Retirement Planning - SafeMoney.com

retirement planning for single people

With record numbers of baby boomers retiring, many new trends are coming into the retirement landscape. Among boomers, there is one growing trend of "solo agers," or those who retired without marrying anyone or having any children. According to the American Society on Aging, around 20% of boomers fit this trend.

If you are a solo ager, here are some questions to ask when planning for your retirement. How you answer these questions can be crucial in helping you enjoy a comfortable and financially confident retired lifestyle.

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what you can do to keep your retirement plan from failing

If you really think about it, there is risk in almost everything we do. As journalist and economist Allison Schrager has noted, people often manage risk in their lives and careers in surprising ways.

The description of a book that she wrote on risk management says it well: "Whether we realize it or not, we all take risks large and small every day. Even the most cautious among us cannot opt out--the question is always which risks to take, not whether to take them at all."

Now, for retirees, one of the major risks to financial security is sequence risk. What is that?

It's the probability of having losses early in retirement or just before you retire. Financial pundits fondly call this period the "retirement red zone."

Even a 15% loss can throw a retirement plan off track, especially if you are already taking money from your accounts for income. Then it simply compounds the losses.

It's a challenging time for retirees, who now are taking a triple-hit. Never-before-seen market swings are reducing the value of their portfolios. The novel coronavirus pandemic is shutting down many workplaces, which means that workers don't have regular income to save.

Many retirees who are still working were likewise affected. And low interest rates continue to be unfriendly to retirees with fixed-interest holdings.

Meanwhile, Michael Finke, professor of wealth management at The American College of Financial Services, points out another area to keep an eye on: how the pandemic is affecting the probability of success of our retirement plans.

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tax planning is hot right now

A lot has happened in 2020, from the novel coronavirus and its effects on the economy to Congress adding trillions to the national debt for economic relief. Many financial advisors see the situation now as a major opportunity for tax planning.

Recent market drops allow them to take advantage of reduced retirement account balances and to do Roth conversions. Their clients would save on the amount of taxes due, thanks to the lower account balance.

With national debt approaching new highs, advisors believe that an increase in tax rates is inevitable. Not only that, the CARES Act, passed by Congress for coronavirus relief, also put a pause on required minimum distributions for 2020.

For advisors, the opportunity for tax planning is ripe. But on the flip-side, many financial professionals also disagree about how and when is the best time to go about these strategies.

In an article on InvestmentNews.com, many advisors shared their thoughts on how they were coordinating tax strategies for their clients.

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how can covid 19 pandemic affect retirees

The novel coronavirus pandemic has impacted all of us in some way. Almost overnight, the U.S. was hit hard with record unemployment.

Many household incomes have been abruptly shut off. Several industries have slowed down to a crawl or else been shut off.

Millions of former workers have been forced to dip into their savings accounts in order to pay their monthly bills. Some have even been forced to take distributions from their retirement savings in order to make ends meet.

Of course, there is no question that better days will be ahead at some point. The U.S. economy is strong, and we will emerge all the stronger for it.

Even so, those without the benefit of continuing income from full-time employment or those with a shorter window before retirement may want to take a step back. It’s prudent to take stock of the situation, seeing what they can do to protect themselves. And that can helpful especially if something like this ever happens again.

How can this black-swan event affect seniors and baby boomers nearing retirement? In an April column of the Retirement Income Journal, a former International Monetary Fund official lays out some of the medium-term and long-term possibilities.

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four percent rule retirement doesnt always work

At some point or another, you may have heard of the "Four Percent Withdrawal Rule," but what exactly is it? And why does it matter for your retirement?

The four percent rule is the brainchild of south California financial planner Bill Bergen. Simply put, the rule states that a retiree can withdraw 4% of their initial retirement portfolio balance, and thereafter, adjust their amount for inflation each year. This approach would give the retiree a reliable "paycheck" that lasted for 30 years.

Back in 1994, Bergen had many clients worrying about safe withdrawal rates. They were anxious about how much they could spend in retirement without running out of money. Searching for answers in financial textbooks, Bergen found that no educational materials at the time gave a definitive answer.

With that, Bergen went to work on his computer. He ran analyses on data provided by no less than Roger Ibbotson, whose blockbuster research includes groundbreaking findings on indexed annuities as a retirement asset class.

The end result? Bergen's now-famous four percent withdrawal rule. Today, it's one of the most widely quoted and used rules of thumb in finance.

