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

For one thing, the government wants to make sure that such savings (and income tax benefits) actually go toward 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don’t meet the required minimum distribution withdrawals, the IRS will impose a stiff penalty: 50% of the amount not withdrawn, plus the income taxes due.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

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice to your situation

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How Social Security Works

he Social Security program was signed into law in 1935 after the nation had endured more than a half-decade of the Great Depression. It was intended to provide a safety net of income for individuals too old or disabled to continue working.

Participation in the Social Security program is mandatory, with most wage earners contributing a percentage of their annual incomes to support the program. In return, participants, their spouses, and certain dependents are eligible for retirement, disability, and survivorship benefits.

Today, approximately 90% of people aged 65 and older receive a Social Security benefit check each month. For many, this benefit is their primary source of retirement income.

How Contributions are Made and Accounted For

Each year you work, you and your employer contribute to the Social Security program in equal amounts.

FICA Yearly Limits

Year

Annual Social Security Wage Base Limit

Social Security Tax Rate

Maximum Annual Social Security Tax Withholding

Annual Medicare Wage Base

Medicare Tax Rate

2011

$106,800

4.2%

$4,485.60

No annual limit

1.45%

2010

$106,800

6.2%

$6,621.60

No annual limit

1.45%

2009

$106,800

6.2%

$6,621.60

No annual limit

1.45%

2008

$102,000

6.2%

$6,324.00

No annual limit

1.45%

2007

$97,500

6.2%

$6,045.00

No annual limit

1.45%

2006

$94,200

6.2%

$5,840.40

No annual limit

1.45%

2005

$90,000

6.2%

$5,580.00

No annual limit

1.45%

2004

$87,900

6.2%

$5,449.80

No annual limit

1.45%

2003

$87,000

6.2%

$5,394.00

No annual limit

1.45%

2002

$84,900

6.2%

$5,263.80

No annual limit

1.45%

2001

$80,400

6.2%

$4,984.80

No annual limit

1.45%

2000

$76,200

6.2%

$4,724.40

No annual limit

1.45%

1999

$72,600

6.2%

$4,501.20

No annual limit

1.45%

1998

$68,400

6.2%

$4,240.80

No annual limit

1.45%

1997

$65,400

6.2%

$4,054.80

No annual limit

1.45%

How Your Benefits Are Calculated

Your benefits are based on a calculation that includes how many years you worked and how much you earned. These figures are used to determine the number of quarterly credits you accumulated toward benefits. If you were born prior to 1938, you may collect full Social Security benefits when you turn 65, or you may collect 80% of your benefit if you retire at 62. For people born after 1938, Normal Retirement Age (NRA), or the age at which you can receive full benefits, gradually increases from age 65 to age 67. To determine your NRA, visit http://www.ssa.gov. When you die, your surviving spouse is entitled to your benefits, unless he or she would collect more based on their own earnings history.

Your Social Security account opens once you receive a Social Security card. However, it is not activated until you begin earning income. Once your earnings begin, the amount you contribute each year is recorded.

The accuracy of this record is important. You can obtain a copy of your earnings record from the Social Security Administration by filling out and mailing Form 7004. Forms are available at your local Social Security office or by calling 800-772-1213 or online at www.ssa.gov/online/ssa-7004.html. If you discover errors in your record, you can ask that it be corrected, though you must supply evidence of such errors. The Social Security Administration encourages people to check their earnings records every three years or so, because the earlier a problem is found, the easier it is to correct.

How Your Benefits Are Taxed

Once you begin receiving retirement benefits, you may have to include them as part of your taxable income reported to the IRS each year.

If your total income for the year, including half of your Social Security and your tax-exempt earnings, is greater than $32,000 ($25,000 for single taxpayers), you will owe federal income tax on a portion of your Social Security benefits. The IRS provides a worksheet to help you determine how much you must include in your taxable income each year.

Did you know that…

The Social Security Administration paid approximately $539 billion in benefits to nearly 49 million people in 2006

Social Security benefits were awarded to more than 4 million people

Among elderly Social Security beneficiaries, 54% of married couples and 74% of unmarried persons receive half or more of their income from Social Security.

Women accounted for 57% of adult Social Security beneficiaries

The average age of disabled-worker beneficiaries was 51

Disability and blindness were the reasons for paying 82% of Supplemental Security Income recipients

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.

 

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice to your situation

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Retirement Expenses

How Living Expenses Change During Retirement

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 might 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.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.

 

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice to your situation

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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.

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!

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.

 

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice to your situation

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IRA Conversions

The Roth IRA offers a number of advantages over its traditional counterpart. These include:

  • Tax-free distributions at retirement
  • Ability to continue making contributions beyond age 70-1/2
  • No required minimum distributions beginning in the year you turn 70-1/2
  • Leaving assets to survivors that are free from income taxes

Details on eligibility to convert a traditional IRA to a Roth IRA.

