The Teachers Insurance and Annuity Association of America (TIAA), recently sent an email to members. Their advice was clear: review your allocations carefully. Financial advisors, self-help blogs and money-smart books suggest periodically looking at your available funds and asking questions. Do you have savings? Do you have a rainy day fund? What is your income stream? The answers take us on a journey of possibilities. The resources of 401k, pensions, insurance, investments, savings and CD accounts provide the financial safety for the future.
There are few resources available to let us know when and how to access our systems. Is today the time to use the money that was set aside for later? The money set aside for retirement, supporting adult children or grandchildren, investments and dreams may be utilized at a more efficient rate now. The funds can be available today during our COVID days. The stress levels are high from furloughs, loss of jobs, reduction in hours, and lack of work for the self-employed.
401k and Pensions
Intended for future days of retirement, the 401k and pension plans were projected to be utilized by the current workforce later rather than sooner. To prevent early access, penalties for utilizing certain financial safety resources available from employers were created. These include high fees, the loss of employer matching, and limits on the amount that could be dispersed annually. Part of the lengthy Coronavirus Aid Relief and Economic Security (CARES) Act passed by Congress, addresses some of the previous restrictions although they are not eliminated completely. Although up to $100,000 can be withdrawn from accounts instead of $50,000 and are not subject to the 10% penalty, taxes will need to be paid on the amount.
Despite the risk of lower resources for the future, the Washington Posthas indicated that many people have opted to utilize their pension and 401k resources for car and home payments. For the baby boomers, cashing into the pension at 55 instead of 65 wasn’t the plan, but is a necessity in some cases. It is also the smart option when basic needs take precedence over potential losses or gains in the volatile market. There are choices between loans from the accounts or withdrawals, and each have their own set of benefits.
Whether opting for the withdrawal option instead of the loan, the premature access is worrying the financial industry globally, who have advised against utilizing this resource in light of the downward economy. In March, the Federal Reserve lowered the interest rates to close to zero to try and support the marketplace. Over the recent weeks, some accounts have seen fees above yields, leading to negative returns in some accounts. Given the current environment, and the financial volatility in personal circumstances, markets could still fall before we see the bottom. Companies like TIAA are providing certain limited and short-term fee waiver of expenses to help prevent their client accounts from having negative yields, but that may not last too long.
Your Action Items
At a minimum, review where 401k and pension resources are allocated for yourself and those that are in your care. Since the money is invested in the global stock exchange until you access it, the recession may leave you in a different place than anticipated. Morningstar’s report indicates people in aggressive portfolios have seen the largest declines.
To recall your 401k account information, log into http://www.insureyouknow.org and sign in with your personal credentials. If you do not utilize this online information storage resource, create an account with InsureYouKnow.org and start saving your documents, and files relating to your affairs. Set a reminder within the portal to revise and review the allocations as the world market changes further. There are various levels of access you can set to allow your family members, caregivers or business associates insight into the documents.
You’ve made it! After a long, fulfilling career, you’ve closed the office door for the last time and retired. Now you’re ready to relax and enjoy your golden years.
But as they say, the best-laid plans of mice and men often go awry.
Many retirees quickly discover that despite years of faithfully contributing to their retirement plans, they haven’t put away quite as much as they’d hoped. In fact, they may not have enough money coming in each month to meet their financial obligations. Those dreams of traveling the world are replaced with nightmares of dusting off the resume and finding another 9-to-5 job.
If you’re finding yourself in this situation, it’s important to remember that you’re not alone. According to Northwestern Mutual’s 2018 Planning & Progress Study, one in five Americans (21%) have nothing saved for retirement at all, and one in three baby boomers (33%) have between $0 and $25,000 in retirement savings. Four in 10 Americans (40%) expect to work until 70 years old or older.
Nonetheless, the idea of finding another job can be daunting. Instead of looking at it as a disappointment, however, you can look at it as an opportunity. Here are a few ways you can make sure your new job is an amazing job:
- Find a job in a new field. Have you always dreamed of working in a bookstore? Do you think it’d be fun to take tickets at a movie theater? This may be the chance for you to do something that excites you.
- Limit your hours. If you only need to supplement your retirement income, try working part-time. You’ll keep your brain busy and your wallet full but still have the freedom to spend a few hours each day pursuing other interests.
- Turn your hobby into a business. From selling hand-knit baby booties in your own Etsy store to hawking the vegetables you’ve lovingly grown in your garden at the neighborhood farmer’s market, there are a number of ways you can make money off your hobbies. Just be sure to check local regulations first.
- Stay active. It’s important to stay physically active as you age, and your new job could keep you moving. Consider becoming a tour guide or yoga instructor to ensure you stay fit both financially and physically.
- Share your knowledge. Many retirees want to get more involved with their communities, and teaching is a great way to do that. You can inspire today’s youth by becoming a teacher in the local school district or an instructor at a community college.
Help raise tomorrow’s children. Maybe you have fond memories of watching your children take their first steps. Maybe you never had a child but always enjoyed hearing their joyful laughter. Becoming a child care worker might be the right step for you.
