“So you’re retired. Now what?”

Most qualified retirement plans offer significant tax benefits – if you’re willing to follow a few IRS-specified rules, that is. The federal government wants to make plans such as 401(k)s, Keoghs, SEP-IRAs and traditional IRAs available for specific needs, and has enacted laws to help eliminate potential abuses of these tax-advantaged investment alternatives.

Retirement Plans are Intended for Retirement

Retirement_WithdrawalsFor one thing, the government wants to make sure that such savings (and income tax benefits) actually go towards providing retirement income. Stiff penalties for early withdrawal help encourage investors to hold off on receiving income from qualified plans until their retirement years.

Required Withdrawals

The government also wants to make sure they can someday tax these accumulated funds. If you have a 401(k), a Keogh, a SEP or a traditional IRA, you must begin taking mandatory minimum distributions from your plan by April 1st of the year following the year in which you turn 70-1/2.

Although the tax code allows you to wait until April 1 of the year following the year you turn 70-1/2, it is generally a good idea to take your first mandatory withdrawal in the same year you reach that age. If you wait, you will have to make two withdrawals in the first year, doubling the amount of taxable income you must declare and potentially increasing your marginal tax bracket.

The amount you are actually required to withdraw each year, and which will be subject to taxation, is based on tables that estimate your remaining lifetime.

Calculating Your Required Withdrawals

It’s vital to maintain a disciplined process of taking minimum withdrawals from your qualified plans. That’s because if you don’t meet the required minimum distribution withdrawals, the IRS will impose a stiff penalty: 50% of the amount not withdrawn, plus the income taxes due. Ouch!

The good news is. the IRS has made calculating your required minimum distributions much easier. Based on your age, you simply divide your qualified plan balance as of the last day of the previous year by the factor from the IRS Pub. 590 table shown below. The resulting quotient is your annual required minimum distribution.

Uniform Lifetime Table

(For use by: unmarried owners, married owners whose spouses are not more than 10 years younger, and married owners whose spouses are not the sole beneficiaries of their IRAs)

AGE Distribution Period
70 27.4
71 26.5
72 25.6
73 24.7
74 23.8
75 22.9
76 22.0
77 21.2
78 20.3
79 19.5
80 18.7
81 17.9
82 17.1
83 16.3
84 15.5
85 14.8
86 14.1
87 13.4
88 12.7
89 12.0
90 11.4
91 10.8
92 10.2
93 9.6
94 9.1
95 8.6
96 8.1
97 7.6
98 7.1
99 6.7
100 6.3
101 5.9
102 5.5
103 5.2
104 4.9
105 4.5
106 4.2
107 3.9
108 3.7
109 3.4
110 3.7
111 2.9
112 2.6
113 2.4
114 2.1
115 and over 1.9 1.9

The Importance of Strong Financial Defense

The great Alabama coach “Bear” Bryant once said, “Defense wins championships,” and you can bet every great coach in every sport has shared that same philosophy. Just think about some of the great sports dynasties, teams that won championships year after year: The Green Bay
Packers under Vince Lombardi, the Boston Celtics under Red Auerbech, the Yankees under Joe Torre…you could go on and on. All of these teams knew how to score, yes, but they all started with the premise that a strong defense made their offense better. Strategically, they knew how to win games, but they focused first on strategies that ensured they wouldn’t lose games.

Why is that same approach so critical when it comes to your finances and, in particular,
saving and investing for retirement? Well, it’s simply because when you’re talking about your “life savings”, losses can potentially have a huge impact on your life! How huge? Well, consider the fact that if you have all or most of your investments in the stock market and your portfolio loses 50 percent of its value, you need to regain 100 percent of it in order to break even; that takes time, and depends on the market not dropping again…


To continue reading send us your email for the full PDF!

Bridging the Income Gap

Social Security was never designed to be an individual’s sole source of retirement income. Instead, it was meant to bridge the gap between people’s income from pensions and savings and their monthly expenses.

income_gap-880x600

Today, however, nearly two-thirds of all seniors rely on Social Security for at least 50% of their total monthly income. Nor are annual cost-of-living adjustments, or COLAs, keeping up with the spiraling costs of healthcare, housing, and energy in many areas across the country. Adjustments to extend the program’s solvency have reduced benefits in real terms, as well as ratcheted up the age at which one can attain full benefits.

What’s more, traditional company pension plans are fast going the way of the horse-and-buggy and the dodo bird. Instead, employers are moving toward “defined contribution plans” that put most of the responsibility for planning, funding, investing, and distributing plan funds squarely on the shoulders of individual employees.

