As a growing number of Americans worry about outliving their retirement savings, the government is encouraging employers to offer an old-school, pension-style option for 401(k) holders.
The proposed revamp of retirement fund rules would make it easier for workers to convert part of their 401(k) savings into an annuity that would pay guaranteed income checks for life -- no matter the ups and downs in the markets.
And in keeping with the new assumptions about retirement, there is an unconventional component; a "longevity option" would let 401(k) savers take a lump sum portion at retirement age and defer it for 20 years, so retirees would start getting steady checks in the mail at age 85 and beyond.
Investment advisers say that's a big improvement on the "all-or-nothing" choice of many current plans, which allow retirees to take their entire 401(k) as a lump sum in cash or convert the whole thing into an annuity, instead of a combination of options.
"The new regulations give people more flexibility," says Warren Ward, a financial planner in Columbus, Ind. "You could put a third into an annuity and invest the remaining lump sum or keep some cash handy for medical needs and emergencies. It can give people piece of mind, which is important. After you work for your whole life, you don't want to worry about money when you get to retirement."
The U.S. Treasury proposal to encourage partial annuity options for 401(k) investors comes as Americans contemplate longer life spans while being spooked by the drop in value of retirement portfolios in the wake of the 2008 financial market meltdown.
A recent survey from global financial services association Limra found that 40 percent of Americans don't feel well informed about generating retirement income, investing their nest eggs, or managing their risks and expenses.
The survey, cited in a recent edition of Financial Advisor Magazine, also found that less than 50 percent of Americans plan for more than 20 years of retirement.
Only a handful have factored in how they might cover the cost of health care, long-term care, rising taxes and inflation, and what they might do in the event they outlive their savings.
View the original article here
Showing posts with label Retirement Plan. Show all posts
Showing posts with label Retirement Plan. Show all posts
Thursday, May 31, 2012
Saturday, May 26, 2012
8 Questions to Ask Yourself Before Retiring
Pulling the trigger on retirement can be a costly mistake if your finances aren't in good shape.
"It's a very uncertain time for people," says Doug Kinsey, a certified financial planner with Artifex Financial Group. Luckily, there are steps you can take to make yourself feel more secure as you approach retirement age. How can you tell if you're ready to retire the way you imagined? Here's a checklist of questions every pre-retiree should examine. Pulling the trigger on retirement can be a costly mistake if your finances aren't in good shape.
What kind of lifestyle do I want in retirement?
Several studies have tried to pinpoint how much money people should specifically have on hand before they retire. The truth is, though, that this amount is going to vary dramatically depending on what type of lifestyle you're looking to lead once you've left the workforce.
"Your entire financial plan is going to stem from that vision," says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial(AMP). She suggests considering where you see yourself living, whether you plan to get another job during retirement and how you plan on spending your time.
"Free time is very expensive," agrees Diana Palmer, a certified public accountant with Family Financial Planning. "If you like to travel, your budget needs to be set much higher."
Will my debts be paid off?
Unpaid debts will contribute to your monthly expenses and play a huge part in how much money you will need to have on hand before you go ahead and leave the workforce. This is not to say your house needs to be paid off in full before you retire.
"If you have a low interest rate [on your mortgage], you'll have to ask, 'Do I want to pay this off in full?'" Kinsey says. On the other hand, if the mortgage is more substantial, you may want to consider taking money out of your investment portfolio so you don't have to worry about it moving forward. The point is, whichever option you chose will have a significant impact on your cash flow.
If you have other debts on the books, such as high credit card balances, you may want to look into what other factors may be behind the balances so you can get them paid off as much as possible before you abandon a steady paycheck.
View the original article here
"It's a very uncertain time for people," says Doug Kinsey, a certified financial planner with Artifex Financial Group. Luckily, there are steps you can take to make yourself feel more secure as you approach retirement age. How can you tell if you're ready to retire the way you imagined? Here's a checklist of questions every pre-retiree should examine. Pulling the trigger on retirement can be a costly mistake if your finances aren't in good shape.
What kind of lifestyle do I want in retirement?
Several studies have tried to pinpoint how much money people should specifically have on hand before they retire. The truth is, though, that this amount is going to vary dramatically depending on what type of lifestyle you're looking to lead once you've left the workforce.
"Your entire financial plan is going to stem from that vision," says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial(AMP). She suggests considering where you see yourself living, whether you plan to get another job during retirement and how you plan on spending your time.
"Free time is very expensive," agrees Diana Palmer, a certified public accountant with Family Financial Planning. "If you like to travel, your budget needs to be set much higher."
Will my debts be paid off?
Unpaid debts will contribute to your monthly expenses and play a huge part in how much money you will need to have on hand before you go ahead and leave the workforce. This is not to say your house needs to be paid off in full before you retire.
"If you have a low interest rate [on your mortgage], you'll have to ask, 'Do I want to pay this off in full?'" Kinsey says. On the other hand, if the mortgage is more substantial, you may want to consider taking money out of your investment portfolio so you don't have to worry about it moving forward. The point is, whichever option you chose will have a significant impact on your cash flow.
If you have other debts on the books, such as high credit card balances, you may want to look into what other factors may be behind the balances so you can get them paid off as much as possible before you abandon a steady paycheck.
View the original article here
Saturday, May 19, 2012
A Frugal Retirement: How to Live on Less
How much of your retirement savings can you withdraw each year -- 7% or 1.8%? Or something in between?
The answer, of course, will make a huge difference in your lifestyle. Fortunately, if you need a smaller withdrawal to keep your nest egg going, it may not have to be permanent, and people in or near retirement can consider some attractive short-term lifestyle changes to keep life interesting on a reduced budget. You could find yourself living large or living on little. Here's how to be flexible and frugal with your funds.