Having a shortfall in your retirement savings isn’t the end of the world. In fact, it can open up a whole new world to you. Be sure to keep track of your retirement accounts and store the related paperwork on InsureYouKnow.org. The peace of mind you’ll have from knowing your information is safe and sound will help you enjoy your retirement—or semi-retirement—more fully.
Plаnnіng fоr уоur rеtіrеmеnt іѕ nо ѕmаll tаѕk. It rеԛuіrеѕ thаt уоu knоw hоw muсh mоnеу уоu wіll hаvе ѕаvеd uр, аnd hоw muсh уоu wіll nееd реr уеаr fоr еасh уеаr аftеr уоur rеtіrеmеnt. Bоth оf these fасtоrѕ аrе whаt mаkе rеtіrеmеnt fіnаnсіаl рlаnnіng ѕо dіffісult, ѕіnсе уоu hаvе tо kеер trасk оf уоur rеtіrеmеnt ѕаvіngѕ ассоuntѕ аnd іnvеѕtmеntѕ, аѕ wеll аѕ уоur ѕtаndаrd оf lіvіng аnd thе аmоunt іt соѕtѕ tо kеер іt uр.
Thе 403b retirement рlаn іѕ аvаіlаblе tо US rеѕіdеntѕ wоrkіng іn ѕресіfіс ѕесtоrѕ, аnd оffеrѕ аn аttrасtіvе аltеrnаtіvе tо thе uѕuаl 401k. Emрlоуееѕ whо аrе еlіgіblе fоr thе 403b wоrk іn оrgаnіzаtіоnѕ thаt аrе tаx еxеmрt, рublіс ѕсhооlѕ, оr аrе ѕеlf-еmрlоуеd аѕ a rеlіgіоuѕ mіnіѕtеr. Thеrе аrе bеnеfіtѕ fоr bоth thе еmрlоуее аnd thе еmрlоуеr іn сhооѕіng a 403b.
Mаnу соmраnіеѕ uѕе thеіr 403b рlаnѕ tо аttrасt аnd rеtаіn thе bеѕt саndіdаtеѕ fоr еmрlоуmеnt. Onе rеаѕоn whу еmрlоуееѕ bеnеfіt frоm thе 403b іѕ thаt іt hаѕ аn еxсеllеnt mаtсhіng рlаn. Thеrе іѕ аlѕо nо nееd fоr еіthеr thе соmраnу оr thе еmрlоуее tо рау tаx оn соntrіbutіоnѕ thаt аrе gоіng іntо a 403b. Thе recipient оnlу hаѕ tо ѕtаrt рауіng tаx whеn thеу bеgіn tо wіthdrаw fundѕ.
Thеrе is a mаxіmum аmоunt, whісh саn bе раіd іn thаt іѕ ѕеt fоr еvеrу уеаr, аnd employees wіll оnlу rесеіvе thіѕ mаxіmum іf thе соmраnу іѕ dоіng wеll.
It іѕ аlѕо роѕѕіblе tо tаkе оut a lоаn аgаіnѕt thе ассumulаtеd fundѕ іn a 403b, whісh саn bе uѕеful іn аn еmеrgеnсу. Tаkіng оut tуре оf lоаn аnd mаkіng rерауmеntѕ tо іt wіll hаvе tаx соnѕеԛuеnсеѕ, hоwеvеr.
If thе еmрlоуее wіѕhеѕ tо wіthdrаw fundѕ frоm thе 403b bеfоrе thеу hаvе rеасhеd thе еxресtеd аgе оf 59.5 уеаrѕ, thеrе wіll bе fіnаnсіаl реnаltіеѕ. Onсе thе rесіріеnt іѕ оvеr thе аgе lіmіt thеу wіll оnlу bе сhаrgеd tаx fоr thе аmоunt thаt іѕ tаkеn оut, but younger реорlе wіll аlѕо hаvе tо рау аn аddіtіоnаl реnаltу оf 10%.
Pеорlе whо оwn оvеr 5% оf thе соmраnу thаt thеу аrе wоrkіng fоr аrе ѕubjесt tо аddіtіоnаl rulеѕ. Thіѕ іѕ іn оrdеr tо рrеvеnt thе wеаlthіеѕt mеmbеrѕ оf ѕосіеtу frоm uѕіng thе 403b tо ассumulаtе vаѕt аmоuntѕ оf tаx-frее ѕаvіngѕ.
Onсе thе еmрlоуее іѕ оf rеtіrеmеnt аgе thе аmоunt thеу hаvе ѕаvеd іn thе 403b wіll bе dіѕtrіbutеd ассоrdіng tо hоw muсh thеу hаvе ѕаvеd аnd thеіr еѕtіmаtеd lіfе еxресtаnсу. Thіѕ аіdѕ іn dіѕtrіbutіng thе fund in a fаіr mаnnеr. However, іf уоu dо nоt tаkе аt lеаѕt thе mіnіmum рауmеnt аvаіlаblе, уоu wіll bе сhаrgеd tаx оn your 403b ѕаvіngѕ аt a vеrу hіgh rаtе.
