IRA http://www.wisebread.com/taxonomy/term/3832/all en-US 8 Critical 401(k) Questions You Need to Ask Your Employer http://www.wisebread.com/8-critical-401k-questions-you-need-to-ask-your-employer <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-critical-401k-questions-you-need-to-ask-your-employer" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/401k_retirement_plan.jpg" alt="401(k) Retirement Plan" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The 401(k) plan is one of the most popular ways for workers to build up their nest eggs for retirement. As of June 2017, 55 million Americans held an estimated $5.1 trillion in assets in 401(k) plans. Whether you're already enrolled or planning to enroll in your employer-sponsored retirement plan, there are several details that you should find out to make the most of it. Let's review some key 401(k) questions you need to ask your employer. (See also: <a href="http://www.wisebread.com/5-dumb-401k-mistakes-smart-people-make?ref=seealso" target="_blank">5 Dumb 401(k) Mistakes Smart People Make</a>)</p> <h2>1. When am I eligible to make contributions?</h2> <p>Different plans have different rules. You shouldn't assume that the same rules from your previous workplace retirement savings plan will apply to that of your current job. Some plans may require you to wait at least six to 12 months before you can contribute to your account, while others may allow you to do so right away. In a review of 4.4 million 401(k) plans in 2016, Vanguard found 67 percent of plans offered immediate eligibility for employee contributions.</p> <h2>2. Do you offer a company match?</h2> <p>America is experiencing very low unemployment levels. In October 2017, the Bureau of Labor Statistics reported the national unemployment rate stood at 4.1 percent, with some states reaching even lower rates (North Dakota and Colorado recorded 2.5 percent and 2.7 percent, respectively, that same month). Looking to retain and attract talent, more and more employers match employee contributions to their retirement accounts. In Vanguard's <em>How America Saves 2017</em> report, 94 percent of employers offered matching 401(k) contributions in 2016, up from 91 percent in 2013. After you find out how much of a match your workplace offers, be sure to contribute at least up to that amount. If you don't, you'll be leaving free money on the table.</p> <h2>3. What type of formula do you use for matching contributions?</h2> <p>In 2016, there were over 200 different ways in which employers matched their employee contributions, according to Vanguard. By far the most common formula (70 percent of plans) is 50 cents for every dollar up to 6 percent of your pay. Assuming that you make $50,000, this would mean that your employer would contribute up to $1,500 if you were to contribute $3,000 to your 401(k).</p> <p>Here are the next two most common types of matching formulas found in the study:</p> <ul> <li> <p>$1.00 per dollar on first 3 percent of pay, then $0.50 per dollar on next 2 percent of pay (22 percent of plans).</p> </li> <li> <p>A dollar cap, often set at $2,000 (5 percent of plans).</p> </li> </ul> <p>It's important to find out the matching formula used by your employer so that you know how much you need to contribute to your plan to maximize that match. In 2016, 44 percent of surveyed plans required a 6 to 6.99 percent employee contribution for a maximum employer match.</p> <h2>4. When do employer contributions become fully vested?</h2> <p>While all of your 401(k) contributions become fully vested immediately, funds contributed by your employer may take longer to actually become yours. Knowing the applicable vesting schedule is essential to know how much of your 401(k) you'd keep if you were to separate from your employer at any point in time.</p> <p>Depending on your employer, matching contributions may be immediately yours (cliff vesting) or gradually over a period of time (graded vesting). In the Vanguard study, 47 percent of plans granted immediate ownership of employer contributions, 30 percent of plans gradually granted ownership over a five- to six-year period, and 10 percent had a three-year cliff vesting waiting period. (See also: <a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one?ref=seealso" target="_blank">How to Tell if Your 401(k) Is a Good or a Bad One</a>)</p> <h2>5. Can I take hardship withdrawals?</h2> <p>In a perfect world, you would leave your 401(k) funds alone until retirement. However, life happens and it may throw you a curve ball leaving you in a major cash crunch. Some plans offer holders the ability to withdraw money early without the 10 percent IRS penalty due to hardship exemptions, such as certain medical expenses, avoiding foreclosure, and funeral and burial expenses.</p> <p>Some plans may even allow you to take hardship withdrawals for less gloomy situations, such as buying your first home and paying for college expenses for yourself, your spouse, or your children. Eighty-four percent of plans offered hardship withdrawals in the Vanguard study.</p> <h2>6. What are my investment options?</h2> <p>In 2016, 96 percent of surveyed 401(k) plans designated a target-date fund as the default investment option. There are many reasons, including high expense ratios and variable return rates, why you should look beyond target-date funds and consider all funds available in your 401(k).</p> <p>On average, 401(k) plans offered 17.9 funds to plan holders in 2016. Over recent years, more and more plans are offering a suite of low-cost index funds covering domestic equities, foreign equities, U.S. taxable bonds, and cash. In 2016, 57 percent of plans offered such an index &quot;core&quot; of funds covering at least these four asset types. Take a good look at what your 401(k) has to offer so that you can select the best funds for your unique financial goals. (See also: <a href="http://www.wisebread.com/bookmark-this-a-step-by-step-guide-to-choosing-401k-investments?ref=seealso" target="_blank">Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments</a>)</p> <h2>7. Do you offer financial advice?</h2> <p>Plans may offer a wide variety of financial advice, ranging from access to a financial adviser a few times out of the year to fully-fledged management of your investments. These perks often come at a cost ranging from 0.25 to 1 percent of your account balance. Still, depending on your financial situation, getting professional advice may be worth every penny to maximize your nest egg or handle tricky tax scenarios.</p> <p>Besides checking for a human financial adviser, inquire about whether or not your plan offers you robo-advisers. Often charging much lower fees than human advisers, robo-advisers can offer valuable services, including automatic portfolio rebalancing and tax-loss harvesting (selling securities that have experienced a loss to offset taxes on both gains and income). (See also: <a href="http://www.wisebread.com/9-questions-you-should-ask-before-hiring-a-robo-adviser?ref=seealso" target="_blank">9 Questions You Should Ask Before Hiring a Robo-Adviser</a>)</p> <h2>8. Can I make Roth contributions?</h2> <p>If you are just starting your career, have a large upside income potential, or are expecting a big salary bump in the next few years, having the ability to make after-tax contributions to your nest egg is important. Under these scenarios, taking the tax hit early in your retirement account would make sense because you would be at a much lower tax rate now than in the future. This is why 65 percent of Vanguard 401(k) plans offered Roth 401(k) contributions in 2016. For some plan holders, a Roth 401(k) is a great way to grow contributions tax-free forever.</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/8-critical-401k-questions-you-need-to-ask-your-employer">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/8-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for 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/three-of-the-toughest-decisions-youll-face-in-retirement">Three of the Toughest Decisions You&#039;ll Face 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/7-traps-to-avoid-with-your-401k">7 Traps to Avoid With Your 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/how-to-face-4-ugly-truths-about-retirement-planning">How to Face 4 Ugly Truths About Retirement Planning</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/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> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) contributions employer match financial advice hardship withdrawals IRA questions vesting period work Tue, 12 Dec 2017 09:30:15 +0000 Damian Davila 2069139 at http://www.wisebread.com 8 Signs You're Making All the Right Moves for Retirement http://www.wisebread.com/8-signs-youre-making-all-the-right-moves-for-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-signs-youre-making-all-the-right-moves-for-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggybank_with_glasses.jpg" alt="Piggy bank with glasses" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The 2017 Retirement Confidence Survey from the Employee Benefit Research Institute made a disheartening discovery; only six in 10 U.S. workers feel confident that they'll be able to retire comfortably. That means 40 percent think they won't.</p> <p>That's grim news. But you don't have to fall into this group if you're making the right financial moves to prepare for your after-work years.</p> <p>It can be tricky to know for sure how confident you should feel about your nest egg, but some key signs can indicate that you're on your way to building a happy and healthy retirement.</p> <h2>1. You've worked out the kind of retirement you want</h2> <p>The best way to prepare for retirement? You have to plan for it. This means knowing how you want to spend your after-work years. After all, if you plan on traveling the globe after retiring, you'll need plenty of money. If you instead plan to spend more time visiting your grandchildren, reading, or playing golf, you might not need to save quite as much.</p> <p>The key is to determine what kind of retirement you want long before it arrives. That way, you can financially plan for it. And if you're in a relationship, remember that both you and your partner have to agree, and prepare for, the retirement lifestyle that suits you both. (See also: <a href="http://www.wisebread.com/how-to-find-your-new-identity-after-retirement?ref=seealso" target="_blank">How to Find Your New Identity After Retirement</a>)</p> <h2>2. You've set a retirement age</h2> <p>Do you know when you want to retire? You should. That decision can have a huge impact on your finances once you leave the working world.</p> <p>If you were born between 1943 and 1954, your full retirement age is 66. If you were born after 1959, your full retirement age is 67. You can start claiming Social Security benefits once you turn 62. But if you wait until you hit full retirement age &mdash; or beyond &mdash; the money you receive each month will be far higher. In fact, if you start claiming your Social Security benefits at 62, your monthly payment will be lowered by 30 percent compared to how much you'd get at full retirement age.</p> <p>And if you can hang on until age 70, you'll collect a monthly benefit that is 132 percent of the monthly amount you would have received if you started claiming Social Security at full retirement age.</p> <p>There's nothing wrong with claiming your benefits early, if you've planned for this. But make sure you know how much money you'll need before retiring early. (See also: <a href="http://www.wisebread.com/5-questions-to-ask-before-you-start-claiming-your-social-security-benefits?ref=seealso" target="_blank">5 Questions to Ask Before You Start Claiming Your Social Security Benefits</a>)</p> <h2>3. You've made a retirement budget</h2> <p>Before you hit retirement age, it's important to determine how much money you expect to spend and receive each month once that steady paycheck has disappeared. This means it's time to create a monthly retirement budget.</p> <p>For income, you can include any pensions, Social Security payments, disability payments, rental income, or annuity income you plan on receiving. You can also include the amount of money you expect to draw from your retirement savings. For expenses, include everything that you'll spend money on each month, including groceries, eating out, mortgage, auto payments, health care expenses, and utility bills.</p> <p>Once you know how much you'll be spending and how much you'll be earning in retirement, you can better prepare for it. (See also: <a href="http://www.wisebread.com/heres-how-you-should-budget-your-social-security-checks?ref=seealso" target="_blank">Here's How You Should Budget Your Social Security Checks</a>)</p> <h2>4. You've paid off your debts</h2> <p>The best way to increase the odds of a happy retirement is entering your post-work years without any debt. That means paying off your credit cards, paying off your mortgage, and making sure you don't owe any money on your car once you've retired.</p> <p>Paying off debt isn't easy. It's why so many of us are struggling under mountains of credit card debt. Before your retirement hits, though, start funneling money toward your debt. The more you pay off, the less financial stress you'll face in retirement. (See also: <a href="http://www.wisebread.com/fastest-way-to-pay-off-10000-in-credit-card-debt?ref=seealso" target="_blank">The Fastest Way to Pay Off $10,000 in Credit Card Debt</a>)</p> <h2>5. You've maximized your retirement savings contributions</h2> <p>You should be contributing to an IRA, 401(k) plan, or a combination of both. But as retirement gets closer, make sure you are contributing the maximum amount to these retirement savings vehicles. Doing so will leave you with the greatest financial cushion for retirement.</p> <p>It might seem like a financial sacrifice to devote, say, 15 percent of your regular paycheck to a 401(k) account. But by saving that much, as opposed to 5 percent or 10 percent, you can dramatically increase the amount of money you'll have when retirement arrives. (See also: <a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement?ref=seealso" target="_blank">10 Signs You Aren't Saving Enough for Retirement</a>)</p> <h2>6. You're playing catch-up</h2> <p>Once you hit your 50th birthday, you can contribute even more money each year to your 401(k) plan or IRAs. Take advantage of this benefit to provide a late-in-life boost to your retirement savings.</p> <p>For the 2017 tax year, you are allowed to contribute up to a maximum of $18,000 in a 401(k) plan. But if you're 50 or older, you can make what are known as catch-up contributions and contribute an extra $6,000 &mdash; meaning that you can put a total of $24,000 into your 401(k) this year. For the 2018 tax year, 401(k) contribution limits will be raised to $18,500, which means those age 50 or older can contribute up to a total of $24,500 per year. (See also: <a href="http://www.wisebread.com/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future?ref=seealso" target="_blank">6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future</a>)</p> <p>Traditional and Roth IRAs also have catch-up policies for investors 50 or older. For the 2017 tax year, you can contribute up to $5,500 in either form of IRA. But if you are 50 older, you can contribute an additional $1,000, meaning that you can save up to $6,500 this year in a Roth or traditional IRA. This will be remaining the same in the 2018 tax year.