401k http://www.wisebread.com/taxonomy/term/1445/all en-US Here's How Your Taxes Will Change When You Retire http://www.wisebread.com/heres-how-your-taxes-will-change-when-you-retire <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/heres-how-your-taxes-will-change-when-you-retire" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-508211721.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="142" /></a> </div> </div> </div> <p>When most people dream about their retirement, they focus on the places they'd like to travel, the hobbies they'd like to spend time on, and the people they will see more of. Pondering how to deal with taxes in retirement generally does not enter into these sorts of reveries.</p> <p>While everyone should plan for the good stuff in retirement, it's also important to recognize the less fun aspects of retiring &mdash; like taxes. If you are prepared for the financial side of retirement, then you'll be better able to enjoy your time.</p> <p>Here's what you need to know about how your taxes will be different post-retirement.</p> <h2>Understanding Your Tax Bracket</h2> <p>Before discussing how your taxes change in retirement, it's a good idea to understand both what your tax bracket is and what that means for the amount of money you owe. As of 2017, these are the federal tax brackets for ordinary income:</p> <p><strong>Tax Rate &nbsp; &nbsp; Married Filing Jointly &nbsp; &nbsp; &nbsp; &nbsp;Most Single Filers</strong><br /> 10% &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; $0&ndash;$18,650 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;$0&ndash;$9,325<br /> 15% &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; $18,651&ndash;$75,900 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;$9,326&ndash;$37,950<br /> 25% &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; $75,901&ndash;$153,100 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;$37,951&ndash;$91,900<br /> 28% &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; $153,101&ndash;$233,350 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;$91,901&ndash;$191,650<br /> 33% &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; $233,351&ndash;$416,700 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;$191,651&ndash;$416,700<br /> 35% &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; $416,701&ndash;$470,700 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;$416,701&ndash;$418,400<br /> 39.6% &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;$470,701+ &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; $418,401+</p> <p>What these tax brackets describe is your marginal tax rate, which is the rate you pay on the highest portion of your income. For instance, if you are single and fall in the 25% tax bracket, you are not taxed 25% on all of your income. You are taxed 25% on any income above $37,950, you are taxed 15% on any income between $9,326 and $37,950, and you are taxed 10% on any income below $9,325.</p> <h2>The Tax You Will No Longer Pay in Retirement</h2> <p>Let's start with the good news. There is one type of federal tax that retirement income and Social Security income are both exempt from. That's the Federal Insurance Contributions Act (FICA) tax, which funds Social Security and Medicare.</p> <p>Employed individuals see 6.2% of their gross earnings taxed for Social Security through FICA (and their employers also kick in 6.2%, making the total tax contribution 12.4% of each earner's gross income). In addition to Social Security, FICA also collects 1.45% of your gross income for Medicare Part A.</p> <p>Once you retire and you are no longer earning income from employment, then all of your income will be exempt from FICA &mdash; even any income you take from tax deferred accounts, such as 401K accounts or traditional IRA accounts. That's because your contributions to these accounts were already subject to FICA taxes, even if you funded the account with pre-tax dollars.</p> <h2>The Taxes You Will Owe on Tax-Deferred Accounts</h2> <p>Tax-deferred accounts, like 401Ks and traditional IRAs, allow workers to set money aside before Uncle Sam takes any income tax (although FICA taxes are deducted before the money is placed in such accounts). That money grows tax-free, and once the account holder reaches age 59&frac12;, they can take distributions from it without any penalty.</p> <p>However, the money will then be considered ordinary income and taxed accordingly. So that means a single retiree's $30,000 distribution from their IRA will place them in the 15% tax bracket, and they will owe $4,033.75:</p> <p>10% of $9,325 = $932.50</p> <p>15% of $20,675 = $3,101.25 ($30,000 - $9,325 = $20,675)</p> <p>$932.50 + $3,101.25 = 4,033.75</p> <p>The other important thing to remember about tax-deferred accounts is that you will have to take required minimum distributions (RMDs) once you reach age 70&frac12;. That's because the IRS does not want you to hold onto the money, tax-free, forever. Once you reach 70&frac12;, you must take the RMD amount every year, or owe the IRS 50% of the amount you should have withdrawn. The RMD is calculated based on your date of birth, the balance of each tax-deferred account as of December 31 of the previous year, and one of three <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/required-minimum-distribution-worksheets" target="_blank">IRS distribution tables</a>, and it is taxed as ordinary income.</p> <h2>No Taxes on Roth IRA and Roth 401K Distributions</h2> <p>The Roth versions of IRAs and 401Ks are also tax-advantaged, but the tax burden is front-loaded. That means you invest after-tax dollars into your Roth account, the money grows tax-free, and any distributions taken after you have reached age 59&frac12; and have held the account for at least five years are completely tax-free.</p> <p>This is one of the reasons why many retirement experts recommend investing in both traditional and Roth tax-advantaged accounts, because it offers you tax-savings both during your career and once you reach retirement.</p> <h2>Capital Gains Taxes</h2> <p>Any investments you have made outside of tax-advantaged accounts &mdash; such as stocks, bonds, mutual funds, and real estate &mdash; are taxed as capital gains, which is great news for many investors.</p> <p>That's because long-term capital gains tax rates, which apply to assets you have held for a year or longer, are quite low. For any investor in the 10% or 15% tax bracket, long-term capital gains taxes are a very favorable 0%. Investors in the 25% through 35% tax bracket will only owe 15% on long-term capital gains, while those in the 39.6% tax bracket owe 20% on long-term capital gains.</p> <p>Short-term capital gains, on the other hand, are taxed at your ordinary income tax rate, as is the interest on your savings account and CDs, as well as dividends paid by your money market mutual funds.</p> <h2>Taxes on Your Social Security Benefits</h2> <p>Up to 85% of your Social Security benefits may be subject to income tax in retirement. The higher your non-Social Security income in retirement, the more likely it is that you'll owe taxes on your Social Security benefit.</p> <p>The way the IRS determines whether your benefits are taxable is by calculating something known as provisional income. The formula for determining the provisional income is: one-half of your Social Security benefits, plus all your other income, including tax-exempt interest. (While tax-exempt interest is included in this calculation, tax-free distributions from a Roth IRA are not.)</p> <p>This means that the more money you take from your retirement accounts, the more of your Social Security benefits are considered taxable.</p> <h2>Taxes on Pensions and Annuities</h2> <p>Pensions from both private companies and the government tend to be taxed as ordinary income, unless you also contributed after-tax dollars to your pension.</p> <p>As for annuities, the tax on your annuity will depend partly on how you purchased it. For instance, if you used pre-tax dollars (like from an IRA) to purchase your annuity, then your annuity payments will be taxed as ordinary income. However, if you purchased the annuity with after-tax dollars, then you will only be taxed on interest earned. With each annuity check you receive, a portion will be considered non-taxable principal, and a portion will be interest that is taxed at your ordinary income tax rate.</p> <h2>Diversifying Your Taxes</h2> <p>Most people recognize that diversifying investments is a sound strategy for growing wealth. However, it's also a good idea to diversify your taxes &mdash; that is, make sure you will not be paying all of your taxes at the same time.</p> <p>Many workers only contribute to tax-deferred retirement accounts, which means they will be facing large tax bills in retirement. It makes more sense to understand when and how you will owe taxes on your various sources of retirement income, and try to diversify the tax burden.</p> <p>Taking a small tax hit now, by investing a Roth account or making other investments with post-tax dollars, will help make sure you are not overwhelmed by your tax burden once you retire.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> of <a href="http://www.wisebread.com/heres-how-your-taxes-will-change-when-you-retire">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-ways-more-money-in-retirement-might-cost-you">3 Ways More Money in Retirement Might Cost You</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Why Tax Day Is April 15 and Other Weird Financial Deadlines</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-penalty-free-ways-to-withdraw-money-from-your-retirement-account">7 Penalty-Free Ways to Withdraw Money From Your Retirement Account</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-plan-for-retirement-when-you-re-ready-to-retire">How to Plan for Retirement When You’re Ready to Retire</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stop-making-these-10-bogus-retirement-savings-excuses">Stop Making These 10 Bogus Retirement Savings Excuses</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement Taxes 401k benefits capital gains distributions FICA IRA medicare social security tax brackets tax changes tax-deferred accounts Thu, 09 Mar 2017 10:30:37 +0000 Emily Guy Birken 1902767 at http://www.wisebread.com 3 Ways More Money in Retirement Might Cost You http://www.wisebread.com/3-ways-more-money-in-retirement-might-cost-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-ways-more-money-in-retirement-might-cost-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-622064048.jpg" alt="Learning how more money in retirement might cost you" title="" class="imagecache imagecache-250w" width="250" height="142" /></a> </div> </div> </div> <p>You might think that there is no such thing as too much money in retirement. After all, without a steady income from working, you need your retirement nest egg to last you throughout your golden years. So more money must be better, right?</p> <p>Well, as The Notorious B.I.G. once said, the more money we come across, the more problems we see &mdash; even in retirement. While I would never discourage anyone from saving as much as they can for retirement, it is a good idea to recognize what kinds of additional problems a large retirement portfolio could cause you.</p> <p>Here's what you need to know about the potential pitfalls of having more money in retirement:</p> <h2>1. You Will Owe Taxes on Tax-Deferred Retirement Accounts</h2> <p>According to the Bureau of Labor Statistics, as of December 2016, <a href="https://www.bls.gov/opub/btn/volume-5/pdf/defined-contribution-retirement-plans-who-has-them-and-what-do-they-cost.pdf" target="_blank">44% of all workers</a> were participating in a tax-deferred defined contribution plan, such as a 401K or an IRA. These types of retirement accounts allow workers to put pretax dollars aside for their retirement, where the money grows tax-free. Once you reach age 59&frac12;, you may withdraw money from such tax-deferred accounts without penalty.</p> <p>The potential trouble comes from the fact that any distribution you take from your tax-deferred account is taxable as ordinary income. This means that you will be taxed on that income in the same way you would be taxed on the same amount of income from a job. Because of the taxes you will owe on your distributions, the money in your tax-deferred retirement account is worth less than the dollar amount.</p> <p>Since many workers anticipate having a lower tax bracket in retirement than they do during their career &mdash; that is, they expect to have a much lower retirement income than career income &mdash; it makes sense to put off the taxes they will pay on the money in their 401K or IRA until after retirement. However, for anyone who manages to create a large retirement portfolio from a modest salary during their career, the tax burden in retirement will be much larger.</p> <h2>2. Required Minimum Distributions May Force You to Withdraw Money You Don't Want</h2> <p>If you put money aside into a tax-deferred account, the IRS will want to see its cut of the money eventually. For that reason, the IRS requires each account holder to begin withdrawing money during the year that he or she reaches age 70&frac12;. There is a minimum amount you must withdraw, and the IRS levies a stiff penalty for failing to do so &mdash; you will owe 50% of the amount that should have been withdrawn.</p> <p>In addition, the required minimum distribution is calculated based on your date of birth, the balance of each tax-deferred account as of December 31 of the previous year, and one of three <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/required-minimum-distribution-worksheets" target="_blank">IRS distribution tables</a>. That means your required minimum distribution must be recalculated each year using your new end-of-year balance from the previous year and your new distribution period according to the IRS distribution table. Getting the amount wrong can be potentially costly, and if you have a great deal of money in your tax-deferred accounts, you will be required to take more money than you necessarily want to access in one year.</p> <p>Don't forget, this required minimum distribution is also taxed as regular income (as we discussed above), so in addition to potentially withdrawing money you don't want, you will also owe taxes on the amount that you are required to withdraw.</p> <h2>3. You Will Be Taxed on Your Social Security Benefits</h2> <p>Many people are unaware of the fact that up to 85% of their Social Security benefits may be subject to income tax in retirement. The higher a retiree's non-Social Security income, the more likely it is that they will owe taxes on their Social Security check.</p> <p>The way the IRS determines whether your benefits are taxable is by calculating something known as provisional income. The formula for determining the provisional income is: One-half of your Social Security benefits, plus all your other income, including tax-exempt interest. (While tax-exempt interest is included in this calculation, tax-free distributions from a Roth IRA are not.)