Have you used qualified plans such as 401(k)s, IRAs, annuities or others to save for retirement? You’re not alone. These accounts are popular because they allow you to accumulate assets without paying taxes on the growth. In most cases, you avoid taxes until you take distributions. In the case of a Roth IRA, you may never pay taxes on your growth or distributions.
Of course, the trade-off of this tax-favored treatment is that you must wait until age 59½ before you can take distributions from a qualified plan. If you take distributions prior to age 59½, you may face a 10 percent early distribution penalty.
0 Comments
If you’re preparing for retirement, you may know better than anyone how many different financial tools and products are available to help you generate income and minimize risk. From a broad range of investment and insurance products to different account types, you have many tools at your disposal. It may be hard to make sense of your options.
You probably want to use the tools that are best aligned with your needs and objectives, and you likely want to implement strategies that have a long track record of success. One potential tool is an annuity. Since its inception in 1974, the IRA has become a popular retirement savings tool. According to a study from the Employee Benefit Research Institute, there are more than 25 million IRAs open in the United States, and those accounts hold nearly $2.5 trillion in total assets.1
There are many reasons why the IRA is such a popular savings vehicle. Perhaps one of the biggest reasons is the account’s tax benefits. Depending on which type of IRA you own, you may benefit from tax deductions for your contributions, tax-deferred growth or even tax-free withdrawals in retirement. Retirement is a time for married couples to enjoy their newfound freedom and live life on their terms. It’s a time to travel, pursue favorite hobbies and passions, and enjoy connecting with each other and family.
While retirement should be a celebratory event, it can also bring unique challenges. Some of those challenges may be difficult to think about or discuss. If you don’t acknowledge these challenges, though, you could put yourself and your spouse in a risky financial position. Perhaps one of the most difficult conversations to have as a married couple is a discussion about end-of-life issues. While you may not want to talk about it, it’s likely that one of you may live for years or even decades after the first spouse passes away. There are many things in retirement you can’t control. You can’t control your health or even how long you’ll live. You can’t control economic conditions or market volatility. You can control your spending to a certain extent, but you can’t avoid unexpected emergencies like home repairs or long-term care needs.
One thing you may assume you can control, though, is when you get to retire. While your employer may have some input, you may feel that your retirement date is mostly your decision. For many retirees, that is true. It’s not true for all retirees, though. Workers don’t always get to decide when they’ll leave the working world. In fact, a study from the Employee Benefit Research Institute found that nearly half of all retirees are forced to retire earlier than they had planned.1 According to a 2013 study by the Certified Financial Planner Board of Standards and the Consumer Federation of America, only 19 percent of Americans could be categorized as Comprehensive Planners, meaning they have a defined plan that addresses all areas of their financial lives. The remaining 81 percent may plan for certain goals, like retirement or college, or may not engage in any financial planning.1
Which group do you belong to? Any type of financial planning is better than none. Even a loose household budget or ballpark retirement savings estimate is more effective than not planning. However, you may benefit from having a comprehensive financial plan. Every parent wants the best for their child. It’s a natural desire. That’s especially true with regard to education, as a quality education can open up a world of opportunity. Funding that education can sometimes be difficult, though.
Many families turn to student loans to cover much of the tuition for college. While student loans can be a helpful tool, they can also become a serious challenge for some graduates, especially those who are entering a soft job market. Student loans aren’t just an issue for graduates, though. Many parents are also feeling the sting of student loan payments. According to estimates from the Government Accountability Office, as of 2015 there were 2 million holders of Direct Plus Loans from age 50 to 64. There were an additional 200,000 Direct Plus Loan holders over the age of 65. Those numbers have more than doubled since 2005.1 A key goal in any retirement plan is to minimize expenses so your assets last as long as possible. There are a number of cost-cutting measures you can take in retirement, such as downsizing to a smaller home or reducing your amount of discretionary spending on things like dining out and shopping.
People are living longer than ever, thanks largely to advances in medicine, health care technology, and nutrition. According to the Centers for Disease Control and Prevention, the number of people in the United States who are age 100 or older is at a record high.1 Pew Research Center found that the number of centenarians globally will grow eightfold by 2050.2
Is a job change in your future? Or maybe you’ve already accepted a new position and are in the middle of transitioning into your new role. If so, this is probably a hectic time for you. And amid the chaos it’s easy to overlook the impact a job switch can have on your retirement savings.
|
Kirt CarstensCarstens Financial Group focuses on providing comprehensive asset management, estate planning and life insurance solutions. Allow us to help you secure your financial future. Archives
November 2020
Categories
All
|