</p> <h2>7. You've prioritized your spending &mdash; even when it comes to your kids</h2> <p>It's not easy telling your kids no, even when both they and you are adults. But when it comes to saving for retirement, you might have to do just this.</p> <p>You might want to help your children pay for their college tuition. And hopefully, you've already saved for this. But if you didn't, you shouldn't be putting off saving for retirement to help your adult children pay for college.</p> <p>Your children have other options when it comes to college: They can find a less expensive school, attend community college for two years, or apply for loans and grants. If you can't afford to save for both retirement and your children's college tuition, you absolutely must put saving for retirement first.</p> <p>If you don't? You might just become a financial burden for your adult children when you can't afford to maintain a healthy retirement lifestyle. (See also: <a href="http://www.wisebread.com/are-you-ruining-your-retirement-by-spoiling-your-kids?ref=seealso" target="_blank">Are You Ruining Your Retirement by Spoiling Your Kids?</a>)</p> <h2>8. You've tinkered with your savings formula</h2> <p>Early in your working days, it's a sound strategy to invest in a riskier mix of stocks, bonds, and other investment vehicles. The potential rewards are higher, and you have more years to recoup whatever losses you might suffer from a potentially more volatile portfolio.</p> <p>But once you get closer to retirement, it's time to rebalance your investments to eliminate much of the risk. When you're 10 or five years from retirement, you want a safer investment mix because time is running short. You won't have as many years to recover from the downs that sometimes come with a high-risk, high-reward savings portfolio.</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" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F8-signs-youre-making-all-the-right-moves-for-retirement&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F8%2520Signs%2520Youre%2520Making%2520All%2520the%2520Right%2520Moves%2520for%2520Retirement.jpg&amp;description=8%20Signs%20Youre%20Making%20All%20the%20Right%20Moves%20for%20Retirement"></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/u5180/8%20Signs%20Youre%20Making%20All%20the%20Right%20Moves%20for%20Retirement.jpg" alt="8 Signs You're Making All the Right Moves for 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/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/8-signs-youre-making-all-the-right-moves-for-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-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/half-of-americans-are-wrong-about-their-retirement-savings">Half of Americans Are Wrong About Their Retirement Savings</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-face-4-ugly-truths-about-retirement-planning">How to Face 4 Ugly Truths About Retirement Planning</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/8-critical-401k-questions-you-need-to-ask-your-employer">8 Critical 401(k) Questions You Need to Ask Your Employer</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-roadblocks-to-retirement-and-how-to-clear-them">7 Roadblocks to Retirement (And How to Clear Them)</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-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) contributions debt family full retirement age IRA nest egg saving money social security benefits Tue, 05 Dec 2017 09:00:07 +0000 Dan Rafter 2066271 at http://www.wisebread.com 6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future http://www.wisebread.com/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggy_bank_with_retirement_formula.jpg" alt="Piggy Bank with retirement formula" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Starting next year, investors will be allowed to contribute more money into their 401(k)s. In 2018, the limit on annual contributions to a 401(k) plan will rise from $18,000 to $18,500.</p> <p>That additional $500 may not seem like a lot, but you should try and hit the new maximum if you can. Maxing out your 401(k) is often the best way to accumulate a healthy sum for retirement, and there are great tax benefits as well.</p> <p>If you're on the fence about whether you need to direct another $500 into your 401(k), consider these arguments.</p> <h2>1. It could net you tens of thousands of dollars</h2> <p>It's not easy to contribute $18,500 annually into a retirement account. But if you can do it, that extra $500 each year can really pay off. Let's say you're 30 years old and plan to retire at age 65. Assuming a conservative 7 percent return, that extra $500 annually could mean an additional $74,000 overall. If you start contributing that extra $500 starting at age 25, and keep doing it for 40 years, the difference is $106,000 over time &mdash; more than an entire year's worth of living expenses for many people.</p> <h2>2. It's more money for you and less to taxes</h2> <p>If you have $500 in income available, that's money that the IRS will get a share of, unless you place it in a 401(k) plan or traditional IRA. Any money you contribute to these retirement accounts is deducted from your taxable income. If you are in a high tax bracket, that $500 could actually just represent about $300 in your paycheck. If Uncle Sam would take that much anyway, why not invest the whole amount instead?</p> <h2>3. You can find $42 a month</h2> <p>If you are at the maximum contribution now, you can find a way to hit the new ceiling. Eat out less. Ditch the morning coffee. Quit that gym you never go to. If you break down $500 over the course of a year, it comes out to less than $42 a month &mdash; or barely $10 a week. That's the cost of a mediocre lunch out. Even the smallest amount of belt-tightening can help you hit this goal, and it's probably not money you'll notice. But you'll notice it later at retirement time.</p> <h2>4. You may have already maxed out your IRA</h2> <p>If you've been placing money in an individual retirement account (IRA), you may be aware that contribution limits are lower than 401(k) plans. People under age 50 are permitted to contribute only $5,500 each year to an IRA, and it's not uncommon for people to hit that maximum. If your IRA is maxed out, having permission to place an additional $500 in a 401(k) is a huge bonus.</p> <h2>5. The limit might be decreased in the future</h2> <p>We should be thankful that in 2018, the 401(k) contribution limit is rising. That's because some members of Congress have suggested that the limit could be drastically reduced in the future as part of tax reform. Thankfully, it seems like discussion of such changes has been tabled, but there's no guarantee the idea won't be resurrected in the future. In the meantime, it's a good idea to contribute as much as you can.</p> <h2>6. Where else are you going to put your money?</h2> <p>If you have $500 a year to spare, the stock market may be the smartest place to put it. Interest rates are still very low, so placing it into the bank would only result in a few bucks each year. And very few other investments offer the same kinds of consistent returns as stocks. Unless you plan to use the money to purchase a home or start a business, you likely won't do much better on a consistent basis than &mdash; or get the same tax advantages of &mdash; investing in stocks in a 401(k).</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" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F6%2520Ways%2520Meeting%2520the%25202018%2520401%2528k%2529%2520Contribution%2520Limits%2520Will%2520Brighten%2520Your%2520Future.jpg&amp;description=6%20Ways%20Meeting%20the%202018%20401(k)%20Contribution%20Limits%20Will%20Brighten%20Your%20Future"></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%20Meeting%20the%202018%20401%28k%29%20Contribution%20Limits%20Will%20Brighten%20Your%20Future.jpg" alt="6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future" 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-meeting-the-2018-401k-contribution-limits-will-brighten-your-future">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/3-common-retirement-regrets-you-can-avoid">3 Common Retirement Regrets You Can Avoid</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-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-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/should-you-choose-a-roth-401k-or-a-regular-401k">Should You Choose a Roth 401k or a Regular 401k?</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/the-only-8-rules-of-investing-you-need-to-know">The Only 8 Rules of Investing You Need to Know</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement 401(k) limits government investing IRA mutual funds stocks taxes Wed, 29 Nov 2017 09:00:07 +0000 Tim Lemke 2058941 at http://www.wisebread.com How to Revive an Old Retirement Fund http://www.wisebread.com/how-to-revive-an-old-retirement-fund <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-revive-an-old-retirement-fund" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/rescue_your_401k.jpg" alt="Rescue your 401k" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You know that you should be investing regularly in a 401(k) plan or IRA to build a retirement nest egg. But what if you haven't been contributing enough to your 401(k)? What if that old IRA that you started a decade ago has been sitting untouched ever since?</p> <p>Or, what if you're past 50 and retirement is looming ever nearer?</p> <p>The good news is that it's possible to revive an old or neglected retirement savings plan, even after you've hit the half-century mark. It just takes dedication to devoting more of your income to your IRA or 401(k) plan along with a willingness to take advantage of catch-up contributions that are available to those 50 or older. (See also: <a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make?ref=seealso" target="_blank">7 Retirement Planning Steps Late Starters Must Make</a>)</p> <h2>Some concerning statistics</h2> <p>According to a 2017 retirement plan wellness &quot;scorecard,&quot; 75 percent of Baby Boomers between ages 50 and 68 are contributing to their 401(k) plans. That sounds great, but Baby Boomers actually had the lowest participation among all age groups in the study.</p> <p>The same study found that 77 percent of Gen Xers (ages 35&ndash;49) contributed to their 401(k) plans while 82 percent of millennials (ages 21&ndash;34) did the same.</p> <p>More worrisome news came from the 2017 PWC Employee Financial Wellness Survey. The survey found that 30 percent of Baby Boomers have just $50,000 or less saved for retirement &mdash; significantly short of the amount needed for a happy and healthy post-work life. (See also: <a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement?Ref=seealso" target="_blank">10 Signs You Aren't Saving Enough for Retirement</a>)</p> <h2>Time to play catch-up</h2> <p>If you don't have enough money in your 401(k) plan, or if you have an IRA that you've been mostly neglecting, you can boost the amount of money you save each year if you are age 50 or older.</p> <p>For the 2017 tax year, you are allowed to contribute up to $18,000 in a 401(k) plan. But if you're over 50, you can go past this threshold with what are known as catch-up contributions. Currently, at 50+, you can contribute an extra $6,000 to a 401(k) for a total of $24,000 a year.</p> <p>Traditional and Roth IRAs also have catch-up policies for investors 50 or older. For the 2017 tax year, you can contribute up to $5,500 in either type of IRA. But if you are 50 or older, you can contribute an additional $1,000 for a total of $6,500 this year in your neglected IRA.</p> <p>If you can make these extra contributions happen, do it. The catch-up contributions are designed to help sluggish savers boost their retirement dollars as they get closer to leaving the workforce. They're a good option for providing a boost to a 401(k) plan or a largely ignored IRA.</p> <h2>Increase your regular contributions</h2> <p>When you take out a 401(k), you tell your employer what percentage of your paycheck you want devoted to the savings vehicle. If you're not contributing as much as possible with each paycheck by the age of 50, now is the time to change that. It is absolutely essential, if your retirement savings account is lacking, to boost those regular contributions.</p> <p>You should definitely increase those contributions so that you are saving enough to meet your company's matching program, if it offers one. Many employers offer a matching program. To take advantage of this, you'll have to contribute a set minimum amount of dollars in a given year to your 401(k).</p> <p>The amount of money employers match, and the way company matching programs work, varies. But it is possible to earn thousands of dollars in free money each year if you contribute enough of each paycheck to qualify for matching funds from your employer. Those funds are basically free dollars from your company, and can help provide another boost to a 401(k) plan that needs more money.</p> <h2>Change your spending priorities</h2> <p>Once retirement nears, boosting your savings for it should become your top financial priority. Fortunately, many adults in their 50s have already helped pay for their children's college tuitions, so that major expense is behind them. These adults can then boost the amount of money they contribute to old IRAs or underfunded 401(k) funds.</p> <p>But what if you still have children getting ready to attend or already attending college? It's OK to tell these kids that your retirement savings come first.</p> <p>Financial experts agree that it is more important for adults to build their retirement savings than it is for them to pay for their children's college tuitions. This doesn't mean that you can't help your kids pay for college. It just means that you shouldn't contribute so much that you can't afford to sock away enough for retirement. (See also: <a href="http://www.wisebread.com/are-you-ruining-your-retirement-by-spoiling-your-kids?Ref=seealso" target="_blank">Are You Ruining Your Retirement by Spoiling Your Kids?</a>)</p> <p>As you move past 50, it's time to shift priorities toward yourself. You don't want to enter retirement unsure of whether you have enough dollars saved up to afford it.