</p> <p>Your provisional income is compared to an upper and lower base amount to determine how much of your Social Security benefits are taxed, if any. If you file as single, then your lower base amount is $25,000. If your provisional income is above that amount, then you owe taxes on 50% of your Social Security benefits. The upper base amount for single filers is $34,000. If your provisional income is above that amount, then you owe taxes on 85% of your Social Security benefits.</p> <p>What this means is that the more money you take from your retirement accounts, the more of your Social Security benefits are considered taxable.</p> <p>For instance, if you are single and you take $38,000 from your IRA in retirement each year, then you are in the <a href="https://taxfoundation.org/2017-tax-brackets" target="_blank">25% tax bracket</a> and you owe taxes on 85% of your Social Security benefits since your income is above the upper base limit. If you decide to withdraw an additional $1,000 from your IRA one year, your additional $1,000 in income will cause $850 more of your Social Security income to be considered provisional income, making it subject to taxation at your marginal tax rate of 25%. You'll owe $462.50 on your $1,000 withdrawal ($1,850 x 25% = $462.50) between your IRA taxes and your Social Security benefit taxes.</p> <h2>More Money in Retirement Is a Good Problem to Have</h2> <p>Though having a large nest egg may cause some headaches after your retirement, it's important to remember that this is a better problem to have than facing retirement <a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement" target="_blank">without enough savings</a>. Just recognize that large amounts of money need to be properly managed and you need to stay on top of your financial life post-career. You can handle each of the financial problems that you may see with a larger retirement portfolio, as long as you are aware of them and prepared for them.</p> <p> &nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> of <a href="http://www.wisebread.com/3-ways-more-money-in-retirement-might-cost-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-your-taxes-will-change-when-you-retire">Here&#039;s How Your Taxes Will Change When You Retire</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Why Tax Day Is April 15 and Other Weird Financial Deadlines</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-american-cities-where-you-can-retire-on-just-social-security">5 American Cities Where You Can Retire On Just Social Security</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-questions-to-ask-before-you-start-claiming-your-social-security-benefits">5 Questions to Ask Before You Start Claiming Your Social Security Benefits</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-penalty-free-ways-to-withdraw-money-from-your-retirement-account">7 Penalty-Free Ways to Withdraw Money From Your Retirement Account</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement Taxes 401k benefits contributions income IRA social security tax brackets tax-deferred Wed, 08 Mar 2017 10:00:10 +0000 Emily Guy Birken 1901333 at http://www.wisebread.com The Fiduciary Rule Is Under Review — How Will This Affect Your Investments? http://www.wisebread.com/the-fiduciary-rule-is-under-review-how-will-this-affect-your-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-fiduciary-rule-is-under-review-how-will-this-affect-your-investments" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-531215119.jpg" alt="Man learning how fiduciary rule will affect investments" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you have money invested in a retirement plan, such as a 401K or an IRA, chances are high you'll be impacted by an executive order issued recently by President Trump.</p> <p>It centers on the &quot;fiduciary rule,&quot; one of former President Obama's initiatives that was scheduled to go into effect on April 10th. President Trump put the brakes on it by ordering the Labor Department to study the issue further.</p> <p>Whether the rule goes into effect or not, you would be wise to understand what all the fuss is about and how it could affect you.</p> <h2>Fiduci&hellip;What?</h2> <p>Financial professionals, such as financial planners, insurance agents, brokers, and others, are legally bound to adhere to certain standards of conduct, the highest of which is a fiduciary standard. Anyone working under that standard, which today includes Certified Financial Planners and Registered Investment Advisers, is required to act in their clients' best interests, detail all commissions and fees, and disclose any potential conflicts of interest.</p> <p>Others, including many brokers and life insurance agents, are held only to a suitability standard. That means if two financial products could meet a client's needs, but one would pay the financial adviser a higher commission, he or she could recommend that product to their client.</p> <p>The Obama administration estimated that biased advice steering people to needlessly high-cost, high-commission financial products and services costs investors $17 billion per year in fees and lost investment income. Its fiduciary rule would require any financial professional recommending retirement-related financial products or services to adhere to a fiduciary standard.</p> <h2>What It Means for You</h2> <p>Here are some steps you can take to help make sure your retirement accounts are run in your best interest, rather than the managers'.</p> <p>If you participate in a 401K, 403(b), or other workplace retirement plan, ask questions about how your investment options were selected. Some plans have a very limited set of choices or offer mutual funds with high fees. In particular, take a look at the &quot;expense ratio&quot; tied to the funds. That's the percentage of the money you invest in the fund that goes toward the expenses of operating the fund. For example, if you buy shares of a fund with an expense ratio of 0.73%, for every $1,000 you invest, $7.30 will go toward the fund's operating expenses. (See also: <a href="http://www.wisebread.com/watch-out-for-these-5-sneaky-401k-fees?ref=seealso" target="_blank">Watch Out for These Sneaky 401K Fees</a>)</p> <p>According to Morningstar, the average expense ratio is .78% for an actively-managed mutual fund and .18% for a passively-managed (index) fund. If the funds in your plan are significantly higher than that, ask your plan administrator to explain why.</p> <p>Find out if any of the companies behind the funds in your plan participate in &quot;revenue sharing agreements&quot; in which they pay to be part of your plan. Often, these are higher-fee funds.</p> <p>A good resource is <a href="https://www.brightscope.com/" target="_blank">Bright Scope</a>, an independent evaluator of workplace retirement plans. See if it has evaluated your employer's plan, and if so, see what it says about the fees charged by your plan.</p> <p>Employees at some companies have even sued their workplace retirement plans over what they felt were needlessly high-cost investment options. In 2015, the U.S. Supreme Court gave employees the right to do so.</p> <p>If you work with a financial planner, insurance agent, or other financial professional, ask whether the person you work with adheres to a fiduciary standard. As awkward as it may be, ask about the commissions or other compensation they receive from the products or services you purchase through them. Before committing to working with someone, interview a couple of others and compare costs.</p> <h2>Three Situations That Warrant Extra Caution</h2> <p>Be especially careful about deferred annuities, mutual funds with a &quot;front-end load,&quot; and 401K &quot;rollovers.&quot; In each situation, you may be especially vulnerable to receiving biased advice. (See also: <a href="http://www.wisebread.com/the-3-step-plan-to-choosing-your-first-or-next-mutual-fund?ref=seealso" target="_blank">3-Step Plan to Choosing a Mutual Fund</a>)</p> <p>With deferred annuities, you invest now in order to receive a stream of income in your later years. Deferred annuities usually provide salespeople with high commissions and come with especially onerous surrender charges if you decide to cancel your contract. Be very cautious. Generally, the type of annuity that makes the most sense is an immediate fixed annuity purchased around the time of retirement, and even then only with a portion of your nest egg. If someone is recommending an annuity for you and retirement is far down the road, at very least, ask lots of questions about fees, commissions, and surrender charges. And carefully weigh the comparative advantages of investing in mutual funds outside of an annuity instead.</p> <p>Some financial advisers exchange their advice for the commissions they receive by recommending mutual funds with front-end loads, or sales fees. If you put $1,000 into a mutual fund with a 5% front-end load, that means you've lost $50 right out of the gate. At a time when there are countless no-load funds available, including target-date funds that automate some of the most important steps an adviser would do for you (such as, determine and then manage your asset allocation), it's difficult to imagine a situation where it would make sense to pay such fees. (See also: <a href="http://www.wisebread.com/commission-free-etfs-a-great-option-for-cost-conscious-investors?ref=seealso" target="_blank">Commission Free ETFs: A Great Option for Cost Conscious Investors</a>)</p> <p>When you leave your employer &mdash; whether for retirement or to move on to another company &mdash; plenty of brokers would love to have you <a href="http://www.wisebread.com/a-simple-guide-to-rolling-over-all-of-your-401ks-and-iras?ref=internal" target="_blank">rollover your 401K money</a> into an IRA at their firm. Such rollovers often do make sense because an IRA will give you more investment options. Just be sure to ask questions. Are there account fees? Is investment advice available to you from a fiduciary adviser? Compare the costs and services of at least three brokers.</p> <h2>Bottom Line</h2> <p>No matter what happens with the fiduciary rule, it's in your best interests to require all financial professionals you seek advice from to adhere to a fiduciary standard. At very least, they should fully and clearly disclose any fees, commissions, and potential conflicts of interest.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/the-fiduciary-rule-is-under-review-how-will-this-affect-your-investments">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-10-biggest-myths-about-investing">The 10 Biggest Myths About Investing</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/401k-or-ira-you-need-both">401K or IRA? You Need Both</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/boost-your-retirement-savings-avoid-401k-fees">Boost Your Retirement Savings: Avoid 401(k) Fees</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News Investment 401k advisers brokers commissions ethics fiduciary rule insurance agents IRA trump Fri, 03 Mar 2017 10:30:38 +0000 Matt Bell 1901229 at http://www.wisebread.com Your 401K in 2017: Here's What's New for You http://www.wisebread.com/your-401k-in-2017-heres-whats-new-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/your-401k-in-2017-heres-whats-new-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-502449548.jpg" alt="Learning what&#039;s new for your 401K in 2017" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>There aren't many 401K rule changes to keep up with this year, but that doesn't mean you can't bring about some of your own positive changes to your retirement savings. Let's take a look at what you need to know to make the most of your 401K in 2017.</p> <h2>No Changes in the Contribution Limits</h2> <p>The amount the IRS allows you to contribute to a 401K plan this year remains as it was last year &mdash; $18,000 if you're younger than 50, or $24,000 if you're older. However, the Feds did make two changes to the retirement savings landscape, which pertain to people on either end of the income spectrum.</p> <h3>1. More May Qualify for the Saver's Credit<strong> </strong></h3> <p>Low and middle-income earners should be aware of the <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit" target="_blank">Saver's Credit</a>, a tax benefit that rewards those who save for their later years through a 401K or IRA. Depending on your income and filing status, the credit is worth 10%, 20%, or 50% of up to $2,000 of contributions per person (for married couples, that means up to $4,000 of contributions).</p> <p>Married couples filing joint returns can claim at least a 10% credit as long as their adjusted gross income (AGI) is no more than $62,000. That maximum income amount is $500 more than in 2016, so more households should qualify. However, the most generous 50% credit is allowed only for those couples making no more than $37,000 &mdash; the same threshold as in 2016.</p> <p>The credit/income limits for married couples filing jointly are:</p> <ul> <li>50% if AGI is $37,000 or less</li> <li>20% if AGI is $37,001&ndash;$40,000</li> <li>10% if AGI is $40,001&ndash;$62,000</li> </ul> <p>For singles, or married couples filing separate returns, the maximum amount you can earn and still qualify for a credit is $31,000, which is $250 higher than in 2016. In order to qualify for the maximum 50% credit, your income has to be no higher than $18,500.</p> <p>Here are the details:</p> <ul> <li>50% if AGI is $18,500 or less</li> <li>20% if AGI is $18,501&ndash;$20,000</li> <li>10% if AGI is $20,001&ndash;$31,000</li> </ul> <p>Keep in mind, a tax credit is much more valuable than a tax deduction because it is a dollar for dollar reduction of taxes.</p> <h2>2. Higher-Income Earners May Get More</h2> <p>On the other end of the income spectrum, the IRS expanded the contribution parameters pertaining to the retirement plans of well-paid workers. For example, contributions &mdash; by the employee and/or his or her employer &mdash; are limited by how much an employee is paid in total. In 2017, the amount of compensation on which contribution amounts can be based was increased by $5,000 to $270,000, and the maximum total contribution amount was bumped up by $1,000 to $54,000.</p> <h2>What Changes Will You Make?</h2> <p>Even if the two changes noted above don't pertain to you, that doesn't mean you need to &mdash; or should &mdash; stay the course with your retirement savings. The start of a new year is a good time to re-evaluate your goals and see if you're on track.</p> <p>Here are two areas to review.</p> <h3>1. How Much You Need<strong> </strong></h3> <p>Do you know how much you should have saved by the time you retire? Do you know how much that means you should be saving each month right now? If not, take a few minutes to run some numbers. If you're not saving enough, consider increasing your contributions.</p> <h3>2. How You Should Allocate</h3> <p>Do you know your optimal asset allocation? That pertains to how much of your investment portfolio should be in stocks, and how much in bonds (or stock and bond mutual funds). Vanguard offers a well-designed, free <a href="https://personal.vanguard.com/us/FundsInvQuestionnaire" target="_blank">asset allocation questionnaire</a>, so give it a try. Then try to bring your portfolio more in line with your optimal asset allocation.