2015 IRA Deadlines Are Approaching

Here is what you need to know.

Financially, many of us associate April with taxes – but we should also associate April with important IRA deadlines.

*April 1 is the absolute deadline to take your first Required Mandatory Distribution (RMD) from your traditional IRA(s).

*April 15 is the deadline for making annual contributions to a traditional or Roth IRA.1

Let’s discuss the contribution deadline first, and then the deadline for that first RMD (which affects only those IRA owners who turned 70½ last year).

The earlier you make your annual IRA contribution, the better. You can make a yearly Roth or traditional IRA contribution anytime between January 1 of the current year and April 15 of the next year. So the contribution window for 2014 is January 1, 2014- April 15, 2015. You can make your IRA contribution for 2015 anytime from January 1, 2015-April 15, 2016.2

You have more than 15 months to make your IRA contribution for a given year, but why wait? Savvy IRA owners contribute as early as they can to give those dollars more months to grow and compound. (After all, who wants less time to amass retirement savings?)

You cut your income tax bill by contributing to a deductible traditional IRA. That’s because you are funding it with after-tax dollars. To get the full tax deduction for your 2015 traditional IRA contribution, you have to meet one or more of these financial conditions:

*You aren’t eligible to participate in a workplace retirement plan.

*You are eligible to participate in a workplace retirement plan, but you are a single filer or head of household with modified adjusted gross income of $61,000 or less. (Or if you file jointly with your spouse, your combined MAGI is $98,000 or less.)

*You aren’t eligible to participate in a workplace retirement plan, but your spouse is eligible and your combined 2015 gross income is $183,000 or less.3

If you are the original owner of a traditional IRA, by law you must stop contributing to it starting in the year you turn 70½. If you are the initial owner of a Roth IRA, you can contribute to it as long as you live provided you have taxable compensation and MAGI below a certain level (see below).1,3

If you are making a 2014 IRA contribution in early 2015, be aware of this fact. You must tell the investment company hosting the IRA account what year the contribution is for. If you fail to indicate the tax year that the contribution applies to, the custodian firm may make a default assumption that the contribution is for the current year (and note exactly that to the IRS).4

So, write “2015 IRA contribution” or “2014 IRA contribution” as applicable in the memo area of your check, plainly and simply. Be sure to write your account number on the check. Should you make your contribution electronically, double-check that these details are communicated.

How much can you put into an IRA this year? You can contribute up to $5,500 to a Roth or traditional IRA for the 2015 tax year, $6,500 if you will be 50 or older this year. (The same applies for the 2014 tax year). If you have multiple IRAs, you can contribute up to a total of $5,500/$6,500 across the various accounts. Should you make an IRA contribution exceeding these limits, you will not be rewarded for it: you will have until the following April 15 to correct the contribution with the help of an IRS form, and if you don’t, the amount of the excess contribution will be taxed at 6% each year the correction is avoided.1,4

If you earn a lot of money, your maximum contribution to a Roth IRA may be reduced because of MAGI phase-outs, which kick in as follows.3

2014 Tax Year 2015 Tax Year
Single/head of household: $114,000 – $129,000 Single/head of household: $116,000 – $131,000
Married filing jointly: $181,000 – $191,000 Married filing jointly: $183,000 – $193,000
Married filing separately: $0 – $10,000 Married filing separately: $0 – $10,000

If your MAGI falls within the applicable phase-out range, you may make a partial contribution.3

A last-chance RMD deadline rolls around on April 1. If you turned 70½ in 2014, the IRS gave you a choice: you could a) take your first Required Minimum Distribution from your traditional IRA before December 31, 2014, or b) postpone it until as late as April 1, 2015.1

If you chose b), you will have to take two RMDs this year – one by April 1, 2014 and another by December 31, 2014. (For subsequent years, your annual RMD deadline will be December 31.) The investment firm hosting your IRA should have already notified you of this consequence, and the RMD amount(s) – in fact, they have probably calculated the RMD(s) for you.5

Original owners of Roth IRAs will never face this issue – they are not required to take RMDs.1

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs [11/3/14]

2 – dailyfinance.com/2014/12/06/time-running-out-end-year-retirement-planning/ [12/6/14]

3 – asppa.org/News/Browse-Topics/Sales-Marketing/Article/ArticleID/3594 [10/23/14]

4 – investopedia.com/articles/retirement/05/021505.asp [1/21/15]

5 – schwab.com/public/schwab/nn/articles/IRA-Tax-Traps [6/6/14]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Merck, Pfizer, Chevron, Northrop Grumman, Raytheon, Hughes,ExxonMobil, Glaxosmithkline, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Linda Bullwinkle, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Linda Bullwinkle is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

How Women Are Planning Their Financial Futures

From assorted survey data, an interesting snapshot emerges.