But those days had vastly different economic conditions than now. Given that, is the 4 percent rule still relevant for retirement investors today?

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coronavirus retirment bill congress cares act

Recently, Congress passed and President Trump signed into law the "CARES Act." Among policymakers, the bill is known more formally as the Coronavirus Aid, Relief, and Economic Security Act.

Much of the law is aimed at providing economic relief for businesses, but some parts of the act changed IRA and retirement-plan provisions. The bottom-line of it all? Many of these retirement changes can directly affect your ability to access money and bolster your income.

These changes will have a large effect, regardless of whether you are retired or are still working toward your golden years. In a Forbes.com column, Bob Carlson, editor of Retirement Watch newsletter, wrote about some of the most important changes.

Here’s a look at some major changes that might be coming to your retirement, courtesy of the coronavirus economic relief legislation that became effective on March 27th.

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retirement planning blind spot avoid this

Many working-age Americans have at least some idea of when they want to stop working and sail off into the sunset. But sometimes there can be a major gap between what we plan and what actually happens.

For many workers, one such gap is between the age at which they want to retire and the age at which you discover that you have to retire instead. A surprisingly large percentage of American workers are forced into early retirement for a variety of reasons. Those reasons include job termination, layoffs, personal health issues, or a need to care for elderly parents or other relatives.

Of course, early retirement can come with its own financial headaches. You might need to begin taking Social Security early for a reduced benefit. Or you might have to deal with not having enough savings to last for the rest of your life. Whatever the challenges, it's a period of major adjustment.

Early retirement means that you will have fewer years to save for retirement. You will also have a longer period of time over which you must stretch your money.

What if you plan to work until age 65 or 70? It's wise to create a financial projection of what your retirement will look like if you had to stop working at age 55 or 60.

And don't be surprised if you run into some sort of income shortfall. Not everyone is fully prepared to retire early when forced into retirement. So, to be ready for that possible outcome, you might have to make adjustments to your plan accordingly.

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2020 advisor outlook united states

As a new year rolls in, one survey suggests that advisors are optimistic but cautious about what might lie ahead for their clients in an uncertain economy.

InvestmentNews has released the findings of another one of its comprehensive surveys of advisors each year. In November of 2019, the news outlet surveyed 353 advisors about their outlooks and their concerns for the upcoming year.

Most of their outlooks were chiefly optimistic, and in some cases, even moreso than last year's survey. They expect the economic expansion to continue and predict another bullish year for stocks. But they do have some reservations about the possible results of the 2020 election.

About 7 out of 10 advisors think the economy is doing well. Only 54% of advisors felt this way in InvestmentNews's advisor survey in 2019. Meanwhile, a hefty 80% of advisors thought so in the survey from 2018.

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how long might you spend in retirement

People are living longer than before, leading many to ask: “How long could my retirement really last?” In generations past, retirement represented a relatively short period of time in most peoples' lives. They would work until they were 60 or 65 and then live perhaps a few more years before passing away.

But this has become a thing of the past. Today, some retirees could live for as long as another 30 years after they finish with their careers. Many of them are now travelling around the world, starting new businesses, or doing charity work.

The answer to this question will depend upon many factors, such as your projected longevity, financial resources, and current health. If you come from a family of long-lived forebearers, then you may have a good chance of living that long yourself. If you smoke or drink heavily, then your lifespan may not last as long as it would if you quit doing those things.

Thanks to advances in medicine, technology, and wellness, people's lifespans are longer than before. The National Vital Statistics Report from the Department of Health and Human Services revealed that the average American's lifespan has increased by 30 years over the past century.

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required minimum distributions retirement

Uncle Sam can be one of your key partners in your retirement saving. If you have money in a traditional IRA or an employer-sponsored retirement plan, then that money automatically receives tax-deferred status in the eyes of the IRS. Other accounts like SIMPLE IRAs and SEP-IRAs also benefit from this tax-favorable treatment.

Generally, your contributions to those accounts are tax-deductible. The money inside the account grows tax-deferred, or without taxes on the earnings over time, as long as withdrawals aren’t taken.

But you can’t enjoy this tax-deferred growth forever. Required minimum distributions are one way that Uncle Sam ultimately collects his tax dues.

Once you reach age 72, the IRS sets required minimum distributions (or RMDs) for you. You will be required to start pulling a certain amount of money out of your traditional IRAs and qualified plan balances every year.

The same goes for other kinds of IRAs with pre-tax money status. And this money will be taxed at your top marginal tax bracket, regardless of how long it's been in the account.

