Do you use an employer-sponsored 401(k) to save for retirement? You’re not alone. It’s a powerful savings tool, primarily because it offers tax-deferred growth and the potential for employer matching distributions. Those two components can help you accumulate retirement assets.
 
However, you also may be able to tap into your 401(k) before retirement. Many plans allow you take funds early either through loans or distributions. Although it may be tempting to dip into your 401(k) in the event of an emergency, you may want to resist doing so.
 
Recent studies show that 401(k) distributions may be creating a crisis for retirees. A study from Deloitte estimates that there will be more than $7 billion in 401(k) loan defaults in 2018 alone. The study also found that the loan distributions and the loss of future investment growth could create a $2.5 trillion shortfall for retirees.1
 
Loans are just one piece of the issue. Many people also choose to cash out their 401(k) after a job changer rather than rolling the balance into an IRA. This decision eliminates future tax-deferred growth and creates current penalties and tax liabilities. More than 40 percent of job changers cash out their plan, and in 2017 the total value of cash-out distributions reached nearly $68 billion.2
 
Still tempted to tap into your 401(k)? Below are a few of the ways in which a loan or distribution could hurt your retirement:

Loan Repayments and Interest
 
Most 401(k) plans have loan provisions that allow you to take money out of the plan for any reason, even if you haven’t reached retirement age. Since the distribution is a loan, you don’t pay taxes or penalties.
 
The distribution creates a debt inside your 401(k) plan. You repay the debt through your 401(k) contributions. That means a portion of each of your contributions goes toward the loan balance. Since some of your contribution is used to repay the loan, that’s less money that’s being used to grow your retirement assets.
 
Your loan will also likely have interest. The interest rates on 401(k) loans are usually low, but there is interest. You’ll end up paying more than you borrowed.

Taxes and Penalties
 
Your 401(k) loan is initially tax- and penalty-free. However, that could change if you default on the loan. That often happens when someone leaves a job and 401(k) plan before they repay their loan. If the balance goes unpaid, the loan is considered in default. It then becomes a taxable distribution. If you’re under age 59 ½, you’ll also face a 10 percent penalty.
 
You could also face taxes and penalties if you choose to cash out an old plan balance after leaving an employer. The distribution is fully taxable as income and you also have to pay the 10 percent penalty if you’re under age 59 ½. Those costs can substantially reduce your distribution amount. You can avoid taxes and penalties by rolling an old balance into an IRA.

Lost Accumulation
 
The biggest cost associated with 401(k) loans and distributions may be the one that slips under the radar. When you take money out of your 401(k), you no longer get future growth on those assets. Remember, your 401(k) funds compound tax-deferred over time. A distribution reduces the amount that’s available to grow. That could substantially reduce your future retirement balance.

Ready to implement a strategy to protect your 401(k) plan? Let’s talk about it. Contact us today at Carstens Financial Group. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
 
1https://www.thinkadvisor.com/2018/10/10/leakage-loan-defaults-to-spark-2-5-trillion-retire/
2https://www.workforce.com/2018/02/14/retirement-account-bank-account-employees-cash-401ks-record-numbers/
 
Licensed Insurance Professional. 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 for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
18184 - 2018/10/22

​Nearing retirement age but feel like you’re not completely prepared? That’s the way most Americans feel based on a recent Gallup study. More than 50 percent of people in the United States feel like they won’t have enough money for their retirement.1
 
An obvious strategy is to simply put off retirement or possibly take up part-time employment. As a Bankrate study found, almost 70 percent of workers want to stay in the workforce as long as possible. What’s more, nearly half said they would have to stay in the workforce solely to ensure they continue receiving income after retirement age.2
 
While this may seem like a good idea, there are a few reasons why you might want to rethink working late in your life. Even if you’re willing to work late into your golden years, it may not be a feasible option. Below are three things you may want to consider if you’re thinking about working into your 60s or 70s:

You could become disabled.
 
While you may be healthy and fit now, your chances of becoming disabled and unable to work might be higher than you think. According to the Council for Disability Awareness, a quarter of adults will become disabled before they retire.3 And the chance of becoming disabled only increases with age. As a study from the Centers for Disease Control shows, a little more than 60 percent of adults 65 and older suffer from at least one condition that limits their ability to complete basic or complex tasks.4
 
So what do all these numbers mean? They mean you may want to have a backup plan if you are considering working past the normal age of retirement. If you don’t, you may find yourself in a difficult situation, having to use your savings to pay for your care.