Women are taking action to approach retirement with greater confidence. Some recent, intriguing survey data indicates that women are planning their financial futures with some degree of pragmatism, but also with considerable motivation.

One of the key motivations, it seems, is receiving financial advice.

Results from a new TIAA-CREF survey (and other studies) bear this out. The retirement services giant polled a random, national sample of 1,000 men and women age 18 and older for its 2014 Advice Matters Survey, and it found that 81% of women who had obtained financial advice were more likely to feel informed about retirement planning and retirement saving than women who hadn’t. Additionally, 63% of women who had received financial advice felt confident that they were saving sufficiently for retirement.1

What kind of difference does financial advice make? A significant difference, it seems. In the big picture, 87% of the women surveyed by TIAA-CREF this summer said they had taken “positive steps” in their financial lives as a consequence. In particular, 64% altered spending habits and 53% took an organized approach to managing debt.1,2

In addition, 51% of the women had created an emergency fund and 57% had increased monthly saving rates since getting advice – and that leads us toward another interesting statistic.2

One study suggests women are more dedicated to retirement saving than men. Looking back at 2013, Vanguard discovered that 79% of women earning between $50,000-75,000 were participating in its employer-sponsored retirement plans; only 60% of men in that income group were.2

Another notable difference appeared, this one across all income levels. Examining data from all of its retirement plans, Vanguard found that women saved for retirement at rates ranging from 6-12% greater than men. The message that women need more money for (a potentially longer) retirement than men is being heard loud and clear, it seems.2

Where are women getting their financial advice from? TIAA-CREF’s survey asked this question, but it only counted online sources. Back in 2012, 20% of women in TIAA-CREF’s 2012 survey said they went to financial websites for advice; this year, that rose to 41%.2

Most telling is that 49% of the women TIAA-CREF polled felt that it would be helpful to turn to a real person online with their basic personal financial questions. In fact, 61% of women respondents in the survey reported relying on financial services providers (and presumably, the financial professionals who work for them) for advice.1

Still, 66% of the women answering TIAA-CREF’s questions indicated that it was hard for them to determine what sources of financial advice to trust. (That was across all women surveyed, including those who had not sought advice.)2

Women may put more importance on long term care planning than men. Or so suggests Genworth’s 2014 Online Consumer Survey. The insurer collected responses from 1,200+ U.S. adults age 18 and older during October, and 64% of women respondents said they were motivated to plan for long term care needs. Only 40% of men responding said they were concerned about that. Even so, Genworth discovered that less than 30% of respondents had talked with their loved ones about planning for eldercare or aging issues.3

Long term care insurance is getting costlier as the baby boom generation matures, and it may get more expensive for women in the near future than for men: as Morningstar columnist Mark Miller recently noted, gender-based pricing is quickly emerging and may become standard practice.4

Single women need to plan & save aggressively for the years ahead. The Transamerica Center for Retirement Studies recently surveyed American workers 50 and older and found that the median retirement savings for single women was only $35,000. (For single men, the median was $70,000; for married women, it was $153,000.) Women living alone anticipated a financial struggle: 48% of those surveyed believed they would retire to a lower standard of living, and 52% assumed their main income resource would be Social Security. Perhaps most troubling, 56% of these single women expected to work into their seventies or never retire.4

The takeaways here for a single woman: save early, save consistently, exploit Social Security claiming strategies for any potential advantage, and find a social support network that can help you look after yourself as you age.

Advice promotes action. As you amass financial knowledge, you gain perspective. When you run the numbers and estimate the level of retirement savings and income you will need, you are able to set goals and timelines for your financial future. Planning the financial future starts with a commitment – and following through on that commitment is critical.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tiaa-cref.org/public/about/press/about_us/releases/articles/pressrelease534.html [10/29/14]

2 – mainstreet.com/article/more-women-want-financial-advice-but-two-thirds-dont-know-whom-to-trust [11/4/14]

3 – tinyurl.com/m49oo52 [11/13/14]

4 – news.morningstar.com/articlenet/article.aspx?id=670479 [10/31/14]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Linda Bullwinkle, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Merck, Pfizer, Glaxosmithkline, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Linda Bullwinkle is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

Understanding Bond Yields and the Yield Curve

When it comes to investing in bonds, one of the first factors to consider is yield. But what exactly is “yield?” The answer depends on how the term is being used. In the broadest sense, an investment’s yield is the return you get on the money you’ve invested. However, there are many different ways to calculate yield. Comparing yields can be a good way to evaluate bond investments, as long as you know what yields you’re comparing and why.