The key: Keep flexible by avoiding big long-term commitments such as a second home, a large mortgage, oversized car payment or owing a pricey, unsalable condo with big association fees.
Since the early 1990s, many financial advisers have recommended starting retirement with a 4% annual withdrawal rate, or $40,000 for a $1 million nest egg. If you start there, you can increase the annual withdrawals by enough to offset inflation and keep going for 30 years.
That was the theory, anyway. But recent research says that as conditions change the withdrawal figure could be as high as 7% and as low as 1.8%. That impressive $1 million nest egg could therefore generate a tidy $70,000 a year, or a stingy $18,000 -- before taxes.
The first thing to note is that unless you can live on a very, very low withdrawal rate, your fund would have to include some stocks and long-term bonds as well as cash. After all, a five-year certificate of deposit yields only 1.157%, according to the BankingMyWay.com survey. But stocks obviously have risks, and you could face lengthy downturns.
The second point: You might well have to trim your withdrawals if the markets dip. Taking a full withdrawal when your stocks are down could inflict permanent damage on your nest egg, especially if the markets stayed down for several years.
View the original article here
The answer, of course, will make a huge difference in your lifestyle. Fortunately, if you need a smaller withdrawal to keep your nest egg going, it may not have to be permanent, and people in or near retirement can consider some attractive short-term lifestyle changes to keep life interesting on a reduced budget. You could find yourself living large or living on little. Here's how to be flexible and frugal with your funds.
The key: Keep flexible by avoiding big long-term commitments such as a second home, a large mortgage, oversized car payment or owing a pricey, unsalable condo with big association fees.
Since the early 1990s, many financial advisers have recommended starting retirement with a 4% annual withdrawal rate, or $40,000 for a $1 million nest egg. If you start there, you can increase the annual withdrawals by enough to offset inflation and keep going for 30 years.
That was the theory, anyway. But recent research says that as conditions change the withdrawal figure could be as high as 7% and as low as 1.8%. That impressive $1 million nest egg could therefore generate a tidy $70,000 a year, or a stingy $18,000 -- before taxes.
The first thing to note is that unless you can live on a very, very low withdrawal rate, your fund would have to include some stocks and long-term bonds as well as cash. After all, a five-year certificate of deposit yields only 1.157%, according to the BankingMyWay.com survey. But stocks obviously have risks, and you could face lengthy downturns.
The second point: You might well have to trim your withdrawals if the markets dip. Taking a full withdrawal when your stocks are down could inflict permanent damage on your nest egg, especially if the markets stayed down for several years.
View the original article here
Sunday, April 29, 2012
5 ways to blow your retirement
It's far from impossible to save enough for a comfortable retirement. But these blunders could come between you and your financial security.
A comfortable retirement is definitely achievable. Yet, many people face tremendous retirement challenges because they spend years neglecting simple measures that would make having enough money in their golden years a certainty.
Here are some common ways people blow their chances of having a comfortable retirement:
Not saving enough for a rainy day. Everyone needs to have an emergency fund. But while that's a good start, you need much more than just 12 months of expenses stashed somewhere safe. People get laid off, have their salaries decreased, or their businesses shut down because of changing business climates all the time. (Are you saving enough for retirement? Use MSN Money's calculator to find out.)
Assuming your current salary will continue. It might be overly optimistic to believe that if you save 5% of your paychecks every year for the next 30 years you'll have enough to retire comfortably. You might not be making the same level of income or get regular raises for three decades in a row. That's why you can't really be saving too much unless you've already hit your ultimate retirement goal.
Failing to factor in inflation. You might think you're playing it safe by putting your nest egg in a bank account that is FDIC-insured. But earning next to nothing in interest each year can be dangerous, because inflation will erode the purchasing power of your money. It's important to select some investments that are likely to keep up with inflation in retirement and maintain diversification in your portfolio.
Not looking far enough into the future. Some people get interested in stock investing while they are young, spending hours every day trying to pick a winning investment. But when you are young, your nest egg is small, so you should spend your time trying to maximize your earnings potential instead.
As your assets grow, it is prudent to start spending more time on your investments simply because there is more to lose. There is no shame in finding an investment adviser to help you manage your money, but you should still be very much involved. You are responsible for growing and protecting your own nest egg. (Use MSN Money's 401k calculator to see if yours is likely to provide enough.)
Allowing lifestyle inflation. It's easy to inflate your lifestyle as you earn more. Just one more night out, more frequent updates to your possessions and a few upgrades will exponentially increase your expenses.
Though there are a few ways to buy a bit of happiness, too many people make the mistake of thinking that spending more money will create lasting joy. In reality, it's having the ability to spend whenever you want that will truly make you happy. Learn to control your spending, and a comfortable retirement is really just a byproduct.
View the original article here
A comfortable retirement is definitely achievable. Yet, many people face tremendous retirement challenges because they spend years neglecting simple measures that would make having enough money in their golden years a certainty.
Here are some common ways people blow their chances of having a comfortable retirement:
Not saving enough for a rainy day. Everyone needs to have an emergency fund. But while that's a good start, you need much more than just 12 months of expenses stashed somewhere safe. People get laid off, have their salaries decreased, or their businesses shut down because of changing business climates all the time. (Are you saving enough for retirement? Use MSN Money's calculator to find out.)
Assuming your current salary will continue. It might be overly optimistic to believe that if you save 5% of your paychecks every year for the next 30 years you'll have enough to retire comfortably. You might not be making the same level of income or get regular raises for three decades in a row. That's why you can't really be saving too much unless you've already hit your ultimate retirement goal.