Given these trends, one thing is clear: Each person must put increasingly greater emphasis on securing their own financial future in retirement. Your actions today and throughout your working career may make the difference between relying on government programs for a modest monthly income and enjoying a secure, independent “golden years.”

The price of procrastination is steep and the cost of inadequate preparation too high for you to wait until later to start planning!

Retirement Expenses Over Time

How Living Expenses Change During Retirement

Understanding-Retirement_Expenses

There are some upsides to being a retiree – senior discounts, lower taxes, subsidized healthcare, and regular Social Security checks among them. On the other hand, mature Americans must contend with worrisome issues such as rising costs for medical care, long-term care, prescription drugs, and even basic necessities such as food and energy.

To determine your monthly expenses during retirement, you start by dividing costs into two categories: those you believe will change and those you believe will remain largely the same.

Costs You Believe Might Change

  • Housing expenses – particularly if you plan to live in your paid-off home or plan to downsize to a smaller dwelling
  • Medical insurance – which may shift from a premium for HMO coverage to a Medigap policy
  • Costs for dependents – if you have children you believe will be self-sufficient by the time you retire
  • Entertainment and travel expenses – for some people, these might decline precipitously; for others, they might be far higher
  • Taxes – most retirees find their combined tax burden is less than during their working years
  • Automobile-related costs – retirees generally drive less than workers who commute to their jobs every day, thus spending less on maintenance, tolls, gasoline, etc.
  • Monthly contributions toward retirement savings accounts – not only can you stop making this contribution, you might even consider spending it!

Costs You Think Will Remain the Same

  • Food
  • Clothing – unless you previously spent large amounts of money on uniforms or other job-specific wardrobe items
  • Household expenses – such as telephone, utilities, cable, etc.

Determine Your Individual Needs

Once you analyze all this information, you can determine your estimated monthly income needs as well as how large of an emergency fund to establish. This fund should be held in a liquid form such as a money market account, which provides stability for your funds as well as ready access to them.

Consider reviewing your estimated needs at least annually, because circumstances can and do change in today’s fast-moving world.

Compelling Reasons to Rollover Your Company Plan Money to an IRA

The IRA is a handy place to consolidate all of your retirement funds. It can help you stay in control by not having to keep track of several company plans and IRAs and the beneficiary and withdrawal options with each plan. You won’t have to worry about required distributions from both your company plan and your IRAs once all the funds have been rolled to an IRA.

1) The best case for an IRA rollover is the ability to keep the money growing tax-deferred for your beneficiaries. Many company retirement plans do not allow this stretch option even though the IRA rules permit it. The custodian of your company plan does not want to get involved in the administrative nightmare of keeping track of your beneficiaries for 30,40, or 50 years as they take required distributions after you die. So instead, your former company plan could pay your beneficiaries the entire dollar amount of your account in one year or five years at best. It’s this simple!

Do you want your retirement account to last 50 years or 5 years for your children and grandchildren? If you want your kids to have the choice to withdraw the minimum amounts over their lifetime, you must rollover your company plan to an IRA. Otherwise, your beneficiaries will be receiving the entire dollar amount of your company plan in one to five years and owe taxes on the entire amount.

2) IRA’s provide the ability to have you name many different beneficiaries and the option for those beneficiaries to split the account up after you die. Funds in your company plan are subject to Federal Law requiring participants to name their spouse as the primary beneficiary.

3) Your old company plan typically does not offer a wide variety of investment options to choose from. You can instantly make changes to the investment options in your IRA without going through the red tape of your company plan, where you are now considered an ex-employee. Why speak with an inexperienced phone rep at the company plan, when you can receive better service and more personal attention from your financial advisor?

4) Once you have rolled over your company plan funds to a traditional IRA, you can convert those funds to a Roth IRA (as long as your adjusted gross income is under the $100k income eligibility limit). You cannot directly convert company plan dollars to a Roth IRA. First, you must convert to a traditional IRA.

5) Company plans may have restrictions on withdrawals. In an IRA, you may have immediate access to your funds, regardless of age. Even if you are under the age of 59 1/2, you can withdraw from your IRA. You’ll pay tax and the 10% penalty, but you still have the ability to withdraw quickly. The company plan may have restrictions on withdrawals before the age 59 1/2. If you are no longer working for the company and leave the money in the company plan, it still may take some time to access your cash. If you need it right away, that will put unnecessary pressure on you at a time when the last thing you need is more problems.