Before wide-ranging retirement reform called the SECURE Act was passed, the age for starting required minimum distributions was 70.5. If you turned 70.5 in 2019, the old rules apply to you. Check with an experienced tax advisor for guidance with your situation.

There is no capital gains treatment available for traditional IRAs and qualified plans, save for one exception. The sale of company stock held inside a 401(k) plan can be spun off and sold separately under the Net Unrealized Appreciation (NUA) rule.

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2020 irs contributions limits retirement plans

It's here. The IRS has posted the new income and contribution limits for all types of retirement plans and accounts for 2020. The IRS also covered income and contribution limits for different medical savings accounts.

Many of the income thresholds and contribution limits were raised. Meanwhile, a few stayed the same or changed very little.

Millions of Americans save and accumulate money for retirement using IRAs and qualified plans (or non-qualified plans for highly compensated and key employees). And every year, the IRS updates the income thresholds and contribution limits for a wide variety of retirement and medical savings accounts. This is done to keep pace with inflation.

The changes to contribution limits for retirement plans and other accounts in 2020 are listed as follows:

2020 irs contributions limits retirement plans image 1

Defined-benefit plans will also see change in 2020. The limit for defined-benefit plan annual benefits rises from $225,000 in 2019 to $230,000 in 2020.

And what about the income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit)? The credit for low-income and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000.

For heads of household it is set at $48,750, up from $48,000. And for singles and married individuals filing separately, it's now $32,500, up from $32,000.

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more predictable income certainty as pensions disappear

Once a corporate giant, General Electric Corporation has found itself in a downward spiral in recent years. The former staple of American business has been working to clear some substantial debt off its books.

One of the company’s latest big moves? To reduce debt by freezing its employee pension assets. This means that benefits will not continue to accrue for its employees, even though they continue to work there.

But while this is obviously better than pension termination, where the pension plan is simply dissolved, it marks the latest casualty in the pension landscape in corporate America.

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retirement tax planning

When it comes to taxes, you can be sure that Uncle Sam will want his share. Retirement tax planning can help you make the most of your money. Tax-wise strategies let you maximize your income and keep more of what you have accumulated over a lifetime of hard work.  

But while Uncle Sam’s tax collections are a certainty, what is less than clear for millions of retirees is their own tax bills. Many don’t know whether they are paying too much in taxes or not – and how, in turn, that affects their retirement income streams.

Fortunately, there are several ways that you can reduce your tax bill after you stop working through the proper use of annuities and IRAs.

The order in which you withdraw your assets can also substantially impact the amount of tax that you will have to pay. Studies have shown that a properly-structured withdrawal schedule can extend the life of an investment portfolio by as many as 6 years in some cases.

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managing longevity in retirement

While retirement has many hard-to-predict moving parts, like what your spending might look like, perhaps one of the most difficult questions to answer is this: “How long will you live?”

Thanks to advances in healthcare and technology, people are living longer. According to the Social Security Administration, the statistical average for a 65-year-old man is to age 84. For a 65-year-old woman, it’s 87.

Economists call the possibility of spending decades in retirement a “longevity risk.” Still, keep in mind those numbers are just averages. What someone’s longevity looks like on a personal level will depend on their family history, health status, and lifestyle choices over the years, among other things.

For many people, the uncertainty adds up to financial concern. In one survey, almost two-thirds of surveyed Americans said they worried about running out of money in retirement more than death!

However, if you are to have a Retirement Plan that guides you across the Arc of Retirement, you will need some guestimate of how long you might live. That way you don’t underspend or overspend your financial resources.

Here are five steps to help keep longevity risk at bay and tame the uncertainty.

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no retirement plan what happens

Having a financial plan is essential for a comfortable lifestyle, whether you are approaching retirement or are already retired. But what if you haven’t prepared yet for retirement?

Should you find yourself procrastinating and not developing a long-term Retirement Plan (“PLAN.xls”), take heed. This can get you into serious trouble over the long run, with your post-work lifestyle possibly taking a hit in one of two ways: by either overspending or underspending.

There is a weird psychology that can cause a retiree to drag their feet on developing a personal financial strategy. They might worry that, if they know too much about how their finances will play out over time, it will either scare them or at least disappoint them as financial reality sets in.

Think of it as a distorted version of the old saying, “What you don’t know can’t hurt you.” So, retirees spend away, figuring that they will worry about it later.