Failing to factor in inflation. You might think you're playing it safe by putting your nest egg in a bank account that is FDIC-insured. But earning next to nothing in interest each year can be dangerous, because inflation will erode the purchasing power of your money. It's important to select some investments that are likely to keep up with inflation in retirement and maintain diversification in your portfolio.
Not looking far enough into the future. Some people get interested in stock investing while they are young, spending hours every day trying to pick a winning investment. But when you are young, your nest egg is small, so you should spend your time trying to maximize your earnings potential instead.
As your assets grow, it is prudent to start spending more time on your investments simply because there is more to lose. There is no shame in finding an investment adviser to help you manage your money, but you should still be very much involved. You are responsible for growing and protecting your own nest egg. (Use MSN Money's 401k calculator to see if yours is likely to provide enough.)
Allowing lifestyle inflation. It's easy to inflate your lifestyle as you earn more. Just one more night out, more frequent updates to your possessions and a few upgrades will exponentially increase your expenses.
Though there are a few ways to buy a bit of happiness, too many people make the mistake of thinking that spending more money will create lasting joy. In reality, it's having the ability to spend whenever you want that will truly make you happy. Learn to control your spending, and a comfortable retirement is really just a byproduct.
View the original article here
Monday, December 12, 2011
Rethink Retirement Plans for Brand new 401(k) Laws
Last week, the Internal Money Service raised the annual contribution limits for IRAs, 401(k)s and similar retirement plans in 2012. That means now may be a good chance to build your holdings of cash to spend in retirement.
Maximum contributions to a 401(k) or similar program is $17,000 in 2012, up from $16,500 this year, while additional "catch-up" contributions for people over 50 will stay $5,500. Yearly contributions to traditional as well as Roth IRAs is limited to $6,000, the same as this year. Changes in contribution rates for retirement plans mean that many people should rethink their nest eggs.
Higher limits are good if you're an aggressive saver, but would definitely we really would like to use an IRA to 401(k) for money? Don't many investors emphasize stocks and bonds in tax-favored retirement accounts?
Yes, many investors use these accounts for tax breaks on investment gains, as well as there aren't many gains with cash savings. Additionally, there's generally a 10% penalty for taking revenue out of these retirement accounts before age 59.5, so they're not a good place for an emergency fund to routine bills.
While all that's true, money has other uses that can make it a sensible way for a portion of your long-term retirement savings. Money is definitely not subject to the big price drops that can hit stocks as well as bonds, and so it can help even out the bumps, making your portfolio's performance more stable.
It can also pay to have a money reserve for jumping on opportunities, like buying stocks whenever prices are down. Money is a good choice for brand new contributions when stocks as well as bonds look too risky, especially in accounts that provide immediate tax deductions on contributions.
As well as, naturally, as retirement nears it's good to have enough money to fund spending needs for a year to 2, and so we will not have to market stocks or perhaps bonds during a downturn. It can pay to build that gradually, to avoid having to liquidate large stock or perhaps bond holdings if costs are down when you retire.
Finally, interest earnings on cash in an IRA to 401(k) are sheltered from income tax. This isn't a big consideration right now because interest rates are thus low, but it could matter when yields return to regular. Because there are yearly limits on retirement program contributions, it can pay to build the tax-favored cash reserves over time.
Interest in a 401(k) or traditional IRA is taxed as income, the same rate you'd face in a taxable account. But in a taxable account the tax is due the year the interest is earned, whilst in those retirement accounts tax is postponed until the cash is withdrawn, which leaves more in the account to compound. There is no tax on interest earned in a Roth IRA or Roth 401(k), because all withdrawals are tax free.
The new contribution as well as income limits are certainly not exactly earth-shaking, but every little bit helps.
And, as the new year approaches, it is a good time to reassess savings plans. Many employers, for example, send notices in the fall reminding workers they can change their 401(k) contributions for the coming year. It's a convenient time to rethink the allocation to stocks, bonds as well as money.
View the original article here
Maximum contributions to a 401(k) or similar program is $17,000 in 2012, up from $16,500 this year, while additional "catch-up" contributions for people over 50 will stay $5,500. Yearly contributions to traditional as well as Roth IRAs is limited to $6,000, the same as this year. Changes in contribution rates for retirement plans mean that many people should rethink their nest eggs.
Higher limits are good if you're an aggressive saver, but would definitely we really would like to use an IRA to 401(k) for money? Don't many investors emphasize stocks and bonds in tax-favored retirement accounts?
Yes, many investors use these accounts for tax breaks on investment gains, as well as there aren't many gains with cash savings. Additionally, there's generally a 10% penalty for taking revenue out of these retirement accounts before age 59.5, so they're not a good place for an emergency fund to routine bills.
While all that's true, money has other uses that can make it a sensible way for a portion of your long-term retirement savings. Money is definitely not subject to the big price drops that can hit stocks as well as bonds, and so it can help even out the bumps, making your portfolio's performance more stable.
It can also pay to have a money reserve for jumping on opportunities, like buying stocks whenever prices are down. Money is a good choice for brand new contributions when stocks as well as bonds look too risky, especially in accounts that provide immediate tax deductions on contributions.
As well as, naturally, as retirement nears it's good to have enough money to fund spending needs for a year to 2, and so we will not have to market stocks or perhaps bonds during a downturn. It can pay to build that gradually, to avoid having to liquidate large stock or perhaps bond holdings if costs are down when you retire.
Finally, interest earnings on cash in an IRA to 401(k) are sheltered from income tax. This isn't a big consideration right now because interest rates are thus low, but it could matter when yields return to regular. Because there are yearly limits on retirement program contributions, it can pay to build the tax-favored cash reserves over time.