</p> <p>While tax credits and employer contributions are significant benefits, the most important factors that determine your investing success are the amount of money you save each month, and whether your asset allocation is appropriate for someone of your age and risk tolerance. Take the time to evaluate your individual retirement savings scenario, and see how you can make it even better for 2017.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/your-401k-in-2017-heres-whats-new-for-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-crucial-things-you-should-know-about-bonds">5 Crucial Things You Should Know About Bonds</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one">How to Tell if Your 401K Is a Good or a Bad One</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-simple-guide-to-rolling-over-all-of-your-401ks-and-iras">A Simple Guide to Rolling Over All of Your 401Ks and IRAs</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k Adjusted Gross Income asset allocation bonds changes contribution limits employers investing saver's credit stocks Mon, 20 Feb 2017 10:00:11 +0000 Matt Bell 1892607 at http://www.wisebread.com The Inventor of the 401K Has Second Thoughts About Your Retirement Plan — Now What? http://www.wisebread.com/the-inventor-of-the-401k-has-second-thoughts-about-your-retirement-plan-now-what <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-inventor-of-the-401k-has-second-thoughts-about-your-retirement-plan-now-what" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-171328267.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>In the early 1980s, the 401K plan was introduced as a potential supplement to the pension plans offered by employers. Now, they are a staple of retirement planning, while pensions are available to fewer workers than ever before.</p> <p>A 401K allows workers to set aside a certain amount of their salary and invest into a variety of mutual funds. Often, companies will match contributions up to a certain amount. These plans can be powerful vehicles for amassing great wealth in retirement, but the founders of these plans recently voiced concerns that the plans are inadequate for many people, and that they were never meant to <em>replace </em>pensions altogether.</p> <p>For sure, 401K plans place more of the savings burden and risk onto the individual than pensions do. And many plans are lousy, with high fees and poor investment choices. So, what to do? Here's how to build that big retirement fund even when you're at the mercy of the 401K.</p> <h2>1. Save Up to the Match, Regardless</h2> <p>You may be annoyed that a 401K is all your employer has to offer, but if the company is offering to match contributions, you'd be a fool not to participate. Even if the plan has lousy mutual funds with high fees, free money is still free money. Most good companies offer at least 50 cents for every dollar you contribute up to a certain amount, and that can add up to a lot of dough over time.</p> <h2>2. Get an IRA</h2> <p>A 401K is not the only vehicle for saving for retirement. Individual retirement accounts, or IRAs, offer some good tax advantages and better flexibility than a 401K. There's no company match for an IRA, but you have the ability to invest in just about anything. That's why many investors will put money in a 401K up to the company match, then put any additional savings in IRAs. Most people can contribute $5,500 annually into an IRA. With a traditional IRA, any money you contribute is deducted from your taxable income. With a Roth IRA, your money is taxed right away but you don't have to pay tax on any gains when you withdraw the money at retirement.</p> <h2>3. Start Early and Have a Long Time Horizon</h2> <p>Despite the flaws of a 401K, it's still very possible to amass a large sum for retirement if you begin investing when you are young and keep it up for a long time. If you enter the workforce when you're 18 and keep saving and investing until retirement age, that means you'll have 45 years to allow your nest egg to grow. In fact, under this scenario, it's possible to retire a millionaire by putting aside less than a few hundred dollars per month.</p> <h2>4. Find the Low-Cost Funds</h2> <p>Even if your 401K plan isn't perfect, you owe it to yourself not to make matters worse by investing in bad funds. Many 401K plans offer mutual funds with high management fees and other expenses, but most also offer low-cost options, including basic S&amp;P 500 Index funds. Find those funds with the lowest fees, so you get to keep more of your money. Look for funds with expense ratios below 0.5%, if possible.</p> <h2>5. Embrace the Power</h2> <p>When an employer offers a pension, it almost always contributes to a pension fund and then hopes that investment returns are enough to meet the obligations they have to employees. So in reality, the only significant difference between a pension and a 401K plan is who is in control. With a 401K plan, you have more control over how you invest. For some people, this is scary. But for others, it's just as scary to leave their financial future in the hands of others.</p> <h2>6. Make a Good 401K Part of Your Job Search</h2> <p>Think about the last time you searched for a job. When you applied and interviewed for positions, did you take the quality of the company's 401K plan into account? Chances are, this was far down the list of concerns, below salary, health benefits, and even vacation time. But imagine if more people turned down job offers because of a lousy 401K plan or a low company match. If more prospective employees voiced concerns about the quality of retirement plans during the hiring process, companies might be more likely to improve their plans.</p> <h2>7. Talk to Your Lawmakers</h2> <p>It's unlikely that the President or Congress can force companies to bring back pensions, but they are the ones who could change 401K plans to make them more attractive. Lawmakers could pass legislation that improves the tax benefits of plans or increases the amount investors are allowed to contribute. They could pressure companies to boost their matching contributions, and require more companies to offer plans to more employees. Lawmakers could also propose new kinds of savings plans managed by the government. At the very least, voicing your concerns about the quality of the 401K as a retirement option could start a conversation on Capitol Hill.</p> <h2>8. Join a Union, If You Can</h2> <p>Much of the erosion of defined benefit plans has coincided with the drop in influence of labor unions in America. According to the AFL-CIO, about 75% of union workers participate in defined benefit plans, compared to about 20% for nonunion workers. But far fewer people are part of unions these days.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/the-inventor-of-the-401k-has-second-thoughts-about-your-retirement-plan-now-what">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/15-retirement-terms-every-new-investor-needs-to-know">15 Retirement Terms Every New Investor Needs to Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stop-making-these-10-bogus-retirement-savings-excuses">Stop Making These 10 Bogus Retirement Savings Excuses</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement">10 Signs You Aren&#039;t Saving Enough for Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k contributions employer match IRA nest egg pensions Roth savings Mon, 13 Feb 2017 10:30:33 +0000 Tim Lemke 1889313 at http://www.wisebread.com 4 Reasons People Don't Retire Early — and How You Can http://www.wisebread.com/4-reasons-people-dont-retire-early-and-how-you-can <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-reasons-people-dont-retire-early-and-how-you-can" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-503452702.jpg" alt="Woman learning reasons people don&#039;t retire early" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Retirement is undeniably a time of drastic change in most people's lives. Typically, people have spent at least four decades in the workplace by the time they accept their gold watch. The average retirement age is 62 to 65, depending on where you live, according to a survey by SmartAsset.</p> <p>While work can provide routine and stability, as the years go by it can also grow to feel burdensome and stale. When to retire is a very personal question, linked to lifestyle and finances. Here are a few of the common reasons people feel they're not ready for retirement. (See also: <a href="http://www.wisebread.com/4-reasons-early-retirement-might-be-financially-risky?ref=seealso" target="_blank">4 Reasons Early Retirement Might be Financially Risky</a>)</p> <h2>Worried About Having Enough Money</h2> <p>It's probably not a surprise that monetary reasons are number one on this list. Having a regular paycheck affords a lot of comfort that can be hard to walk away from.</p> <p>One of the most common reasons most individuals won't consider an early retirement is fear that their savings will be insufficient to provide the lifestyle they've been used to in their working years.</p> <p>However, if you're serious about wanting to retire now, there are ways you can make your savings go further, such as <a href="http://www.wisebread.com/5-american-cities-where-you-can-retire-on-just-social-security?ref=internal" target="_blank">retiring in a cheaper state</a>, or even a foreign country where the cost of living is lower. Also, using the <a href="http://www.wisebread.com/how-to-save-an-extra-109486-a-year?ref=internal" target="_blank">right credit card can save you thousands</a> of dollars a year.</p> <p>Alternatively, the <a href="http://www.wisebread.com/can-you-really-make-a-living-in-the-gig-economy?ref=internal" target="_blank">gig economy</a> affords a lot of ways for people who are officially retired to earn disposable income. For instance, you could <a href="http://www.wisebread.com/this-is-how-you-rent-your-place-on-airbnb-and-succeed?ref=internal" target="_blank">rent out a room on a site like Airbnb</a> to help pad your savings. Just make sure you check out local laws in your area for any restrictions on short-term rentals.</p> <h2>Hesitant to Lose Identity Tied to Work</h2> <p>In the Western world, one of the first questions we ask when meeting someone new is, &quot;What do you do?&quot; The meaning, of course, is what do you do for work. This question is a way of situating someone socioeconomically, understanding their background and education, and gaining a window into their lives.</p> <p>Of course, identity goes beyond what you do for work, and this is an important shift to be conscious of when considering retirement. Many individuals may feel that they are giving up a part of themselves when they decide to stop working.</p> <p>However, there are many other meaningful activities outside of work that have an equally important bearing on identity. These may include hobbies such as artwork, exercise, reading, writing, or travel.</p> <p>While a loss of identity is a common fear for people facing retirement, in reality, retirement can give you the time to explore other creative outlets that you wouldn't have been able to partake in with a busy work schedule.</p> <p>Instead of viewing the end of work as losing part of your identity, try to shift to viewing this as a time to explore different components of who you are. This will make early retirement meaningful, not boring.</p> <h2>Anxious Due to No Concrete Retirement Plan</h2> <p>According to a 2015 survey by the Deloitte Center for Financial Services, only 49% of consumers have a formal retirement plan. The problem of not having a plan for retirement is that it leaves fears and emotions to govern your decisions, as opposed to concrete numbers. Plus, by putting a plan in place, you can see very clearly what steps you need to follow to reach a certain goal, like retiring in five years, for example. (See also: <a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make?ref=seealso" target="_blank">7 Retirement Planning Steps for Late Starters</a>)</p> <h2>Afraid of Being Bored and Restless</h2> <p>Some people simply put off retirement because they are worried about being bored with all the extra time on their hands once they're not going to the office every day.</p> <p>However, retirement doesn't mean that you have to stop working entirely. Some individuals use this time to move from a decades-long career they've grown tired of to more fulfilling employment, or even their own business.</p> <p>If your new pursuit is something that gives you the chance to vary your work schedule, that can be very stimulating, too. Additionally, some universities offer free classes to those over 65 years of age.</p> <p>You can also take up countless hobbies like yoga, dance, snorkeling, scuba diving, golfing, hiking, or biking. To stimulate the mind, you can throw yourself into an artistic endeavor or learn a new language, the ideal activity for those who choose to retire overseas.</p> <p>Retirement is not just the end of one chapter, but also the beginning of a new one. Often, the biggest roadblocks to retiring are fear-based. It can help to re-evaluate the situation by looking at the facts, instead of just relying on emotions.</p> <p>Of course, the decision to retire is a personal one, and the right age to retire is different for everyone.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/amanda-gokee">Amanda Gokee</a> of <a href="http://www.wisebread.com/4-reasons-people-dont-retire-early-and-how-you-can">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make">7 Retirement Planning Steps Late Starters Must Make</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-keys-to-an-early-retirement">4 Keys to an Early Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-retirement-planning-changes-when-youre-single">7 Ways Retirement Planning Changes When You&#039;re Single</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement">10 Signs You Aren&#039;t Saving Enough for Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-handle-a-forced-early-retirement">5 Ways to Handle a Forced Early Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k early retirement IRA retirement planning saving Tue, 07 Feb 2017 10:30:37 +0000 Amanda Gokee 1885695 at http://www.wisebread.com 4 Keys to an Early Retirement http://www.wisebread.com/4-keys-to-an-early-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-keys-to-an-early-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-623601680.jpg" alt="here&#039;s how to retire sooner" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Does it seem like retirement can't come soon enough? Are you tired of feeling like you're wasting time at a job you no longer enjoy, daydreaming about the day you won't have to come in anymore?</p> <p>The good news is there are several steps that you can take if retiring early is your goal. Retiring early will mean setting clear priorities and goals that you can meet, but it doesn't have to be out of reach. Consider these four tips to get there faster. (See also: <a href="http://www.wisebread.com/14-ways-to-retire-early?ref=seealso" target="_blank">9 Things People Who Retire Early Do</a>)</p> <h2>1. Slash Costs Now</h2> <p>It's easy to go on autopilot with monthly costs, but they can add up fast, especially if you're spending more than you should. By switching providers for home or car insurance, Internet, phone, and cable TV, you could save thousands a year. In fact, do you even need cable TV? What about that gym membership &mdash; are you using it enough to justify the cost?