Do you have a 401(a) plan at work for saving for retirement? What is it, and how does it work?
401(a) plans are a type of retirement savings plan that offer tax-advantaged growth potential for those who use the plan. In this guide, we will explain how 401(a) plans work and some other essential details that are good to know.
We will also answer some typical questions about 401(a) plans that people often have. So, if you are looking to learn more about a 401(a) plan and how you might be able to take advantage of it with your employer, then read on!
You may be familiar with the Rule of 25x as a method for estimating how much you will need to save for your retirement. But most of us don’t really know what the Rule of 25x is or how it works. Is it still useful in today’s retirement world?
At its simplest, the Rule of 25x says, if you save 25 times what you would like your annual income in retirement to be, that sum could last for 30 years.
As with every retirement rule, whether it’s the three-legged stool for retirement income or the Rule of 120, the Rule of 25x is imperfect. It’s good to remember these imperfections when using the Rule of 25x for planning your retirement.
This article will examine how the Rule of 25x works, some of its problems, and alternative ways that you can work to ensure that you will have enough lifelong income in retirement.
As you approach retirement, you enter a critical period known as the Retirement Red Zone. This is typically the five years before and after your retirement date when your financial decisions have a heightened impact on your long-term security. Poor choices or unexpected market downturns can cause significant setbacks, making this phase one of the riskiest in retirement planning.
This guide will cover key strategies for protecting your savings, creating sustainable income, and ensuring your retirement years are comfortable and secure.
What is the Retirement Red Zone?
The Retirement Red Zone refers to the 10-year window surrounding your retirement date—five years before and five years after you stop working. This period is crucial because your portfolio becomes more vulnerable to market volatility. With less time to recover from a potential downturn, any significant losses can erode your nest egg faster than anticipated.
One major risk retirees face during this time is withdrawing funds from their retirement accounts just as markets take a dip. This risk is called the sequence of returns risk, which can dramatically shorten the lifespan of your retirement portfolio.
Why the Sequence of Returns Risk Matters
The sequence of returns risk is the order in which your investment returns occur. During the accumulation phase of your career, this sequence matters little, as you’re not drawing on your funds. However, once you begin to withdraw from your retirement accounts, the timing of returns becomes crucial. Read More
An annuity cap rate is the uppermost limit on how much a fixed index annuity can grow in value for a certain timespan. The fixed index annuity earns interest based on a benchmark index. When the benchmark index goes up in value, the annuity is credited interest based on a portion of that growth. When the benchmark index falls in value, the annuity is simply credited nothing for that period, and the principal and previous interest earnings stay intact.
The interest credited to an annuity can’t go any higher than the cap rate. Among fixed-type annuities, a fixed index annuity is generally the only kind of annuity that has cap rates. A cap rate is also known as a ‘cap’ in financial circles.
Many retirement savers like fixed index annuities for their growth potential while having principal protection for their money. But in exchange for that protection, that growth potential can be limited by other ways than just caps: participation rates and spreads.
In this article, we will cover annuity cap rates in more detail – and briefly touch on spreads and participation rates, since they also serve as growth limitations for annuities.
In a nutshell, the participation rate in an annuity is the portion of the gain in a fixed index annuity that you will be credited with. Your annuity will be credited that portion as interest. Fixed index annuities have benchmark index options into which you can put money so that it can earn interest.
Generally, a fixed index annuity is the only kind of fixed-type annuity that will have participation rates. In this article, we will discuss participation rates in an annuity and how they work.
When it comes to saving and planning for retirement, there are several mistakes that can cost you big time. To avoid these crucial errors and set the groundwork for a secure retirement, it’s essential to think about the future, plan ahead, and ensure your financial goals are well-grounded.
Keep in mind these 24 costly retirement planning mistakes to avoid. While this isn’t an exhaustive list, it’s a good starting point, whether your “sayonara” to the workplace is on the horizon or you still have some years to go.
Detailed Look at 24 Costly Retirement Planning Mistakes to Avoid
We will go into each of these frequent mistakes in more detail, but here is a quick sum-up:
Among financial pundits today, Dave Ramsey certainly has a large following and has helped people with various areas of personal finance, such as getting out of debt. Millions tune into his radio show. That being said, Ramsey has very strong opinions on annuities. The question is whether his anti-annuity stances are on the mark.
While opinions are subjective, Dave Ramsey has been incorrect on the facts of annuities that he discusses on occasion on his show. In some cases, the inaccuracy has been notable.
For retirees needing a guaranteed lifetime income stream, guaranteed growth above what bonds or other fixed-interest assets offer, and other guaranteed benefits from an annuity for their goals, it’s a huge disservice to completely disregard these options as part of a retirement strategy. Just as millions of listeners turn to Ramsey for how to get out of debt, millions of people have benefited from having an annuity in their retirement financial plan.
One issue with Ramsey’s annuity positions is that annuities come in all sorts of flavors, just as mutual funds do. Each type of annuity has different strengths, downsides, and benefits in what they can offer. It’s a straw-man argument to group them all together as being the same.
While this isn’t meant to be exhaustive, here are a few instances where Dave has it wrong on annuities — especially fixed index annuities — and how keeping annuities as a serious consideration in retirement planning is better for the public.
Nobody can ever predict what the stock market will do in the future. If you have an annuity or are thinking about getting one, what can happen to your annuity if the stock market crashes? Will the market downturn impact your annuity? The short answer is that it depends on the type of annuity that you have. Other factors can come into play as well.
In this article, we will cover what can happen to your annuity when the stock market crashes. Keep in mind the five primary annuity types as you read this guide on annuities and market crashes: immediate annuities, fixed annuities, multi-year guarantee annuities (MYGAs), fixed index annuities, and variable annuities. As you will see, only the last two types of annuities can be affected by a stock market crash.
If you are at least 65 and aren’t covered by an employer health insurance plan, then you will probably need to enroll in Medicare.
Every year, there are copays, deductibles, and premiums to be paid. These numbers typically adjust from year to year, so you don’t have to be caught unprepared when they change this year in 2023.
Once again, Social Security recipients have been given a large COLA (cost of living adjustment) for their benefits, which can play into these updates here. Here are the critical numbers that are important to know regarding Medicare benefits in 2023.
Millions of people depend upon annuities and life insurance for financial protection. For many years, life insurance companies have made good on the contractual guarantees that they have pledged to their annuity and life insurance policyholders.
Nevertheless, at various points in time, some life insurance companies go under. You might wonder about what can happen when your insurance company goes out of business. The good news is that this sort of event is relatively rare.
When they fail, banks have FDIC insurance and investment firms have SIPC coverage. Life insurance companies are regulated at the state level, so they don’t have federal insurance coverage, but there are other financial protections to guard policyholders against the risks of this scenario.
Here’s what you need to know if the life insurance company with which you have your policy becomes insolvent.
Start a Conversation About Your Retirement What-Ifs
Start a Conversation About Your Retirement What-Ifs
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What Independent Guidance
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