Interest in a 401(k) or traditional IRA is taxed as income, the same rate you'd face in a taxable account. But in a taxable account the tax is due the year the interest is earned, whilst in those retirement accounts tax is postponed until the cash is withdrawn, which leaves more in the account to compound. There is no tax on interest earned in a Roth IRA or Roth 401(k), because all withdrawals are tax free.
The new contribution as well as income limits are certainly not exactly earth-shaking, but every little bit helps.
And, as the new year approaches, it is a good time to reassess savings plans. Many employers, for example, send notices in the fall reminding workers they can change their 401(k) contributions for the coming year. It's a convenient time to rethink the allocation to stocks, bonds as well as money.
View the original article here
Saturday, December 10, 2011
10X Income Touted for Retirement Savings
Whenever it comes to retirement planning, a familiar (and frequently daunting) question is how a lot you should save.
As part of during National Save for Retirement Week, Lincoln Financial Group(LNC) is hosting an hourlong open forum Thursday, Oct. 20, at 12:30 p.m. ET on retirement saving on its Facebook site. Its retirement plan specialists will answer questions in real time, as well as savings targets are likely to be among the hot topics. People should aim to retire with a savings baseline of at least 10 times their yearly income, according to Lincoln Financial Group.
Anna Gauthier, strategic communications director at Lincoln Financial, will come armed to the talk with its recent Retirement Power study, a consider the savings profiles as well as behaviors of over 4,000 respondents, including in-depth analysis of a subgroup of 1,179 retirees.
According to research by Hearts & Wallets, a firm that analyzes retirement marketplace trends for the financial services industry that is cited in the study, just 11% of leading-edge baby boomers (ages 53-64) have saved at least $500,000, even though just 30% of the same group expected to have any kind of income at all from a traditional defined-benefit pension program. It also found that 50% of respondents consider retirement planning -- including how a great deal to save -- to be "difficult" to "very difficult."
Making use of the study, Lincoln is suggesting that people should aim to have a savings baseline of at least 10 times their yearly income at retirement. In greater detail, the assets-to-income metric it suggests should be calculated by dividing the sum of your current investable assets (minus nonmortgage debt) by their current yearly pretax income.
View the original article here
As part of during National Save for Retirement Week, Lincoln Financial Group(LNC) is hosting an hourlong open forum Thursday, Oct. 20, at 12:30 p.m. ET on retirement saving on its Facebook site. Its retirement plan specialists will answer questions in real time, as well as savings targets are likely to be among the hot topics. People should aim to retire with a savings baseline of at least 10 times their yearly income, according to Lincoln Financial Group.
Anna Gauthier, strategic communications director at Lincoln Financial, will come armed to the talk with its recent Retirement Power study, a consider the savings profiles as well as behaviors of over 4,000 respondents, including in-depth analysis of a subgroup of 1,179 retirees.
According to research by Hearts & Wallets, a firm that analyzes retirement marketplace trends for the financial services industry that is cited in the study, just 11% of leading-edge baby boomers (ages 53-64) have saved at least $500,000, even though just 30% of the same group expected to have any kind of income at all from a traditional defined-benefit pension program. It also found that 50% of respondents consider retirement planning -- including how a great deal to save -- to be "difficult" to "very difficult."
Making use of the study, Lincoln is suggesting that people should aim to have a savings baseline of at least 10 times their yearly income at retirement. In greater detail, the assets-to-income metric it suggests should be calculated by dividing the sum of your current investable assets (minus nonmortgage debt) by their current yearly pretax income.
View the original article here
Thursday, December 8, 2011
Is it Easier for Singles to Save For Retirement?
When it comes to retirement planning, who has it better, singles to married couples?
The answer -- singles, according to many Americans -- can be based more on perception than reality. Singles can find it harder to save for retirement than the traditional wisdom suggests. Singles are actually significantly less prepared for and confident about retiring, a study says.
A recent survey by Schwab(SCHW) looked at the attitudes as well as behaviors of singles as well as married people around retirement. It found that many singles (69%) as well as a majority of married couples (53%) think being single is an advantage when it comes to retirement planning.
This attitude isn't backed up by the facts, warns Carrie Schwab-Pomerantz, Charles Schwab senior vice president. The same study found that singles are actually significantly less prepared and less confident than married individuals in their retirement readiness -- 85% of married Americans have already began to save, compared with only 67% of singles.
Those stats can get even worse given a weak economy as well as rampant unemployment that has left many Americans in their 20s underpaid as well as frequently moving back in with their parents.
There is also a growing population of singles. Census figures show there are record numbers of singles in America -- nearly 100 million last year, or one-third of the population.
The study also found that 58% of married Americans say it would be easier to decide whenever to retire without a spouse to consider; 62% of those couples say choosing where to retire would be easier if they had been single.
The details of when and exactly where to retire, however, are less problematic than being prepared for that stage of life.
Despite the perception that "single people have it created," they have the very big hurdle of having only you income.
View the original article here
The answer -- singles, according to many Americans -- can be based more on perception than reality. Singles can find it harder to save for retirement than the traditional wisdom suggests. Singles are actually significantly less prepared for and confident about retiring, a study says.
A recent survey by Schwab(SCHW) looked at the attitudes as well as behaviors of singles as well as married people around retirement. It found that many singles (69%) as well as a majority of married couples (53%) think being single is an advantage when it comes to retirement planning.