</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" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-to-revive-an-old-retirement-fund&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520to%2520Revive%2520an%2520Old%2520Retirement%2520Fund.jpg&amp;description=How%20to%20Revive%20an%20Old%20Retirement%20Fund"></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/How%20to%20Revive%20an%20Old%20Retirement%20Fund.jpg" alt="How to Revive an Old Retirement Fund" 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/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/how-to-revive-an-old-retirement-fund">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/8-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for 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/half-of-americans-are-wrong-about-their-retirement-savings">Half of Americans Are Wrong About Their Retirement Savings</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/8-critical-401k-questions-you-need-to-ask-your-employer">8 Critical 401(k) Questions You Need to Ask Your Employer</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-roadblocks-to-retirement-and-how-to-clear-them">7 Roadblocks to Retirement (And How to Clear Them)</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-common-retirement-regrets-you-can-avoid">3 Common Retirement Regrets You Can Avoid</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) baby boomers catch up contributions IRA neglect nest egg old accounts Fri, 10 Nov 2017 09:00:06 +0000 Dan Rafter 2045998 at http://www.wisebread.com 3 Common Retirement Regrets You Can Avoid http://www.wisebread.com/3-common-retirement-regrets-you-can-avoid <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-common-retirement-regrets-you-can-avoid" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/retirement_plan_concept.jpg" alt="Retirement plan concept" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>One of the best ways to set your life on a positive course &mdash; financially and otherwise &mdash; is to find out what older people wish they had done when they were younger. Along these lines, Vanguard <a href="https://vanguardblog.com/2017/04/18/the-coulda-shoulda-woulda-behind-every-retirement-story/" target="_blank">recently asked readers</a> of its blog, &quot;If you had a do-over, what would you do differently to prepare for retirement?&quot;</p> <p>That question generated a treasure trove of advice. They covered a lot of ground, but many pertained to the following three regrets.</p> <h2>Getting started with an investing plan too late</h2> <p>This is a common lament among older people, and it's easy to see why. Numerous studies show that too many people have too little saved for their later years. According to the 2017 Retirement Confidence Survey by the Employee Benefit Research Institute, only 56 percent of American workers are saving for retirement at all. Of those with no formal retirement plan, 67 percent have less than $1,000 in savings and investments. That can spell hardship later in life.</p> <p>In the words of Vanguard readers:</p> <p>&quot;I wish someone would have taught me about the power of compounding when I was 10 instead of learning about it when I was in my early 30s.&quot;</p> <p>&quot;If I had a 'do-over,' I would have taken my financial future more seriously much sooner. I eventually learned the right lessons, but I long-courted the deadly twins &mdash; ignorance and immediate self-gratification. Thus, I forfeited my best financial friend &mdash; time. Now time is my unforgiving and fleet-footed competitor, and it is only by doing considerably more of my late-learned lessons that I am able to maintain a winded, yet hopeful, pace.&quot;</p> <h3>What to do?</h3> <p>Start investing! If that seems far easier said than done, a couple of practical steps you could take include:</p> <ol style="margin-left: 40px;"> <li> <p><a href="http://www.wisebread.com/build-your-first-budget-in-5-easy-steps" target="_blank">Create a budget</a> so you can proactively plan how to best allocate your income in a way that makes room for investing, and;</p> </li> <li> <p>Set up an automatic monthly transfer from your paycheck to your workplace retirement plan or from your checking account to an IRA. (See also: <a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make?ref=seealso" target="_blank">7 Retirement Planning Steps Late Starters Must Make</a>)</p> </li> </ol> <h2>Not thinking carefully about the tax implications of different retirement savings options</h2> <p>Several Vanguard readers regretted using tax-<em>deferred </em>investment vehicles such as a traditional 401(k) or IRA instead of a tax-<em>free </em>vehicle such as a Roth IRA.</p> <p>Respondents noted:</p> <p>&quot;In addition to being diversified in asset classes, I should have also been diversified in tax types &mdash; i.e., most of my funds are in a 401(k) &hellip; so now everything I withdraw is taxable.&quot;</p> <p>&quot;The mistake I made was not converting my IRA to a Roth IRA in the 1990s. I thought the taxes for the conversion were too high. The result is that we are paying a higher tax rate now because the RMD (required minimum distribution) has raised our tax bracket and has increased our Medicare premium considerably each month. It has been an expensive lesson.&quot;</p> <h3>What to do?</h3> <p>Consider a Roth IRA or 401(k). Generally speaking, a Roth works best for younger people who are in a relatively low tax bracket. However, even for older, better-paid people, consider splitting your retirement contributions between a Roth and a traditional 401(k) or IRA. (See also: <a href="http://www.wisebread.com/401k-or-ira-you-need-both?ref=seealso" target="_blank">401K or IRA? You Need Both</a>)</p> <h2>Not developing a compelling vision for retirement</h2> <p>Several readers said their retirement planning was mostly about money. They wish they had spent more time thinking about how to use their time in their later years.</p> <p>Some examples:</p> <p>&quot;The financial aspects of retirement have worked out OK. I had been planning that aspect of retirement for many, many years. What I did not anticipate or prepare for was the lack of identity in retirement. When I walked out the door on my last day of work, that was the last I saw or heard from coworkers. I had a job where I mattered and all of a sudden that stopped. Yes, the financial aspects of retirement are important, but you cannot neglect the psychological aspects of retirement.&quot;</p> <p>&quot;Don't just assume you'll enjoy relaxing after working for many years. Your job was a large part of your identity and you need to have a plan to fill that in with something else!&quot;</p> <h3>What to do?</h3> <p>Think about an issue you care about and how you might be part of the solution, whether through volunteer work or maybe even a business you start.</p> <p>In her book, <em>Life Reimagined</em>, Barbara Bradley Hagerty summarizes countless studies about how to move effectively from midlife onward. She said the research is clear: Being part of a cause that matters to you increases happiness and even extends life.</p> <p>Being intentional about avoiding these three common retiree regrets should give you greater confidence and peace of mind that you're on track toward a financially comfortable, meaningful retirement. And <em>that </em>could go a long way toward helping you dodge one other very common regret among the elderly: having spent too much time worrying.</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" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F3-common-retirement-regrets-you-can-avoid&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F3%2520Common%2520Retirement%2520Regrets%2520You%2520Can%2520Avoid.jpg&amp;description=Goal%20Setting%3A%20Getting%20Out%20of%20Debt%20Once%20and%20For%20All"></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/u5180/3%20Common%20Retirement%20Regrets%20You%20Can%20Avoid.jpg" alt="3 Common Retirement Regrets You Can Avoid" 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/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/3-common-retirement-regrets-you-can-avoid">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/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future">6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future</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/6-age-milestones-that-impact-your-retirement">6 Age Milestones That Impact Your 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/half-of-americans-are-wrong-about-their-retirement-savings">Half of Americans Are Wrong About Their 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/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</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/if-you-want-your-401k-to-grow-stop-doing-these-6-things">If You Want Your 401K to Grow, Stop Doing These 6 Things</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) identity crisis investing IRA late starts midlife regrets taxes Wed, 01 Nov 2017 09:00:06 +0000 Matt Bell 2040659 at http://www.wisebread.com How to Face These 7 Scary Facts About Retirement Saving http://www.wisebread.com/how-to-face-these-7-scary-facts-about-retirement-saving <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-face-these-7-scary-facts-about-retirement-saving" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/how_much_savings_will_you_need_to_retire.jpg" alt="How much savings will you need to retire" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Articles warning about our lack of retirement preparedness are a dime a dozen, and maybe that's part of the problem. We hear the warnings so often that we've become numb to them.</p> <p>Maybe packing the scariest statistics into one article will have more impact and motivate more of us to get in the retirement savings game. That's what this article is designed to do. But brace yourself: The picture isn't pretty.</p> <h2>1. You might not be saving enough</h2> <p>According to the Employee Benefit Research Institute (EBRI), about two out of every five workers today (44 percent) are not saving <em>any</em> money for retirement. None.</p> <p>Even among today's oldest workers &mdash; those closest to retirement &mdash; many have far too little saved for their later years. Among workers age 55 or older, 45 percent have less than $100,000 saved.</p> <p>If these folks really kick their savings into gear &mdash; let's say they end up with $250,000 by the time they finish their career &mdash; that still won't provide much to live on. A standard <a href="http://www.wisebread.com/4-retirement-rules-of-thumb-that-actually-work?ref=internal" target="_blank">retirement rule of thumb</a> says you can withdraw 4 percent of your nest egg every year without having to worry about draining your account before you die. At $250,000, that translates into just $10,000 of annual retirement income. (See also: <a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement?ref=seealso" target="_blank">10 Signs You Aren't Saving Enough for Retirement</a>)</p> <h2>2. You might outlive your money</h2> <p>Among the many risks financial planners talk about is <em>longevity risk</em>; the danger of living a long life. It may sound kind of funny to frame that as a risk since most of us would <em>like </em>to live a long life. However, running out of money before you run out of time wouldn't be very funny at all.</p> <p>A man who is 65 years old today can expect to live another 19.2 years, according to the Social Security Administration's Life Expectancy Calculator. A 65-year-old woman can expect to live another 21.6 years.</p> <p>Are you on track to save enough to cover your retirement expenses that long?</p> <h2>3. If you're young, you're probably not saving aggressively enough</h2> <p>Many millennials &mdash; people with the best opportunity to take advantage of compounding interest &mdash; are investing far too conservatively. A 2014 UBS Investor Watch survey found that millennials were almost as likely as baby boomers to describe their risk tolerance as conservative. The same survey found millennials holding over half their assets in cash.</p> <p>When you're young, the riskiest thing you can do with your investments is to play it too safe. Doing so will make it hard to outpace inflation and you'll miss out on much of the growth that compounding can provide. (See also: <a href="http://www.wisebread.com/5-facts-millennials-should-know-about-retirement-planning?ref=seealso" target="_blank">5 Facts Millennials Should Know About Retirement Planning</a>)</p> <h2>4. You can't count on Social Security to fill in much of the gap</h2> <p>As of July 2017, the average Social Security retirement benefit was just $1,325 per month. Even scarier, the Social Security Administration notes that Social Security provides 90 percent or more of the income received by about one in five elderly married couples, and two in five elderly singles.</p> <p>A big part of the problem is that many people claim benefits as soon as they qualify &mdash; age 62. That guarantees the lowest possible monthly benefit. Waiting until full retirement age (67 for anyone born in 1960 or later), or even better, age 70, will boost monthly benefits substantially. (See also: <a href="http://www.wisebread.com/6-smart-ways-to-boost-your-social-security-payout-before-retirement?ref=seealso" target="_blank">6 Smart Ways to Boost Your Social Security Payout Before Retirement</a>)</p> <h2>5. You shouldn't count on working for pay in your later years</h2> <p>Plan B for a growing number of today's workers is to retire after the typical retirement age of 65. For many, it isn't that they love their job so much; it's that they know they'll need the money.</p> <p>But their aspirations don't match reality. According to EBRI, 52 percent of today's workers <em>expect</em> to retire after age 65 or never retire, whereas just 14 percent of today's over-65 crowd <em>actually</em> retired that late or never retired.</p> <p>In fact, 48 percent of today's retirees left the workforce <em>earlier</em> than planned &mdash; mostly due to health issues or the need to care for a loved one.</p> <h2>6. You may have no idea how much you should be saving for retirement</h2> <p>EBRI found that just 41 percent of all of today's workers have tried to figure out how much they will need to have saved by the time they retire in order to live comfortably. Those that <em>have</em> run the numbers tend to save more for retirement. (See also: <a href="http://www.wisebread.com/this-one-thing-could-be-the-key-to-retiring-rich?Ref=seealso" target="_blank">This One Thing Could Be the Key to Retiring Rich</a>)</p> <h2>7. You may not be able to afford your later life health care costs</h2> <p>A recent Fidelity study found that a couple retiring this year would need $275,000 to cover their health care premiums, copays, deductibles, and out-of-pocket costs for prescription drugs over the course of their retirement. (See also: <a href="http://www.wisebread.com/9-unexpected-expenses-for-retirees-and-how-to-manage-them?ref=seealso" target="_blank">9 Unexpected Expenses for Retirees &mdash; And How to Manage Them</a>)</p> <p>What that figure <em>doesn't </em>include is long-term care, and yet, today's 65-year-olds have a 70 percent chance of needing some type of long-term care before they die, according to the U.S. Department of Health and Human Services. And that care is costly. Genworth's latest annual Cost of Care survey found that a private room in a nursing home cost nearly $7,700 per month in 2016, or over $92,000 per year. (See also: <a href="http://www.wisebread.com/is-long-term-care-insurance-worth-it?ref=seealso" target="_blank">Is Long Term Care Insurance Worth It?</a>)</p> <p>If these scary statistics have convinced you to take action, here are three of the most important steps to take: Run the numbers to figure out how much you should be saving for retirement, make saving a priority, and wait at least until full retirement age before claiming Social Security benefits.