</p> <p>Could you trim expenses even further by downsizing your home or getting by with one car? Leave no monthly cost unexamined.</p> <p>While you're at it, look at the fees you're paying on your investments. Because of compounding, <a href="http://www.wisebread.com/4-sneaky-investment-fees-to-watch-for?ref=internal" target="_blank">investment fees</a> that seem small can eat a big chunk out of your retirement savings over time.</p> <p>All of these cost savings won't be enough on their own to ensure your early retirement, but over the course of a few years they can add up and enable you to retire comfortably earlier than you may have thought. (See also: <a href="http://www.wisebread.com/14-ways-to-retire-early?ref=seealso" target="_blank">14 Things to Do to Retire Early</a>)</p> <h2>2. Look for Tax Advantages</h2> <p>When planning for retirement, it's important to consider the taxes you will have to pay once you stop working. While you can contribute now to 401K or regular IRA accounts using pretax income, you'll have to pay taxes on the distributions once you start to draw down the accounts.</p> <p>On the other hand, you contribute to a <a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras" target="_blank">Roth IRA</a> with money that's already been taxed, but then it grows tax-free and you'll pay no taxes when you withdraw the money. Often it's good to have a combination of both types of retirement accounts. A financial adviser can help you decide. But keep in mind that withdrawing from either of these accounts before you hit age 59-1/2 usually incurs a tax penalty.</p> <p>Taxes on Social Security are another expense to keep in mind for when you hit official retirement age. Social Security benefits may be taxed at the federal level, depending on what your total income is. But the IRS won't tax more than 85% of your benefits. Thirteen states tax Social Security benefits, while other states have <a href="http://www.wisebread.com/7-states-with-the-lowest-taxes-for-retirees?ref=seealso" target="_blank">low or no taxes for retirees</a>.</p> <h2>3. Retire Abroad Full Time</h2> <p>Retiring early means figuring out a way to live on what you save during a shortened working career. You can lower your needs drastically by changing your country code.</p> <p>If you've been working and saving in U.S. dollars, you can make that money go much further in a <a href="http://www.wisebread.com/x-exciting-world-cities-you-can-afford-to-retire-in" target="_blank">country where the cost of living is lower</a> than in the United States. Many destinations in Central and South America, as well as many parts of Asia and even Europe, are much less expensive for Americans to retire to &mdash; and if you're looking for a warmer climate, you can find that too.</p> <p>Of course, there are some logistics that you should take into consideration when retiring abroad.</p> <h3>Taxes</h3> <p>The U.S. taxes citizens or resident aliens living abroad on worldwide income, including Social Security, other retirement income and any earnings you may get from working in your new country. However, you may be eligible for the <a href="https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion" target="_blank">Foreign Earned Income Exclusion</a>, which allows you to exclude foreign earnings &mdash; up to a certain amount &mdash; from your taxable income. The exclusion is adjusted annually for inflation. For 2017 it is $102,100.</p> <p>You may also be subject to income taxes in the country where you retire, though many countries have treaties with the U.S. that make sure you are not double taxed. You'll need to research local tax laws to make sure you're in compliance.</p> <h3>Logistics</h3> <p>There are a lot of logistics involved in moving to a foreign country. You'll need to research the appropriate visa for the country you'll be living in. Many desirable locations for Americans have special visas for retirees. Generally, you'll need to show you have a certain amount of retirement income and you will not be allowed to work for a local employer on these visas.</p> <p>Think too about whether you want to sell your home in the U.S. You may want to get rid of furniture and other belongings as well, though retirement havens such as Panama and Nicaragua allow you to import a certain amount of household goods duty-free.</p> <p>Banking is another consideration. Many expats continue to hold a U.S. bank account and to transfer money between it and an account in the country where they live. If you've got a U.S. account it's also a good idea to have a U.S. travel credit card that charges <a href="http://www.wisebread.com/smarter-security-and-no-foreign-transaction-fees-the-best-credit-cards-to-use-while-on-vacation?ref=internal" target="_blank">no foreign transaction fees</a>. A U.S. card can help you purchase from U.S. websites more easily and comes in handy during trips back home.</p> <h3>Health</h3> <p>In some countries, quality health care is so cheap that expats choose to pay out of pocket for treatment and medications. In other cases, you will need to research local health insurance options or make sure your U.S. insurance covers care abroad. Medicare is not available for health care outside of the U.S.</p> <p>Other expats can be a great resource as you try to find doctors that speak English and have a good reputation.</p> <p>The U.S. State Department has more <a href="https://travel.state.gov/content/passports/en/abroad/events-and-records/retirement-abroad.html" target="_blank">resources for planning to retire abroad</a>.</p> <h2>4. Move Abroad Part Time</h2> <p>You can also considerably lower your retirement expenses just by spending a portion of the year abroad, without the commitment of leaving the U.S. entirely.</p> <p>Different people choose to set up this arrangement differently. Some will return to the same place every year, while others may prefer to try out somewhere new.</p> <h3>Taxes</h3> <p>As with moving abroad full time, you will still be responsible for paying U.S. income taxes on worldwide income, and you may be subject to local taxes as well. Many tax breaks in the U.S. and abroad are dependent on how many days per year you spend in the foreign country, so you'll need to research those requirements.</p> <h3>Logistics</h3> <p>The most important consideration when you'll be spending your time in multiple locations is your accommodations. Will you rent your home while you're away? Will you hire a property manager to make sure that everything is running smoothly in your absence?</p> <p>Consider home or apartment exchanges if you are going to be overseas for a shorter period of time.</p> <h3>Health</h3> <p>For health insurance, you may want to consider purchasing travel insurance for the part of the year that you'll be out of the country to supplement your plan back home.</p> <p>Early retirement doesn't have to be an unattainable goal. Focus on setting your priorities and using creative thinking to be able to retire when you want.</p> <p>See also: <a href="http://www.wisebread.com/12-money-moves-to-make-the-moment-you-decide-to-retire?ref=seealso" target="_blank">12 Money Moves to Make the Moment You Decide to Retire</a></p> <h2 style="text-align: center;">Like this article? Pin it!&nbsp;</h2> <p>&nbsp;</p> <p style="text-align: center;"><a href="//www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F4-keys-to-an-early-retirement&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F4%20Keys%20to%20an%20Early%20Retirement.jpg&amp;description=4%20Keys%20to%20an%20Early%20Retirement" data-pin-do="buttonPin" data-pin-config="above" data-pin-color="red" data-pin-height="28"><img src="//assets.pinterest.com/images/pidgets/pinit_fg_en_rect_red_28.png" alt="" /></a> </p> <!-- Please call pinit.js only once per page --><!-- Please call pinit.js only once per page --><script type="text/javascript" async defer src="//assets.pinterest.com/js/pinit.js"></script></p> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/4%20Keys%20to%20an%20Early%20Retirement.jpg" alt="4 Keys to an Early Retirement" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/nick-wharton">Nick Wharton</a> of <a href="http://www.wisebread.com/4-keys-to-an-early-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-people-dont-retire-early-and-how-you-can">4 Reasons People Don&#039;t Retire Early — and How You Can</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make">7 Retirement Planning Steps Late Starters Must Make</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-handle-a-forced-early-retirement">5 Ways to Handle a Forced Early Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-incredible-places-to-retire-abroad-that-anyone-can-afford">5 Incredible Places to Retire Abroad That Anyone Can Afford</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-do-i-need-to-retire-how-much-can-i-spend">How much do I need to retire? How much can I spend?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Career and Income Retirement 401k early retirement expat living abroad retirement planning travel Fri, 03 Feb 2017 10:00:09 +0000 Nick Wharton 1884232 at http://www.wisebread.com 5 Financial Moves Now That You'll Regret When You Retire http://www.wisebread.com/5-financial-moves-now-that-youll-regret-when-you-retire <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-financial-moves-now-that-youll-regret-when-you-retire" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/money_uh_oh_175531215.jpg" alt="Learning financial moves now that you&#039;ll regret when you retire" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>We all make thousands of decisions every day. Come tomorrow, many of them won't matter much at all. But some decisions do have long-lasting implications. Here are five choices that may leave you longing for a do-over in retirement.</p> <h2>1. Borrowing From Your 401K</h2> <p>It's relatively easy to borrow from most 401K plans. However, the purpose of your 401K isn't to save for a down payment on a house or college bills. It's to build a nest egg for retirement. The more you nibble away at that, the less you'll have for your later years. The best approach? Consider your workplace retirement funds to be off limits &mdash; until retirement.</p> <h2>2. Resetting Your Mortgage Clock Past Your Retirement Age</h2> <p>Interest rates are very low, which has prompted many people to refinance their mortgages. It can be wise to swap out a high interest rate loan for one at a lower rate. However, if this is the home you plan to live in during retirement, make sure your new mortgage will be retired by the time you are. That may mean opting for a shorter term (15 or 20 years instead of 30) or committing to making extra monthly payments. (Use <a href="http://financialmentor.com/calculator/mortgage-payoff-calculator">this calculator</a> to help you figure out how much extra to pay.)</p> <h2>3. Claiming Social Security Too Early</h2> <p>There are some people who may benefit by claiming their Social Security benefits at the earliest possible age &mdash; 62. If longevity doesn't run in your family or if you absolutely have no other options but to take the money sooner than later, go ahead. But good things come to those who wait. When it comes to delaying the start of Social Security, those who can hold off will get quite a boost in benefits.</p> <p>When I looked up my own benefits (<a href="https://secure.ssa.gov/SiView.do">here's where to look up yours</a>), I saw that I'm eligible for $1,780 per month if I claim benefits at age 62. If I wait until my Full Retirement Age of 67, that amount jumps to $2,694 &mdash; a 51% increase. And if I wait until age 70, I would receive $3,441 per month &mdash; nearly twice as much as my age-62 benefit.</p> <p>And here's the other benefit from waiting. Men, I hope I'm not the first to break this to you, but you're probably going to die before your wife, unless she's a lot older than you are. And if your Social Security benefit is larger than hers, the more you can maximize yours, the more it'll benefit your wife once you're gone. That's because upon your death, she'll have the choice of continuing to take her benefit or yours.</p> <p>Social Security claiming strategies are so varied, complex, and important that it would probably benefit you to seek additional guidance via <a href="http://www.socialsecuritysolutions.com/">Social Security Solutions</a> or <a href="http://maximizemysocialsecurity.com/">Maximize My Social Security</a>.</p> <h2>4. Ignoring Inflation</h2> <p>I talked with a newly-retired woman recently who thought she was set for life. She took her savings, divided by her estimated number of years remaining, and was satisfied with her answer. Until I rained on her parade by asking how she planned to account for inflation.</p> <p>She didn't like the idea of investing any of her money in the stock market because she thought that was too risky. And yet, keeping all of her money in a bank savings account virtually guarantees that her buying power will steadily decline. Even a modest annual inflation rate of 2% will cut buying power nearly in half over the course of a 30-year retirement.</p> <p>Most retirees will need to accept the idea of maintaining some level of exposure to the stock market with their investment portfolio in order to make sure their money lasts as long as they do.</p> <h2>5. Counting on Paid Work in Your Later Years</h2> <p>One of today's most significant retirement-related disconnects is the difference between the number of today's workers who are planning to work in retirement (I know, it sounds like an oxymoron) and the number of retirees who actually do still work.</p> <p>An increasing number of people still in the workforce are pushing back their retirement date &mdash; some because they want the mental stimulation that comes from work, some because they realize they'll need the money. And yet, nearly half of people who are now retired left the workforce sooner than intended, many times because of health issues.</p> <p>By the same token, nearly two-thirds of today's workers expect to work for pay to some degree after retiring from their main career, whereas less than one-third of those who are now retired have worked for pay since ending their main career.</p> <p>The best advice? Plan physically, emotionally, and vocationally to work longer than you might prefer while you plan financially to retire earlier than you think you will.</p> <p>Clearly, what you don't do as you prepare for a successful retirement is just as important as what you do. Avoiding the five miscues just discussed will help you prepare well.