This attitude isn't backed up by the facts, warns Carrie Schwab-Pomerantz, Charles Schwab senior vice president. The same study found that singles are actually significantly less prepared and less confident than married individuals in their retirement readiness -- 85% of married Americans have already began to save, compared with only 67% of singles.
Those stats can get even worse given a weak economy as well as rampant unemployment that has left many Americans in their 20s underpaid as well as frequently moving back in with their parents.
There is also a growing population of singles. Census figures show there are record numbers of singles in America -- nearly 100 million last year, or one-third of the population.
The study also found that 58% of married Americans say it would be easier to decide whenever to retire without a spouse to consider; 62% of those couples say choosing where to retire would be easier if they had been single.
The details of when and exactly where to retire, however, are less problematic than being prepared for that stage of life.
Despite the perception that "single people have it created," they have the very big hurdle of having only you income.
View the original article here
Monday, November 21, 2011
5 ways to sabotage your own retirement
We can definitely not necessarily be thinking of retirement when we celebrate a promotion, but possibly you should be. Plan -- and save -- now to avoid worry as well as need later.
Retirement isn't impossible for we, but we frequently get and so wrapped up in navigating our busy schedule that we unknowingly sabotage our have retirement. Look into these five specific areas of the program to see if you're doing damage to your goal of a comfortable retirement.
In this economy, it's easy to be grateful for even having a job. But you're definitely shortchanging your self if we don't negotiate for higher pay as soon as an employer presents a job provide. A higher starting income sets you up for bigger paychecks down the line due to the fact many raises are calculated as a percentage of your current pay. The worst an employer can say is no. And unless we are very rude in the negotiations, it's highly unlikely that an employer will take back the original provide because we asked if there is any kind of space for improvement.
We can be drastically cutting your own Social Safety checks without having even knowing it if you decide to retire early. Your own Social Security checks will be based on your 35 highest yearly salaries. (The Social Security web site has a tool to estimate your own benefit.) If we work less than 35 many years, you get a zero averaged in for every year that we didn't work. And it's usually a good idea to work even more than 35 many years to cancel out unfortunate many years that you didn't work a lot due to layoffs to your lower salary at the beginning of the career. (Are you saving enough for retirement? Check with MSN Money's calculator.)
It's easy to spend a little more each time the income increases. Spending more money improves the high quality of lifetime, allows you to celebrate the achievements as well as helps to keep we inspired. Even though cash isn't simply for hoarding, it's important to additionally save for the future as the paychecks grow.
If the retirement plan includes owning volatile investments like stocks, you should understand that the performance of those investments can vary widely from year to year.
Let's say you had $500,000 invested in 2009 as well as began your 4% withdrawal at $20,000 a year. Whenever 2011 rolled around, we probably had over $500,000 of liquid assets available even though we withdrew income for two many years. Seeing that you now have more funds, some people might start to inflate their withdrawals as well as take 4% of the brand new total. If your own account balance grew to $700,000, a 4% withdrawal is $28,000 instead of $20,000. But just what if the stock part of your portfolio later loses 20%? Those that stay with their original $20,000 withdrawal probably will not run out of cash, due to the fact the down many years were already accounted for.
People that take out more funds in years when their investments work well increase their risk of running from revenue mainly because that level of investment growth is not likely to continue forever.
If we consistently put off saving, you will certainly not have enough saved to retire well. For most people, retiring well takes many years of diligent saving. The earlier you begin saving, the more time the funds has to accumulate interest as well as grow.
View the original article here
Retirement isn't impossible for we, but we frequently get and so wrapped up in navigating our busy schedule that we unknowingly sabotage our have retirement. Look into these five specific areas of the program to see if you're doing damage to your goal of a comfortable retirement.
In this economy, it's easy to be grateful for even having a job. But you're definitely shortchanging your self if we don't negotiate for higher pay as soon as an employer presents a job provide. A higher starting income sets you up for bigger paychecks down the line due to the fact many raises are calculated as a percentage of your current pay. The worst an employer can say is no. And unless we are very rude in the negotiations, it's highly unlikely that an employer will take back the original provide because we asked if there is any kind of space for improvement.
We can be drastically cutting your own Social Safety checks without having even knowing it if you decide to retire early. Your own Social Security checks will be based on your 35 highest yearly salaries. (The Social Security web site has a tool to estimate your own benefit.) If we work less than 35 many years, you get a zero averaged in for every year that we didn't work. And it's usually a good idea to work even more than 35 many years to cancel out unfortunate many years that you didn't work a lot due to layoffs to your lower salary at the beginning of the career. (Are you saving enough for retirement? Check with MSN Money's calculator.)
It's easy to spend a little more each time the income increases. Spending more money improves the high quality of lifetime, allows you to celebrate the achievements as well as helps to keep we inspired. Even though cash isn't simply for hoarding, it's important to additionally save for the future as the paychecks grow.
If the retirement plan includes owning volatile investments like stocks, you should understand that the performance of those investments can vary widely from year to year.
Let's say you had $500,000 invested in 2009 as well as began your 4% withdrawal at $20,000 a year. Whenever 2011 rolled around, we probably had over $500,000 of liquid assets available even though we withdrew income for two many years. Seeing that you now have more funds, some people might start to inflate their withdrawals as well as take 4% of the brand new total. If your own account balance grew to $700,000, a 4% withdrawal is $28,000 instead of $20,000. But just what if the stock part of your portfolio later loses 20%? Those that stay with their original $20,000 withdrawal probably will not run out of cash, due to the fact the down many years were already accounted for.
People that take out more funds in years when their investments work well increase their risk of running from revenue mainly because that level of investment growth is not likely to continue forever.