</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" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-to-face-these-7-scary-facts-about-retirement-saving&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520to%2520Face%2520These%25207%2520Scary%2520Facts%2520About%2520Retirement%2520Saving.jpg&amp;description=How%20to%20Face%20These%207%20Scary%20Facts%20About%20Retirement%20Saving"></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/How%20to%20Face%20These%207%20Scary%20Facts%20About%20Retirement%20Saving.jpg" alt="How to Face These 7 Scary Facts About Retirement Saving" 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/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/how-to-face-these-7-scary-facts-about-retirement-saving">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/5-retirement-struggles-nobody-talks-about-and-how-to-beat-them">5 Retirement Struggles Nobody Talks About — And How to Beat Them</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-signs-its-time-to-retire">8 Signs It&#039;s Time to Retire</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/6-age-milestones-that-impact-your-retirement">6 Age Milestones That Impact Your 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/8-reasons-why-your-retirement-cost-calculations-may-be-wrong">8 Reasons Why Your Retirement Cost Calculations May Be Wrong</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-to-overcome-these-4-common-retirement-fears">How to Overcome These 4 Common Retirement Fears</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) expenses health care IRA not saving enough outliving money scary facts social security Wed, 04 Oct 2017 09:00:06 +0000 Matt Bell 2030771 at http://www.wisebread.com Three of the Toughest Decisions You'll Face in Retirement http://www.wisebread.com/three-of-the-toughest-decisions-youll-face-in-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/three-of-the-toughest-decisions-youll-face-in-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/senior_couple_thave_a_breakfast_at_cafe.jpg" alt="Senior couple thave a breakfast at cafe" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>After spending a lifetime saving for retirement, you might think (or hope) the tough financial work is over. But in reality, retirement will bring several <em>new</em> financial challenges. Here are three of the key questions you'll need to address along with some recommendations.</p> <h2>1. When should I take Social Security?</h2> <p>There are many options here, especially when coordinating benefits with a spouse. Understanding the rules around three important age milestones can help you think through the best choice. (See also: <a href="http://www.wisebread.com/5-questions-to-ask-before-you-start-claiming-your-social-security-benefits?ref=seealso" target="_blank">5 Questions to Ask Before You Start Claiming Your Social Security Benefits</a>)</p> <h3>Age 62</h3> <p>This is when you first become eligible to receive Social Security benefits. If you opt to take them this early, you'll get the smallest monthly benefit. While it's true that you may end up collecting benefits for the longest period of time by starting at age 62, if you can afford to do so, it's generally best to wait at least until your full retirement age (FRA). At that point, your monthly benefit will increase by 30 percent.</p> <p>If you're planning to continue working to some degree in your early to mid 60s, this may be another reason to wait. Claiming Social Security benefits before your FRA will trigger an &quot;earnings test.&quot; After you earn a certain amount (about $17,000 in 2017), for every two dollars of income, your Social Security benefits will be reduced by one dollar.</p> <p>You can learn more about the <a href="https://www.ssa.gov/oact/cola/rtea.html" target="_blank">earnings test</a> on the Social Security Administration's website.</p> <h3>Full retirement age</h3> <p>If you were born in 1960 or later, your <a href="https://www.ssa.gov/planners/retire/retirechart.html" target="_blank">full retirement age is 67</a>. That's the age at which you become eligible to receive what the Social Security Administration deems to be your &quot;full&quot; benefit.</p> <p>An important consideration related to your FRA has to do with spousal benefits. If you earned significantly more than your spouse over your careers, his or her spousal benefit (half your full retirement age benefit) may be larger than his or her own benefit. While your spouse could file for spousal benefits as early as age 62, he or she will get the maximum amount only if you <em>both</em> wait until your full retirement ages before claiming benefits.</p> <h3>Age 70</h3> <p>While it may sound as if full retirement age is when you'll qualify for your maximum benefit, waiting until age 70 will actually give you more. When I checked my benefits on the Social Security Administration website, I found that waiting until age 70 would boost my monthly benefit amount by nearly <em>28 percent </em>versus claiming it at my FRA of 67.</p> <p>In addition to qualifying for this higher monthly benefit, another important reason to consider waiting this long has to do with the potential impact on your spouse. Let's say you're the husband and have been the higher earner. When you pass away, your wife will be able to trade her benefit for your larger benefit, which she will receive for the rest of her life. (See also: <a href="http://www.wisebread.com/6-smart-ways-to-boost-your-social-security-payout-before-retirement?ref=seealso" target="_blank">6 Smart Ways to Boost Your Social Security Payout Before Retirement</a>)</p> <h2>2. How much of my nest egg can I withdraw?</h2> <p>A long-standing rule of thumb is that you can safely withdraw 4 percent of your nest egg each year, bumping that amount up by the rate of inflation each year, without having to worry about depleting your savings before you die.</p> <p>However, there are many moving parts to this equation. Your cost of living will probably vary throughout retirement, and so will the stock market's performance.</p> <p>So, instead of adhering to a fixed formula, rerun the numbers each year using what some planners call a <em>dynamic withdrawal strategy</em>: Determine how much to withdraw based on the performance of your portfolio and your spending needs.</p> <h2>3. Which nest egg funds should I tap first?</h2> <p>If you have money in various accounts, such as a taxable account, a tax-deferred account (traditional IRA/401(k)), and a tax-free account (Roth IRA/401(k)), here's a recommended path for greatest tax efficiency.</p> <p>Generally, it's best to use money in your <em>taxable </em>accounts first, which allows funds in tax-advantaged accounts to continue growing on a tax-deferred or tax-free basis.</p> <p>Next, use money from your traditional IRA or 401(k) accounts. In fact, you <em>have to </em>start taking money from these accounts beginning at age 70&frac12;. That's when required minimum distribution (RMD) rules kick in. If you don't withdraw at least a specific minimum amount, you'll owe stiff penalties to the IRS.</p> <p>One factor to keep in mind is that if you have substantial balances in traditional IRA or 401(k) accounts, waiting to tap any of this money until age 70&frac12; may make your RMDs so large that they'll push you into a higher tax bracket. If that's the case, you may want to start taking some withdrawals from these accounts earlier than age 70&frac12;.</p> <p>It's usually best to save your Roth IRA money for last since they are not subject to RMD rules. If you don't need the money, you can let it continue growing tax-free.</p> <h2>Stay in the game</h2> <p>While retirement may be a time when you want to step away from some of the many responsibilities you had during your working years, it's important that you stay proactive with regard to your finances. Making well thought out decisions in the three areas discussed above will go a long way toward helping you enjoy financial peace of mind in your later years.</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%2Fthree-of-the-toughest-decisions-youll-face-in-retirement&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FThree%2520of%2520the%2520Toughest%2520Decisions%2520You%2527ll%2520Face%2520in%2520Retirement.jpg&amp;description=Three%20of%20the%20Toughest%20Decisions%20You'll%20Face%20in%20Retirement"></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/Three%20of%20the%20Toughest%20Decisions%20You%27ll%20Face%20in%20Retirement.jpg" alt="Three of the Toughest Decisions You'll Face in 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/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/three-of-the-toughest-decisions-youll-face-in-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-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/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-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-age-milestones-that-impact-your-retirement">6 Age Milestones That Impact Your 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/8-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for 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/8-critical-401k-questions-you-need-to-ask-your-employer">8 Critical 401(k) Questions You Need to Ask Your Employer</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-roadblocks-to-retirement-and-how-to-clear-them">7 Roadblocks to Retirement (And How to Clear Them)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) benefits decisions full retirement age IRA questions required minimum distributions social security withdrawals Wed, 27 Sep 2017 08:00:06 +0000 Matt Bell 2025922 at http://www.wisebread.com 6 Ways the Government Helps Disaster Victims Recover http://www.wisebread.com/6-ways-the-government-helps-disaster-victims-recover <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-ways-the-government-helps-disaster-victims-recover" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/disaster_recovery_center_sign.jpg" alt="Disaster Recovery Center Sign" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Hurricane season has captured big chunks of recent news cycles, with massive storms Irma and Harvey devastating areas in Florida and Texas. The IRS and other U.S. government agencies are working to help people get back on their feet after these terrible natural disasters. Here's what they're doing.</p> <h2>1. Allowing loans and hardship withdrawals from retirement funds</h2> <p>Usually, the IRS levels penalties against early withdrawals from 401(k) and 403(b) retirement accounts. But it recently announced that in the case of Irma and Harvey, victims can take loans and hardship withdrawals against their retirement funds without penalties. All of the specifics for this IRS initiative can be found on the <a href="https://www.irs.gov/newsroom/tax-relief-in-disaster-situations" target="_blank">IRS disaster relief page</a>.</p> <h2>2. Offering tax relief</h2> <p>The IRS provides tax relief to those who are impacted by disasters. This relief takes the form of tax filing and payment extensions, as well as the ability to claim losses on tax returns that may lower the amount of tax owed. Once an area is a federally declared disaster area, the IRS automatically marks all taxpayers in that area as eligible for relief. The details about these tax relief programs are also on the IRS's webpage for disaster relief.</p> <h2>3. Helping victims find shelter</h2> <p>If you need to find short-term shelter after a disaster, the government has services to help you. You can search for open shelters in your area by texting SHELTER and your ZIP code to 4FEMA (43362). For example: SHELTER 12345. You can also visit FEMA's page on <a href="https://www.fema.gov/interim-housing-resources" target="_blank">Interim Housing</a> if you've been displaced by a disaster and you need to find a longer-term rental home.</p> <h2>4. Granting government relief funds</h2> <p><a href="https://www.disasterassistance.gov/" target="_blank">DisasterAssistance.gov</a> makes it possible to find local resources and apply for assistance. There are also relief funds and programs available for<a href="https://www.irs.gov/businesses/small-businesses-self-employed/disaster-assistance-and-emergency-relief-for-individuals-and-businesses-1" target="_blank"> small businesses</a> and those who are self-employed.</p> <h2>5. Hiring temporary recovery workers after a disaster</h2> <p>Both FEMA and the Small Business Administration (SBA) are currently hiring temporary workers in affected areas to speed the recovery efforts. FEMA's website details the <a href="https://careers.fema.gov/hurricane-workforce" target="_blank">opportunities it has available</a> and SBA has set up a special website where you can <a href="https://www.sba.gov/disaster-assistance/hurricane-response-jobs-sba" target="_blank">apply for hurricane response jobs</a>.</p> <h2>6. Cracking down on price gouging</h2> <p>After a natural disaster, it isn't unusual to find crucial necessities like gas and bottled water sold at ridiculously inflated prices &mdash; including reports of water for $99 a case and gas for $10 a gallon following Hurricane Harvey. This is known as price gouging, and it is illegal. People who have spotted or been victimized by this practice are encouraged to report it to their <a href="https://www.usa.gov/state-consumer" target="_blank">state attorney general</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%2F6-ways-the-government-helps-disaster-victims-recover&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F6%2520Ways%2520the%2520Government%2520Helps%2520Disaster%2520Victims%2520Recover.jpg&amp;description=6%20Ways%20the%20Government%20Helps%20Disaster%20Victims%20Recover"></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%20the%20Government%20Helps%20Disaster%20Victims%20Recover.jpg" alt="6 Ways the Government Helps Disaster Victims Recover" 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/christa-avampato">Christa Avampato</a> of <a href="http://www.wisebread.com/6-ways-the-government-helps-disaster-victims-recover">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/6-indirect-ways-taxes-to-the-rich-may-hurt-you">6 Indirect Ways Taxes to the Rich May Hurt 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/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future">6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future</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/when-will-the-bailouts-stop-a-summation-of-2008-stimulus-packages-and-bailouts-in-the-united-states">When will the bailouts stop? A summary of 2008 stimulus packages and bailouts in the United States</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-reasons-an-hsa-is-actually-worth-having">10 Reasons an HSA Is Actually Worth Having</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> Financial News Taxes assistance employment financial aid government harvey hurricanes IRA irma natural disasters shelter tax relief Fri, 22 Sep 2017 09:00:06 +0000 Christa Avampato 2023631 at http://www.wisebread.com How to Save for Retirement While Caring for Kids and Parents http://www.wisebread.com/how-to-save-for-retirement-while-caring-for-kids-and-parents <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-save-for-retirement-while-caring-for-kids-and-parents" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/three_generations_women_laughing_in_the_kitchen.jpg" alt="Three generations women laughing in the kitchen" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>As a member of the sandwich generation, you're not only raising your children, you're also caring for your aging parents. The financial burden, not to mention the daily responsibilities, can leave you struggling to invest in your own financial future. Here are some ways you can still save for your retirement while caring for those who depend on you. (See also: <a href="http://www.wisebread.com/5-money-strategies-for-the-sandwich-generation?ref=seealso" target="_blank">5 Money Strategies for the Sandwich Generation</a>)</p> <h2>1. Make your financial future a priority</h2> <p>Your financial future matters as much as the current responsibilities you have. Consider the stress you experience as you try to navigate life while being a parent and caring for your own aging parents. Do you want to repeat the cycle of stress by failing to plan for your retirement? No, of course you don't. However, by letting guilt and the needs of the moment dictate your financial choices, you may end up in that place. (See also: <a href="http://www.wisebread.com/6-financial-steps-to-take-when-your-aging-parents-move-in?ref=seealso" target="_blank">6 Financial Steps to Take When Your Aging Parents Move In</a>)</p> <p>When you're juggling medical bills and child care costs, retirement may seem far away and unimportant. It isn't. You deserve to have your financial needs met in the future as much as your children and parents deserve to have good care now.