  • For years before 2010, if your filing status is married filing separately, you don’t qualify unless you lived apart from your spouse for the entire year.
  • For years before 2010, if your modified adjusted gross income is greater than $100,000, you can’t convert a traditional IRA to a Roth IRA.
  • For years before 2008, direct conversions from an employer plan to a Roth IRA were not permitted. You can do that now, but in some situations it may be preferable to roll to a traditional IRA and then convert to a Roth IRA.
  • If you inherited a traditional IRA from a person other than your spouse, you can’t convert it to a Roth IRA.
  • You can convert a traditional IRA to a Roth IRA even if you made a rollover within the previous 12 months.
  • If you’re otherwise eligible, you can convert part of a traditional IRA to a Roth IRA. But you can’t convert only the nontaxable part.

Assets converted to a Roth IRA must remain in the account for at least five years before any distributions are taken. Otherwise, a significant tax penalty may apply.

You’ll maximize the potential for tax-free income later if you pay conversion taxes out of pocket, rather than withdrawal them from your IRA. If you can’t pay conversion taxes without using part of your IRA funds, you probably shouldn’t convert unless you are certain you will be in a high tax bracket during retirement.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.

 

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice to your situation

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CLU | Chartered Life Underwriter

CLU
Chartered Life Underwriter

A CLU is a professional advisor in all of the areas of business and family financial security that are encompassed by life insurance. To become a CLU, an individual must successfully complete a comprehensive course of study and demonstrate competence by passing a series of eight, college-level examinations in several subject areas including: life insurance, pensions, taxation, finance, economics and business, and estate planning. Rigid ethical and experience requirements also must be met.

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Retirement Basics

Planning for The “Golden Years”

There’s a saying that if you have your health, you have everything. Well, that’s not exactly true – without adequate resources, you could enjoy a long, healthy retirement at a far lower standard of living than you’d prefer!

When preparing for retirement, it’s vital to keep in mind the importance of money to your quality of life during your “golden years.” And with retirements now stretching as long as 20 to 30 years – and beyond – ensuring your retirement dollars outlive you is a paramount concern.

Failing to Plan, or Planning to Fail?

It’s been said that he who fails to plan, plans to fail. And nowhere is that concept illustrated more starkly than with retirement planning. A sound financial plan can be the difference between the retirement of your dreams and the nightmare of discovering you have too little money, too late to change financial course.

A disciplined retirement preparation plan, diligently followed, will help you develop realistic objectives … assess progress toward your goals … and make periodic adjustments to keep you on track.

How Much Retirement Income Will YOU Need?

Government research has determined that most Americans need between 60 and 80 percent of their pre-retirement income in order to maintain their standard of living during retirement. However, many financial experts have raised this figure to between 80 and 100 percent of pre-retirement income, citing skyrocketing healthcare costs, lengthening life spans, and the ever-present threat of inflation – which can rob a retirement portfolio of purchasing power over time.

Of course, how much you will need in retirement will be a function of your goals, time horizon, and spending habits. Those who want to purchase a second home and travel frequently will obviously need more than those who prefer to stay at home in their paid-off house. Consider these factors when estimating your future retirement income needs:

  • Your support of children who will be self-sufficient by the time you retire
  • Your current work-related expenses that will be dramatically reduced in retirement, such as commuting costs, daily meal expenses, dry cleaning bills, etc.
  • Whether your mortgage will be paid off prior to or early in retirement
  • Whether you will need to continue your monthly savings amount or begin to spend that amount for necessities
  • Your tax bill in retirement

Sources of Retirement Income

Once you have estimated your target retirement income, you can begin evaluating your potential sources of regular income. In general, your income sources will fall into one of these three categories:

  1. Government sources. The Social Security system was inaugurated during the Great Depression to augment retirees’ incomes. Most experts feel that the system will remain solvent throughout much of the 21st century. Even so, a rising retirement age and cuts in benefits could reduce your monthly Social Security check. Benefits are based on the amount you earned during your working years.
  2. Employer-sponsored plans. Many employers offer company-sponsored retirement plans, which generally fall into two categories. Defined benefit plans, which are normally funded by the employer and guarantee a retirement benefit based on a formula comprising number of years on the job and employment earnings. For example, a traditional pension is a defined benefit plan. Defined contribution plans, on the other hand – such as 401(k), 403(b), and 457 – rely on funding from employees, matching funds from the employer, or a combination of the two. The employee owns an account balance (subject to company rules regarding vesting) of contributions and earnings. Upon changing jobs, an employee may be able to roll over assets into the new employer’s plan or into an IRA. At retirement, the employee decides how to withdraw the balance he or she has accumulated.
  • Personal savings. This is perhaps the most overlooked aspect of retirement planning. Personal savings include, but aren’t limited to, balances in savings accounts, directly held assets, home equity, shares in a partnership or business, and even collectibles such as artwork and coins.

How to Get – And Stay – On Course

How can you determine whether you’re on track to reach your retirement goals, and to make adjustments if necessary? We can help you develop a sound financial plan based on your specific situation, monitor it regularly to ensure you’re making progress toward your objectives, and recommend occasional adjustments to help you stay on course.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.

 

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice to your situation

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