If we consistently put off saving, you will certainly not have enough saved to retire well. For most people, retiring well takes many years of diligent saving. The earlier you begin saving, the more time the funds has to accumulate interest as well as grow.
View the original article here
Monday, June 13, 2011
401k or IRA: Which Should You Fund First?
One of the questions that many people have as they plan for retirement is whether they should fund a 401k or an IRA first. And, of course, the answer depends on what you are trying to accomplish with your retirement fund.
IRAs and 401ks have some different advantages and disadvantages, and it is up to you to determine what is most likely to be the best course of action for you. As you try to figure out what to do with your retirement money, here are some things to consider:
Your employer match is one of the most important considerations when deciding which type of account to fund first. If you have a 401k and an IRA, you might want to consider funding the 401k first if there is an employer match. You don’t have to max out the 401k, but you don’t want to leave money on the table, either. If your employer offers a 50% match up to 5% of your income, you can get a pretty good chunk of free money.
If you make $45,000 a year, 5% of your income is $2,250. If you put that $2,250 in, your employer match will be $1,125. That’s not too shabby, considering it’s free money. That boosts your annual contribution up to $3,375.
Once you’ve got your employer match covered, you can decide whether it’s worth it to put unmatched money in your company’s 401k. If your plan has high fees, or if your plan has options you aren’t happy with, you can put the some of the money in an IRA that you create yourself, using low-cost investments that you like. After you max the IRA out, if you have some money left over for retirement investing, you can reconsider whether you want the unmatched funds in your company’s 401k.
Often, you have more flexibility with investment options when you use an IRA. With a 401k, you are limited to what the employer offers, although you can always ask to have certain investments added to the plan. And, because you can open an IRA for a non-working spouse, it’s possible to double what you save as a couple for a year, since you can max out your IRA and your spouse’s IRA. However, even doubling up, you won’t be able to contribute as much to your IRAs as you could to one 401k each year.
You should also consider the flexibility of withdrawal options. With a 401k, you can borrow against your account, but if you don’t repay the loan, things can get really pricey really fast. Additionally, you have to pay tax penalties. With a Roth IRA, you can withdraw your contributions (but not the earnings) when you want. A traditional IRA also has some flexibility when you withdraw for some expenses. The 401k, on the other hand, has an interesting option that allows you to withdraw money if you retire after 55 — no penalty (but the money is still taxable).
Naturally, you will need to consider the tax situation. In the past, if you wanted to withdraw money tax free in retirement, you concentrated mostly on the Roth IRA, paying taxes on your income now. However, if your employer offers the relatively new Roth 401k, you may not have to make that choice.
If you would rather have the tax benefits now, in the form of a deduction, you can contribute more to a traditional IRA or a traditional 401k.
Ideally, you would be able to max out a 401k and an IRA in a year. However, most of us won’t be maxing out all of our retirement accounts; we have to choose between them. With a little thought and planning, you can divide up your retirement contributions in the way that will benefit you the most.
View the original article here
IRAs and 401ks have some different advantages and disadvantages, and it is up to you to determine what is most likely to be the best course of action for you. As you try to figure out what to do with your retirement money, here are some things to consider:
Your employer match is one of the most important considerations when deciding which type of account to fund first. If you have a 401k and an IRA, you might want to consider funding the 401k first if there is an employer match. You don’t have to max out the 401k, but you don’t want to leave money on the table, either. If your employer offers a 50% match up to 5% of your income, you can get a pretty good chunk of free money.
If you make $45,000 a year, 5% of your income is $2,250. If you put that $2,250 in, your employer match will be $1,125. That’s not too shabby, considering it’s free money. That boosts your annual contribution up to $3,375.
Once you’ve got your employer match covered, you can decide whether it’s worth it to put unmatched money in your company’s 401k. If your plan has high fees, or if your plan has options you aren’t happy with, you can put the some of the money in an IRA that you create yourself, using low-cost investments that you like. After you max the IRA out, if you have some money left over for retirement investing, you can reconsider whether you want the unmatched funds in your company’s 401k.
Often, you have more flexibility with investment options when you use an IRA. With a 401k, you are limited to what the employer offers, although you can always ask to have certain investments added to the plan. And, because you can open an IRA for a non-working spouse, it’s possible to double what you save as a couple for a year, since you can max out your IRA and your spouse’s IRA. However, even doubling up, you won’t be able to contribute as much to your IRAs as you could to one 401k each year.
You should also consider the flexibility of withdrawal options. With a 401k, you can borrow against your account, but if you don’t repay the loan, things can get really pricey really fast. Additionally, you have to pay tax penalties. With a Roth IRA, you can withdraw your contributions (but not the earnings) when you want. A traditional IRA also has some flexibility when you withdraw for some expenses. The 401k, on the other hand, has an interesting option that allows you to withdraw money if you retire after 55 — no penalty (but the money is still taxable).
Naturally, you will need to consider the tax situation. In the past, if you wanted to withdraw money tax free in retirement, you concentrated mostly on the Roth IRA, paying taxes on your income now. However, if your employer offers the relatively new Roth 401k, you may not have to make that choice.
If you would rather have the tax benefits now, in the form of a deduction, you can contribute more to a traditional IRA or a traditional 401k.
Ideally, you would be able to max out a 401k and an IRA in a year. However, most of us won’t be maxing out all of our retirement accounts; we have to choose between them. With a little thought and planning, you can divide up your retirement contributions in the way that will benefit you the most.
Monday, April 18, 2011
Will You Have Enough Money to Retire?
For investors who have faithfully built a retirement fund using stocks and other investments, the most important question to answer is: Will it be enough?
That answer, of course, will be different for each investor, however it doesn't change the fact that the answer is almost impossible to predict.