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/5-financial-moves-now-that-youll-regret-when-you-retire">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/12-money-moves-to-make-the-moment-you-decide-to-retire">12 Money Moves to Make the Moment You Decide to Retire</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-questions-to-ask-before-you-start-claiming-your-social-security-benefits">5 Questions to Ask Before You Start Claiming Your Social Security Benefits</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-expensive-mistakes-of-the-newly-retired">9 Expensive Mistakes of the Newly Retired</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-smart-ways-to-boost-your-social-security-payout-before-retirement">6 Smart Ways to Boost Your Social Security Payout Before Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-strengthen-your-finances-before-retirement">5 Ways to Strengthen Your Finances Before Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k full retirement age inflation Mistakes money moves mortgages regrets social security Thu, 01 Dec 2016 11:00:08 +0000 Matt Bell 1843961 at http://www.wisebread.com 6 Ways to Invest When You're In Debt http://www.wisebread.com/6-ways-to-invest-when-youre-in-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-ways-to-invest-when-youre-in-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/plant_tree_stump_462868653_0.jpg" alt="Learning ways to invest when you&#039;re in debt" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You know you need to begin investing to save for the future, but you still have some debt to pay off. It is possible to take care of both at the same time?</p> <p>The short answer is that yes, you can pay down debt and invest at the same time. In many ways, this is a personal choice. If you despise debt and sleep better at night knowing that you're paying it off as quickly as possible, that's fine. But if you can tolerate paying off debt at a slower rate and investing some money, you may end up ahead of the game financially over the long-term.</p> <p>Here are some things to consider when deciding how much to invest and how much debt to pay off.</p> <h2>1. Minimum Payments First, Then Invest</h2> <p>While it's certainly possible to pay down debt and invest at the same time, it's never a good idea to invest if you can't make your minimum payments first. If you don't make minimum payments, you'll be on the hook for higher interest, late fees, and penalties. Not to mention that your credit score will take a big hit. Consider investing your money only if you know you can set money aside and still make at least the minimum payments on debt.</p> <h2>2. Tackle the High Interest Debt</h2> <p>If your debt is tied up in credit cards and other things that come with high interest rates, you may want to hold off on investing until that's under control. Credit cards have interest rates in the double digits, and you're unlikely to generate an investment return that outpaces that. Once that high-interest debt is down to zero, then investing becomes much more possible. (See also: <a href="http://www.wisebread.com/fastest-way-to-pay-off-10000-in-credit-card-debt?ref=seealso">Fastest Way to Pay Off 10K in Credit Card Debt</a>)</p> <h2>3. Use Your 401K Plan</h2> <p>If you work for an employer that offers a 401K plan or something similar, it's worth taking part even if you have some debt. That's because most employers will match contributions up to a certain amount. So it's like getting free money. Any contributions you make to a 401K are deducted from your taxable income, so there are great tax advantages for taking part. Invest what you can while still paying down your debt. Then, when your debt is paid off, increase your contributions.</p> <h2>4. Look at Low-Cost Mutual Funds and ETFs</h2> <p>If most of your debt is tied up in low-interest things like student loans or mortgages, it's okay to set aside some money to invest in things that will generate a good return. In fact, there are many financial planners that argue against paying off low-interest loans early if market returns are higher than interest rates. Over time, stocks have averaged returns of about 7%, which is much higher than interest rates these days. To get this type of return, consider looking at mutual funds and exchange-traded funds that have low fees and are designed to track the performance of the overall stock market.</p> <h2>5. Find Investments That Trade Without a Commission</h2> <p>If you're trying to invest and pay down debt at the same time, there's a good chance you may only be able to invest a little at a time. That's okay, but it's important to be aware of the fees and commissions you pay every time you buy and sell. If you're only buying a few shares of a stock but paying $8 in a commission, for example, that fee is cutting into a sizable percentage of your investment. Fortunately, many discount brokerages allow you to trade certain types of investments without paying a commission. Fidelity offers fee-free investing on all iShares ETFs, ETrade offers many commission-free ETFs from WisdomTree and Global X, and TD Ameritrade offers more than 100 ETFs with no transaction fees.</p> <h2>6. Automate as Much as Possible</h2> <p>Finding the balance between investing and paying off debt requires some discipline. If you have some debt but are considering investing, determine in advance what your ideal balance is. Then, set up automatic monthly transfers of money into an investment account, and automate your bills as well. If you get extra money or a raise, consider tweaking the balance accordingly. When you automate, it takes the guesswork out, allows you to stay consistent, and makes it easier to do other financial planning.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F6-ways-to-invest-when-youre-in-debt&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F6%2520Ways%2520to%2520Invest%2520When%2520Youre%2520In%2520Debt.jpg&amp;description=6%20Ways%20to%20Invest%20When%20Youre%20In%20Debt"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/6%20Ways%20to%20Invest%20When%20Youre%20In%20Debt.jpg" alt="6 Ways to Invest When You're In Debt" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/6-ways-to-invest-when-youre-in-debt">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-money-moves-to-make-as-soon-as-you-conquer-debt">7 Money Moves to Make as Soon as You Conquer Debt</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-investing-tips-you-wish-you-could-tell-your-younger-self">11 Investing Tips You Wish You Could Tell Your Younger Self</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management Investment 401k ETFs fees interest rates market returns mutual funds saving money Wed, 23 Nov 2016 11:30:07 +0000 Tim Lemke 1838645 at http://www.wisebread.com 15 Retirement Terms Every New Investor Needs to Know http://www.wisebread.com/15-retirement-terms-every-new-investor-needs-to-know <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/15-retirement-terms-every-new-investor-needs-to-know" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/retirement_blocks_73115095.jpg" alt="New investor learning retirement terms" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Congratulations! By starting your retirement fund, you've taken one of the most important steps toward a comfortable retirement. But as a novice investor, you may feel a bit overwhelmed with all the available information, including contribution limits, early penalty fees, and Roth 401Ks. To help you make sense of it all, let's review 15 key terms you should know:</p> <h2>1. 401K</h2> <p>The 401K is the most popular qualified employer-sponsored retirement plan in the U.S. The two most common types of 401K plans are the traditional 401K, to which you contribute with pretax dollars, and the Roth 401K, which accepts contributions with after-tax dollars. Earnings in a traditional 401K grow on a tax-deferred basis (you'll pay taxes on the funds when you withdraw them during retirement) and those in a Roth 401K grow tax-free forever, since you've paid taxes upfront.</p> <h2>2. After-Tax Contributions</h2> <p>Only certain types of retirement accounts, such as Roth 401Ks and Roth IRAs, accept contributions with after-tax dollars. When you contribute to a retirement account with after-tax dollars, your retirement funds grow tax-free forever, since you've already paid Uncle Sam.</p> <h2>3. Catch-Up Contribution</h2> <p>Retirement investors who are 50 and older at the end of the calendar year can make extra annual &quot;catch-up&quot; contributions to qualifying retirement accounts. Catch-up contributions allow older savers to make up for lower contributions to their retirement accounts in earlier years. In 2016 and 2017, catch-up contributions of <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions">up to $6,000</a> (on top of traditional annual contribution limits) are allowed for 401Ks and up to $1,000 for IRAs.</p> <h2>4. Contribution Limits</h2> <p>Every year, the IRS sets a limit as to how much you can contribute to your retirement accounts. In 2016, you can <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits">contribute up to $5,500</a> ($6,500 if age 50 or over) to traditional and Roth IRAs and <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-contributions">up to $18,000</a> ($24,000 if age 50 or over) to a traditional or Roth 401K. These annual contribution limits to retirement accounts remain unchanged for 2017. If you exceed your contribution limit, you'll receive a penalty fee from the IRS, unless you take out excess moneys by a certain date.</p> <h2>5. Early Distribution Penalty</h2> <p>To discourage retirement savers from withdrawing funds before retirement age, the IRS imposes an additional 10% penalty on distributions before age 59 &frac12; on certain retirement plans. Keep in mind that you're always liable for applicable income taxes whether you take a distribution from your retirement plan before or after age 59 &frac12;. Under certain circumstances, you're allowed to <a href="http://www.wisebread.com/7-penalty-free-ways-to-withdraw-money-from-your-retirement-account">withdraw money early</a> from a retirement account without the penalty.</p> <h2>6. Fee</h2> <p>You've heard that there is no such thing as a free lunch and no retirement plan is exempt from this rule. There's always a cost for the employer or employee, or both. Always check the prospectus from any fund for its annual expense ratio and any other applicable fee. An annual expense ratio of 0.75% means that for every $1,000 in your retirement account, you're charged $7.50 in fees. And that's assuming that you don't trigger any other fees! (See also: <a href="http://www.wisebread.com/watch-out-for-these-5-sneaky-401k-fees?ref=seealso">Watch Out for These 5 Sneaky 401K Fees</a>)</p> <h2>7. Index Fund</h2> <p>An index fund is a type of mutual fund that tracks of a basket of securities (generally a market index, such as the Standard &amp; Poor's 500 or the Russell 2000). An index fund is a passively managed mutual fund that provides broad market exposure, low investment cost, and low portfolio turnover. Due to its low annual expense ratios, such as 0.16% for the Vanguard 500 Index Investor Shares [Nasdaq: <a href="https://finance.yahoo.com/quote/vfinx">VFINX</a>], index funds have become a popular way to save for retirement. (See also: <a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds?Ref=seealso">3 Steps to Getting Started in the Stock Market With Index Funds</a>)</p> <h2>8. IRA</h2> <p>Unlike a 401K, an individual retirement account (IRA) is held by custodians, including commercial banks and retail brokers. The financial institutions place the IRA funds in a variety of investments following the instructions of the plan holders. A traditional IRA accepts contributions with pretax dollars, and a Roth IRA accepts contributions with after-tax dollars. An advantage of using a Roth IRA is that it provides several exemptions to the early distribution penalty.</p> <h2>9. 401K Loan</h2> <p>Some retirement plans allow you to take a loan on a portion of your available balance &mdash; generally, 50% of your vested account balance, or <a href="https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans">up to $50,000</a>, whichever is less. While the loan balance is generally due within five years, it becomes fully due within 60 days from separating from your employer. (See also: <a href="http://www.wisebread.com/5-questions-to-ask-before-you-borrow-from-your-retirement-account?ref=seealso">5 Questions to Ask Before You Borrow From Your Retirement Account</a>)</p> <h2>10. Mutual Fund</h2> <p>By pooling funds from several investors, money managers are able to invest in a wide variety of securities, ranging from money market instruments to equities. Investing in a mutual fund enables an individual retirement investor to gain access to a wide variety of investments that she wouldn't necessarily have access to on her own. Depending on its investment strategy, mutual funds can have a wide variety of fees. So, make sure to read the fine print. (See also: <a href="http://www.wisebread.com/4-sneaky-investment-fees-to-watch-for?ref=seealso">4 Sneaky Investment Fees to Watch For</a>)</p> <h2>11. Pretax Contribution</h2> <p>When you contribute to your employer-sponsored retirement account with pretax dollars, you're allowed to reduce your taxable income. For example, if you were to make $50,000 per year and contribute $5,000 to your 401K with pretax dollars, then you would only have to pay applicable income taxes on $45,000! You delay taxation until retirement age when you're more likely to be in a lower tax bracket.</p> <h2>12. Required Minimum Distribution (RMD)</h2> <p>You can't keep moneys in your retirement account forever. At age 70 &frac12;, you generally have to start taking withdrawals from an IRA, SIMPLE IRA, SEP IRA, or 401K. An RMD is the minimum amount required by law that you have take out from your retirement account each year to avoid a penalty from the IRS. You can use of one of these <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/required-minimum-distribution-worksheets">requirement minimum distribution work sheets</a> to calculate your RMD.</p> <h2>13. Rollover</h2> <p>When you separate from your employer, you generally have up to 60 days to transfer moneys in your previous retirement account to a new retirement account accepting those moneys. This process is known as a rollover. In a direct rollover, the process is automatic; in an indirect rollover, you receive a cash-out check from your previous employer to rollover the moneys to a new qualifying retirement account. (See also: <a href="http://www.wisebread.com/a-simple-guide-to-rolling-over-all-of-your-401ks-and-iras?ref=seealso">A Simple Guide to Rolling Over All of Your 401Ks and IRAs</a>)</p> <h2>14. Target-Date Fund</h2> <p>A target-date fund is a retirement investment fund that seeks to provide higher returns to young investors and gradually reduce risk exposure as they get closer to retirement age. Since the Pension Protection Act granted target-date funds the status of qualified default investment alternative in 2006, these type of funds have gained popularity. About half of 401K participants <a href="https://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&amp;content_id=3347">hold a target-date fund</a>.</p> <h2>15. Vesting</h2> <p>In any retirement account, only money that is fully vested truly belongs to you. While all of your contributions and the matching contributions from your employer to your retirement account are always fully vested, some employer contributions, such as company stock, may follow a vesting schedule. In <em>cliff vesting</em>, you only become fully vested after a certain period of time. In <em>graded vesting</em>, you gradually gain ownership of those employer contributions.