</p> <h2>2. Take advantage of employer programs</h2> <p>If your employer offers any sort of matching contribution to your 401(k), take full advantage of that opportunity.</p> <p>As you're able, increase the amount of money you're putting into your 401(k) from each paycheck. Having it automatically deducted &mdash; which is how most employers handle contributions &mdash; will keep you from depending on these savings for your daily expenses. Your goal is to bring your savings amount to the point of maximum matching contributions from your employer. It's an easy win, as those matching contributions double your savings.</p> <h2>3. Take advantage of tax-free savings</h2> <p>If you don't have a 401(k), now is the time to set up a traditional IRA. It's another way to maximize your retirement savings, as a traditional IRA will generally allow you to defer taxes on the money you save until much later &mdash; when you start withdrawing it. Deferring taxes enables you to save more now, while you're living in the sandwich generation budget crunch.</p> <h2>4. Find and apply for available tax benefits</h2> <p>Some additional tax breaks exist for adult children who are providing full-time care for their aging parents. Talk to your CPA about the requirements for claiming your elderly parents as a dependent.</p> <p>Additionally, examine your options for claiming tax deductions for medical care and other dependent expenses such as transportation, food, and supplies. Not all costs will qualify for tax deductions, but those that do can save you a good chunk of money that can go straight into your retirement savings.</p> <h2>5. Liquidate the assets your parents no longer need</h2> <p>It can be difficult to work through big financial decisions with your aging parents, but doing so can help you both navigate the somewhat rough financial waters of elder care. (See also: <a href="http://www.wisebread.com/6-things-youll-encounter-when-taking-over-a-loved-ones-finances?ref=seealso" target="_blank">6 Things You'll Encounter When Taking Over a Loved One's Finances</a>)</p> <p>Identify the assets that are used very little but require ongoing maintenance, such as a house that's not lived in, or a boat or car that sits unused. These unused assets are financial drains. Work together to come up with a plan for liquidating them. Then put the money gained from their sale into an account that pays for your parents' monthly expenses. This relieves the financial burden you're carrying so that less of your income is required for your parents, and more of your income can go to your retirement savings.</p> <h2>6. Reduce a big, ongoing expense</h2> <p>The goal here isn't to come up with a one-time win, but to find a monthly cost that eats up your income and find a way to reduce it. Then you'll take that difference and add it to your monthly savings.</p> <p>Make a list of your monthly expenses, rank them from most to least expensive, and start going down the list with your goal in mind. You can shop for better insurance rates and a cheaper cellphone plan. You can sell the expensive car you're still making payments on, buy a cheaper one outright, and put the amount you used to spend on a car payment directly into your savings. The key is to make sure that the amount you save goes into savings; don't let it get absorbed into your budget and spent on other things.</p> <h2>7. Take a money challenge</h2> <p>A <a href="http://www.wisebread.com/7-smart-money-challenges-you-can-totally-do?ref=internal" target="_blank">money challenge</a> is a fun but temporary way to reduce your costs and increase your savings by cutting an expense for a short amount of time. It's doable because it's temporary, which also makes it fun. You might not want to haggle over expenses or shop from thrift stores all the time; however, you can do it for a month or so and use what you save to add to your retirement.</p> <h2>8. Invest in a hobby that makes money</h2> <p>Taking on yet another responsibility may seem impossible. However, prioritizing your own interests &mdash; in this case, one that can make you some money &mdash; is a good idea. You need time to dedicate to your own interests in this time of intense caregiving. If you put time into developing a <a href="http://www.wisebread.com/10-awesome-money-making-hobbies?ref=internal" target="_blank">hobby that has income potential</a>, you'll be able to add to your retirement fund.</p> <p>If finding the time is an issue (and of course it is!), don't be shy about asking family members and friends to pitch in on child care and parent care. You may handle most of the responsibility for your aging parents, but you don't have to do everything yourself. Set up a schedule so that adult siblings, cousins, and community members take on caregiving for a day or afternoon out of the week. Use that time to work on your side hustle, and funnel the money you make from it straight into your retirement savings.</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%2Fhow-to-save-for-retirement-while-caring-for-kids-and-parents&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520to%2520Save%2520for%2520Retirement%2520While%2520Caring%2520for%2520Kids%2520and%2520Parents.jpg&amp;description=How%20to%20Save%20for%20Retirement%20While%20Caring%20for%20Kids%20and%20Parents"></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/How%20to%20Save%20for%20Retirement%20While%20Caring%20for%20Kids%20and%20Parents.jpg" alt="How to Save for Retirement While Caring for Kids and Parents" 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/annie-mueller">Annie Mueller</a> of <a href="http://www.wisebread.com/how-to-save-for-retirement-while-caring-for-kids-and-parents">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-to-help-your-parents-retire">How to Help Your Parents 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/how-to-plan-for-a-forced-early-retirement">How to Plan for a Forced 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/8-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for 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/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future">6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future</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/6-ways-you-can-cut-costs-right-before-you-retire-0">6 Ways You Can Cut Costs Right Before You Retire</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Family Retirement aging parents caregiving cutting costs extra income IRA raising kids sandwich generation saving money taxes Thu, 14 Sep 2017 08:31:09 +0000 Annie Mueller 2019188 at http://www.wisebread.com 6 Age Milestones That Impact Your Retirement http://www.wisebread.com/6-age-milestones-that-impact-your-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-age-milestones-that-impact-your-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggy_bank_with_happy_birthday_party_glasses.jpg" alt="Piggy bank with Happy birthday party glasses" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Legally significant ages seem to cluster early in life &mdash; you can drive at 16, vote, smoke, and enlist at 18, and drink at 21. After that, you might think that there are no more important age milestones to reach.</p> <p>But there <em>are</em> more important milestones you'll reach as you near retirement. Here are the important ages that can impact your retirement, and the reasons why they were chosen.</p> <h2>Age 50 &mdash; Take advantage of catch-up contributions</h2> <p>IRAs and 401(k) retirement plans are tax-advantaged, which means you receive a tax-break by contributing to them. For traditional IRAs and 401(k)s, you contribute pretax income, which means you lower your overall tax burden for the year, and the money grows tax-free. With Roth IRAs and 401(k)s, you contribute post-tax dollars, and the money still grows tax-free. Since high income earners could potentially avoid paying any taxes at all if they simply contributed a large enough portion of their income, there are limits to the amount of money you can contribute each year. As of 2017, you can contribute an annual total of $5,500 to an IRA and $18,000 to a 401(k).</p> <p>However, there is something called a catch-up provision for anyone over age 50. If you've reached your half-century mark, you can contribute an additional $1,000 to an IRA (for a $6,500 total contribution) and an additional $6,000 to a 401(k) (for a $24,000 total contribution). Taking advantage of these catch-up provisions can help you to make sure your retirement is more secure.</p> <h2>Age 59&frac12; &mdash; Take penalty-free withdrawals from tax-sheltered accounts</h2> <p>Since you fund traditional IRAs and 401(k)s with pretax income, every withdrawal you make will be taxed at your ordinary income tax rate. But if you try to withdraw money from either of these types of accounts before you have reached age 59&frac12;, then you will also owe a 10 percent early withdrawal penalty on the amount you withdraw, in addition to the ordinary income tax.</p> <p>You are not required to take withdrawals as of age 59&frac12; &mdash; that is just the earliest age that you are allowed to do so without incurring a penalty.</p> <p>You might be wondering why 59&frac12; is the magic number. Congress decided to use this age because life insurance actuarial tables consider you to be 60 years old once you have reached age 59 and six months, and at the time that the rules were put in place, 60 was a relatively common age for retirement.</p> <h2>Age 62 &mdash; Take early Social Security retirement benefits</h2> <p>Social Security beneficiaries reach eligibility as of age 62. This is the very earliest that you can access your benefits from Social Security, although taking your benefits the moment you've blown out 62 candles is not necessarily a good idea.</p> <p>Social Security changes the benefit amount based on whether you retire before or after your full retirement age. This means the longer you wait, the more money you will see in your benefit checks &mdash; to the tune of about an additional 8 percent per year. If you take benefits before hitting your full retirement age, your payments will be permanently reduced. (See also: <a href="http://www.wisebread.com/5-questions-to-ask-before-you-start-claiming-your-social-security-benefits?ref=seealso" target="_blank">5 Questions to Ask Before You Start Claiming Your Social Security Benefits</a>)</p> <p>These early benefits have been around for quite some time. Early retirement at age 62 was introduced for women only in 1956, and the option was extended to men in 1961. Women were offered this benefit first because of the concern for widows without an income, although it became clear that men were also very interested in the option of taking early benefits.</p> <h2>Age 64 and 9 months &mdash; Enroll in Medicare</h2> <p>The initial seven-month enrollment period for Medicare spans from the three months before your 65th birthday, through the month of your birthday, and the three months following your birthday. Enrolling during this period means you will pay no fees or penalties for enrollment, and enrolling within the three months before your 65th birthday means that you will have Medicare coverage starting on the first day of your birthday month. Enrolling during your birthday month or afterward will result in a delayed start for coverage.</p> <p>If you miss the initial enrollment period for Medicare, you can still sign up during the general enrollment period between January 1 and March 31 of each year, and your coverage will begin July 1 of that year. However, there is a late penalty for missing your initial enrollment period. For Medicare Part A, your monthly premium will increase by 10 percent for twice the number of years that you could have had Part A but didn't sign up.</p> <p>If you miss the initial enrollment period for Part B, you will have to pay the late enrollment penalty for as long as you are a Medicare beneficiary. The monthly premium will increase by 10 percent for each full 12-month period that you were eligible for Part B but did not sign up.</p> <h2>Age 66 or 67 &mdash; Reach full Social Security retirement age</h2> <p>Your full retirement age is the point at which you receive your full benefits from Social Security. When Social Security was first enacted, 65 was chosen as the retirement age. In 1983, to deal with the coming demographic shift that would occur when baby boomers started to retire, Congress gradually increased the full retirement age from 65 to 67, based on birth year:</p> <table> <tbody> <tr> <td> <p><strong>Birth Year</strong></p> </td> <td> <p><strong>Full Retirement Age</strong></p> </td> </tr> <tr> <td> <p>1943-1954</p> </td> <td> <p>65</p> </td> </tr> <tr> <td> <p>1955</p> </td> <td> <p>66 and 2 months</p> </td> </tr> <tr> <td> <p>1956</p> </td> <td> <p>66 and 4 months</p> </td> </tr> <tr> <td> <p>1957</p> </td> <td> <p>66 and 6 months</p> </td> </tr> <tr> <td> <p>1958</p> </td> <td> <p>66 and 8 months</p> </td> </tr> <tr> <td> <p>1959</p> </td> <td> <p>66 and 10 months</p> </td> </tr> <tr> <td> <p>1960 and later</p> </td> <td> <p>67</p> </td> </tr> </tbody> </table> <h2>Age 70&frac12; &mdash; Begin taking required minimum distributions</h2> <p>When you put money into a tax-deferred account like a traditional IRA or 401(k), you don't have to pay taxes on that money until you withdraw it. While this helps your tax burden during your career, you do need to remember that Uncle Sam will want his cut eventually.</p> <p>This is why the IRS requires each account holder to begin withdrawing money during the year he or she reaches age 70&frac12;. There is a minimum withdrawal you must take, and failing to take out the minimum means the IRS will take 50 percent of the amount you should have withdrawn.