However, in the case of retirement, what you don’t know CAN hurt you. Especially when time isn't on your side, and big financial mistakes are much harder to recover from since you aren't working (or as least as much as you were earlier in your career) and the lifespan clock is ticking.

Whether dealing with overspending or underspending, the irony is that you will carry a heavy burden of worry in either case. But what you are really searching for in retirement is, above all, peace of mind.

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pension maximization

If you are among the rare few with a retirement pension, congratulations! You have a benefit that is becoming increasingly rare.

With the 401(k) plan becoming the workplace retirement plan of choice, people hold more responsibility for their financial futures than ever.

Knowing you have a pension gives you the comfort of knowing that, once you retire, you are scheduled to receive monthly income payouts for life. Your income payment will be based on your salary and your length of employment.

Just like with annuity payout options, the lifetime payout option you select with your pension plan will have a direct bearing on how much income you receive.

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forced retirement what to do

Imagine you are driving to work one day and daydreaming about all the things you will do when you retire. But when you walk into the office, your boss presents you with a pink slip.

Now what do you do?!

This is not a happy scenario, but it's one we all should be prepared for as we approach retirement. Life is messy and random at times. Your best way to deal with the unexpected is to always have a back-up plan.

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retirement withdrawal plan americans need

Life in the work lane means keeping your nose to the career grindstone. You work hard over many years, balancing work and family while accruing a comfortable nest egg for your retirement.  

Along the way, you probably benefited from the discipline and focus that comes from working with a financial advisor. Their guidance was helpful in growing your portfolio and other assets to where they are now.

This life stage is called the “accumulation phase,” and its long-term priority is with the growth of your financial assets. Yet it’s just as important to plan for the backend, or when you start drawing on your nest egg for retirement income.

After all, life changes quite a bit when you retire. Your sources of income will change once you hit the golden years, whether you were a full-time executive, you ran your own business, you worked in a government capacity, or you steadily climbed the ranks as a salaried employee. And not only that.

There is also the matter of “distributions” from your portfolio. Withdrawals have tax implications, especially if money is taken from accounts or vehicles that had special tax treatment as you accumulated funds within them.

And don’t forget the question of longevity, which poses the potentially costly risk of outliving your retirement money. With the numbers of people living to their 90s, and even to 100-and-beyond, increasing by the year, there runs the possibility of a nest egg being mismanaged for long-term income needs.

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retirement planning services

You have had your dream retirement in the back of your mind your entire life.

Whether that movie in your head shows you traveling to exotic lands, spending quality time with your grandchildren, or turning a lifelong hobby into a business, retirement isn’t the end of your story. It’s the beginning of an exciting new sequel.

But how do you make the retirement of your imagination a reality? For many, bringing their ideal retirement to life includes consulting with a financial professional who specializes in retirement planning services.

If you have a nest egg, you have experience in personal finance. Earning an income and saving for a “rainy day.” Building wealth in equity markets, and putting away money into a 401(k), IRA, or other retirement account.

But those are all actions on the front side of retirement—called the accumulation phase. The backend? It's known as the distribution phase, or how you draw retirement income from those assets accumulated over many years.

How you prepare for reliable income streams in retirement will determine if you live out the retirement of your dreams -- or possibly deal with some scaled-down version.

Finding the right retirement planning services can help strengthen your chances of a confident lifestyle.

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2019 advisor economist outlook

As 2019 begins, two new surveys suggest that both advisors and economists aren’t so optimistic about where the economy is headed.

This kind of insight from industry experts is useful, but especially to those who are approaching retirement. Knowing what pundits and advisors believe could lie ahead, and exploring what action can be taken in case of any untimely disruptions to their portfolios, is critical to those within five to 10 years of retirement.

So, what do advisors and economists see when they look ahead? They see the shakiness of 2018 leading to a potentially rocky 2019.

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retirement concerns decline with age

With age comes wisdom - and apparently the ability to better handle unexpected expenses, according to the Society of Actuaries (SOA).

In their recent study, the SOA analyzed financial risk management across generations. Chief among their findings? That "the ability to handle unforeseen expenses increases with age, peaking with Early Boomers and then declining for the Silent Generation." 

It's one of many findings according to the study, "Financial Risk Concerns and Management Across Generations." The Silent Generation refers to those born between 1925 and 1945.

The SOA based its finding on the fact that 6 in 10 Early Boomers say they could afford a $10,000 expense using their savings or emergency funds. Yet "only 46% of Millennials would use their savings, which is not surprising since they have lower assets and more competing financial priorities."