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/15-retirement-terms-every-new-investor-needs-to-know">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-inventor-of-the-401k-has-second-thoughts-about-your-retirement-plan-now-what">The Inventor of the 401K Has Second Thoughts About Your Retirement Plan — Now What?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stop-making-these-10-bogus-retirement-savings-excuses">Stop Making These 10 Bogus Retirement Savings Excuses</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-ways-more-money-in-retirement-might-cost-you">3 Ways More Money in Retirement Might Cost You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k contributions employer-sponsored retirement index funds IRA new investors Roth savings target date funds taxes terms Thu, 17 Nov 2016 11:00:14 +0000 Damian Davila 1834559 at http://www.wisebread.com 4 Ways Couples Are Shortchanging Their Retirement Savings http://www.wisebread.com/4-ways-couples-are-shortchanging-their-retirement-savings <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-ways-couples-are-shortchanging-their-retirement-savings" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/couple_retired_happy_62784562.jpg" alt="Retired couple shortchanging their retirement savings" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Whether retirement is decades away or if it is knocking on your door, there are some key mistakes that couples sometimes make when planning for their retirement. It's not too late to fix them, and addressing these problems now can potentially stave off issues in the future.</p> <p>Are you and your spouse making these retirement mistakes?</p> <h2>Relying on One's Spouse's Retirement</h2> <p>One common mistake that couples make is that they only rely on <em>one </em>spouse's income and retirement savings. While you might be able to live comfortably off one spouse's income now, when you are healthy, you have to calculate just how much you and your spouse will both need in retirement. Hopefully you will both be healthy well into your last years, but plan for the &quot;what ifs.&quot; Have both partners contribute to separate retirement accounts, if you both are working. If one spouse is self-employed or a freelancer, there are still retirement options for them.</p> <p>Even if one spouse does not work, they can still contribute to an IRA account. Carol Berger, CFP&reg;, of Berger Wealth Management, says that spousal IRA accounts are available for married couples who file taxes jointly. Berger says, &quot;This allows a contribution to be made for the nonworking spouse and helps his or her retirement nest egg grow. For example, in 2016, a nonworking spouse can contribute up to $5,500 to an IRA in their name ($6,500 if age 50 or older).&quot;</p> <h2>Putting Your Kids First</h2> <p>There is no doubt that you love your children and that it is easy to put their needs above retirement needs. However, don't delay on saving for retirement for your kids' sake. Saving for retirement should always trump saving for college education. Furthermore, retirement savings should not be dipped into to pay for college.</p> <p>The simple reason is that your children will have access to scholarships, loans, and work to help support them through college. Even if they graduate with a heavy load of debt, they have a long time to pay it off. There are no scholarships for retirement, and I am guessing the last thing you want to do is return to work.</p> <p>&quot;Time does not favor waiting because you lose the benefits of compounding,&quot; says Good Life Wealth Management president, Scott Stratton, CFP&reg;, CFA. &quot;If you put $5,000 into an IRA and earn 8% for 25 years, you'd have $34,242. Invest the same $5,000 10 years before retirement, and you'd only have $10,794. Or to put it another way, if you waited until 10 years before retirement, you'd have to invest $15,860 &mdash; instead of $5,000 &mdash; to reach $34,242.&quot;</p> <h2>Avoiding the Issue</h2> <p>Money is not always the easiest thing to talk about, however, if you avoid the issue, then you will only cause the problem to grow. Sit down with your spouse and talk about your present financial situation. Talk about where you want to be financially in the next year, in five years, and in retirement.</p> <p>If you both agree that you want to spend your retirement traveling and not tied to credit card debt or a mortgage payment, then you need to put in place the right money habits now.</p> <p>You should develop realistic action steps that will help you reach your financial goals a year from now, five years from now, and most importantly, in retirement. That means you might have to tighten your budget and pay more toward debt. Having clear financial goals will also help you stand firm as a couple when it is tempting to refinance the house to redo the backyard. (See also: <a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make?ref=seealso">7 Retirement Planning Steps Late Starters Must Make</a>)</p> <h2>Not Planning for Medical Costs</h2> <p>As discussed briefly above, many couples forget to financially plan for medical costs. It is easy to think, &quot;We won't need that much money in retirement because we won't buy anything or have to care for kids.&quot; However, medical expenses can add up quickly, especially in the last years of life. The cost of caretakers, regular doctor's visits, special medications, and even residency at a hospice can drain retirement savings in a matter of a few years.</p> <p>The worst thing is that many adult children are stuck with the financial burden of their parents' medical costs. Nearly one in 10 people over 40 are considered in the &quot;<a href="http://www.wisebread.com/6-ways-the-sandwich-generation-can-get-ahead">sandwich generation</a>.&quot; This means they are caring for their own children while also caring for aging parents. The Associated Press-NORC Center for Public Affairs Research reports that Medicare doesn't cover the most common types of long-term care and that a nursing home can cost as much as <a href="http://www.apnorc.org/news-media/Pages/News+Media/Poll-Sandwich-generation-worried-about-own-long-term-care-.aspx">$90,000 per year</a>. If retirement funds don't cover the necessary care for aging parents, their children will either have to foot the bill or try to take care of their parents themselves.</p> <p>Jody Dietel, Chief Compliance Officer at WageWorks says that there is a retirement tool that is often overlooked. A <a href="http://www.wisebread.com/how-an-hsa-saves-you-money">health savings account</a> (HSA) can help cover medical costs. Dietel says, &quot;It's important to understand that there's a place for both a 401K and an HSA. Establishing an HSA gives you the ability to amass savings to be used exclusively for health care expenses and preventing the need to dip into 401K funds for medical-related costs in retirement.&quot;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/ashley-eneriz">Ashley Eneriz</a> of <a href="http://www.wisebread.com/4-ways-couples-are-shortchanging-their-retirement-savings">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-an-hsa-could-help-your-retirement">How an HSA Could Help Your Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-ways-more-money-in-retirement-might-cost-you">3 Ways More Money in Retirement Might Cost You</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-despair-over-small-retirement-savings">Don&#039;t Despair Over Small Retirement Savings</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-retirement-planning-changes-when-youre-single">7 Ways Retirement Planning Changes When You&#039;re Single</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make">7 Retirement Planning Steps Late Starters Must Make</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k couples expenses health care health savings accounts HSA income IRA marriages medical costs Mon, 14 Nov 2016 10:00:06 +0000 Ashley Eneriz 1830892 at http://www.wisebread.com 3 Sources of Fast Cash Besides Your 401K http://www.wisebread.com/3-sources-of-fast-cash-besides-your-401k <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-sources-of-fast-cash-besides-your-401k" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/handling_cash_780905671.jpg" alt="Finding sources of fast cash outside of 401K" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You're in the middle of a remodeling project, and due to unforeseen circumstances, your money runs out early. You can't live with a half-completed kitchen, but you can't pay for it to be finished right now. And while you have plenty of equity in your home and a healthy retirement account, there's nothing in the bank.</p> <p>Once you've decided to take out a loan, what is the best source of funds? Are 401K loans or borrowing against home equity ever a good idea?</p> <p>&quot;The best option is of course is your parents,&quot; says financial planner Bob Goldman. But if you can't tap the bank of mom and dad for an interest-free loan, your other best options are probably a cash-out refinance, a secondary mortgage, a home equity line of credit, or a 401K loan. Deciding which one to use requires some number crunching and a hard look at your personal situation, including your job security, your repayment timeline, and your will power.</p> <h2>Cash-Out Refinance</h2> <p>Mortgage interest rates are at historic lows, making now a good time to think about refinancing. When you refinance your home, you are replacing your current loan with a brand-new one, preferably at a better interest rate. Depending on how much equity you have in your home, you may have the option of borrowing cash at the time of the refinance &mdash; so that once all the paperwork is done, you'll have a lump sum in your bank account, which you will pay back as part of your regular mortgage payments.</p> <h2>Cash-Out Refinance Pros</h2> <p>A cash-out refinance has a lot going for it.</p> <h3>1. Low Rate</h3> <p>A mortgage often offers the lowest interest rate you can get, outside of promotional offers. And because rates are near historic lows, a lot of people feel that locking in a low rate now for a long loan term is a good call.</p> <h3>2. Low Payments</h3> <p>Because the payback period will be long &mdash; generally 30 years &mdash; a cash-out refi can ease the month-to-month strain of repayment, especially if you are able to lower the interest rate. If you are paying, say, 5% interest on your mortgage and you are able to refinance to 3.77%, you could add $50,000 to your loan principal while only adding about $100 a month to your payment.</p> <h3>3. No Surprises</h3> <p>As long as you take out a fixed-rate mortgage, you know what your payment will be for the life of the loan.</p> <h3>4. Tax Benefit</h3> <p>The interest you pay on your refinanced mortgage will be tax deductible. According to this <a href="http://www.calcxml.com/do/hom09">mortgage tax savings calculator</a>, if you add $50,000 to a $200,000 mortgage, you could save about $10,000 in taxes over the life of the loan, more or less depending on your tax bracket and the interest rate.</p> <h2>Cash-Out Refinance Cons</h2> <p>As great as a cash-out refinance is, it's not free money.</p> <h3>1. Risk</h3> <p>Your home is on the line. For most people, your house is your biggest asset, and putting it even at slight risk isn't a decision to take lightly. Far too many homeowners ended up losing their homes during the financial crisis when they overborrowed against their homes' value.</p> <h3>2. Fees</h3> <p>You have to pay closing costs, which average about $1,800 on a $200,000 loan.</p> <h3>3. Qualifying</h3> <p>You need good credit, especially for the best rates.</p> <h3>4. Starting Over</h3> <p>One thing people often overlook when refinancing, Goldman says, is that taking out a new 30-year loan pushes out the date when you'll be done paying off your mortgage. &quot;You reset the clock on your mortgage,&quot; Goldman says. &quot;You're back to Day One, where you're paying mostly interest.&quot;</p> <h2>What's the Total Cost of a Cash-Out Refinance?</h2> <p>Getting $50,000 this way would cost a typical borrower about $30,000 in interest and fees over the course of 30 years at current interest rates. I calculated this using a mortgage calculator to compare the lifetime cost of borrowing $200,000 versus $250,000, keeping in mind that getting cash out usually increases your interest rate by about ⅛ percent. I added $2,000 in closing costs and subtracted $10,000 in tax savings.</p> <h2>Home Equity Loan</h2> <p>A home-equity loan is so much like a mortgage that it's also known as a &quot;second mortgage.&quot; The only difference between this and a cash-out refinance is that instead of replacing your original mortgage with a new one, you're adding a second loan also using your home as collateral. But everything else &mdash; the fact that you're taking a fixed amount of money, usually at a set rate, and paying it back over time &mdash; remains the same.</p> <h2>Home Equity Loan Pros</h2> <p>A second mortgage is a lot like a cash out refi, but with some wrinkles.</p> <h3>1. Simplicity</h3> <p>If you have a great mortgage rate on your home and don't want to change it, this is a way to borrow money while leaving your original mortgage untouched.</p> <h3>2. Shorter Time</h3> <p>If you have a 30-year mortgage but only want to borrow money for five to 15 years, you can do that with a home-equity loan.</p> <h3>3. Tax Benefit</h3> <p>Like a regular mortgage, your interest is usually tax deductible.</p> <h2>Home Equity Loan Cons</h2> <p>You'll need to be sure you understand the downsides of this kind of loan.</p> <h3>1. Interest Rate</h3> <p>Data from Bankrate shows home equity loans averaging at least a percentage point higher than mortgage rates.</p> <h3>2. Qualifying</h3> <p>You need good credit, especially for the best rates.</p> <h2>What's the Total Cost of a home-equity loan?</h2> <p>About $11,000 in interest and fees to borrow $50,000 for 10 years.</p> <p>If you borrow $50,000 for 10 years through a second mortgage, you would pay about $13,000 interest over the life of the loan. Closing costs would be similar to a mortgage refinance, about $2,000. During that time, the mortgage interest deduction could save you about $4,000 in taxes.</p> <h2>Home Equity Line of Credit</h2> <p>Like a home-equity loan, a Home Equity Line of Credit (HELOC) is a secondary loan that piggybacks on your original loan. As with both types of loans discussed above, your home is still the collateral. The big difference is that while you can get cash out of a first or second mortgage only once, a HELOC is a revolving credit line, meaning that you don't need to know upfront exactly how much you'll need over the life of the loan. You can borrow $10,000 this month for a new furnace, and then $5,000 another month for landscaping.</p> <h2>HELOC Pros</h2> <p>The key advantage of a HELOC is its flexibility, but there are others to consider, too.</p> <h3>1. Borrowing Flexibility</h3> <p>Experts recommend these loans for ongoing expenses such as college tuition, rather than a home repair that you might pay for in a lump sum. If you do a refinance and then realize you'll need to borrow more money, you would need to pay closing costs all over again and might not be able to lock in the same rate.