</p> <p>To figure out your required minimum distribution (RMD), you need to calculate it based upon the balance of each of your tax-deferred accounts as of December 31 of the previous year, and the correct IRS distribution table. These tables calculate life expectancy based upon your age and give you a number (corresponding to the number of years they expect you to live), by which you will divide your balance to determine your RMD.</p> <p>It may seem that 70&frac12; is an arbitrary number, but there is a lot of thought put into this milestone age. The IRS makes a distinction between people born in the first half of the year, and those born in the second half. If your birthday falls between July 1 and December 31, you don't officially have to take an RMD until the year you turn 71. This means that those with birthdays in the first half of the year take their first RMD the year they turn 70, and those with a later birthday take their first RMD the year they turn 71 &mdash; which averages out to 70&frac12;.</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-age-milestones-that-impact-your-retirement&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F6%2520Age%2520Milestones%2520That%2520Impact%2520Your%2520Retirement.jpg&amp;description=6%20Age%20Milestones%20That%20Impact%20Your%20Retirement"></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%20Age%20Milestones%20That%20Impact%20Your%20Retirement.jpg" alt="6 Age Milestones That Impact Your 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/emily-guy-birken">Emily Guy Birken</a> of <a href="http://www.wisebread.com/6-age-milestones-that-impact-your-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-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/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-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/three-of-the-toughest-decisions-youll-face-in-retirement">Three of the Toughest Decisions You&#039;ll Face 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-retirement-struggles-nobody-talks-about-and-how-to-beat-them">5 Retirement Struggles Nobody Talks About — And How to Beat Them</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/3-common-retirement-regrets-you-can-avoid">3 Common Retirement Regrets You Can Avoid</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/8-signs-its-time-to-retire">8 Signs It&#039;s Time to Retire</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) ages catch-up contributions fees IRA milestones penalties required minimum distributions rmd social security taxes Wed, 23 Aug 2017 08:00:08 +0000 Emily Guy Birken 2007140 at http://www.wisebread.com 7 Ways Retirement Planning Changes When You're Single http://www.wisebread.com/7-ways-retirement-planning-changes-when-youre-single <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-ways-retirement-planning-changes-when-youre-single" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/senior_woman_relaxing.jpg" alt="Senior woman relaxing" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>It can sometimes feel like everything is created with couples in mind &mdash; including retirement planning. When every article, tip, and suggestion for retirement starts with the assumption that you are married, you might be forgiven for assuming that retiring solo is just a matter of cutting retirement planning advice in half.</p> <p>But there are specific challenges and concerns (not to mention benefits!) that single retirees need to prepare for before they hang up their careers. Here are seven ways that preparing for retirement is different for singles.</p> <h2>1. You need to have adequate disability insurance</h2> <p>Relying on no one but yourself can feel pretty liberating. Not only do you answer to no one but yourself, but you also get to enjoy the fruits of your own labor without having to compromise.</p> <p>The downside to this, however, is figuring how you will protect yourself in case your income runs dry. While anyone who relies on income from their job should carry adequate disability insurance, this is even more important for single workers who may not have another safety net to catch them if a disability makes it impossible to work. You need to protect yourself, your income, and your assets from the possibility you may be unable to work, even before you start the nitty-gritty of retirement planning.</p> <p>Even if you have disability insurance through work, that may not be adequate to protect you from a loss of income. Make sure you know exactly how much your work insurance covers and for how long, so that you are not left without an income if it's not enough. Also, don't assume that you are immune to potential disabilities just because the most strenuous thing you do at work is operate the copy machine. Illness is behind the majority of long-term absences from work &mdash; and anyone can get sick at any time.</p> <h2>2. Prepare for your health care needs</h2> <p>Health care costs are a major concern for all retirees, since this is one aspect of your retirement budget that you may not have control over. According to a 2016 Fidelity study, a 65-year-old couple retiring in 2016 would need $260,000 for health care to cover their medical and health care needs for the rest of their lives.</p> <p>That dollar figure is frightening no matter your marital status, and it's important that single people recognize that their costs may be higher than just half of a couple's health care costs. That's because many married couples can help each other to remain independent in ways that single retirees would need to pay for. For instance, you may need to pay for someone to help you at home or for entry into a retirement community sooner than a married couple would need those things.</p> <p>While <a href="http://www.wisebread.com/is-long-term-care-insurance-worth-it" target="_blank">long-term care insurance</a> has often been touted as a method of mitigating these expenses for both married and single retirees, the cost of this kind of insurance has become prohibitive. To prepare for the possibility of bad health in retirement, singles should also explore creative solutions to long-term health issues. For instance, taking in a rent-free roommate who helps with daily tasks is not only money-saving, but also offers social support. Planning ahead for potential solutions to health and mobility issues can provide you with some imaginative solutions that money can't buy.</p> <h2>3. Assign a power of attorney</h2> <p>It's easy to assume that you can skip the whole issue of legal planning if you are single and childless, but that's not necessarily true. For instance, do you know who will take care of your health care or financial decisions if you should become incapacitated? You need to assign a power of attorney to make sure that your wishes are followed if you cannot make your own decisions.</p> <p>Your power of attorney also needs to know where to find your important papers and should be kept apprised of any changes in your life or directives. This is the person who will pay your bills and handle your advanced directive if you fall ill. You can either pick someone in your life whom you trust, or hire a professional whom you trust to fill that role.</p> <h2>4. Invest in tax-deferred retirement vehicles during your career</h2> <p>Single workers miss out on a number of tax breaks that are offered to married couples. According to Jane Hodges writing for <em>The Wall Street Journal</em>, &quot;Without child tax credits, a spouse exemption, and no one with whom to realize the benefits of filing jointly, singles can take a pretty big tax punch during peak earning years.&quot;</p> <p>For this reason, single workers have a particular need to invest in tax-advantaged retirement vehicles, such as 401(k) and traditional IRA accounts. These vehicles allow you to make pretax contributions, which lowers your taxable income while also helping you prepare financially for retirement.</p> <h2>5. Consider rolling over into a Roth IRA before age 70&frac12;</h2> <p>Of course, Uncle Sam will still want his cut of the income you put in tax-deferred retirement accounts, which can cause a nasty tax surprise for singles post-retirement. That's because withdrawals from tax-deferred retirement accounts are taxed as ordinary income, and single retirees still do not have access to the tax breaks offered to married couples.</p> <p>This can become a serious problem for some single retirees as of age 70&frac12; because of the required minimum distributions on tax-deferred accounts. Traditional IRAs and 401(k)s require that retirees begin withdrawing a minimum distribution (based on a percentage of total assets) at age 70&frac12;, which means you might be facing a surprisingly high tax bracket upon reaching age 70&frac12;. You may also be forced to take more money from your accounts than you want or need because of the required minimum distribution.</p> <p>To protect yourself from this potentially painful tax bite, consider rolling over a portion of your assets from tax-deferred funds to a Roth IRA account before age 70&frac12;. Since Roth accounts are funded with after-tax dollars, you will have to pay ordinary income tax on your rollover. However, this will allow you to decide when you will pay those taxes and give you more freedom to keep your money invested if you don't need it.</p> <h2>6. Hold off on Social Security for as long as you can</h2> <p>Options for optimizing Social Security benefits are much simpler for singles. Basically, the only way to get a higher monthly benefit if you are single is to wait. The longer you can wait to receive your benefits between age 62 (the earliest you can take benefits) and 70 (when the benefits stop growing), the more money you will see with every monthly check. Even if you cannot wait until age 70, or your full retirement age (currently age 66), know that each month you delay taking your Social Security retirement benefits means a little more money in your checks.</p> <p>It's also important to remember that the federal government does not necessarily define single the same way you do. If you are divorced but were married for at least 10 years, then you are eligible for spousal benefits based on your ex's income record. However, you will collect your spousal benefits concurrently with your retirement benefits, so you will only see an increased benefit if your ex-spouse made a lot more money than you did.</p> <h2>7. Embrace the opportunities</h2> <p>While the IRS and Social Security Administration may both make marriage look like the better option &mdash; at least financially &mdash; it's important for singles to remember how many more opportunities they have available to them than do married couples. That's because a footloose and fancy-free retiree has far fewer obstacles to retirement than does a married couple.</p> <p>For instance, retiring abroad can be a very economical (not to mention fun) choice, and it is much easier for a single retiree to pull up roots than it is for a couple. Similarly, traveling in retirement can be much cheaper for one, since you do not have to compromise on where you are willing to save money.</p> <p>Single retirees can also explore alternative living options, like living with several friends &mdash; there's an excellent reason why all the Golden Girls were single, after all &mdash; or taking in a younger boarder or roommate, or even moving to a cheaper state. Making these decisions solo means you can find the living situation or opportunity that best fits your needs, wants, and temperament.</p> <!--<h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><script async defer src="//assets.pinterest.com/js/pinit.js"></script> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/7%20Ways%20Retirement%20Planning%20Changes%20When%20Youre%20Single.jpg" alt="7 Ways Retirement Planning Changes When You're Single" width="250" height="374" /></p> </div>--><!--<h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><script async defer src="//assets.pinterest.com/js/pinit.js"></script> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/7%20Ways%20Retirement%20Planning%20Changes%20When%20Youre%20Single.jpg" alt="7 Ways Retirement Planning Changes When You're Single" width="250" height="374" /></p> </div>--><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/7-ways-retirement-planning-changes-when-youre-single">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/how-to-face-these-7-scary-facts-about-retirement-saving">How to Face These 7 Scary Facts About Retirement Saving</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-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for 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/8-critical-401k-questions-you-need-to-ask-your-employer">8 Critical 401(k) Questions You Need to Ask Your Employer</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-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-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-common-retirement-regrets-you-can-avoid">3 Common Retirement Regrets You Can Avoid</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) advice disability insurance health care IRA loss of income not married power of attorney retirement planning singles Fri, 14 Jul 2017 09:01:05 +0000 Emily Guy Birken 1982441 at http://www.wisebread.com 10 Reasons an HSA Is Actually Worth Having http://www.wisebread.com/10-reasons-an-hsa-is-actually-worth-having <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/10-reasons-an-hsa-is-actually-worth-having" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/male_medicine_doctor_wearing_blue_tie_holding_piggybank.jpg" alt="Male medicine doctor wearing blue tie holding piggy bank" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>I put off signing up for an HSA for years because it was confusing and seemed to have a lot of rules and restrictions. You need to have an HDHP (high deductible health plan) in order to get an HSA. HSA funds can only be spent on qualified medical expenses &mdash; or else you can be hit with a 20 percent penalty and have to pay income tax on the withdrawal. I was hesitant to contribute funds into an account when I was worried it would be complicated to get the money back out.</p> <p>But participating in an HSA turned out to be a lot easier than I expected, and it has saved me a lot of money. If you do not anticipate having a lot of health care expenses, a high deductible health plan plus an HSA may be a good move. (See also: <a href="http://www.wisebread.com/how-an-hsa-saves-you-money?ref=seealso" target="_blank">How an HSA Saves You Money</a>)</p> <h2>1. Convenient access to HSA funds</h2> <p>You can conveniently access your HSA funds using a credit card tied to the HSA account at the doctor's office or pharmacy. You can also pay medical expenses with a check or credit card, and then withdraw funds from your HSA account to put back into your checking account.</p> <h2>2. Use HSA funds for a variety of medical expenses</h2> <p>HSA spending is not limited to only doctor and hospital bills &mdash; you can also <a href="http://www.wisebread.com/11-surprising-things-your-hsa-will-cover" target="_blank">use HSA funds</a> for medication, eye care, dental care, and other health-related expenses including bandages and prescription sunglasses. The IRS offers a complete list of <a href="https://www.irs.gov/pub/irs-pdf/p502.pdf" target="_blank">qualified medical expenses</a>.