Current yield

People sometimes confuse a bond’s yield with its coupon rate (the interest rate that is specified in the bond agreement). A bond’s coupon rate represents the amount of interest you earn annually, expressed as a percentage of its face (par) value. If a $1,000 bond pays $50 a year in interest, its coupon rate would be 5%.

Current yield is a bit different. It represents those annual interest payments as a percentage of the bond’s market value, which may be higher or lower than par. As a bond’s price goes up and down in response to what’s happening in the marketplace, its current yield will vary also. For example, if you were to buy that same $1,000 bond on the open market for $900, its current yield would be 5.55% ($50 divided by $900).

If you buy a bond at par and hold it to maturity, the current yield and the coupon rate are the same. However, for a bond purchased at a premium or a discount to its face value, the yield and the coupon rate are different.

If you’re concerned only with the amount of current income a bond can provide each year, then calculating the current yield may give you enough information to decide whether you should purchase that bond. However, if you’re interested in a bond’s performance as an investment over a period of years, or want to compare it to another bond or some other income-producing investment, the current yield will not give you enough information. In that case, yield to maturity will be more useful.

Yield to maturity

Yield to maturity is a more accurate reflection of the return on a bond if you hold it until its maturity date. It takes into account not only the bond’s interest rate, principal, time to maturity, and purchase price, but also the value of the interest payments as you receive them over the life of the bond.

If you buy a bond at a discount to its face value, its yield to maturity will be higher than its current yield. Why? Because in addition to receiving interest, you would be able to redeem the bond for more than you paid for it. The reverse is true if you buy a bond at a premium (more than its face value). Its value at maturity would be less than you paid for it, which would affect your yield.

Example: If you paid $960 for a $1,000 bond and held it to maturity, you would receive the full $1,000 principal. That $40 profit is included in the calculation of a bond’s yield to maturity. Conversely, if you bought the bond at a $40 premium, meaning you paid $1,040 for it, that premium would reduce the bond’s yield because the bond would be redeemed for $40 less than its purchase price.

Yield to maturity lets you accurately compare bonds with different maturities and coupon rates. It’s particularly helpful when you’re comparing older bonds being sold in the secondary market that are priced at a discount or at a premium rather than at face value. It’s also especially important when looking at a zero-coupon bond, which typically sells at a deep discount to its face value but makes no periodic interest payments. Because all of a zero’s return comes at maturity, when its principal is repaid, any yield quoted for a zero-coupon bond is always a yield to maturity.

Yield to call

When it comes to helping you estimate your return on a callable bond (one whose issuer can choose to repay the principal before maturity), yield to maturity has a flaw. If the bond is called, the par value will be repaid and interest payments will come to an end, thus reducing its overall yield to the investor. Therefore, for a callable bond, you also need to know what the yield would be if the bond were called at the earliest date possible. That figure is known as its yield to call. The calculation is the same as with yield to maturity, except that the first call date is substituted for the maturity date.

A bond issuer will generally call a bond only if it’s profitable for the issuer to do so. For example, if interest rates fall below a bond’s coupon rate, the issuer is likely to recall the bond and borrow money at the new, lower rate. The larger the spread between current interest rates and the original coupon rate, and the earlier the first date the bond can be called, the more important yield to call becomes.

After-tax yield

It’s also important to consider a bond’s after-tax yield–the rate of return after taking into account taxes (if any) on the income received. A tax-exempt bond typically pays a lower interest rate than its taxable equivalent, but may have a higher after-tax yield, depending on your tax bracket and state tax laws.

Example: Bond A is a tax-exempt bond paying 4%; Bond B is a taxable bond paying 6%. For purposes of this illustration, let’s say you’re in the 35% federal tax bracket and pay no state taxes. Bond A’s after-tax yield is 4%, but Bond B’s yield is only 3.9% once taxes have been deducted. Bond A has a higher after-tax yield.

Watching the yield curve

Bond maturities and their yields are related. Typically, bonds with longer maturities pay higher yields. Why? Because the longer a bondholder must wait for the bond’s principal to be repaid, the greater the risk compared to an identical bond with a shorter maturity, and the more reward investors demand.