</p> <h3>2. Tax Benefit</h3> <p>Like the above loans, the interest paid on a HELOC is usually tax deductible.</p> <h3>3. Payment Flexibility</h3> <p>Your loan may allow you to pay interest-only for a certain amount of time.</p> <h2>HELOC Cons</h2> <p>As with the other home loans discussed, a HELOC carries some costs.</p> <h3>1. Risk</h3> <p>Like both the above loans, your home is on the line.</p> <h3>2. Rate Uncertainty</h3> <p>Since HELOCs often have <a href="https://www.consumer.ftc.gov/articles/0227-home-equity-loans-and-credit-lines#lines">variable interest rates</a>, and rates are currently at historic lows, they will probably rise in the future. By law, how much the rates go up is capped &mdash; the lender must tell you the maximum potential rate when you take out the loan. The average HELOC rate at the moment is similar to home equity rates, or around a point above 30-year-mortgage rates.</p> <h3>3. Balloon Payments</h3> <p>Many HELOCs start out requiring only interest payments, then expect the borrower to pay the whole principal at the end. If you can't, Goldman said, you'll probably end up refinancing the debt into a much longer, more expensive loan.</p> <h3>4. Temptation</h3> <p>As with credit cards, having a line of credit to draw on can encourage overspending. &quot;It's one thing to be on a diet when the refrigerator is empty. It's another thing to be on a diet when the freezer is full of ice cream,&quot; Goldman said. &quot;You'll have this money available to you, so it will require a great deal of discipline to manage it.&quot;</p> <h3>5. Qualifying</h3> <p>You need good credit to qualify, especially for the best rates.</p> <h3>6. Fees</h3> <p>You may or may not have to pay closing costs, and may be charged ongoing fees such as annual maintenance fees and transaction fees.</p> <h2>What's the Total Cost of a HELOC?</h2> <p>Rough estimate: $9,500. It's more difficult to predict the lifetime cost of a HELOC if the rate is adjustable and the amount you owe on it varies, but this <a href="http://www.calcxml.com/calculators/adjustable-rate-mortgage-calculator">adjustable mortgage calculator</a> figures that with steady, modest interest increases, a 10-year, $50,000 HELOC could cost $14,000 in interest. Fees vary, but if your bank charges a $50 annual fee, that adds $500 to the cost. Subtract an estimated $5,000 in tax savings.</p> <h2>Borrowing From Your 401K</h2> <p>If you have a 401K retirement account through your employer, you might have the option of &quot;borrowing&quot; from its balance. This is not a true loan, since the money in your 401K already belongs to you. In reality, what you're doing is getting an exemption from early withdrawal penalties and taxation, as long as you promise to put the money back and pay yourself an interest rate &mdash; generally one to two percentage points above the prime rate.</p> <p>Despite all those articles out there warning you to avoid borrowing from your 401K, Goldman says this can be a good option if conditions are right.</p> <p>&quot;If I had my choice, I would definitely borrow from a 401K,&quot; he said. Although neither borrowing against your home or borrowing against your retirement are without risk, at least if you fail to pay back your 401K loan, you're not out on the street.</p> <h2>401K Loan Pros</h2> <p>This type of loan may be the easiest of all to get &mdash; it's your money, after all!</p> <h3>1. Qualifying</h3> <p>You don't need good credit to qualify for a good rate, making this an attractive option for folks who wouldn't qualify for a regular loan.</p> <h3>2. Risk</h3> <p>If you fail to pay it back, it won't affect your credit score or send collection agents after you. You also don't risk having your home repossessed.</p> <h3>3. No Bank</h3> <p>You pay the interest to yourself, which is sort of like not paying interest at all.</p> <h2>401K Loan Cons</h2> <p>There are not too many downsides to borrowing from your 401K &mdash; but there's a big one you should think very carefully about.</p> <h3>1. Risk to Your Retirement Savings</h3> <p>Failure to pay back this loan could cause great harm to your retirement account. For instance, if your employment ends for any reason, the loan becomes due immediately. If you can't pay it, it's converted to a distribution, which means that you pay taxes and (if you are under age 59 &frac12;, a 10% penalty). So you're basically stuck at your job while you have a 401K loan out; you might end up turning down a new job offer if you don't have the cash to pay the loan. Worse, if you get fired and can't pay it, you could be out of a lot of money in addition to having no job.</p> <h3>2. Double Taxation</h3> <p>The disadvantage that people often don't consider with 401K loans is that while you filled your account with pretax dollars, you repay the loan with post-tax dollars &mdash; but you'll have to pay tax again on the money when you eventually withdraw it in retirement. How much you can get: While home loans let you borrow a percentage of your home equity, 401K loans are capped at $50,000 or half your balance, whichever is less.</p> <h2>What's the Total Cost of Borrowing From Your 401K?</h2> <p>It would vary greatly depending on how close you are to retirement and how well the market does during your loan. Using <a href="http://www.calcxml.com/calculators/impact-of-borrowing-from-my-retirement-plan">this calculator</a>, I came up with an estimated cost of $25,000 in lost investment and tax benefits to borrow $50,000 for five years. That assumes your retirement account would have $10,246 less in it at the time of retirement, and that you lost out on $15,000 worth of tax benefits.</p> <h2>Bottom Line</h2> <p>By these calculations, home equity loans tend to be less costly than mortgage refis or 401K loans. You should run the numbers using your own circumstances before making that determination for yourself.</p> <p>Cost is not the only thing to consider when deciding how to borrow. There's also the degree of risk involved, and the amount of time you have to pay the money back. Again, personal circumstances will dictate your choice: If you only need the money for a short time, for instance, until your stock options vest next year, a 401K loan might be the best choice. If you can't afford to pay the loan off in the near-term, the refinance gives you the most time.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carrie-kirby">Carrie Kirby</a> of <a href="http://www.wisebread.com/3-sources-of-fast-cash-besides-your-401k">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-pay-off-high-interest-credit-card-debt">5 Ways to Pay Off High Interest Credit Card Debt</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-biggest-regrets-of-new-homeowners">8 Biggest Regrets of New Homeowners</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-build-equity-in-your-home">How to Build Equity in Your Home</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/never-borrow-money-for-these-5-buys">Never Borrow Money for These 5 Buys</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/15-surprising-ways-bad-credit-can-hurt-you">15 Surprising Ways Bad Credit Can Hurt You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance 401k borrowing HELOC home equity line of credit interest loans mortgages refinance second mortgage Wed, 02 Nov 2016 10:00:10 +0000 Carrie Kirby 1825229 at http://www.wisebread.com The Penalty-Free Way to Withdraw Retirement Money Early http://www.wisebread.com/the-penalty-free-way-to-withdraw-retirement-money-early <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-penalty-free-way-to-withdraw-retirement-money-early" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/saving_money_retirement_85578577.jpg" alt="Withdrawing retirement early without any penalties" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>It's widely know that for most retirement plans, including an IRA and 401K, there is a cost to withdrawing money before you reach 59-&frac12; years of age. Take money out of a traditional IRA or 401K early and you're stuck paying taxes plus a 10% early withdrawal fee. If you withdraw money from a Roth IRA early, you'll have to pay tax on any withdrawn gains.</p> <p>There are some ways to avoid this penalty, including one mechanism that may be unknown to many investors.</p> <p>It's called a SEPP (stands for Substantially Equal Periodic Payment), and it may help some investors access their money early without a cost. The basic idea behind a SEPP is that you can receive regular payments (usually annually) from your retirement account, as long as they are a consistent amount and you do so for a certain length of time.</p> <p>Here are some key things you need to know.</p> <h2>1. You Must Take Withdrawals for at Least Five Years</h2> <p>Once you begin a SEPP program, you are required to make regular withdrawals for five years or until you are 59-1/2, whichever comes last (with some exceptions for disability or market decline). So for example, a person who is 56 must make withdrawals until they are 61. A person who is 45 must continue to make withdrawals for the next 14-1/2 years. Thus, it's generally not a good idea to embark on a SEPP program if you are young. If you stop the program before the required time is up, you must pay the IRS all of the waived penalties, plus interest.</p> <h2>2. Calculating Your Payments Is, Well, Complicated</h2> <p>Okay, so you're required to make regular withdrawals of the same amount of money. But how much should you be withdrawing? There are three main methods of determining this.</p> <h3>The Required Minimum Distribution Method</h3> <p>In simple terms, divide your total account balance by your life expectancy. (The IRS has a table to help you determine this.) Under this method, the amount you withdraw must be recalculated each year and could change.</p> <h3>The Fixed Amortization Method</h3> <p>Under this system, payments are based on the life expectancy of the account holder and a chosen interest rate.</p> <h3>The Annuity Method</h3> <p>To determine payments under this system, divide your account balance by an annuity factor that is based on your age.</p> <p>Generally speaking, the Required Minimum Distribution method is the most straightforward and will result in the smallest payments. This makes it a better choice for investors who do not want to deplete their accounts as quickly. However, payments must be recalculated each year, whereas the other two options only require calculations to be made once.</p> <h2>3. It's Not a Good Idea for an Emergency</h2> <p>There may be times when you are tempted to withdraw from your retirement account to take care of a financial emergency. But a SEPP isn't designed to help you with that. The five-year requirement makes it impossible to make a single withdrawal or even a small series of withdrawals. If you have a one-time emergency, you're better off find other methods to get cash quickly.</p> <h2>4. It Won't Always Work for a 401K</h2> <p>If you're considering using a SEPP to withdraw money from a 401K plan, the IRS requires you to first separate from the employer that maintains the plan. So once again, this is not a decision to make lightly. That said, 401K plans from previous employers are acceptable, as are any rollover IRAs you created from past plans.</p> <h2>5. It Is Not Easily Adjustable</h2> <p>Once you sign up for a SEPP program, there's no way to cancel it before the required time. If you find that your payments are too much, you can change your calculation method to the Required Minimum Distribution method. But this change is only allowed once.</p> <h2>6. You Must Stop Contributing</h2> <p>Once you decide to use a SEPP program, you can't adjust the balance of the retirement account. That means no more adding money to the account and no separate withdrawals. Any change to the account balance could lead to the SEPP being disqualified, in which case you're on the hook for all of the penalties and taxes, plus interest.</p> <h2>7. Withdrawing Money Early Means You Will Have Less Later</h2> <p>It's important to remember that a retirement account is called a <em>retirement </em>account for a reason. Your goal should be to ensure that money in the account lasts for the entire time after you are done working. That could mean decades. So if you are withdrawing money early, understand that you are reducing the amount that will be available to you later in life.</p> <h2>8. You Probably Need Professional Help</h2> <p>A SEPP is not an easy thing to understand or set up yourself. A tax and investment adviser will help you understand if a program is right for your particular situation, and walk you through the steps to determine the proper payments.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/the-penalty-free-way-to-withdraw-retirement-money-early">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-penalty-free-ways-to-withdraw-money-from-your-retirement-account">7 Penalty-Free Ways to Withdraw Money From Your Retirement Account</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/15-retirement-terms-every-new-investor-needs-to-know">15 Retirement Terms Every New Investor Needs to Know</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-questions-to-ask-before-you-borrow-from-your-retirement-account">5 Questions to Ask Before You Borrow From Your Retirement Account</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-choose-a-roth-401k-or-a-regular-401k">Should You Choose a Roth 401k or a Regular 401k?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k annuity IRA penalties sepp substantially equal periodic payment taxes withdrawals Tue, 18 Oct 2016 10:30:09 +0000 Tim Lemke 1815050 at http://www.wisebread.com Rich People Spend $350K+ to Park Their Cars — Here's How We'd Spend it Instead http://www.wisebread.com/rich-people-spend-350k-to-park-their-cars-heres-how-wed-spend-it-instead <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/rich-people-spend-350k-to-park-their-cars-heres-how-wed-spend-it-instead" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/fancy_sports_car_91447401.jpg" alt="Spend $350K on this instead of parking fancy cars" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>I came across a news report recently about the construction of a <a href="http://money.cnn.com/2016/09/14/luxury/autohouse-car-condo-miami/index.html">luxury condominium for cars</a>. It will allow people with fancy cars to park their vehicles in a secure environment, at the reasonable cost of just $350,000.</p> <p>Yes, $350,000 for a place to park.</p> <p>Suffice it to say, we can think of smarter things to do with $350,000. If you are lucky enough to have this kind of cash available to you, consider these alternative and sensible ways to spend your money.</p> <h2>1. Bolster That Emergency Fund</h2> <p>Before you shell out thousands of dollars for that custom-made personal watercraft, ask yourself if you'd have enough cash left to pay for a major medical bill if you got hurt. Or a hot water heater if it leaked all over your basement. Ask yourself how long you could get by if you lost your job. It's bad to blow money on unnecessary things. It's even worse to blow that money when you have nothing saved for a rainy day. Make sure you have <em>at least</em> three months of living expenses in liquid savings before you make any crazy purchases.