Category Archives: The Golden Years: Retirement Ideas

Just got your first job? Start planning for retirement!

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You aced your interview and are now working in your first job after graduating college. Your human resources manager just handed you a packet of information about benefits, including vacation and sick time, the work lunch program and oh yes, your 401k or IRA plans. Where do you start?  Retirement is the furthest thing from your mind but you know you’ll to fill out the paperwork, so might as well do it right.

401k plans

Let’s start by explaining a 401k plan. These plans, referred to as a defined contribution or qualified profit sharing plans allow you to contribute part of your wages into funds comprised of mutual funds, variable annuities or life insurance that allow your money to grow due investment growth and compounding interest. Compounding interest is the act of adding interest to the principal of a deposit or loan so it can earn even more interest. This is a great strategy that will help your money grow at a quicker pace.

401k’s are not taxed while gaining investment earning. Your employer will make contributions to your account based on your salary level and investment earnings accumulate tax-deferred. You become vested in your plan between 3 to 6 years depending on your employer and if you leave before becoming fully vested, you forfeit all or part of your plan’s accumulated value. Distributions are only taxed after you reach retirement age or terminate employment. Be careful, if you take money out of your plan before age 59 1/2 it is subject to a 10 percent penalty. However, this tax does not apply if you withdraw due to a qualifying disability. Annual contribution limit for a 401k is $18,000.

There is the traditional 401k, a safe harbor 401k and a Simple 401k plan. The most flexible is the traditional 401k. In this plan, the employer can make contributions on behalf of employees, to match what the employees contribute or do both. Participants make pre-tax contributions through payroll deductions.

The safe harbor plan unlike the traditional 401k is not subject to annual nondiscrimination testing which is the annual ADP or ACP nondiscrimination test. In a safe harbor plan, employees must adhere to certain contribution and vesting requirements.

A simple 401k plan is used by small businesses with 100 or less employees who received at least $5,000 in compensation from their employer in the preceding year. It enables employers to offer cost effective retirement plans to their employees.

IRA’s

There are two types of Individual Retirement Plans (IRAs), a traditional IRA and a Roth IRA. You can contribute $5,500 to a traditional IRA up to the age of 70 1/2 and deduct it from your salary if you and your spouse, if married are not covered by a retirement plan at work. If you have a retirement plan at work, your deduction may be limited. You can withdraw money anytime but know that earnings you withdraw are taxable. If you take out money before turning 59 1/2, you may have to pay an additional 10% tax penalty. However, you must start withdrawing from your account by April 1 following the year in which you turn age 70 1/2 and by December 31 of later years.

A Roth is different in that you can contribute at any age if you have taxable compensation and your modified adjusted gross income is below a certain limit. You contribute after tax money that you’ve earned so it is not tax deductible to an annual limit of $5,500. Unlike the traditional IRA, you are not required to start taking distributions at a certain age. You do however pay a 10% tax penalty if you withdraw before 59 1/2.

How to choose a fund

When analyzing which fund to put money into, don’t just go by the name of the fund, this could be misleading. Find out what is the objective and strategy of the fund. Look at Morningstar and Yahoo Finance to help you with your research. Also, check out long term returns to give you an idea of how the fund has behaved throughout the years. Consider if you want your investments automated such as in a target fund, asset allocation fund or life cycle fund or if you would rather actively manage your investments. It all depends on how comfortable you feel.

Remember, check out fees, invest in the long term and diversify your portfolio but take some time to decide.

https://www.irs.gov/retirement-plans/individuals-retirement-arrangements-getting-started

https://www.irs.gov/retirement-plans/traditional-and-roth-iras

One way to save for retirement: Get married!

 

According to an ING U.S. Retirement Research Institute consumer study, those who were married (or living-as-married) had independently saved more for their retirement – a total of $40,000 more on average – compared to those who were single. Despite being an average of five years younger, married individuals in the survey also had greater retirement savings –$11,000 more per person – than those who were divorced. The study also indicated that a greater number of married couples felt better prepared for retirement as compared to single folks. Respondents to this survey were 4,050 adults between the ages of 25 and 69 who are employed full-time with an annual household income of $40,000 or greater. Check out the study here.

In terms of findings for men and women, the ING U.S. study indicated that the average retirement savings balance for married men was 51 percent greater than single men and 8 percent greater than divorced men.

Married women out-saved their single counterparts, although by a smaller amount – 28 percent. Data showed that married women had virtually the same balances as their divorced peers; however they were also seven years younger with more time on their side to save.

Whether or not this is an accurate representation of your household and how much you’ve saved for retirement is a question only you could answer, the truth is that saving for retirement now during your working years is key to how comfortable you will live in your elder years. So whether you are single, married or divorced, crank up you retirement savings sooner rather than later!

Best ETFs For An Early Retirement

Exchange-traded funds, or ETFs, are a good way to build a retirement portfolio. They are low-cost, provide plenty of diversification because they track specific indexes and they provide certain tax benefits. Folks looking to retire early, or at least with a solid portfolio, can use ETFs as one of their building blocks.

You’ll need to start saving early in order to have enough funds to accommodate your desired lifestyle after retirement, and the earlier the better. Since stocks drive a portfolio and bonds provide security, when you begin building your retirement portfolio it should consist primarily of stocks, and later on, as you are approaching retirement it should include bonds.

Scary Statistics About Retirement For Women


This story was originally published by Investopedia.com on April 25, 2012

The 2012 “Women: Let’s Talk About Retirement 12th Annual Transamerica Retirement Survey” found thatout of more than 1,800 women workers, 53% expect to self-fund their retirement through 401(k)s, 403(b)s, IRAs or outside savings and investments. Thirty-one percent expect to rely on Social Security. However, a huge disparity exists between younger and older women. Sixty percent of women in their 60s expect to rely on Social Security, while 77% of women in their 20s expect to self-fund. Most women are aware that they are not building a large enough nest egg. Only 8% strongly agree that they are building a large enough retirement nest egg compared to 33% who strongly disagree. Women are as statistically likely as men to report they have been offered (44% vs. 51%) and contribute to (36 % vs. 41%) a workplace retirement savings plan according to the 2012 “Retirement Confidence Survey (RCS).”

However, 60% of women are more likely than 52% of men to indicate they have not tried to calculate how much they will need to have saved by the time they retire. This is a scary prospect, but luckily there are many retirement calculators available to help women take the first step to proper retirement planning. The key is to know how much you’ll need. The RCS reports that women are more likely to say they do not know how much they will need to save (12% vs. 7%). Since women tend to face higher healthcare expenses in retirement due to living longer than men, women need to pay close attention to planning for their retirement.

Read more: http://www.investopedia.com/financial-edge/0412/scary-statistics-about-retirement-for-women.aspx#ixzz27OKLN4oZ

401(k) Fee Disclosure

Have you heard? Under a new rule, as of July 1st, 2012 you will be able to know how much your 401k account is being charged in fees. This is good news because you will be see how your 401k’s gain is impacted. The Department of Labor now requires plan providers, that is your employer, to disclose 401(k) fee information to you. So if you have a 401(k) at work, go to your human resources office and ask for this fee information, but keep in mind that many employers might not have this information readily available till the fall.