On a chart that compares the yields of, say, Treasury securities with various maturities, you would typically see a line that slopes upward as maturities lengthen and yields increase. The greater the difference between short and long maturities, the steeper that slope. A steep yield curve often occurs when investors expect a faster-growth economy and rising interest rates; they want greater compensation for tying up their money for longer periods. A flat yield curve means that economic projections are relatively stable, so there is little difference between short and long maturities.

Sometimes the yield curve can become inverted when short-term interest rates are higher than long-term rates. For example, in 2004 the Federal Reserve Board began increasing short-term rates, but long-term rates didn’t rise as quickly. A yield curve that stays inverted for a period of time is believed to indicate that a recession is likely to occur soon.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Linda Bullwinkle, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, Chevron, Hughes, access.att.com, AT&T, Qwest, ING Retirement, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Linda Bullwinkle is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Working During Retirement

Planning on working during retirement? If so, you’re not alone. An increasing number of employees nearing retirement plan to work at least some period of time during their retirement years.

Why work during retirement?

Obviously, if you work during retirement, you’ll be earning money and relying less on your retirement savings–leaving more to potentially grow for the future and making your savings last longer, as shown in the example below:

Assumptions:

  • Retirement savings $1,000,000
  • Earnings rate 6%
  • Preretirement income $150,000
  • Social Security $2,000/month
  • Desired income replacement 80% ($120,000/year,

$10,000/month)

 

Without working, you’ll need to use $8,000 ($10,000 desired income minus $2,000 Social Security) of retirement savings per month, and your savings will last 16 years.
But if you earn this amount monthly: for 3 years, your savings will last: for 5 years, your savings will last: for 10 years, your savings, will last
$1,000 17 years 18 years 19 years
$2,000 18 years 19 years 22 years
$3,000 19 years 21 years 26 years
$4,000 20 years 23 years 32 years
$5,000 22 years 26 years 39 years
This is hypothetical example and is not intended to reflect the actual performance of any specific investment, and does not take into account the effect of taxes and inflation.

 

If you continue to work, you may also have access to affordable health care, as more and more employers are offering this important benefit to part-time employees.

But there are also non-economic reasons for working during retirement. Many retirees work for personal fulfillment–to stay mentally and physically active, to enjoy the social benefits of working, and to try their hand at something new–the reasons are as varied as the number of retirees.

How working affects Social Security

If you work after you start receiving Social Security retirement benefits, your earnings may affect the amount of your benefit check. Your monthly benefit is based on your lifetime earnings. When you become entitled to retirement benefits at age 62, the Social Security Administration calculates your primary insurance amount (PIA), upon which your retirement benefit will be based. Your PIA is recalculated annually if you have any new earnings that might increase your benefit. So if you continue to work after you start receiving retirement benefits, these earnings may increase your PIA and thus your future Social Security retirement benefit.

But working may also cause a reduction in your current benefit. If you’ve reached full retirement age (66 to 67, depending on when you were born), you don’t need to worry about this– you can earn as much as you want without affecting your Social Security retirement benefit.

If you haven’t yet reached full retirement age, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit ($15,720 in 2015). A special rule applies in your first year of Social Security retirement–you’ll get your full benefit for any month you earn less than one-twelfth of the annual earnings limit, regardless of how much you earn during the entire year. A higher earnings limit applies in the year you reach full retirement age. If you earn more than this higher limit ($41,880 in 2015), $1 in benefits will be withheld for every $3 you earn over that amount, until the month you reach full retirement age—then you’ll get your full benefit no matter how much you earn. (If your current benefit is reduced because of excess earnings, you may be entitled to an upward adjustment in your benefit once you reach full retirement age.)

Not all income reduces your Social Security benefit. In general, Social Security only takes into account wages you’ve earned as an employee, net earnings from self-employment and other types of work-related income, such as bonuses, commissions, and fees. Pensions, annuities, IRA distributions, and investment income won’t reduce your benefit.

Also, keep in mind that working may enable you to put off receiving your Social Security benefit until a later date. In general, the later you begin receiving benefit payments, the greater your benefit will be. Whether delaying the start of Social Security benefits is the right decision for you, however, depends on your personal circumstances.

One last important point to consider: in general, your Social Security benefit won’t be subject to federal income tax if that’s the only income you receive during the year. But if you work during retirement (or receive any other taxable income or tax-exempt interest), a portion of your benefit may become taxable. IRS Publication 915 has a worksheet that can help you determine whether any part of your Social Security benefit is subject to federal income tax.