Emрlоуееѕ whо аrе еlіgіblе fоr a 403b ѕhоuld tаkе thе tіmе tо mаkе ѕurе thеу undеrѕtаnd bоth thе ѕаvіngѕ thеу саn mаkе оn tаx whіlе thе funds аrе bеіng buіlt uр, аnd thе іntеrеѕt, саріtаl gаіnѕ аnd dіvіdеndѕ thеу саn rесеіvе frоm thе рlаn.
Planning for retirement? Here’s what you need to know
When it comes to planning for retirement, most people recognize the importance of saving as early as possible but a majority of them do not get started for one reason or the other. Some just don’t have the right mindset for saving while others simply do not have the right knowledge on how to handle their financial planning for a happy retirement.
To address this, we have put together this guide that will help get your investment and retirement planning in order by taking advantage of financial resources and tools such as retirement planning calculator, stock calculator online and investment calculator online.
Let’s get started.
Pay off the expensive debt first
The best thing you can do to maximize your retirement savings is to pay off your debts especially the ones with high interest. This includes credit card debt and car loans which can be toxic for your finances. No matter how much you can possibly regain through savings and investing, this debt will always come out as a net negative for you. So, pay off your expensive credit card debts and car loan first if you really want to supercharge your retirement savings.
Have an emergency fund
A surefire way to put a dent in your savings plan is by not having an emergency fund in place. By doing this, you put yourself at the risk of turning to high-interest credit card debt when an emergency arises which, as mentioned earlier, is something you really don’t want to do. As a general rule of thumb, it is advisable to have at least three to six months’ worth of living expenses in your emergency fund. That way you won’t need to resort to expensive credit card loans in a time of crisis.
Make full use of employer match
If your job comes with a paid-for employer match for your 401k account, take full advantage of it by using it to full capacity. Let’s assume that your employer matches 50 cents for every $1 that you invest, up to a limit of 6 percent of salary meaning that if you invest the full 6 percent of your salary, the employer will invest an additional 3 percent.
In total, you will be putting a healthy 9 percent of your salary towards your retirement. You can use our Retirement Planning Tool to obtain a projection of how maximizing your 401k savings account can affect your retirement plan.
Make and follow a budget
Knowing all your expenses whether big or small and then adjusting them according to your income is a no-brainer if you really want to retire with financial freedom. This can be achieved by budgeting your finances and keeping a track of all your regular expenses and bills. When you know that you need to set aside a specific amount for these expenses each month, you are more likely to make room for savings.
One way to optimize your budget for retirement savings is to categorize your savings as a recurring monthly ‘expense’ rather than literal ‘savings’. You can do this by opening a separate savings account that automatically takes money from your main salary or business account ensuring that laziness or excessive spending doesn’t get the better of you.
Have a solid Financial Plan
While saving money is important, knowing where to invest the money you save for maximum returns is even more important. The process starts with figuring out your existing savings and knowing how much money you’ll need once you retire.
As a general rule, you should plan to have 80 percent of your current annual income in retirement. Adjust this amount with any projected retirement income such as pension or social security and you will get the exact amount you’ll need per year in retirement.
Next is to have a balanced asset allocation strategy and invest your money so that it continues to grow before and after retirement. The best way to achieve this is to diversify your assets in different avenues such as stocks, bonds, commodities and emerging market equities. This protects your investment against any potential volatility in the markets and helps you come out on top in the long run.
Use our online investment calculator to find out the approximate rate of return on your investments by testing a variety of asset allocation scenarios.
Revise your asset allocation over time
With time, your financial situation changes and as you edge closer to retirement you would want to have more easily accessible income. This can be achieved by tweaking your asset allocation as your needs change.
If you have started saving at a young age and don’t have a family to support for the initial few years of your career, it would be wise to keep a majority of your portfolio in growth assets with maximum return. As you grow older, you can move more of your assets to fixed income options such as bonds and high dividend stocks.
Having said that, by no means you should move all your investment away from growth assets as you want your money to do the work for you even after you retire.
Use our online stock calculator and online investment calculator if you need to figure out your ideal asset allocation based on your individual situation, preferences, and retirement goals.
Make use of tax-advantaged retirement accounts
When saving for retirement, one way to fast-track your progress is to make good use of special retirement accounts that are given a tax break from the government. These include 401(k), traditional IRA and Roth accounts allow of which allow you to contribute up to $5000 per year.
With these accounts, you have the option to take out contributions and earnings without paying any tax during retirement. In some cases, you have the option to pay income tax upfront and avoid capital gains and interest taxes in the future. In short, a 401(k), 403(b) and an IRA are all fantastic retirement account options.
To sum it up, starting out as early as possible, using the right retirement planning tools and some careful planning can go a long way towards comfortable retirement. Here at Insure You Know, we understand this fully which has led us to build powerful stock calculator and investment calculator that you can use online to plan your retirement.