You might have to care for a spouse.
 
Something you may want to consider is the possibility of having to care for a spouse or loved one in need of long-term care. Long-term care may not be pleasant to think about, but the fact remains that for people over the age of 65, it’s a real possibility. In fact, a study by the U.S. Department of Health and Human Services found that 70 percent of 65-year-olds will need some form of long-term care.5
 
Unsurprisingly, if you are in need of LTC, chances are you will be unable to participate in the workforce. Having a spouse or loved one in need of that care may also restrict your ability to work as late as you want to, as you may need to care for them.

You could lose your job.
 
With technological advances and an ever-changing employment landscape, it is very possible that the job you have today might not exist over the next couple of years. In fact, a recent Transamerica study showed that 30 percent of retirees stopped working before they’d wanted to, and nearly 60 percent retired because of job loss.6
 
In today’s world, the job market changes rapidly. You may feel like your job is secure right now, but it might not hurt to consider the idea that you may not be able to work as long as you want.
 
Ready to make the final planning decisions before you retire? Let’s talk about it. Contact us at Carstens Financial Group for more information. We welcome the chance to help you analyze any remaining questions and develop a strategy. Let’s start the conversation today.
 
1https://news.gallup.com/poll/210890/americans-financial-anxieties-ease-2017.aspx
2http://www.bankrate.com/finance/consumer-index/money-pulse-0916.aspx
3http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp
4http://www.cdc.gov/nchs/fastats/disability.htm
5http://longtermcare.gov/the-basics/who-needs-care/
6https://www.transamericacenter.org/docs/default-source/retirees-survey/retirees_survey_2015_report.pdf
 
Licensed Insurance Professional. 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 for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
18148 - 2018/10/17

​It’s a goal that most workers dream about their entire adult lives. Retirement. The day you finally get to stop building your schedule and priorities around your work obligations and start living life on your terms.
 
If you’re in your late 50s or in your 60s, you may be wondering when will be the right time for you to hang it up and head into retirement. How do you know if you’re truly ready? What if you retire too early and find you don’t have the financial security you need? What if you wait too long and miss out on the best years of your retirement?
 
It may be difficult to know the exact, perfect time to retire. There are a few tasks you might want to complete before you leave the working world. Below are three big items to check off your list. If you haven’t addressed these items, now may be the time to do so.

Create a retirement budget.
 
There may be no more important or useful financial tool in retirement than your budget. A budget helps you see where you’re spending your money and whether your spending exceeds your income. Without a budget, it’s difficult to know whether you’re on the right track financially.
 
If you haven’t developed a retirement budget, now is the time to do so. Also, you may want to try taking your budget for a test drive. Try living on your retirement budget for a few months. If you’re comfortable, then your budget may be accurate. However, if you find that you can’t live on your budget, you may need to do some more saving or adjust your retirement expectations.

Project your income.
 
It can be stressful to think about life with no paycheck. For decades, you’ve been able to rely upon the fact that your next check would come in the following week or month. After you retire, though, that consistent income will stop.
 
Take some time to estimate all of your possible income sources in retirement. Social Security will almost certainly play a role. The only question is when you file for benefits. Generally, the longer you wait to file, the greater your benefit will be.
 
You may also be fortunate enough to have a pension. Your company’s human resources department or pension benefit manager can help you estimate your payment. Finally, you will also likely need to withdraw funds from your savings and investments in retirement. Estimate a conservative withdrawal rate that helps you meet your needs but also gives your investments an opportunity to grow.
 
Add up all those income sources to get a full estimate of your retirement income. Does it exceed your planned expenses? If so, you may be in good shape. If not, you may need to save more money or delay your retirement to increase your potential income.

Plan for health care.
 
Think Medicare will cover all your health care costs in retirement? Think again. Medicare is a very helpful tool for retirees, and, depending on your coverage choices, it will cover a wide range of costs. However, Fidelity estimates that the average 65-year-old couple will still pay $280,000 in retirement on out-of-pocket medical expenses.1
 
That figure doesn’t include long-term care costs, which could be thousands of dollars per month and may be required for years, depending on your ailment. The U.S. Department of Health and Human Services estimates that the average 65-year-old has a 70 percent chance of needing long-term care.2
 
How will you face these expenses? A well-funded health savings account (HSA) could help you cover the out-of-pocket costs. Long-term care insurance might be an effective way to pay for extended care and assistance. If you have a plan to pay for these costs, retirement could be a good idea. If not, you may have more planning to do.
 
