Retirement

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Understanding RMDs

Patrick Eng writes about the importance of understanding RMDs.When investors with retirement accounts turn 70 ½ years old, they should be aware of the required minimum distribution (RMD) rules regarding the type of retirement accounts they possess. Understanding RMDs will help you avoid high penalties from the IRS. Here are some things to keep in mind.

The IRS requires that account holders of traditional IRA, SEP IRA, Simple IRA and company-defined contribution plans [401(k), 403(b) and 457] withdraw a certain minimum amount from their accounts each year. (Roth IRAs do not have an RMD.) If you continue working past 70 ½ years, many defined contribution plans will allow you to put off taking the RMD until you retire; but for all non-Roth IRAs, you have to start taking RMDs by April 1 of the year following the year in which you turn 70 ½, even if you are still working.

This is an annual requirement until the account is drawn to zero or until the account holder dies, in which case the assets can be placed into an Inherited IRA for a beneficiary or distributed to heirs in another way. A penalty of 50 percent is levied by the IRS on the amount not withdrawn. For example, if your RMD is $10,000 and you do not make your withdrawal, you will owe the IRS $5,000 in penalties and must still take your required distribution.

The IRS does not allow tax-deferred accounts to grow indefinitely without having to pay taxes on the money. Investments in a tax-deferred retirement account have been sheltered from taxes since their initial contribution and throughout the accumulation and investment period. Thus, the IRS places a time limit on this tax deferral and mandates withdrawals through the RMD.

Most financial institutions have a process to help their clients take care of their RMDs, but ultimately the responsibility lies with the account holder. It can be an expensive oversight if not taken care of in a timely manner. If you are approaching the age for RMDs, talk with your advisor.

By |February 27th, 2018|Current Affairs, Retirement|

Retirement Age Rising

Legendary singer Tony Bennett, who at age 91 still tours and performs for live audiences, has quipped, “It’s too late to retire.” More and more, Americans seem to share Bennett’s sentiment; they are postponing retirement and spending their golden years on the job. Recent studies show the average retirement age rising.

Retirement Age Rising

For men, it is just shy of 65 years, up from 62 in 1985. For women, since 1985, average retirement age has increased from about 60 years to 62. Today, about 20 percent of people 65 or older work at least part-time – the highest rate in 55 years. Among 70- to 74-year-olds, 19 percent work – that’s an 11 percent gain since 1994. The Bureau of Labor Statistics predicts if current trends continue, by 2024 about 36 percent of 65- to 69-year-old American workers will still be in the labor force.

While some older workers who delay retirement do so because they need the money, others continue working because they remain healthy, highly-skilled and happy at their jobs. A recent study by Transamerica found that 44 percent of later-retirees continue to work by choice. In other words, many people are working longer not because they have to, but because they want to.

“By the time you’re in your 60s and 70s, you’ve probably worked yourself into something you enjoy doing,” explains Jacquelyn James, an expert on aging at Boston College.

In addition to improved health and longevity, factors contributing to later retirement include:

  • changes to social security have improved incentives to keep working;
  • fewer workers are covered by traditional pensions;
  • people with more education tend to work longer; and
  • many jobs today are less physically demanding than in the past.

Older workers also tend to thrive in knowledge-based jobs – such as finance, law or business – according to Stanford psychologist Laura Carstensen.

By |October 23rd, 2017|Current Affairs, Retirement|

Having “The Talk” with Your Kids

generationsLife is full of awkward, yet necessary, conversations with our kids. We talk to our young ones about chores, drugs, dating, peer pressure, homework and more. Yet many of us avoid talking to our adult children about important topics like retirement preparedness, eldercare and estate planning.

Parents approaching retirement might be pleasantly surprised to know their kids expect to help out with finances, caregiving and estate execution, according to the latest Fidelity Family & Finance Study.  In fact, the research reveals adult children often have their parents’ backs. For example, although 93 percent of parents feel it would be unacceptable to become financially dependent on their children, only 30 percent of children feel the same.

In too many cases, however, children are not aware of their parents’ wishes. Although 92 percent of parents expect one of their children will assume the role of executor of the estate, when asked, 27 percent of the kids identified as filling this role didn’t know this. While 72 percent of parents expect one of their children will assume long-term caregiver responsibilities if need be, 40 percent of the kids identified as filling this role were unaware of it. And though 69 percent of parents expect one of their children will help manage their investments and retirement finances, 36 percent of the kids identified as filling this role didn’t know.

Having “The Talk” with your kids… about retirement preparedness, eldercare and estate planning.

Why aren’t these conversations taking place? The study suggests it may be a matter of timing. About one-third of those surveyed believe frank conversations should occur after retirement and when health and finances have become an issue. At that point, however, it may be too late. These conversations should begin taking place before retirement, and certainly well before any challenges arise.

Are you ready to have “the talk” with your children or parents? If you would like help initiating the conversation, talk with your financial planner for suggestions.

 

By |November 3rd, 2016|Estate Planning, Retirement|