Retirement planning course corrections to consider

It’s no secret that millions of Americans are approaching their retirement years with meager savings and high anxiety about their financial security. And a recent study from Merrill Lynch and Age Wave reveals steps that Americans are willing to take to get their retirement back on track.

The overwhelming majority (88 percent) of people surveyed said their primary objective is peace of mind, while just 12 percent say they want to accumulate as much wealth as possible. But peace of mind means different things to different people:

·         57 percent report they want to live comfortably within their means.

·         39 percent say they want to have the financial resources to live the life they choose.

·         34 percent want to feel they could handle a major unexpected expense.

·         25 percent want to feel confident they won’t outlive their money.

·         17 percent want to provide for their family if something happens to them.

Only 8 percent of survey respondents feel personal finances can be discussed openly, while the remainder consider the topic a private matter or one that can be discussed with a spouse or partner or only very close family and friends. It would certainly help if older workers and retirees would share their ideas and insights with their family and friends. 

What changes are people willing to make to enhance their financial security in retirement? Here are steps the survey found Americans are willing to take:

·         90 percent would be willing to cut back on their expenses. Perhaps they can focus on spending just enough to meet their basic living needs and what truly makes them happy.

·         79 percent would seek financial advice. In this case, they’ll want to make sure their advisers are qualified and act in their best interests.

·         77 percent would increase the use of tax-protected retirement accounts.

·         75 percent would seek expert advice on how to pay lower taxes. Note that this may not be a good use of time for Americans with meager savings, since they could already be in a very low tax bracket when they retire.

·         66 percent would sell real estate or other personal belongings. Finding the best way to deploy home equity is a good use of time for older workers and retirees who own a home but have modest retirement savings.

·         64 percent would postpone taking Social Security. This is a smart move for virtually all retirees.

·         43 percent would withdraw the cash value from a life insurance policy. Such people would want to explore their options: Many policies allow the holder to convert the policy’s cash value into a lifetime annuity.

In addition to taking these steps, older workers would be wise to develop a strategy for generating lifetime retirement income, explore their options for continuing to work and make sure they have adequate medical insurance that supplements Medicare.

As you can see, your financial security in retirement has many moving parts. It is well worth spending hours and days planning for peace of mind in your retirement years, so you can go enjoy the rest of your life.

http://www.cbsnews.com/news/retirement-planning-course-corrections-to-consider/

Four Common Questions About Social Security

As you near retirement, it's likely you'll have many questions about Social Security. Here are a few of the most common questions and answers about Social Security benefits.

Will Social Security be around when you need it?

You've probably heard media reports about the worrisome financial condition of Social Security, but how heavily

should you weigh this information when deciding when to begin receiving benefits? While it's very likely that some changes will be made to Social Security (e.g., payroll taxes may increase or benefits may be reduced by a certain percentage), there's no need to base your decision about when to apply for benefits on this information alone. Although no one knows for certain what will happen, if you're within a few years of retirement, it's probable that you'll receive the benefits you've been expecting all along. If you're still a long way from retirement, it may be wise to consider various scenarios when planning for Social Security income, but keep in mind that there's been no proposal to eliminate Social Security.

If you're divorced, can you receive Social Security retirement benefits based on your former spouse's earnings record?

You may be able to receive benefits based on an ex-spouse's earnings record if you were married at least 10 years, you're currently unmarried, and you're not entitled to a higher benefit based on your own earnings record. You can apply for a reduced spousal benefit as early as age 62 or wait until your full retirement age to receive an non-reduced spousal benefit. If you've been divorced for more than two years, you can apply as soon as your ex-spouse becomes eligible for benefits, even if he or she hasn't started receiving them (assuming you're at least 62). However, if you've been divorced for less than two years, you must wait to apply for benefits based on your ex-spouse's earnings record until he or she starts receiving benefits.

If you delay receiving Social Security benefits, should you still sign up for Medicare at age 65?

Even if you plan on waiting until full retirement age or later to take your Social Security retirement benefits, make sure to sign up for Medicare. If you're 65 or older and aren't yet receiving Social Security benefits, you won't be automatically enrolled in Medicare Parts A and B.

You can sign up for Medicare when you first become eligible during your seven-month Initial Enrollment Period. This period begins three months before the month you turn 65, includes the month you turn 65, and ends three months after the month you turn 65.

