5 Risks to your Retirement Planning

dice money retirement riskOne of the biggest retirement issues that people face is that they have not spent enough time planning for retirement and therefore don’t have a plan in place to retire confidently.   No matter your age, you should have a plan that is specifically designed to meet your personal goals and needs while taking into account your time horizon and level of risk tolerance.

Every retirement plan should:

1. Provide for predictable streams of income that are reliable and can help avoid surprises. 

2. Allow for access to your financial assets to meet your changing needs over time

3. Include some elements for growth opportunities so that your income has the potential to keep pace with inflation.

 

There are 5 big retirement risks that people face:

1.  Inflation Risk  This is your reduction in purchasing power over time.  At a bare minimum, your income should keep pace with inflation in order to maintain your standard of living.  Did you know that you that you would need $264.12 in 2010 to match the buying power of $100 in 1980.  [Beauty of Labor statistics, CDI calculator 2010]

2. Healthcare Risk The cost of healthcare has increased dramatically.  Did you know that the average price increase of prescription drugs from 1994-2005 was 8.3% per year?

3. Longevity Risk  This is the possibility of people outliving their financial assets.  Did you know that there is a 63% probability that one person from any given couple (currently age ~65) will live to age 90?  With many people living 20-30 years (or more!) in retirement, it is important to appropriately plan so that your financial assets don’t run out.

4. Excess Withdrawal Risk This is the risk of withdrawing too much money from your investment portfolio too quickly, which could result in running out of money.  Did you know that 70% of people falsely believe they can safely withdraw 10% or more a year from their retirement saving?

5. Market Risk This is the possibility that you have investment losses that may reduce the amount of money you have to live on in retirement. 

 

In order to retire with confidence, developing a sound retirement plan that addresses these specific issues is integral, instrumental, fundamental.  We will dive more deeply into these topics in the coming weeks.  For now, if you have questions or want to set up an initial assessment of your retirement strategy, contact us.

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Is The PBGC is going bankrupt? How it affects your retirement.

monopolyLast week, in it’s annual report, the PBGC announced a record deficit of $35.7 billion.

The Pension Benefit Guaranty Corporation (PBGC) is a United States Federal Agency that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect companies’ pension benefits[1].  For companies whose pension plans are insured by the PBGC, the PBGC will pay employees a portion of the pension funds if the company goes bankrupt.

The PBGC’s deficit has been increasing annually over the past several years due to a variety of factors.  Unless the government steps in, this will result in the PBGC going bankrupt.

As you review your own company’s retirement plan options (for example taking an annuity option versus a lump sum distribution), knowing the back-up plan is important. If the company cannot meet its payout obligation, and the PBGC is having its own financial challenges, what are you to do in order to protect your pension payouts?

Why does this matter for you? If you were to take an annuity option from your employer when you retire and the company were to go bust, what will the PBGC do for you?

  1. The PBGC does not guarantee every dollar owed to you from your company pension plan – there is an annual cap.  For 2013, the maximum guaranteed about is $ $57,000/year (for people who begin receiving benefits at age 65).
  2. The PBGC is running a deficit that will eventually bankrupt it, voiding your pension guaranty.
  3. The time has come for people to start saving outside of their employer’s plans for their retirement.

There are some major misconceptions about what retirement is and how much money you need to put away to have a comfortable retirement.

  • The typical American household will experience a 28% income shortfall in retirement?[2]
  • 4 out of 10 retirees do not have sufficient income to cover their monthly expenses.

It is time to take additional steps to prepare for your retirement. You should not solely rely on your company being able to pay your pension, nor the PBGC to pay you either.

Call us today to schedule a retirement savings assessment and discuss retirement planning and year-end planning opportunities to minimize taxes today so you can have a more secure future.


[1] In private defined benefit pension plans

[2] 2012 Fidelity Retirement Savings Assessment

Last Minute Tax & Financial Planning Moves to Save Money for 2013

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With November around the corner, we’re beginning to think about year-end tax & financial planning.

In fact, now is a great time to focus on last minute tax and financial planning moves to save money for 2013 (and possibly longer!).

Here are a few ways to save $ before New Year’s Day:

1. Make charitable gifts of appreciated stock.  If you have appreciated stock that you’ve held for more than a year and you plan to make a significant charitable contribution before the end of the year, you’re probably best off keeping your cash and donating the stock instead.  Why?  You’ll avoid paying tax on the appreciation and you’ll be able to deduct the entire charitable gift at its full fair market value.  It’s a win for you & for the recipient of your gift.

