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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