The Social Security Administration recommends contacting them to sign up three months before you reach age 65, because signing up early helps you avoid a delay in coverage. For your Medicare coverage to begin during the month you turn 65, you must sign up during the first three months before the month you turn 65 (the day your coverage will start depends on your birthday). If you enroll later, the start date of your coverage will be delayed. If you don't enroll during your Initial Enrollment Period, you may pay a higher premium for Part B coverage later. Visit the Medicare website, www.medicare.gov to learn more, or call the Social Security Administration at 800-772-1213.

Will a retirement pension affect your Social Security benefit?

If your pension is from a job where you paid Social Security taxes, then it won't affect your Social Security benefit. However, if your pension is from a job where you did not pay Social Security taxes (such as certain government jobs) two special provisions may apply.

The first provision, called the government pension offset (GPO), may apply if you're entitled to receive a government pension as well as Social Security spousal retirement or survivor's benefits based on your spouse's (or former spouse's) earnings. Under this provision, your spousal or survivor's benefit may be reduced by two-thirds of your government pension (some exceptions apply).

The windfall elimination provision (WEP) affects how your Social Security retirement or disability benefit is figured if you receive a pension from work not covered by Social Security. The formula used to figure your benefit is modified, resulting in a lower Social Security benefit.

Broadridge Investor Communication Solutions, Inc. Copyright 2016.

Why don’t you have a pension?

When it comes to choosing a retirement plan, there are several options we have to choose from, but many of us forget or are unaware that we can have almost all of them and not be held to just one or two plans. In fact, I recommend you have at least five types of retirement plans. But, how do you know which ones are right for you? That is something we look at on an individual level with each of our clients because there are many factors that will determine what plans are best for you so  if you are not working with an advisor to help you select these plans based on your needs, family, risk tolerance, tax rate, age, etc. then you are not set up properly for retirement.

Sadly, one of my favorite retirement plans is slowly fading away, the pension plan. A pension plan, according to Investopedia.com, is a retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker's future benefit. The pool of funds is invested on the employee's behalf, and the earnings on the investments generate income to the worker upon retirement.

This means that retirees would be able to receive this money guaranteeing lifetime income, in almost all cases, as long as the employer is in business. It all changed in the early 1980’s when companies started introducing the 401(k) plans named after the IRS code of The Revenue Act of 1978 which allowed employees to put money aside for retirement on a tax deferred basis and was meant as a supplement to the pension plans and Social Security. However, companies saw this as an opportunity to reduce and eliminate pension plans over the years saving themselves from paying retirees a salary for the rest of their lives.  When the 401(k) plans were introduced, we were in a high interest rate market so it made sense to defer taxes to a later period of time when interest rates came down. Now we are at historically low interest rates, does it make sense to defer taxes to a later period of time?

Most employees enter the workforce today with knowledge of one or two types of retirement plans. The 401(k) or the 403(b) plan that their company offers allows you to contribute as the company may offer matching contributions. Rarely are the employees educated by their employer on other types of retirement plans available to them or whether they are a good fit. Another type of retirement plan, the IRA (Traditional and Roth) is also commonly known to many employees but usually only after they have left a previous employer and was told to “rollover their 401(k) into an IRA” or they may be instructed to fund one at the advice of their tax advisor or accountant. Many workers have both a 401(k) plan with their current employer and an IRA from their previous employer, and there is usually nothing wrong with that. However, neither can guarantee that you will not run out of money before you pass away like a pension does, and you may end up paying more taxes.

So what can you do? You can actually create your own pension plan using your own money. Where many advisors will tell you how much money you need to retire, we at Thrive do not do it that way because we know that number may not be enough and it has a finite end to it. Contact us today to find out how we are different and how you can create strategies to help you avoid the possibility of running out of money and create your five retirement plans.       

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How To Get a Bigger Social Security Retirement Benefit

Many people decide to begin receiving early
Social Security retirement benefits. In fact, according to the Social Security Administration, about 72% of retired workers receive benefits prior to their full retirement age. But waiting longer could significantly increase your monthly retirement income, so weigh your options carefully before making a decision.