How working affects your pension

If you work for someone other than your original employer, your pension benefit won’t be impacted at all–you can work, receive a salary from your new employer, and also receive your pension benefit from your original employer. But if you continue to work past your normal retirement date for the same employer, or if you retire and then return to work for that employer, you need to understand how your pension will be impacted.

Some plans will allow you to start receiving your pension benefit once you reach the plan’s normal retirement age, even if you continue to work. Other plans will suspend your pension benefit if you work beyond your normal retirement date, but will actuarially increase your payment when benefits resume to account for the period of time benefits were suspended. Still other plans will suspend your benefit for any month you work more than 40 hours, and will not provide any actuarial increase–in effect, you’ll forfeit your benefit for any month you work more than 40 hours.

Some plans provide yet another option–“phased retirement.” These programs allow you to continue to work on a part-time basis while accessing all or part of your pension benefit. Federal law encourages these phased retirement programs by allowing pension plans to start paying benefits once you reach age 62, even if you’re still working and haven’t yet reached the plan’s normal retirement age. If your pension plan calculates benefits using final average pay, be sure to discuss with your plan administrator how your particular benefit might be affected by the decision to work part-time. In some cases, reducing your hours at the end of your career could reduce your final average pay, resulting in a smaller benefit than you might otherwise have received.

How working affects health benefits

Many individuals work during retirement to keep their medical coverage. If working during retirement for you means moving from full-time to part-time, it’s important that you fully understand how that decision will impact your medical benefits.

Some employers, especially those with phased retirement programs, offer medical coverage to part-time employees. But other employers don’t, or require that you work a minimum number of hours to be benefits eligible. If your employer doesn’t offer medical benefits to part-time employees, you’ll need to look for coverage elsewhere. If you’re married, the obvious option is coverage under your spouse’s health plan, if your spouse works and has coverage available. If not, you may be eligible for COBRA.

COBRA is a federal law that allows you to continue receiving medical benefits under your employer’s plan for some period of time, usually for 18 months, after a qualifying event (including loss of coverage due to a reduction in hours). But it’s expensive–you typically have to pay the full premium yourself, plus a 2% administrative fee. (COBRA doesn’t apply to employers who have fewer than 20 employees.) Another option is private health insurance, but that will also be very expensive.

Of course, once you turn 65, you’ll be eligible for Medicare. You’ll want to contact the Social Security Administration approximately three months before your 65th birthday to discuss your options.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Linda Bullwinkle, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Verizon, Bank of America, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer,Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Linda Bullwinkle is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

 

Monitoring Your Portfolio

You probably already know you need to monitor your investment portfolio and update it periodically. Even if you’ve chosen an asset allocation, market forces may quickly begin to tweak it. For example, if stock prices go up, you may eventually find yourself with a greater percentage of stocks in your portfolio than you want. If stock prices go down, you might worry that you won’t be able to reach your financial goals. The same is true for bonds and other investments.

Do you have a strategy for dealing with those changes? You’ll probably want to take a look at your individual investments, but you’ll also want to think about your asset allocation. Just like your initial investing strategy, your game plan for fine-tuning your portfolio periodically should reflect your investing personality.

The simplest choice is to set it and forget it–to make no changes and let whatever happens happen. If you’ve allocated wisely and chosen good investments, you could simply sit back and do nothing. But even if you’re happy with your overall returns and tell yourself, “if it’s not broken, don’t fix it,” remember that your circumstances will change over time. Those changes may affect how well your investments match your goals, especially if they’re unexpected. At a minimum, you should periodically review the reasons for your initial choices to make sure they’re still valid.

Even things out

To bring your asset allocation back to the original percentages you set for each type of investment, you’ll need to do something that may feel counterintuitive: sell some of what’s working well and use that money to buy investments in other sectors that now represent less of your portfolio. Typically, you’d buy enough to bring your percentages back into alignment. This keeps what’s called a “constant weighting” of the relative types of investments.

Let’s look at a hypothetical illustration. If stocks have risen, a portfolio that originally included only 50% in stocks might now have 70% in equities. Rebalancing would involve selling some of the stock and using the proceeds to buy enough of other asset classes to bring the percentage of stock in the portfolio back to 50. The same would be true if stocks have dropped and now represent less of your portfolio than they should; to rebalance, you would invest in stocks until they once again reach an appropriate percentage of your portfolio. This example doesn’t represent actual returns; it merely demonstrates how rebalancing works. Maintaining those relative percentages not only reminds you to take profits when a given asset class is doing well, but it also keeps your portfolio in line with your original risk tolerance.