View the original article here
That answer, of course, will be different for each investor, however it doesn't change the fact that the answer is almost impossible to predict.
View the original article here
Tuesday, April 5, 2011
How to protect your savings
Defined benefit ("DB") retirement plans—often referred to as pension plans—are not as common as they once were. And some plan sponsors are expected to terminate their plans in the near future.
If this happens to your pension, you'll probably be offered a lump-sum payout from your plan sponsor as an alternative to the plan's annuity benefit. And you'll face an important decision: What should you do with the money?
If you find yourself in this situation—whether because your pension plan was terminated or for a different reason, such as retirement or changing jobs—you generally have three options:
Put the money to work. To keep your savings earmarked for retirement, you could invest your pension assets through a rollover into a traditional IRA or a 401(k) plan sponsored by your employer. Either approach can keep your money working tax-deferred through a variety of investment options. This option can be particularly beneficial if you're in the early stages of your working career. (See "Rollovers made easy" below for more information.)
Select an annuity. An income annuity may be an attractive option if you're looking for cash flow in retirement and you're concerned about outliving your savings. But annuities aren't for everyone, and the decision to invest in an annuity is generally irreversible. Your existing DB plan will probably offer annuity options, which usually require you to take your entire distribution as an annuity. Another option would be to consider rolling your distribution into an IRA and allocating a portion of your funds toward the purchase of an annuity. Learn more about lower-cost annuity options available through Vanguard.
Take a taxable distribution. It may be tempting to receive your money immediately. But be warned: A lump-sum payout that isn't rolled over will be taxed as income. If you spend it now, it'll reduce your income in retirement. Even if you invest it in a nonretirement account, it will no longer grow tax-free.
"There are advantages and disadvantages to each approach," said Evan Inglis, chief actuary in Vanguard's Strategic Retirement Consulting group. "However, the tax consequences of taking an immediate distribution mean that it's usually not advisable. That's why we generally suggest that pension plan participants roll over their assets or select an annuity."
Performing a rollover couldn't be simpler or more straightforward. At Vanguard, you'll get hands-on guidance from an experienced rollover specialist who can help you get started, answer your questions, and offer ongoing support for your financial goals.
View the original article here
If this happens to your pension, you'll probably be offered a lump-sum payout from your plan sponsor as an alternative to the plan's annuity benefit. And you'll face an important decision: What should you do with the money?
If you find yourself in this situation—whether because your pension plan was terminated or for a different reason, such as retirement or changing jobs—you generally have three options:
Put the money to work. To keep your savings earmarked for retirement, you could invest your pension assets through a rollover into a traditional IRA or a 401(k) plan sponsored by your employer. Either approach can keep your money working tax-deferred through a variety of investment options. This option can be particularly beneficial if you're in the early stages of your working career. (See "Rollovers made easy" below for more information.)
Select an annuity. An income annuity may be an attractive option if you're looking for cash flow in retirement and you're concerned about outliving your savings. But annuities aren't for everyone, and the decision to invest in an annuity is generally irreversible. Your existing DB plan will probably offer annuity options, which usually require you to take your entire distribution as an annuity. Another option would be to consider rolling your distribution into an IRA and allocating a portion of your funds toward the purchase of an annuity. Learn more about lower-cost annuity options available through Vanguard.
Take a taxable distribution. It may be tempting to receive your money immediately. But be warned: A lump-sum payout that isn't rolled over will be taxed as income. If you spend it now, it'll reduce your income in retirement. Even if you invest it in a nonretirement account, it will no longer grow tax-free.
"There are advantages and disadvantages to each approach," said Evan Inglis, chief actuary in Vanguard's Strategic Retirement Consulting group. "However, the tax consequences of taking an immediate distribution mean that it's usually not advisable. That's why we generally suggest that pension plan participants roll over their assets or select an annuity."
Performing a rollover couldn't be simpler or more straightforward. At Vanguard, you'll get hands-on guidance from an experienced rollover specialist who can help you get started, answer your questions, and offer ongoing support for your financial goals.
View the original article here
Sunday, February 20, 2011
Pension going away? Here's how to protect your savings
Defined benefit ("DB") retirement plans—often referred to as pension plans—are not as common as they once were. And some plan sponsors are expected to terminate their plans in the near future.
If this happens to your pension, you'll probably be offered a lump-sum payout from your plan sponsor as an alternative to the plan's annuity benefit. And you'll face an important decision: What should you do with the money?
If you find yourself in this situation—whether because your pension plan was terminated or for a different reason, such as retirement or changing jobs—you generally have three options:
Put the money to work. To keep your savings earmarked for retirement, you could invest your pension assets through a rollover into a traditional IRA or a 401(k) plan sponsored by your employer. Either approach can keep your money working tax-deferred through a variety of investment options. This option can be particularly beneficial if you're in the early stages of your working career. (See "Rollovers made easy" below for more information.)
Select an annuity. An income annuity may be an attractive option if you're looking for cash flow in retirement and you're concerned about outliving your savings. But annuities aren't for everyone, and the decision to invest in an annuity is generally irreversible. Your existing DB plan will probably offer annuity options, which usually require you to take your entire distribution as an annuity. Another option would be to consider rolling your distribution into an IRA and allocating a portion of your funds toward the purchase of an annuity. Learn more about lower-cost annuity options available through Vanguard.
Take a taxable distribution. It may be tempting to receive your money immediately. But be warned: A lump-sum payout that isn't rolled over will be taxed as income. If you spend it now, it'll reduce your income in retirement. Even if you invest it in a nonretirement account, it will no longer grow tax-free.