</p> <h2>3. HSAs offer plenty of tax advantages</h2> <p>You'll contribute pretax dollars to an HSA from every paycheck, without paying income tax on those contributions. This means you can save around 25 to 30 percent on health care expenses, depending on your tax rate. In addition, you can earn interest on the funds in your HSA account. With some HSA providers, you can even invest your HSA funds for more potential growth. Gains on HSA funds are tax-free.</p> <p>For qualified medical expenses, you can also withdraw funds from your HSA tax-free.</p> <h2>4. HSA funds roll over from one year to the next</h2> <p>One of my concerns with putting money into an HSA was the fear that it was a &quot;use it or lose it&quot; proposition like some flexible spending accounts I have previously used for health expenses. But funds in an HSA roll over from one year to the next, so you never lose your money if you don't spend it.</p> <h2>5. An HSA builds funds for future medical costs</h2> <p>An HSA is not only a way to pay for current medical expenses, it is also an ideal vehicle to build savings for future medical expenses. You can deposit money on a pretax basis, enjoy growth on invested HSA funds without paying taxes, and then withdraw funds years later when medical expenses arise with no tax obligation. No other investment vehicle provides this combination of benefits to grow savings for medical costs.</p> <h2>6. You can use your HSA as an IRA at age 65</h2> <p>When you reach age 65, you can continue to draw funds for qualified medical expenses tax-free. Or, you can use your HSA funds for any purpose you wish, without penalty (but you will pay income taxes if it's for non-health spending). An HSA effectively functions as an individual retirement account (IRA) when you reach 65, with the added benefit of tax-free dollars for medical expenses.</p> <h2>7. Your HSA is portable</h2> <p>When you move from one employer to another, or even opt to pursue freelance work, you get to keep your HSA and all of your funds.</p> <h2>8. Free HSA funding</h2> <p>Some employers contribute funds to employees' HSA accounts as a benefit. If you don't have an HSA, you might be missing out on free money!</p> <h2>9. You don't need an employer to have a HSA</h2> <p>Although the easiest way to take advantage of an HSA is to simply sign up for a program offered by your employer, you can open your own HSA if you are self-employed. You will need to find your own HSA provider such as a bank, credit union, insurance company, or investment broker. Look for an HSA provider with low fees, that provides access to HSA funds via a credit card, and that provides investment options for HSA funds.</p> <h2>10. Significant tax savings</h2> <p>The maximum annual HSA contribution amount is $3,350 for individuals, or $6,750 for families. Let's say your federal plus state income tax rate is 25 percent. Since contributions are tax-free, if you contribute the maximum to your HSA, you would save $837.50 for an individual or $1687.50 for a family on taxes on current or future qualified medical expenses.</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%2F10-reasons-an-hsa-is-actually-worth-having&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F10%2520Reasons%2520an%2520HSA%2520Is%2520Actually%2520Worth%2520Having.jpg&amp;description=10%20Reasons%20an%20HSA%20Is%20Actually%20Worth%20Having"></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/u5180/10%20Reasons%20an%20HSA%20Is%20Actually%20Worth%20Having.jpg" alt="10 Reasons an HSA Is Actually Worth Having" 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/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/10-reasons-an-hsa-is-actually-worth-having">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/8-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for 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/how-the-self-employed-can-cut-health-care-costs">How the Self Employed Can Cut Health Care Costs</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-an-hsa-saves-you-money">How an HSA Saves You Money</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/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-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/its-so-simple-6-steps-to-a-stable-retirement">It&#039;s So Simple: 6 Steps to a Stable Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Health and Beauty Taxes contributions health care health spending account HSA IRA medical expenses saving money tax advantages tax-free Fri, 30 Jun 2017 08:30:18 +0000 Dr Penny Pincher 1974217 at http://www.wisebread.com 5 Biggest Ways Millennials Risk Their Retirements http://www.wisebread.com/5-biggest-ways-millennials-risk-their-retirements <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-biggest-ways-millennials-risk-their-retirements" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/sad_man_has_spent_all_his_money.jpg" alt="Sad man has spent all his money" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you're stressing out about whether or not you're saving enough for retirement, you're not alone. Millennials are among those struggling the most with this dilemma. According to a 2016 study, 64 percent of working millennials believe they'll never save a $1 million nest egg.</p> <p>Why are millennials so worried? Sadly, this age group is prone to making less-than-ideal money moves that could hurt them later in life. Let's review the five biggest ways in which millennials are risking their retirement. (See also: <a href="http://www.wisebread.com/4-things-millennials-should-do-today-to-prepare-for-retirement?ref=seealso" target="_blank">4 Things Millennials Should Do Today to Prepare for Retirement</a>)</p> <h2>1. Delaying the start of retirement savings</h2> <p>Nearly four in 10 millennials haven't started saving for retirement. The same 2016 survey found that 61 percent of females and 50 percent of males belonging to the millennial generation have their finances stretched &quot;too thin&quot; to save for retirement. Even worse, 54 percent of women and 43 percent of men of this generation are living paycheck to paycheck.</p> <p>However, delaying retirement contributions has a serious impact. If a worker were to deposit just $50 per month into a 401(k) with an 8 percent annual rate of return for 10 years, they would end up with around $9,200 at the end of the 10-year period. The IRS sets a cap on how much you can contribute to a retirement account per year, which for 2017, is $18,000 to a 401(k) and $5,500 to an IRA. If you keep delaying your contributions to your retirement accounts, you'll never be able to fully make up that gap.</p> <h2>2. Taking out high student loans</h2> <p>Student Loan Hero estimated the average student loan balance for a member of the Class of 2016 at $37,172, up 6 percent from the year before. With so many Americans still believing in the importance of postsecondary education, it's easy to see how the average student loan continues to climb. Studies have shown that higher education still leads to better earnings potential, after all.</p> <p>Still, loans are rising too fast. Back in 1993, only 45 percent of college graduates had a student loan and their average balance was $15,000 in inflation-adjusted dollars. By having to pay down a high student loan, millennials are foregoing sizable contributions to their retirement accounts.</p> <p>Assuming a $30,000 balance on a federal direct loan with a 4 percent interest rate, you would pay about $304 per month. That's $3,648 in missed retirement contributions every year. By the time that a millennial pays back that standard loan (10 years), they would have missed out on $54,259 in retirement savings, assuming an 8 percent annual return.</p> <h2>3. Putting their kids' college fund before their own retirement fund</h2> <p>Given the tough time that they're having paying back their own student loans, 19 percent of millennial parents say education for their children is their top financial priority, according to TD Ameritrade. Those millennial parents are socking away an average $310 every month for their children's college fund.</p> <p>Every month, these millennial parents are hit with the double whammy of paying down their own student loans and then putting money away for their children's education. No wonder millennial parents ranked saving for retirement third on their list of financial priorities. (See also: <a href="http://www.wisebread.com/why-saving-too-much-money-for-a-college-fund-is-a-bad-idea?ref=seealso" target="_blank">Why Saving Too Much Money for a College Fund Is a Bad Idea</a>)</p> <h2>4. Not setting a retirement savings goal</h2> <p>If you don't know where you're going, you'll never know when you get there. According to the Employment Benefit Research Institute, across all generations, workers age 25&ndash;34 are the smallest percentage of individuals who have tried to calculate how much money they'll need to live comfortably in retirement.</p> <p>By not setting a retirement savings goal, millennials may be misjudging how much to contribute from every paycheck toward their retirement accounts. This explains the low average contribution levels per paycheck from millennial men and women &mdash; 7.3 and 5.7 percent, respectively. In 2016, 75 percent of workers age 25&ndash;34 said their total savings and investments were under $25,000.</p> <h2>5. Accepting a first-job salary offer without negotiation</h2> <p>Faced with a countdown to start paying back student loans, many millennials are so eager to start generating income they skip salary negotiations. According to a survey from NerdWallet and Looksharp, of 8,000 recent grads that entered the job market between 2012 and 2015, only 38 percent negotiated their salary offer from a new employer. The same survey revealed that 74.4 percent of employers had room for a 5 to 10 percent salary bump, 8.6 percent of them had room for a 11 to 20 percent salary bump, and 1.3 percent of them were willing or able to go above 20 percent.</p> <p>Do millennials skip negotiations over fear of having their job offer retracted? Not really: Close to nine out of 10 employers in the survey had never done such a thing.</p> <p>Failing to negotiate a starting salary is one of the biggest ways in which millennials are shortchanging their retirement. Let's crunch some numbers to see why. In 2016, The Collegiate Employment Research Institute found that the average starting salary for holders of a bachelor's degree was $41,880. Negotiating a 5 to 10 percent raise on your first-job salary offer would have yielded a starting salary ranging from $43,974 to $46,068. That would have been an extra $2,094 to $4,188 per year, enough to cover six to 13 $304 monthly payments on a $30,000 federal direct loan with a 4 percent interest rate.</p> <p>Saving for retirement may seem like a big hairy monster, but it doesn't need to be that way. By understanding what's keeping you from starting or saving enough for your retirement, you'll have a better chance of meeting your retirement saving goals. (See also: <a href="http://www.wisebread.com/how-to-face-4-ugly-truths-about-retirement-planning?ref=seealso" target="_blank">How to Face 4 Ugly Truths About Retirement Planning</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%2F5-biggest-ways-millennials-risk-their-retirements&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F5%2520Biggest%2520Ways%2520Millennials%2520Risk%2520Their%2520Retirements_0.jpg&amp;description=5%20Biggest%20Ways%20Millennials%20Risk%20Their%20Retirements"></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/u5180/5%20Biggest%20Ways%20Millennials%20Risk%20Their%20Retirements_0.jpg" alt="5 Biggest Ways Millennials Risk Their Retirements" 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/5-biggest-ways-millennials-risk-their-retirements">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-to-face-these-7-scary-facts-about-retirement-saving">How to Face These 7 Scary Facts About Retirement Saving</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-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for 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/8-critical-401k-questions-you-need-to-ask-your-employer">8 Critical 401(k) Questions You Need to Ask Your Employer</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/3-common-retirement-regrets-you-can-avoid">3 Common Retirement Regrets You Can Avoid</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/10-signs-you-arent-saving-enough-for-retirement">10 Signs You Aren&#039;t Saving Enough for Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) college funds IRA millennials not saving enough paycheck to paycheck salary negotiation savings goals student loans young adults Tue, 20 Jun 2017 08:00:11 +0000 Damian Davila 1961116 at http://www.wisebread.com Half of Americans Are Wrong About Their Retirement Savings http://www.wisebread.com/half-of-americans-are-wrong-about-their-retirement-savings <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/half-of-americans-are-wrong-about-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/iStock-172427755 (1).jpg" alt="Couple learning they&#039;re wrong about their retirement savings" title="" class="imagecache imagecache-250w" width="250" height="142" /></a> </div> </div> </div> <p>Some financial mistakes are easier to recover from than others. Failing to properly plan for retirement falls into the not-so-easy camp. And yet, the latest in a long series of retirement preparedness studies indicates that many working age households in the U.S. are making this very mistake.</p> <p>This new study, prepared by the Center for Retirement Research (CRR) at Boston College, analyzed two key findings. First, it compared people's objectively measured, actual retirement preparedness with their perceived preparedness. And second, instead of just highlighting how many people are less prepared than they think (a common finding among retirement studies), it also found that some people are actually more prepared than they realize, causing needless worry.</p> <p>Let's break it down.</p> <h2>Over half are not well prepared</h2> <p>According to the CRR study, over half (52 percent) of working age households are at risk of not being able to maintain their current standard of living in retirement. That's even if these households work until age 65, annuitize all of their financial assets, and turn their home equity into an income stream via a reverse mortgage.</p> <p>In 1989, just 30 percent of households were deemed to be at risk. The study's authors attribute the growth in this number to three main factors:</p> <ul> <li>The increased time people are spending in retirement &mdash; the result of a fairly static average retirement age (around 63) combined with lengthening life spans.<br /> &nbsp;</li> <li>Increases in Medicare premiums.<br /> &nbsp;</li> <li>The sweeping change from defined-benefit to defined-contribution retirement plans, such as 401(k) plans. In managing their own retirement accounts, the authors said, &quot;individuals make mistakes at every step along the way,&quot; which has resulted in a woefully inadequate median retirement account balance of just $111,000 for households nearing retirement.