Timing counts

Your monthly Social Security retirement benefit is based on your lifetime earnings. Your base benefit--the amount you'll receive at full retirement age--is calculated using a formula that takes into account your 35 highest earnings years.

If you file for retirement benefits before reaching full retirement age (66 to 67, depending on your birth year), your benefit will be permanently reduced. For example, at age 62, each benefit check will be 25% to 30% less than it would have been had you waited and claimed your benefit at full retirement age (see table below).

Alternatively, if you postpone filing for benefits past your full retirement age, you'll earn delayed retirement credits for each month you wait, up until age 70. Delayed retirement credits will increase the amount you receive by about 8% per year if you were born in 1943 or later. The chart below shows how a monthly benefit of $1,800 at full retirement age (66) would be affected if claimed as early as age 62 or as late as age 70. This is a hypothetical example used for illustrative purposes only; your benefits and results will vary.

Early or late? 

Should you begin receiving Social Security benefits early, or wait until full retirement age or even longer? If you absolutely need the money right away, your decision is clear-cut; otherwise, there's no ''right" answer. But take time to make an informed, well-reasoned decision. Consider factors such as how much retirement income you'll need, your life expectancy, how your spouse or survivors might be affected, whether you plan to work after you start receiving benefits, and how your income taxes might be affected.


Broadridge Investor Communication Solutions, Inc. Copyright 2016.

Outliving Your Money

As we grow older, we are spending more and more time in the retirement phase of our life thanks to medical advances and healthier diets which are causing us to live longer. But at what cost?

If you knew today that you were going to live to be a healthy 125 years old, what would you change? If you had the ability to walk, talk, hear, see, and do all the normal functions of life without any outside help, would you want to live that long? Many people I have talked with said "YES", however, they all had one fear. That fear is not being able to live the same lifestyle due to the possibility of not being able to afford it. So people are afraid that they are going to run out of money. Here is my biggest issue with that, there are ways to avoid it that many people have no idea about!

That is what we do at Thrive, we educate our clients on what all of their options are so they can make an informed decision and live a comfortable and happy retirement without the fear of running out of money. If you are currently working with an advisor, talk to him or her about guaranteeing your future. If they can't, then what are you paying them for? It may be time for a new advisor. Contact us set up a meeting for a complimentary second opinion on your retirement income and discuss how YOU can secure your future.

Retirement Forecaster

Retirement can have many meanings. For some, it will be a time to travel and spend time with family members. For others, it will be a time to start a new business or begin a charitable endeavor. Regardless of what approach you intend to take, here are nine things about retirement that might surprise you.

Retired workers support themselves either through pensions or savings. In most cases the money is provided by the government, but sometimes granted only by private subscriptions to mutual funds.

Many retirees rely on Social Security.

Social Security is a significant source of income for most retirees. Almost all retirees (86 percent) receive income from Social Security, and Social Security payments make up at least half of the retirement income of 65 percent of retirees and comprise 90 percent of retirement income for over a third (36 percent) of retirees.  You can start your Social Security retirement benefits as early as age 62 or as late as age 70. Your monthly benefit amount will be different depending on the age you start receiving it.

Recent advances in data collection have vastly improved our ability to understand important relationships between retirement and factors such as health, wealth, employment characteristics and family dynamics, among others. The most prominent study for examining retirement behavior in the United States is the ongoing Health and Retirement Study (HRS), first fielded in 1992.

Visit our resource center for more

 www.thriveresourcecenter.com

Choosing a Beneficiary for Your IRA or 401(k)

Selecting beneficiaries for retirement benefits is different from choosing beneficiaries for other assets such as life insurance. With retirement benefits, you need to know the impact of income tax and estate tax laws when selecting your beneficiaries. Although taxes shouldn't be the sole determining factor in naming your beneficiaries, the impact of taxes should not be ignored when making your choice.  

In addition, if you're married, beneficiary designations may affect the size of minimum required distributions to you from your IRAs and retirement plans while you're alive.

Paying income tax on most retirement distributions

Most inherited assets such as bank accounts, stocks, and real estate can pass to your beneficiaries without income tax being due. However, that's not usually the case with 401(k) plans and IRAs.

Beneficiaries pay ordinary income tax on distributions from pretax 401(k) accounts and traditional IRAs. With Roth IRAs and Roth 401(k) accounts, however, your beneficiaries can receive the benefits free from income tax if all of the tax requirements are met. That means you need to consider the impact of income taxes when designating beneficiaries for your 401(k) and IRA assets.