</p> <h2>2. Pay Off High-Interest Debt</h2> <p>If you have money, there's no real excuse for carrying high-interest debt, such as that from credit cards. Interest from debt can erode your net worth, so pay off as much as you can. Focus on paying down the debts with the highest interest rates and go from there.</p> <h2>3. Contribute Maximum Toward Retirement</h2> <p>If you have a high income, there's no reason to hold back on putting as much into your retirement funds as possible. Those with 401K accounts can contribute up to $18,000 per year, and anyone with earned income can contribute $5,500 annually into an individual retirement account. Both of these accounts allow you to invest and see your money grow in a tax advantaged way. Focus on investments that mirror the overall performance of the stock market, and you'll see your money grow without much stress. Maxing out retirement funds may very well be the least frivolous thing to do with your money.</p> <h2>4. Invest Even More</h2> <p>Okay, so you've maxed out the amount you can place in retirement accounts. That doesn't mean you can't continue to invest! If you have the funds, consider buying stocks, mutual funds, and exchange-traded funds in a traditional brokerage account. You will have to pay taxes on any gains, but if you're investing for the long haul, you'll still come out well ahead in most cases.</p> <h2>5. Go to College</h2> <p>The best kind of investment is an investment in yourself. If you have enough money to pay for college, go for it! A typical person with a bachelor's degree <a href="https://trends.collegeboard.org/education-pays/figures-tables/lifetime-earnings-education-level">earns 66% more</a> over the course of their lifetime than someone who does not got to college, according to the College Board. And the earnings get even higher for those with advanced degrees. If you've already been to college, consider opening a college savings account for your children or another relative who's college-bound. Most states offer 529 plans that allow you to invest money without paying tax on the gains, provided that the money is later used for education expenses.</p> <h2>6. Buy a Home (Or a Second One)</h2> <p>If you're sitting on a sizable sum of money, it might make sense to put some toward a down payment on a house or other piece of real estate. It's better than renting, because you're building equity and may be able to even sell the real estate later at a profit. If you already own a home, consider buying a second and renting it out. This way, you not only get the benefits of real estate ownership, but an additional income stream as well. This sure beats cars or other material items that don't accrue in value.</p> <h2>7. Do Some Home Maintenance and Upgrades</h2> <p>Maybe it's time for a new roof, or your furnace has been on the fritz. Maybe you've always wanted to turn the basement into a nice family room. If you invest a little money into your home, you can stave off expensive repairs later, and any upgrades you make could increase your home value.</p> <h2>8. Give Some Away</h2> <p>$350,000 is a fair chunk of change, so why not give some away to a cause that you support? Remember that all charitable donations are tax deductible, so there's a financial benefit to giving away cash rather than spending it on something silly.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/rich-people-spend-350k-to-park-their-cars-heres-how-wed-spend-it-instead">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-9"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-money-moves-to-make-as-soon-as-you-conquer-debt">7 Money Moves to Make as Soon as You Conquer Debt</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-financial-differences-between-millennials-and-the-next-generation">7 Financial Differences Between Millennials and the Next Generation</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-10-biggest-myths-about-investing">The 10 Biggest Myths About Investing</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-ways-to-increase-your-net-worth-this-year">10 Ways to Increase Your Net Worth This Year</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Budgeting 401k charity debt emergency funds investing IRA luxury money retirement spending Thu, 13 Oct 2016 09:30:20 +0000 Tim Lemke 1811799 at http://www.wisebread.com 7 Retirement Planning Steps Late Starters Must Make http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-retirement-planning-steps-late-starters-must-make" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/couple_saving_retirement_33504544.jpg" alt="Couple making retirement planning steps late" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Most Americans aren't saving enough for retirement &mdash; and worse, many are off to a late start. Since 2011, the annual percentage of U.S. workers with less than $1,000 in savings and investments for retirement has ranged from <a href="https://www.ebri.org/pdf/briefspdf/EBRI_IB_422.Mar16.RCS.pdf">26% to 36%</a>.</p> <p>These low savings levels are taking a toll on nest eggs. One estimate puts the ideal retirement savings for an individual at <a href="http://www.fool.com/investing/general/2015/10/03/the-average-americans-retirement-savings-by-ageand.aspx">age 45 at $162,000</a> and calculates that, in reality, most Americans are about $100,000 short of that goal by the time they reach age 45. Let's review what late-starters should do to give their savings a necessary boost and learn some tips for those who are 15, 10, or five years away from retirement.</p> <h2>15 Years Away From Retirement</h2> <p>Assuming that your target retirement age is 65, you're now 50 years old and are likely to be part of the Generation X. About half of members of Generation X have <a href="http://time.com/money/4258451/retirement-savings-survey/">less than $10,000</a> in retirement savings.</p> <h3>Step 1: Take Advantage of Catch-Up Contributions</h3> <p>Starting at age 50, you're now legally allowed to start making annual catch-up contributions on top of the regular contribution limits to your qualifying retirement accounts. In 2016, individuals age 50 and over could contribute an extra:</p> <ul> <li><a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions">$6,000</a> on top of the $18,000 limit to 401K (other than a SIMPLE 401K), 403b, SARSEP, and governmental 457b plans;<br /> &nbsp;</li> <li>$3,000 in catch-up contributions to SIMPLE IRA or SIMPLE 401K plans; and<br /> &nbsp;</li> <li>$1,000 on top of the $5,500 limit to traditional or Roth IRAs.</li> </ul> <p>Additionally, individuals with at least 15 years of employment can make additional contributions to their 403b plans on top of the regular $6,000 in catch-up contributions. For more details, review the <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-403b-contribution-limits">IRS rules for 403b contribution limits</a>.</p> <h3>Step 2: Chase Lower Investment Fees</h3> <p>When choosing funds for your 401K, you may think that there's little difference between a fund with an annual expense ratio of 0.16% and a fund with one of 0.25%. However, when you're 15 years away from retirement, those differences compound over time. A $30,000 investment would cost $48 per year on the first fund and $75 per year on the second fund.</p> <p>By investing in the fund with the higher annual expense ratio, and assuming that both funds have an annual return of 7%, you would miss out on an extra $703.94 in retirement savings by the time you reach age 65. Not to mention on the additional gains on those moneys that you would have during your retirement years.</p> <p>Several studies have shown that expense ratios are the only reliable predictor of future fund performance. For example, research from rating agency Morningstar has found that <a href="http://news.morningstar.com/articlenet/article.aspx?id=347327">low-cost funds consistently outperform high-cost funds</a>.</p> <h2>10 Years Away From Retirement</h2> <p>At this point, you're now 55 years old and you're supposed to be wiser. Still, about <a href="http://time.com/money/4258451/retirement-savings-survey/">33% of Americans</a> age 55 and over have no retirement savings and 26% have retirement accounts with balances under $50,000. On top of taking advantage of catch-up contributions and chasing lower-cost funds, here are some additional steps to give your retirement strategy a much-needed boost.</p> <h3>Step 3: Consider Cities Where You Can Retire on Just Social Security</h3> <p>It can be a humbling experience to have to tighten your belt after having worked so hard for many decades. If you're going to become part of the <a href="https://www.ebri.org/pdf/briefspdf/EBRI_IB_422.Mar16.RCS.pdf">62% of U.S. retirees</a> that expect Social Security to be a major source of income during retirement, start investigating what U.S. cities are better suited to live on your expected check from the Social Security Administration (SSA).</p> <p>Here are three list of cities to start your search:</p> <ul> <li><a href="http://www.wisebread.com/5-american-cities-where-you-can-retire-on-just-social-security">5 American Cities Where You Can Retire On Just Social Security <p> </a></li> <li><a href="http://www.wisebread.com/4-exciting-affordable-american-cities-to-retire-in">4 Exciting, Affordable American Cities to Retire In <p> </a></li> <li><a href="http://www.wisebread.com/4-more-exciting-affordable-american-cities-to-retire-in">4 More Exciting, Affordable American Cities to Retire In</a></li> </ul> <p>Thinking about your budget during your retirement years is a good idea so you can plan withdrawals from your retirement account, figure out your necessary contributions for the next decade, and figure out ways to rein in expenses.</p> <h3>Step 4: Dial Down Your Investment Risk</h3> <p>Desperate times often call for desperate measures. However, playing part-time stock trader with your retirement funds or allocating more moneys to investment vehicles promising higher returns &mdash; and more risk! &mdash; isn't a good idea. Remember that only <a href="http://us.spindices.com/documents/spiva/spiva-us-mid-year-2014.pdf">20% to 25%</a> of actively managed funds beat their benchmark.</p> <p>Talk with your plan administrator about income investing, which focuses on picking financial vehicles that provide a steady stream of income. While you may think that bonds are your only option, there many other securities to choose from. For example, there are stocks that consistently pay dividends.</p> <h2>5 Years Away From Retirement</h2> <p>It's the final countdown to retirement age and now you're age 60. With a retirement savings benchmark of $260,494, <a href="http://time.com/money/4258451/retirement-savings-survey/">about 74% of Americans</a> are behind on their retirement savings. Here are three additional planning steps.</p> <h3>Step 5: Accumulate Delayed Retirement Credits</h3> <p>It's time to get the most accurate picture of your expected retirement benefit from the SSA. To do this, you can use the <a href="https://www.ssa.gov/OACT/anypia/anypia.html">Social Security Detailed Calculator</a>, which lets you estimate your retirement benefit by accessing your actual earnings record through a secure interface. If you find that monthly benefit check to be too low, one way to boost is delaying your SSA benefit past your full retirement age.</p> <p>Depending on the year that you were born, your full retirement age will fall somewhere between <a href="https://www.ssa.gov/planners/retire/retirechart.html">age 65 and 67</a>. For every year that you delay your retirement benefit past your full retirement age, you can get <a href="https://www.ssa.gov/planners/retire/delayret.html">up to an 8% increase</a> on your total annual benefit. The benefit increase no longer applies when you reach age 70, even if you continue to delay taking benefits.</p> <h3>Step 6: Delay Required Minimum Distributions</h3> <p>Generally, holders of traditional and Roth 401K plans must start taking required minimum distributions (RMDs) once they reach age 70-1/2.&nbsp;</p> <p>However, there is one way to delay RMDs. If you were to take a part-time job offering a retirement plan that allows you to rollover your old 401K plan, then you can continue to contribute to the new plan and delay your first RMD until April 1st of the year after you retire.</p> <p>Keep in mind that:</p> <ul> <li>Your old traditional 401K must go into a new 401K;<br /> &nbsp;</li> <li>Your old Roth 401K must go into a new Roth IRA;<br /> &nbsp;</li> <li>Your new plan must accept rollovers; and<br /> &nbsp;</li> <li>You can't hold more than 5% of the company sponsoring the old plan to be able to do a rollover past age 70-1/2.</li> </ul> <p>Before you attempt a rollover past age 70-1/2, consult the plan administrator of your current retirement plan, the one from your potential new employer, and your tax accountant or financial planner, if you have one. This is one of those times that may warrant <a href="http://www.wisebread.com/who-to-hire-a-financial-planner-or-a-financial-adviser">hiring the right type of financial adviser</a> to prevent any tax penalties.</p> <h3>Step 7: Consider Retiring Abroad</h3> <p>Last but not least, one way to further stretch your nest egg is to retire in a city abroad to live better on a smaller budget, have access to generous tax breaks, and enjoy beautiful locales and ideal weather conditions.</p> <p>Several countries, including Costa Rica, Panama, and Nicaragua, offer retirement programs that provide U.S. retirees several benefits and require a minimum monthly SSA benefit ranging from $600 to $1,000 to qualify. (See also: <a href="http://www.wisebread.com/x-exciting-world-cities-you-can-afford-to-retire-in">4 Exciting World Cities You Can Afford to Retire In</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-retirement-planning-steps-late-starters-must-make&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F7%2520Retirement%2520Planning%2520Steps%2520Late%2520Starters%2520Must%2520Make.jpg&amp;description=7%20Retirement%20Planning%20Steps%20Late%20Starters%20Must%20Make"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/7%20Retirement%20Planning%20Steps%20Late%20Starters%20Must%20Make.jpg" alt="7 Retirement Planning Steps Late Starters Must Make" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-7"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-people-dont-retire-early-and-how-you-can">4 Reasons People Don&#039;t Retire Early — and How You Can</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-retirement-planning-changes-when-youre-single">7 Ways Retirement Planning Changes When You&#039;re Single</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement">10 Signs You Aren&#039;t Saving Enough for Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-penalty-free-ways-to-withdraw-money-from-your-retirement-account">7 Penalty-Free Ways to Withdraw Money From Your Retirement Account</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k 403b catch contributions IRA retirement planning saving Tue, 04 Oct 2016 10:30:13 +0000 Damian Davila 1805038 at http://www.wisebread.com