Not sure if you’re ready to retire? Contact us at Carstens Financial Group. We’re happy to consult with you, analyze your needs and objectives, and help you determine when is the right time for you to retire. Let’s connect soon.
 
1https://www.fidelity.com/about-fidelity/employer-services/a-couple-retiring-in-2018-would-need-estimated-280000
2http://longtermcare.gov/the-basics/who-needs-care/
 
Licensed Insurance Professional. 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 for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
18154 - 2018/10/17

​What’s your plan for retirement? Do you want to travel? Perhaps spend time with family? Maybe you want to pursue a new hobby or volunteer for a favorite cause. One thing you may not be thinking about spending time in a nursing home or assisted living facility. According to the U.S. Department of Health and Human Services, that could be a likely scenario. They estimate that
that today’s retirees have a 70 percent chance of needing long-term care at some point in their lives.1
 
Long-term care is a broad term, but it usually refers to extended assistance with basic living activities, like bathing, mobility, and even incontinence. It may include medical care, but it usually primarily refers to custodial assistance and household support.
 
Long-term care can be provided either in the home or in a facility. Either way, it can be costly. If you fail to plan for the expense, you may be unprepared when the time comes. That means you may have to accept a level of care that doesn’t meet your standards.
 
Many seniors use long-term care insurance to offset the expense. With long-term care insurance, you pay premiums today in exchange for future coverage for long-term care expenses. Most policies will even cover care in the home or pay for home modifications like a wheelchair ramp or stair lift.

While long-term care insurance can be a wise strategy, many seniors opt not to purchase coverage. Without insurance, your funding options may be limited. Below are three alternatives to long-term coverage. Before you decide to forgo long-term care insurance, consider how you might otherwise pay for assistance.

Get help from your spouse, grown children, and other loved ones.

Many seniors rely on family and friends for assistance, especially in the early stages of care. Your spouse or grown children may be able to run errands, prepare meals, or help with basic household chores. They may even be able to help with more advanced needs like mobility issues or bathing.

However, you may not want to count on family to provide all your long-term care. Many of the issues that cause a need for long-term care are progressive. If you suffer from a condition such as Alzheimer’s, your care needs may increase as time goes on. You could reach a point where family and friends can no longer provide care, especially if you need skilled nursing or round-the-clock support.
 
Talk to your family and gauge their ability to assist. Also, explore local community groups and services. If you don’t have many low-cost options available, you’ll need to plan some other way to pay for care.

Rely on Medicare and Medicaid.
 
Many retirees assume that Medicare will cover all their health care costs. That assumption is usually incorrect. Medicare is a valuable resource that covers a wide range of health care costs, but long-term care usually isn’t one of them. Medicare may temporarily cover a stay in a nursing home if it’s the result of a hospitalization. However, it typically doesn’t pay for home care or long-term custodial care.
 
Medicaid may cover your long-term care if it’s provided in a nursing facility. However, you may have to deplete your assets before you qualify for coverage. Medicaid is meant to protect those who can’t afford to pay for health care. If you have substantial income or retirement assets, you likely won’t be eligible for protection. Many seniors spend down their assets paying for care before transitioning to Medicaid coverage.

Pay directly out of your own assets.
 
Of course, you always have the option to pay out of your retirement savings for long-term care. In fact, if you don’t have another strategy, that may be your choice by default.
 
For many seniors, the cost of long-term care is too substantial to pay directly out-of-pocket. Genworth recently conducted a study that found both assisted living facilities and in-home health aides cost at least $4,000 per month on average.2 When you consider that care is often needed over several years, it’s easy to see how long-term care costs can be a drain on your retirement assets.
 
Ready to develop your long-term care strategy? Contact us today at Carstens Financial Group. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
 
1https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
2https://www.genworth.com/aging-and-you/finances/cost-of-care.html
 
Licensed Insurance Professional. 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 for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
18148 - 2018/10/17