2.  If it looks like you will owe taxes for 2013, adjust your federal income tax withholding before the end of the year.  If you missed the mark on planning ahead, there is still time to make adjustments and avoid penalties.

3.  If you have a healthcare Flexible Spending Account (FSA), use it, don’t lose it!  Make sure to take advantage of spending the pre-tax money in the account before the end of the year for any remaining amounts over $500.  Anything under $500 can now be “rolled over” into the new year, a newly modified ruling by the IRS.

4.  If you pay quarterly estimated taxes (which are due on January 15, 2014), you can prepay the state estimated tax payment by the end of the year to receive a tax deduction (subject to certain limitations and the alternative minimum tax).

5.  If you are a senior over the age of 70.5:

  • Make charitable donations from your IRA account, which are set to expire this year.
  • Make sure you take your required minimum distribution (RMD) from your IRA.  Failure to take your RMD results in a penalty of 50% of the amount not withdrawn.

6.  If you work & have a 401K:

  • Make sure to maximize your 401K contributions – don’t miss out on money you can contribute on a pre-tax basis (not to mention employer matching opportunities).

7. If you’re self-employed:

  • If you are a sole proprietor, don’t miss the opportunity to minimize taxes by employing your children under the age of 18.  Paying wages to children under 18 shifts income to your child who is in a lower tax bracket; in fact, you may be able to avoid taxes entirely because of your child’s standard deduction (assuming the wages paid are less than or equal to the 2013 standard deduction of $6100).  Additionally, since your child is earning income, he/she is eligible to contribute to an IRA account, thereby getting an early start on saving for retirement.
  • If you are looking to reduce your tax bill while saving for retirement, you may wish to consider establishing a retirement plan before the end of the year (such as a defined contribution plan or a defined benefit pension plan).  These plans need to be established before the end of the year and contributing money now to these accounts starts the tax-deferred growth on your contributions.

Now is a great time to make year-end adjustments.  If you are interested in learning more about year-end financial planning, call us.

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3 Reasons Why You Need to Have a Will

3 Reasons Why You Need to Have a Will

This week is National Estate Planning Awareness Week, which begs the question: why do I need a will? 

In fact, more than 50% of Americans do not have a will, according to a 2012 Rocket Law survey, putting their families, assets, and legacies at risk.

Here are 3 reasons to be prepared:

1. Protect your assets.  When someone dies without a will, they die intestate.  If you die intestate, your estate is sent through probate court and determined by your state’s succession laws.

State imposed rules do not fulfill the wishes of the deceased. They are inflexible, impractical, and never include provisions for anyone not related to you.  So, if you want to hand down your grandmother’s china to your stepdaughter, to have your best friend look after your dog, or to leave any of your estate to someone outside your immediate family, it is imperative to have a legal will in place.

Most people spend their entire lives working to create their assets; having a will in place ensures that your possessions and other assets end up in the hands of the people you care about.

 

2. Protect your children.   One of the most important ways to provide for your children in the event that you are no longer around to do so is to designate a guardian and make a contingency plan that includes the logistics and financial aspects of caring for them.  Writing a will allows you to designate the person that you want to care for your children.  In the event of the death of both parents without a legal will, the state steps in and appoints the guardian of its choice for your children; there is no guarantee the state-appointed guardian will share your morals or values. 

This is especially important for parents of special needs children.  Parents with children who have special needs should create a supplemental needs trust, a special type of trust which ensures that the children do not lose access to needs-based government benefits due to inheritance of assets. 

3. Protect your legacy.  Adding the stress of fighting with lawyers (and possibly family disputes) is the last thing anyone wants while grieving for a loved one.  Writing a will allows you to choose fiduciaries, the person/people/institutions responsible for the administrative work after your death.  Appointing someone to manage your money, file paperwork such as tax returns, and protect your property ensures that your legacy is administered as you intended and protects your loved ones from unnecessary bureaucracy and stress.

  

It is important to plan ahead.  Contact us today at 212-221-7067 to learn more about what we can offer you from our Estate & Charitable Planning Services.

 


Estate Tax & Transfer Analysis • Tax Reduction Strategies • Gifting Strategies • Charitable Giving • Planning For Children with Special Needs • Survivor Planning & Services