When should you do this? One common rule of thumb is to rebalance your portfolio whenever one type of investment gets more than a certain percentage out of line–say, 5 to 10%. You could also set a regular date. For example, many people prefer tax time or the end of the year. To stick to this strategy, you’ll need to be comfortable with the fact that investing is cyclical and all investments generally go up and down in value from time to time.

Forecast the future

You could adjust your mix of investments to focus on what you think will do well in the future, or to cut back on what isn’t working. Unless you have an infallible crystal ball, it’s a trickier strategy than constant weighting. Even if you know when to cut back on or get out of one type of investment, are you sure you’ll know when to go back in?

Mix it up

You could also attempt some combination of strategies. For example, you could maintain your current asset allocation strategy with part of your portfolio. With another portion, you could try to take advantage of short-term opportunities, or test specific areas that you and your financial professional think might benefit from a more active investing approach. By monitoring your portfolio, you can always return to your original allocation.

Another possibility is to set a bottom line for your portfolio: a minimum dollar amount below which it cannot fall. If you want to explore actively managed or aggressive investments, you can do so–as long as your overall portfolio stays above your bottom line. If the portfolio’s value begins to drop toward that figure, you would switch to very conservative investments that protect that baseline amount. If you want to try unfamiliar asset classes and you’ve got a financial cushion, this strategy allows allocation shifts while helping to protect your core portfolio.

Points to consider

  • Keep an eye on how different types of assets react to market conditions. Part of fine-tuning your game plan might involve putting part of your money into investments that behave very differently from the ones you have now. Diversification can have two benefits. Owning investments that go up when others go down might help to either lower the overall risk of your portfolio or improve your chances of achieving your target rate of return. Asset allocation and diversification don’t guarantee a profit or insure against a possible loss, of course. But you owe it to your portfolio to see whether there are specialized investments that might help balance out the ones you have.
  • Be disciplined about sticking to whatever strategy you choose for monitoring your portfolio. If your game plan is to rebalance whenever your investments have been so successful that they alter your asset allocation, make sure you aren’t tempted to simply coast and skip your review altogether. At a minimum, you should double-check with your financial professional if you’re thinking about deviating from your strategy for maintaining your portfolio. After all, you probably had good reasons for your original decision.
  • Some investments don’t fit neatly into a stocks-bonds-cash asset allocation. You’ll probably need help to figure out how hedge funds, real estate, private equity, and commodities might balance the risk and returns of the rest of your portfolio. And new investment products are being introduced all the time; you may need to see if any of them meet your needs better than what you have now.

Balance the costs against the benefits of rebalancing

Don’t forget that too-frequent rebalancing can have adverse tax consequences for taxable accounts. Since you’ll be paying capital gains taxes if you sell a stock that has appreciated, you’ll want to check on whether you’ve held it for at least one year. If not, you may want to consider whether the benefits of selling immediately will outweigh the higher tax rate you’ll pay on short-term gains. This doesn’t affect accounts such as 401(k)s or IRAs, of course. In taxable accounts, you can avoid or minimize taxes in another way. Instead of selling your portfolio winners, simply invest additional money in asset classes that have been outpaced by others. Doing so can return your portfolio to its original mix.

You’ll also want to think about transaction costs; make sure any changes are cost-effective. No matter what your strategy, work with your financial professional to keep your portfolio on track.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, Glaxosmithkline, Merck, Pfizer, Verizon, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Linda Bullwinkle, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Linda Bullwinkle is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Getting Financially Fit for Retirement at 50

Things for trailing-edge boomers & Gen Xers to consider.

When you turn 50, retirement starts to seem less abstract. In terms of retirement planning, a 50th birthday can act as a wake-up call. It may offer a powerful reminder to trailing-edge baby boomers and Gen Xers, many of whom are wrapping up their second act with inadequate retirement savings for their third.

You may find yourself with such a shortfall, and you wouldn’t be exceptional. Your peak earning years may arrive in your forties or fifties, but so do other responsibilities with big price tags (raising a family, caring for aging parents, building a business). Throw in some “wild cards” like divorce, bankruptcy, or health scares, and any fortysomething would be challenged to build significant wealth – and yet it happens.

According to the latest Wells Fargo Middle Class Retirement Study, the median monthly retirement savings contribution by middle-class Americans aged 40-49 is $200. How about middle-class folks in their fifties? It must be more, right? No, the median contribution is even less: $78, working out to $936 per year. (Wells Fargo defined middle-class households as having 2013 income of $50,000-99,999 or investable assets of $25,000-99,999.)1

Just as alarming, 50% of the survey respondents in their fifties said they would ramp up their retirement savings efforts “later” to make up for what they weren’t doing now. When you’re in your fifties, there is no “later” – you have to act now. “Later” equals your sixties and your sixties will likely be when you retire.1

So what can you do here and now? Whether you’ve saved a great deal for retirement or not, what decisions could possibly strengthen your retirement nest egg?