For example, if one of your children inherits $100,000 cash from you and another child receives your pretax 401(k) account worth $100,000, they aren't receiving the same amount. The reason is that all distributions from the 401(k) plan will be subject to income tax at ordinary income tax rates, while the cash isn't subject to income tax when it passes to your child upon your death.

Similarly, if one of your children inherits your taxable traditional IRA and another child receives your income-tax-free Roth IRA, the bottom line is different for each of them.  

Naming or changing beneficiaries

When you open up an IRA or begin participating in a 401(k), you are given a form to complete in order to name your beneficiaries. Changes are made in the same way--you complete a new beneficiary designation form. A will or trust does not override your beneficiary designation form. However, spouses may have special rights under federal or state law.

It's a good idea to review your beneficiary designation form at least every two to three years. Also, be sure to update your form to reflect changes in financial circumstances. Beneficiary designations are important estate planning documents. Seek legal advice as needed.

Designating primary and secondary beneficiaries

When it comes to beneficiary designation forms, you want to avoid gaps. If you don't have a named beneficiary who survives you, your estate may end up as the beneficiary, which is not always the best result.

Your primary beneficiary is your first choice to receive retirement benefits. You can name more than one person or entity as your primary beneficiary. If your primary beneficiary doesn't survive you or decides to decline the benefits (the tax term for this is a disclaimer), then your secondary (or "contingent") beneficiaries receive the benefits.

Having multiple beneficiaries

You can name more than one beneficiary to share in the proceeds. You just need to specify the percentage each beneficiary will receive (the shares do not have to be equal). You should also state who will receive the proceeds should a beneficiary not survive you.

In some cases, you'll want to designate a different beneficiary for each account or have one account divided into sub-accounts (with a beneficiary for each sub-account). You'd do this to allow each beneficiary to use his or her own life expectancy in calculating required distributions after your death. This, in turn, can permit greater tax deferral (delay) and flexibility for your beneficiaries in paying income tax on distributions.

Avoiding gaps or naming your estate as a beneficiary

There are two ways your retirement benefits could end up in your probate estate. Probate is the court process by which assets are transferred from someone who has died to the heirs or beneficiaries entitled to those assets.

First, you might name your estate as the beneficiary. Second, if no named beneficiary survives you, your probate estate may end up as the beneficiary by default. If your probate estate is your beneficiary, several problems can arise.

If your estate receives your retirement benefits, the opportunity to maximize tax deferral by spreading out distributions may be lost. In addition, probate can mean paying attorney's and executor's fees and delaying the distribution of benefits.

Naming your spouse as a beneficiary

When it comes to taxes, your spouse is usually the best choice for a primary beneficiary.

A spousal beneficiary has the greatest flexibility for delaying distributions that are subject to income tax. In addition to rolling over your 401(k) or IRA to his or her IRA or plan, a surviving spouse can generally decide to treat your IRA as his or her own IRA. This can provide more tax and planning options.

If your spouse is more than 10 years younger than you, then naming your spouse can also reduce the size of any required taxable distributions to you from retirement assets while you're alive. This can allow more assets to stay in the retirement account longer and delay the payment of income tax on distributions.

Although naming a surviving spouse can produce the best income tax result, that isn't necessarily the case with death taxes. At your death, your spouse can inherit an unlimited amount of assets and defer federal death tax until both of you are deceased (note: special tax rules and requirements apply for a surviving spouse who is not a U.S. citizen). If your spouse's taxable estate for federal tax purposes at his or her death exceeds the applicable exclusion amount, then federal death tax may be due. One possible downside to naming your spouse as the primary beneficiary is that it may increase the size of your spouse's estate for death tax purposes, which in turn may result in death tax or increased death tax when your spouse dies.

Naming a charity as a beneficiary

In general, naming a charity as the primary beneficiary will not affect required distributions to you during your lifetime. However, after your death, having a charity named with other beneficiaries on the same asset could affect the tax-deferral possibilities of the non-charitable beneficiaries, depending on how soon after your death the charity receives its share of the benefits.

Broadridge Investor Communication Solutions, Inc. Copyright 2015.