80% of the employees polled who were older than 55 said job enjoyment was the main reason, with 76% noting “work-life fit” as the leading justification. In contrast, only 58% of employees aged 18-34 cited job enjoyment as a motivation to stay with their current employer, and just 61% felt their jobs fit well with the other aspects of their lives.6

So if you like what you do, you may want to keep at it a little longer. The financial and emotional benefits could be considerable.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – ssa.gov/retire2/retirechart.htm [9/19/13]

2 – dailyfinance.com/2013/09/10/reasons-70-new-62-retirement-social-security-debt/ [9/10/13]

3 – ssa.gov/retirement/1943.html [9/19/13]

4 – marketwatch.com/story/5-reasons-you-shouldnt-retire-2013-09-17 [9/17/13]

5 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics—Required-Minimum-Distributions-%28RMDs%29 [9/4/13]

6 – apaexcellence.org/resources/goodcompany/newsletter/article/391 [9/5/12]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Glaxosmithkline, Northrop Grumman, Raytheon, ExxonMobil, Pfizer, Merck, Verizon,  ING Retirement, AT&T, Bank of America, Alcatel-Lucent,  Qwest, Chevron, Hughes, or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and maybe reached at http://www.theretirementgroup.com.

Tips for Retirement

A few simple steps to help you get started on the right foot.

Planning financially for retirement may feel overwhelming. For some, that feeling is what keeps them from really focusing on and implementing a plan. If you haven’t started planning for your retirement – do yourself a favor and make TODAY the day you begin.

1. The earlier the better. 

Time is definitely one of your greatest allies. A person who begins contributing a modest amount to a retirement plan in their early twenties could end up on par with someone who contributes much more aggressively but does not start until their mid-thirties. Even if you have to start small, start now. Whatever amount you can afford to set aside for later, do it – and let it grow. If you don’t have the luxury of starting young, don’t waste time worrying about it. Start now. You’ll never again be younger than you are today.

2. Be smart about what you’ll need

Yes, it’s true – the senior discount is alive and well, and the general cost of living may be less for those who have retired. But don’t forget, there are other costs to consider. Your healthcare costs, for example, may be greater in retirement simply because you’re not as healthy as you were in your youth. Additionally, you’ll want to take inflation into account. If you plan your retirement based on the cost of living and income of your 30’s, by the time you hit your retirement years, you may find you greatly underestimated your needs.

3. Be smart about how long you’ll need it

When Social Security was being developed, in the 1930’s, a male retiring in the United States was really only expected to live about 12 years past his date of retirement. 2 However, the average life expectancy of a United States citizen has risen fairly steadily throughout the last fifty years. 1 Depending on when you retire, you may need to plan for 20 or more years of income.

4. Take advantage of tax-deferred contributions.

It sounds like a no-brainer, but sometimes people determine how much they can afford to contribute to a retirement account based on their net income, rather than their gross income. You may decide you can only afford $50 less per paycheck, net. But remember that some contributions, like those to your 401(k) for example, may be made with pre-tax dollars. That means you can afford to contribute a bit more from your gross income and still only “miss” $50 from your net income. This is an important consideration.

5. Take advantage of matching contributions.

If your employer offers a 401(k) match – consider scrimping here and there in order to take maximum advantage of it. It’s a very positive domino effect. The more you contribute, the more you earn in matching contributions (up to the maximum allowable amount). Think of it this way – if your employer offers a 50% match, then for every $100 you don’t contribute, you’re missing out on $50 in “free money”. You’re also missing out on the growth potential of that money as well.

6. Do the math. 

This might be the most important retirement tip of all. Block off some time to sit down and do some calculations. Consider the different levels of contributions you could make and calculate how far those could take you by the time you reach retirement. Once you see what you COULD achieve, you may be more motivated to increase your contributions.

7. Trim the fat.

Keep careful track of your spending for one month (if you bank online, you may have access to tools that help you do this). After one full month, sit down and take a careful look at what you spent money on. Did it all make sense? Was some of it frivolous? Any regrets? Taking a close look at exactly where your money is going is often the best way to discover areas that need improvement, and ways you could adjust your spending habits. Add up all the money you feel you spent unnecessarily, then add that amount to the contribution math you did previously … how much further might that extra monthly contribution have taken you?

8. Get help.

These retirement tips are intended to help you get started down a path toward, potentially, a more successful retirement. But they’re just that – a starting point. While it’s definitely important to educate yourself and understand your finances, seeking the assistance of a financial professional may be one of the best moves you could make.

1 -google.com/publicdata?ds=wb wdi&met=sp_dyn_le00_in&idim=country:USA&dl=en&hl=en&q=life+expectancy [10/29/10]

2 – http://www.newretirement.com/Planning101/Retiring_Too_Soon.aspx [10/25/10]

The Retirement Group is not affiliated with nor endorsed by fidelity.com,  ING Retirement, MerckExxonMobil, Chevron, Pfizer, Verizon, Bank of America, Glaxosmithkline, AT&T, resources.hewitt.com, Raytheon, access.att.com, Qwest, netbenefits.fidelity.com, Hughes, Northrop Grumman, hewitt.com, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

HOW MUCH RETIREMENT INCOME WILL YOU REALLY NEED?

 Many people underestimate lifestyle costs, medical expenses and inflation.

What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.

You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified retirement planner who can help you plan to estimate your lifestyle needs and short-term and long-term expenses.

That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.

Health. Most of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2% a year recently,1 one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs – up about 7.5% from 2006.2

Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.

Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.

Spending habits. Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more”.

Social Security (or lack thereof). In 2005, SSI represented 39% of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29% of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits.3 This is all presuming Social Security is still around in 2030.

So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified retirement planner while you are still working to discuss these factors and estimate how much you will really need.

These are the views of Peter Montoya Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

 

Citations. 1 nytimes.com/2007/09/21/business/21generic.html?_r=1&oref=slogin

2 marketwatch.com/news/story/health-care-costs-retirement-rise/story.aspx?guid=%7bEF2B6CDA-E176-4747-B528-76AC814051C5%7d&print=true&dist=printTop

3 money.cnn.com/2007/05/14/pf/retirement/nasi__report/index.htm

 

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement,  Hughes, Pfizer, Northrop Grumman, Raytheon, AT&T, Qwest, Chevron, ExxonMobil, Glaxosmithkline, Merck, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may
be reached at http://www.theretirementgroup.com.