Make those catch-up retirement plan contributions. They may seem inconsequential in the big picture, but when you factor in potential investment returns and the power of compounding, they really aren’t. You can start making catch-up plan contributions in the year in which you turn 50. (You can make your first one while you are 49; it just has to be made within that calendar year.) If you only have a five-figure retirement savings sum at age 50, your retirement savings may double (or more) by age 65 through consistent inflows, compounding and catch-up contributions and decent yields.2,3

For 2015, there is a $1,000 catch-up contribution limit for IRAs and a $6,000 catch-up contribution limit for 401(k)s, 403(b)s, most 457 plans & the federal government’s Thrift Savings Plan.4

Explore ways to save even more. Are you self-employed and a sole proprietor? You could create a solo 401(k) or a SEP-IRA. If eligible, you can defer up to $53,000 into those plans for 2015. Also, SIMPLE plans (to which both employers and employees may contribute) have contribution limits of $12,500 next year with a $3,000 catch-up limit.4,5

Slim down your debt. Retiring debt-free is a remarkable financial gift that you can give to yourself, and you ought to strive for it. You will always have some consumer debt and you may incur medically-related debts, but paying off the house and avoiding large, new, “bad” debts should be high on your financial to-do list. If accelerating or pre-paying your mortgage payments makes sense, see if your monthly budget will let you do so; be sure you won’t face those rare prepayment penalties. Once your residence is paid off, you might consider living in a cheaper, tax-friendly state – another way to retain more money.

Look at LTC & disability insurance. Again, this comes down to “how much can you afford to lose?” While long term care coverage is rapidly growing more expensive, it still may be worth it in the long run as medical and scientific advances make the chances of lingering our way out of life more common. Should something impede your ability to earn between now and retirement, disability insurance could provide relief.

Consider revisiting your portfolio’s allocation. Since 1964, there have been seven bear markets. On average, they lasted slightly more than a year. On average, it took the S&P 500 3.5 years to return to where it was prior to the plunge. If you are 50 or older, think about those last two sentences some more. If your portfolio is allocated more or less the same way it was 30 years ago (some initial portfolio allocations go basically unchanged for decades), revisit those percentages in light of how soon you might retire and how much you can’t afford to lose.6,7

These are just some suggestions. For more, tap the insight of a seasoned financial professional who has known and seen the experience of saving during the “stretch drive” to retirement.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – forbes.com/sites/nextavenue/2014/10/23/retirement-saving-workers-and-firms-must-step-up/ [10/23/14]

2 – forbes.com/sites/ashleaebeling/2013/05/03/playing-catch-up-with-your-401k/ [5/3/14]

3 – forbes.com/sites/mitchelltuchman/2013/11/21/financial-planning-for-late-starters-in-five-steps/ [11/21/13]

4 – irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401%28k%29-plans-in-2015 [10/23/14]

5 – forbes.com/sites/ashleaebeling/2014/10/23/irs-announces-2015-retirement-plan-contribution-limits-for-401ks-and-more/ [10/23/14]

6 – traderhq.com/illustrated-history-every-s-p-500-bear-market/ [4/5/14]

7 – mainstreet.com/article/stop-thinking-about-risk-tolerance-try-risk-capacity-instead/ [10/7/14]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Linda Bullwinkle, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Merck, Pfizer, Chevron, ExxonMobil, Glaxosmithkline, Hughes, Northrop Grumman, Raytheon, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Linda Bullwinkle a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

It Isn’t Too Late to Save for Retirement

If you’re 40 or 50 and haven’t begun, you must make the effort.

Some people start saving for retirement at 20, 25, or 30. Others start later, and while their accumulated assets will have fewer years of compounding to benefit from, that shouldn’t discourage them to the point of doing nothing.

If you need to play catch-up, here are some retirement savings principles to keep in mind. First of all, keep a positive outlook. Believe in the validity of your effort. Know that you are doing something good for yourself and your future, and keep at it.

Starting later means saving more – much more. That’s reality; that’s math. When you have 15 or 20 years until your envisioned retirement instead of 30 or 40, you’ve got to sock away money for retirement in comparatively greater proportions. The good news is that you won’t be retiring strictly on those contributions; in large part, you will be retiring on the earnings generated by that pool of invested assets.