</li> </ul> <h2>Over half of the unprepared don't realize it</h2> <p>Of the 52 percent of households that are at risk of not being able to maintain their standard of living in retirement, the CRR study found that nearly two-thirds (63 percent) don't know they're in trouble at all &mdash; the worst possible situation. (See also: <a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement?ref=seealso" target="_blank">10 Signs You Aren't Saving Enough for Retirement</a>)</p> <p>The study's authors identified two main reasons.</p> <p>First, there is a &quot;wealth illusion&quot; that comes from having a 401(k). In other words, a person may have what seems like a lot of money in their plan, but not realize how little income it could actually produce in retirement.</p> <p>For example, a standard assumption is that 4 percent of your retirement savings can be withdrawn each year in retirement without too much danger of running out of money. A $100,000 balance would then translate into just $4,000 per year.</p> <p>The second reason is a false sense of security that comes from having a relatively high income. A high-income earner may not understand that Social Security benefits will replace a smaller percentage of his or her income than someone with a lower income. In other words, for high-income people, it takes more personal savings to maintain their standard of living in retirement than they may realize.</p> <h2>Of those who are prepared, half don't realize it</h2> <p>If 52 percent of all working age households are not adequately preparing for retirement, that means 48 percent are doing a good job. However, of those prepared 48 percent, the CRR study found that half worry that they're not on track. Of course, that's a much better problem to have than not realizing you're unprepared, but unnecessary worry is still a problem.</p> <p>The study's authors cited three main factors:</p> <ul> <li>For homeowners, not understanding how much income could be generated through a <a href="http://www.wisebread.com/reverse-mortgages-the-best-way-to-eat-your-home?ref=internal" target="_blank">reverse mortgage</a>.<br /> &nbsp;</li> <li>For those still covered by a defined-benefit pension plan, not fully appreciating just how valuable that benefit is. (See also: <a href="http://www.wisebread.com/if-youre-lucky-enough-to-receive-a-pension-here-are-6-things-you-need-to-do?ref=seealso" target="_blank">If You're Lucky Enough to Receive a Pension, Here Are 6 Things You Need to Do</a>)<br /> &nbsp;</li> <li>If married, not understanding how much money they may be entitled to via spousal Social Security benefits.</li> </ul> <h2>Solutions</h2> <p>What should you do if you realize you may be under or over-preparing for retirement? Run some numbers using a retirement planning calculator &mdash; preferably a couple of calculators since different tools use different assumptions &mdash; and rerun the numbers periodically. (See also: <a href="http://www.wisebread.com/how-much-should-you-have-saved-for-retirement-by-30-40-50?ref=seealso" target="_blank">How Much Should You Have Saved for Retirement by 30? 40? 50?</a>)</p> <p>Knowledge is your best bet when it comes to staying on track with your retirement savings. Don't just guess. Figure out how much you need to be investing each month so that you can afford to live comfortably in your retirement years, and then, make the necessary changes in your budget to set that money aside. (See also: <a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make?ref=seealso" target="_blank">7 Retirement Planning Steps Late Starters Must Make</a>)</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/half-of-americans-are-wrong-about-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/8-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for 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/7-roadblocks-to-retirement-and-how-to-clear-them">7 Roadblocks to Retirement (And How to Clear Them)</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/3-common-retirement-regrets-you-can-avoid">3 Common Retirement Regrets You Can Avoid</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-revive-an-old-retirement-fund">How to Revive an Old Retirement Fund</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/one-smart-thing-you-can-do-for-your-retirement-today">One Smart Thing You Can Do for Your Retirement Today</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) investing IRA nest egg preparedness saving money Fri, 28 Apr 2017 09:00:08 +0000 Matt Bell 1935019 at http://www.wisebread.com Why Tax Day Is April 15 and Other Weird Financial Deadlines http://www.wisebread.com/why-tax-day-is-april-15-and-other-weird-financial-deadlines <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-tax-day-is-april-15-and-other-weird-financial-deadlines" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-175261184.jpg" alt="Learning why Tax Day is on April 15" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>April is one of the finest months of the year. The sun breaks through the clouds, the cherry blossoms bloom, and the promise of warm weather beckons.</p> <p>So of course, the IRS, in its infinite wisdom, decided to place Tax Day right smack dab in the middle of all of this riotous spring beauty.</p> <p>Though I have always believed that the placement of Tax Day in mid-April is proof of the federal government's grim sense of humor, there is actually some method to their madness &mdash; both for this, and all other seemingly arbitrary financial dates and deadlines.</p> <p>Here are the reasons behind some of the most head-scratching financial dates in the United States.</p> <h2>Why is Tax Day on April 15?</h2> <p>Paying federal income taxes is actually a relatively new phenomenon in American history. The first time an income tax was levied on Americans was in 1861 in order to help pay for the Civil War. In 1872, the law surrounding the tax was repealed after opponents successfully argued that federal income tax was unconstitutional.</p> <p>Fast forward to February 3, 1913, when Congress adopted the 16th amendment to the constitution, which allows for federal income tax. Congress also determined the first due date for filing 1913 taxes would be March 1, 1914 &mdash; one year and a couple of weeks later. March 1 offered an easy-to-remember due date that gave citizens just over a full year to get used to being taxpayers, gather up their receipts into the early 20th century version of a shoe box, and file their first returns.</p> <p>Then in 1918, the due date was moved to March 15, for reasons that no one in Congress saw fit to explain or write down.</p> <p>Congress again moved the filing due date in 1955, this time to the now-familiar date of April 15. According to the IRS, the date change helped to spread out the tax season workload for IRS employees.</p> <p>However, there may be a slightly more mercenary reason for the date change: According to Ed McCaffery, a University of Southern California law professor and tax guru, by the mid 1950s, the income tax was applying to increasing numbers of middle class workers, which meant the government had to issue more refunds. &quot;Pushing the deadline back gives the government more time to hold on to the money,&quot; McCaffery claimed in Fortune magazine. And the longer the government holds onto taxes that have been withheld but are destined to be refunded, the more interest it earns on the money.</p> <h3>Okay, so why is Tax Day on April 18 this year?</h3> <p>If you look at an April calendar for 2017, you'll see that April 15 falls on a Saturday this year, which means we get a little extension, since Tax Day can't fall on a weekend. However, you might be confused as to why we get an extension to Tuesday, April 18, instead of Monday, April 17.</p> <p>The reason for our extra day is a Washington, D.C. holiday known as Emancipation Day. Though only Washington, D.C. observes this holiday, a federal statute enacted decades ago states that holidays observed in our nation's capital have a nationwide impact.</p> <h2>Why was 65 chosen as full retirement age for Social Security?</h2> <p>When the Social Security Act was officially adopted in 1935, the age of 65 was chosen as the standard retirement age for beneficiaries. Why was that age chosen as the proper time for full retirement? Why not 63 or 67 or 70?</p> <p>There are a couple of persistent myths out there about this choice, but they are nothing more than misconceptions:</p> <h3>Myth #1: People would die before collecting</h3> <p>The age of 65 was chosen so that people would not live long enough to collect benefits. According to life expectancy actuarial tables from 1930, the average life span was 58 for men and 62 for women, which would make it seem as if Social Security was designed to never make a payout to beneficiaries. However, this myth stems from an unfamiliarity with actuarial tables, which offer an average of <em>all </em>life spans, starting from birth. High infant mortality in the 1930s lowered the overall rate of life expectancy, but anyone who made it to adulthood had a much better chance of reaching age 65 and collecting benefits.</p> <h3>Myth #2: Bismarck was 65</h3> <p>The age of 65 was chosen because Otto von Bismarck &mdash; the author of the world's first old-age social insurance program upon which our Social Security program was partially based &mdash; was 65 when Germany adopted his program. This myth is false on several counts. Bismarck was actually 74 when the German system was adopted, and Germany initially set the retirement age at 70. Germany's retirement age was not lowered to 65 until 1916, at which point Bismarck had been dead for nearly two decades.</p> <h3>The truth behind 65</h3> <p>The actual reason why 65 was chosen as the initial full retirement age for Social Security is pretty boring. The Committee on Economic Security, which Franklin D. Roosevelt created to propose Social Security legislation, conducted a comprehensive analysis of actuarial studies, domestic private pension systems in America, and the social insurance experience in other countries. Based upon that research, the committee recommended 65 as the standard retirement age for Social Security.</p> <h2>Why is 59&frac12; the minimum age to take distributions from tax-deferred retirement accounts?</h2> <p>When it comes to tax-deferred accounts like 401(k)s and traditional IRAs, you are not allowed to take distributions until you have reached the magical age of 59&frac12;. Otherwise, you will owe a 10 percent early withdrawal penalty on the amount you withdraw, in addition to the ordinary income tax you'll owe whenever you take a distribution.</p> <p>So why is the IRS asking you to celebrate half-birthdays when you're nearly 60 years old? Congress used the age of 59&frac12; as the earliest withdrawal age because life insurance actuarial tables consider you to be 60 years old once you have reached the age of 59 and six months &mdash; and at the time that the rules were put in place, 60 was a relatively common age for retirement.</p> <h2>Why must you begin taking required minimum distributions from tax-deferred retirement accounts at age 70&frac12;?</h2> <p>Of course, the IRS is not just about picking random minimum ages for when you <em>can </em>take distributions from tax-deferred retirement accounts &mdash; they also have a random age for when you <em>must </em>take distributions from those accounts.</p> <p>Since the money in your tax-deferred account was placed there before you paid taxes on it, Uncle Sam does want you to eventually pull the money out again so he can get his cut of the money in the form of taxes. That means the IRS requires each account holder to begin withdrawing money during the year that they reach age 70&frac12;. This is called the required minimum distribution (RMD).</p> <p>But unlike the 59&frac12; rule, 70&frac12; does not actually mean your half-birthday. The IRS makes a distinction between those individuals born in the first half of the year and those born in the second half. If your birthday falls between January 1 and June 30, you have to take your first RMD during the calendar year you turn 70. But if your birthday falls between July 1 and December 31, then you don't officially have to take your first RMD until the calendar year you turn 71.</p> <p>Describing this year as being when you are 70&frac12; is actually shorthand, since some folks will be taking their first RMD the year they turn 70, and some will be taking their first RMD the year they turn 71.</p> <h2>Why does Social Security think New Year's babies were born in the previous year?</h2> <p>Unless you happen to have a January 1 birthday, you might not know about this odd piece of Social Security dating. But according to the Social Security Administration, individuals born on the first of the year are considered to have birthdays in the previous year. So Social Security will group someone with a January 1, 1954 birthday with beneficiaries who were born in 1953.</p> <p>This can actually make a big difference when it comes to some Social Security benefits, particularly when those benefits are eliminated. For instance, in 2015 Congress ended the restricted application strategy for any beneficiary born after 1953. The restricted application let applicants specify which Social Security benefits they did <em>not</em> want to apply for, even if they were eligible for all of them. So, for example, beneficiaries who reached full retirement age could claim a spousal benefit while continuing to let their own grow. Beneficiaries who were born on January 1, 1954 were grouped with those with 1953 births &mdash; which means anyone born on January 2, 1954 had rotten luck in terms of using the restricted application.</p> <p>Why does Social Security extend a year 24 hours past the time the rest of us do? This odd birth year dating occurs because the Social Security Administration groups beneficiaries who have birthdays on the first of the month with beneficiaries born in the previous month. This grouping allows first-of-the-month babies to have a little more leeway when it comes to deadlines and other requirements. In order to be completely fair with the first-of-the-month grouping, January 1 babies are then considered to have been born in the previous year.</p> <h2>The government is not entirely lacking in sweet rhyme and pure reason</h2> <p>The financial dates that we all must adhere to may seem like ridiculous and arbitrary decisions, but there was some thought put into them. Those thoughts might only make sense to the people that made the decisions, but at least we know they weren't throwing darts at a calendar.</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/why-tax-day-is-april-15-and-other-weird-financial-deadlines">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/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/three-of-the-toughest-decisions-youll-face-in-retirement">Three of the Toughest Decisions You&#039;ll Face 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/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-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-age-milestones-that-impact-your-retirement">6 Age Milestones That Impact Your 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/8-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement Taxes 401(k) ages benefits dates distributions finance facts full retirement age IRA IRS social security tax day trivia Wed, 29 Mar 2017 08:00:22 +0000 Emily Guy Birken 1914689 at http://www.wisebread.com