Those in the Silent Generation remain vulnerable. The SOA reports that half of them aren't able to use their savings for an unexpected $10,000 expense.

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10 most tax friendly states for retirees

While Uncle Sam plays a part in your retirement, he isn’t the only tax man. All 50 states are also partners to some extent.

Many state governments depend on income taxes for public revenues, and in some, city governments take a piece of the income tax pie as well. And what about the states that don’t have an income tax? They rely on other revenues, like gas, property, and sales tax collections.

If you are among the growing numbers of Americans who wish to retire elsewhere than your current community, take note. Many variables play into people’s choice of retirement relocation: the cost of living, unemployment rate, work possibilities, social opportunities, and closeness to people and causes that you hold dear.

However, they aren’t the only factors, as taxes can take a bite out of retirement income. It’s important to see how your tax situation might affect your bottom-line in any places you may be considering. 

Every year, Kiplinger publishes an updated, annual guide to state taxes. Their findings show how state and local government taxes are “all over the map” – and how living in different states can be a difference of thousands of dollars in income, depending on your retirement tax situation.

Just as importantly, the guide includes an analysis of each state’s “tax friendliness” for retirees. Those judgments are based, in large part, on taxability of Social Security payments, exemptions for other retirement income, and property tax rates.    

Here’s a look at the top 10 most tax-friendly states for retirees in the U.S., as ranked by Kiplinger.

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retirement planning options for small business owners

As a small business owner or an entrepreneur, you are used to taking the lead. But there is one frontier you may still need to master… the future of your retirement. That is a matter of doing what you can to ensure all your hard work leads to your ideal retirement lifestyle.

While a 401(k) plan is the dominant retirement bedrock for employed Americans, small business owners are in a different boat. You are your own employer.

So whether you have zero or 100 employees, you must make the choice to act toward building a strong financial future for yourself. Depending on the workplace benefits of your organization, you may also impact those aiding you in your entrepreneurial dream.   

And Social Security benefits can help, but only to a point. A motivating factor for building up retirement savings is the fact that, as an entrepreneur, you bring home a certain level of income. Portfolio holdings, personal assets, and savings most likely will play into your needs as a high-income household, as Social Security can only go so far.    

Not only that, chances are you make more than the income limit placed by Social Security. For 2019, the maximum amount of taxable earnings is $132,900, up from $128,400 in 2018.

And what is another focal point for small business owners? An overreliance on their business as their retirement safety net. But time and again, historical data has shown this to be true: It’s risky to put all of your eggs – namely, your retirement and financial comfort – into one basket.

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dont let this happen in retirement

If you have already created a confidence-boosting retirement plan, congratulations! You are on track to achieving the rewarding retirement of your dreams.

But what happens if you put this necessary task off? If you take a "someday" approach to stopping to assess your needs in retirement and exploring strategies and solutions that can help you achieve them?

It’s not hard to find out. You may even have watched people you know and care about struggle financially in their golden years. A time in their lives that was supposed to be free of financial pressures -- or at least relatively, so we think -- instead forces them to make unpleasant choices just to stay afloat.

Most often, poor financial decisions (or a lack of planning) — fueled by the emotional pressures of life changes or financial stressors — tip that first domino that can begin to topple a care-free retirement.

It takes discipline in matters of money and financial planning to ensure your money works for you, instead of the other way around.

Because you don’t want to find yourself going down the wrong path to retirement, consider these consequences of not taking action to create a plan that can provide you benefits such as reliable income for life.

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retirement income planning for couples with age gaps

Like other folks, you probably see waves of retirement advice from the papers, financial talkshows, online news sources, and other outlets. Much of that advice assumes that among couples, both spouses are approximately the same age. That often results in solutions designed to address the needs of couples entering their retirement years together.

But what about couples with sizable age differences? Their different retirement timelines are likely to present unique problems. When such is your situation, how can you plan for your retirement effectively?

If one spouse is eligible to retire 10 or more years ahead of the other, that spouse will be making choices that not only affect their own retirement. It impacts their partner's retirement, as well. Those decisions could have a dramatic impact on the younger spouse’s lifestyle now and during their own golden years.  

Not only does their age disparity affect their retirement plan, it means that life events, both those foreseen (e.g., retirement or required minimum distributions) and unforeseen (e.g., the need to help care for aging parents), will be faced at different stages in their lives.

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