Retirement Planning

Nearly all Americans have a majority of their overall net worth in a 401(k) or some other type of retirement plan. Making the best decision regarding whether completing a 401(k) rollover is a vital piece of retirement planning.

It may or may not be in your best interest to move your 401(k), 403(b), 457 plan, TSP, or other company retirement plan when you leave your company or retire.

Nearly all financial advisors that you meet with are going to recommend completing a 401(k) rollover since that’s in their best interest, but may not be your best option.

Unlike many firms, 369 Financial could help you manage your 401k whether you move it to an IRA, or leave it with your employer. Thus, we have no economic incentive to recommend an IRA rollover if you would be better off keeping your 401k where it is.

Lifetime Income Need

Life after retirement is now a larger issue than it used to be. Longer lifespans translate into more health issues, arising with the progression of aging. With so many retirees living longer, calculating the cost of living for a prolonged period of time is of the utmost importance.

Health Care Need

The federal government provides basic healthcare (Medicare) but may not provide the specific coverage needed for many retirees, especially in cases of chronic illness. Planning for the future often means planning for the worst, so long-term care options are becoming a key element of retirement plans today.

Estate Planning

The transfer of assets at death is a critically important element of retirement planning, especially for spouses and other family members dependent on these assets for their financial security. In some cases estate transfer could be as simple as drafting a will, thus ensuring any assets are transferred under the wishes of the decedent. When larger estates are being settled, there will inevitably be larger settlement costs and sizable death taxes, this could force liquidation if the proper planning is not done.

Paying for Retirement

Retirees usually rely upon three primary sources of income: Social Security, individual or employer-sponsored qualified retirement plans, and their own savings or investments. A well thought our retirement plan will ensure qualified plans and personal savings are the primary sources of income, with Social Security as a safety net for steady income.

Social Security

Social Security was established in the 1930’s as a safety net for people who could rely on a steady stream of income for the rest of their lives after paying into the system from their earnings. The original age of retirement for people opting into Social Security was 65, this has gradually increased over the years. People born in 1960 and beyond must reach the age of 67 before their Social Security begins. The amount paid in benefits is based upon the earnings of an individual whilst working. The scheme is flexible, early retirees will receive less money over a longer period of time, and vice versa for late retirees

Employer-Sponsored Qualified Plans

Many employers will offer the option of a sponsored retirement plan, know as an Employer-Sponsored qualified Plan. When an employee pays into such a plan a certain “defined contribution” which will be a percentage of the employees’ wage, is saved for retirement. Depending on the size of the organization, they may offer a 401(k) plan, a simplified employee pension plan, or with non-profit organizations a 403(b) plan. The amount received by the employee upon retirement is calculated by the total saved in the plan and the employee’s retirement time horizon.

Traditional and Roth IRAs

IRA’s (Individual Retirement Accounts) are tax qualified retirement plans, established as a way for people to save for retirement and receive the benefit of tax favored treatment. Traditional IRS’s differ slightly in that contributions are made on a tax deductible basis, but accumulate without current taxation of earnings inside the account. However, distributions from a traditional IRA are taxable. Contributions from Roth IRA’s are not tax deductible , but the earnings growth are not currently taxable. To qualify for this tax-free and penalty-free withdrawals the IRA must be in place for at least five tax years. The distribution of a Roth IRA must take place after the age of 59 and a half or because of death, disability or a first-time home purchase (up to 10000 lifetime max). Different states have different laws pertaining to IRA’s and distribution may be subject to state taxes. Distributions from employer-sponsored retirement plans are taxed as ordinary income, also if taken before the age of 59 and a half may be subject to an additional 10% federal tax penalty.

If you require more information on retirement incomes, needs and income sources, please consider contacting us today.

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