"There are advantages and disadvantages to each approach," said Evan Inglis, chief actuary in Vanguard's Strategic Retirement Consulting group. "However, the tax consequences of taking an immediate distribution mean that it's usually not advisable. That's why we generally suggest that pension plan participants roll over their assets or select an annuity."
Performing a rollover couldn't be simpler or more straightforward. At Vanguard, you'll get hands-on guidance from an experienced rollover specialist who can help you get started, answer your questions, and offer ongoing support for your financial goals.
To find out how to put a pension plan distribution to work—or simply to learn more about retirement rollovers—call us at 800-523-9442 or visit the rollover section of our site.
Note:
All investments are subject to risk.
View the original article here
If this happens to your pension, you'll probably be offered a lump-sum payout from your plan sponsor as an alternative to the plan's annuity benefit. And you'll face an important decision: What should you do with the money?
If you find yourself in this situation—whether because your pension plan was terminated or for a different reason, such as retirement or changing jobs—you generally have three options:
Put the money to work. To keep your savings earmarked for retirement, you could invest your pension assets through a rollover into a traditional IRA or a 401(k) plan sponsored by your employer. Either approach can keep your money working tax-deferred through a variety of investment options. This option can be particularly beneficial if you're in the early stages of your working career. (See "Rollovers made easy" below for more information.)
Select an annuity. An income annuity may be an attractive option if you're looking for cash flow in retirement and you're concerned about outliving your savings. But annuities aren't for everyone, and the decision to invest in an annuity is generally irreversible. Your existing DB plan will probably offer annuity options, which usually require you to take your entire distribution as an annuity. Another option would be to consider rolling your distribution into an IRA and allocating a portion of your funds toward the purchase of an annuity. Learn more about lower-cost annuity options available through Vanguard.
Take a taxable distribution. It may be tempting to receive your money immediately. But be warned: A lump-sum payout that isn't rolled over will be taxed as income. If you spend it now, it'll reduce your income in retirement. Even if you invest it in a nonretirement account, it will no longer grow tax-free.
"There are advantages and disadvantages to each approach," said Evan Inglis, chief actuary in Vanguard's Strategic Retirement Consulting group. "However, the tax consequences of taking an immediate distribution mean that it's usually not advisable. That's why we generally suggest that pension plan participants roll over their assets or select an annuity."
Performing a rollover couldn't be simpler or more straightforward. At Vanguard, you'll get hands-on guidance from an experienced rollover specialist who can help you get started, answer your questions, and offer ongoing support for your financial goals.
To find out how to put a pension plan distribution to work—or simply to learn more about retirement rollovers—call us at 800-523-9442 or visit the rollover section of our site.
Note:
All investments are subject to risk.
View the original article here
Friday, February 18, 2011
Retirement Mistakes You Must Avoid
Are you planning and saving for retirement? That's good, but that may not be enough. While taking the initiative to plan for the future and begin saving money to fund your retirement goals is a great start, there are plenty of additional planning items to take note of.
Here are six of the most common planning mistakes:
As you can see, saving for retirement is a great start, but there are many areas in which you can still make mistakes. Continue reading to learn more about these six retirement planning mistakes and how you can avoid them.
View the original article here
Here are six of the most common planning mistakes:
- Not maximizing your employer match.
- Borrowing from your retirement assets.
- Failing to diversify.
- Failing to rebalance your portfolio.
- Taking an early distribution.
- Becoming paralyzed by choices.
As you can see, saving for retirement is a great start, but there are many areas in which you can still make mistakes. Continue reading to learn more about these six retirement planning mistakes and how you can avoid them.
View the original article here
Thursday, February 17, 2011
How the Roth IRA Can Help You Retire
Most people save for retirement in their employer-sponsored plan such as a?401(k) or?403(b) plan, but these plans provide up-front tax deductions and tax-deferred growth. While this can be a great feature, the problem is that the money will still be taxed as ordinary income upon withdrawal in retirement. If tax rates are lower, or you're in a lower tax bracket when this happens, that is ideal, but what happens when you find that taxes are higher upon retirement?
This is where a?Roth IRA can come in handy. Unlike the employer-sponsored plans and its cousin, the Traditional IRA, qualified withdrawals from a Roth IRA are tax-free. You don't get the benefit of a tax deduction on the contributions since they are made with after-tax dollars, but the money still grows tax-deferred, and in most cases, can be withdrawn in retirement completely free from taxes. This is great for situations where tax rates may increase in the future as you'll avoid being heavily taxed on those withdrawals.
Now, this isn't to say that one type of retirement plan is better than another, but both pre-tax and tax-free accounts have their advantages. It is typically a good idea to have retirement money in both types of accounts so that you're diversifying your tax liabilities and can structure your withdrawals in a way that minimizes your tax burden both now, and in the future. Take a moment to?learn more about the Roth IRA.
View the original article here
This is where a?Roth IRA can come in handy. Unlike the employer-sponsored plans and its cousin, the Traditional IRA, qualified withdrawals from a Roth IRA are tax-free. You don't get the benefit of a tax deduction on the contributions since they are made with after-tax dollars, but the money still grows tax-deferred, and in most cases, can be withdrawn in retirement completely free from taxes. This is great for situations where tax rates may increase in the future as you'll avoid being heavily taxed on those withdrawals.
Now, this isn't to say that one type of retirement plan is better than another, but both pre-tax and tax-free accounts have their advantages. It is typically a good idea to have retirement money in both types of accounts so that you're diversifying your tax liabilities and can structure your withdrawals in a way that minimizes your tax burden both now, and in the future. Take a moment to?learn more about the Roth IRA.
View the original article here
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