How much more do you need to save? A ballpark example: Marisa, a pre-retiree, has zero retirement savings at age 45 and dedicates herself to doing something about it. She decides to save $500 each month for retirement. After 20 years of doing that month after month, and with her retirement account yielding 6% a year, Marisa winds up with about $225,000 at age 65.1

After 65, Marisa would probably realize about $10,000 a year in inflation-adjusted retirement income from that $225,000 in invested retirement savings. Would that and Social Security be enough? Probably not. Admittedly, this is better than nothing. Moreover, her retirement account(s) might average better than a 6% return across 20 years.1

The math doesn’t lie, and the message is clear: Marisa needs to save more than $6,000 a year for retirement. Practically speaking, that means she should also exploit vehicles which allow her to do that. In 2014, you can put up to $5,500 in an IRA, $6,500 if you are 50 or older – but you can sock away up to $17,500 next year in a 401(k), 403(b), Thrift Savings Plan and most 457 plans, which all have a maximum contribution limit of $23,000 for those 50 and older.2

If Marisa is self-employed (and a sole proprietor), she can establish a solo 401(k) or a SEP-IRA. The yearly contribution limits are much higher for these plans. If Marisa’s 2013 net earnings from self-employment (after earnings are reduced by one-half of self-employment tax) work out to $50,000, she can put an employer contribution of up to $10,000 in a SEP-IRA. (She must also make similar percentage contributions for all “covered” employees, excepting her spouse, under the SEP IRA plan.) As a sole proprietor, Marisa may also make a combined employer-employee contribution of up to $33,000 to a solo 401(k) this year, and if she combines a defined benefit plan with a solo 401(k), the limit rises to $47,400. If her 2013 net earnings from self-employment come out to $150,000, she can make an employer contribution of as much as $30,000 to a SEP-IRA, a combined employee salary deferral contribution and employer profit sharing contribution of up to $53,000 to a solo 401(k), and contribute up to $96,300 toward her retirement through via the combination of the solo 401(k) and defined benefit plan.3

How do you save more? As you are likely nearing your peak earnings years, it may be easier than you initially assume. One helpful step is to reduce some of the lifestyle costs you incur: cable TV, lease payments, and so forth. Reducing debt helps: every reduced credit card balance or paid-off loan frees up more cash. Selling things helps – a car, a boat, a house, collectibles. Whatever money they generate for you can be assigned to your retirement savings effort.

Consistency is more important than yield. When you get a late start on retirement saving, you naturally want solid returns on your investments every year – yet you shouldn’t become fixated on the return alone. A dogged pursuit of double-digit returns may expose you to considerable market risk (and the potential for big losses in a downturn). Diversification is always important, increasingly so when you can’t afford to lose a big portion of what you have saved. So is tax efficiency. You will also want to watch account fees.

If you start saving for retirement at 50, your retirement savings will likely double (at least) by age 65 thanks to consistent inflows of new money, decent yields and compounding.4

What if you amass a big nest egg & still face a shortfall? Maybe you can reduce expenses in retirement by moving to another city or state (or even another country). Maybe you can broaden your skill set and make yourself employable in another way (which also might help you before you reach traditional retirement age if you find yourself in a declining industry).

If you haven’t begun to save for retirement by your mid-40s, you have probably heard a few warnings and wake-up calls. Unless you are independently wealthy or anticipate being so someday, the truth of the matter is…

If you haven’t started saving for retirement, you need to do something to save your retirement.

That may sound harsh or scary, but without a nest egg, your vision of a comfortable future is in jeopardy. You can’t retire on hope and you don’t want to rely on Social Security, relatives or social services agencies for your well-being when you are elderly.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – money.cnn.com/2012/08/15/pf/expert/late-start-retirement.moneymag/ [8/15/13]

2 – irs.gov/uac/IRS-Announces-2014-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$17,500-to-their-401%28k%29-plans-in-2014 [11/4/13]

3 – forbes.com/sites/ashleaebeling/2013/11/01/retirement-savings-for-the-self-employed/ [11/1/13]

4 – forbes.com/sites/mitchelltuchman/2013/11/21/financial-planning-for-late-starters-in-five-steps/ [11/21/13]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Qwest, Chevron, ExxonMobil, Pfizer, Hughes, Northrop Grumman, Glaxosmithkline, Merck, ING Retirement, AT&T, Raytheon, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Linda Bullwinkle, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Linda Bullwinkle is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.