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Retirement Seen Through Your Eyes

Posted on Saturday, 6th April 2013 by

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After you leave work, what will your life look like?

How do you picture your future? If you are like many baby boomers, your view of retirement is likely pragmatic compared to that of your parents. That doesn’t mean you have to have a “plain vanilla” tomorrow. Even if your retirement savings are not as great as you would prefer, you still have great potential to design the life you want.

With that in mind, here are some things to think about.

What do you absolutely need to accomplish? If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a “short list” of life goals, and while they may have nothing to do with money, the financial decisions you make may be integral to achieving them. (This may be the most exciting aspect of retirement planning.)

What would revitalize you? Some people retire with no particular goals at all, and others retire burnt out. After weeks or months of respite, ambition inevitably returns. They start to think about what pursuits or adventures they could embark on to make these years special. Others have known for decades what dreams they will follow … and yet, when the time to follow them arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones.

In retirement, time is really your most valuable asset. With more free time and opportunity for reflection, you might find your old dreams giving way to new ones. You may find yourself called to volunteer as never before, or motivated to work again but in a new context.

Who should you share your time with? Here is another profound choice you get to make in retirement. The quick answer to this question for many retirees would be “family”. Today, we have nuclear families, blended families, extended families; some people think of their friends or their employees as family. You may define it as you wish and allocate more or less of your time to your family as you wish (some people do want less family time when they retire).

Regardless of how you define “family” or whether or not you want more “family time” in retirement, you probably don’t want to spend your time around “dream stealers”. They do exist. If you have a grand dream in mind for retirement, you may meet people who try to thwart it and urge you not to pursue it. (Hopefully, they are not in close proximity to you.) Reducing their psychological impact on your retirement may increase your happiness.

How much will you spend? We can’t control all retirement expenses, but we can control some of them. The thought of downsizing may have crossed your mind. While only about 10% of people older than 60 sell homes and move following retirement, it can potentially bring you a substantial lump sum or lead to smaller mortgage payments. You could also lose one or more cars (and the insurance that goes with them) and live in a neighborhood with extensive, efficient public transit. Ditching land lines and premium cable TV (or maybe all cable TV) can bring more savings. Garage sales and donations can have financial benefits as well as helping you get rid of clutter, with either cash or a federal tax deduction that may be as great as 30-50% of your adjusted gross income provided you carefully itemize and donate the goods to a 501(c)(3) non-profit.1

Could you leave a legacy? Many of us would like to give our kids or grandkids a good start in life, or help charities or schools – but given the economic realities of retiring today, there is no shame in putting your priorities first.

Consider a baby boomer couple with, for example, $285,000 in retirement savings. If that couple follows the 4% rule, the old maxim that you should withdraw about 4% of your retirement savings per year, subsequently adjusted for inflation – then you are talking about $11,400 withdrawn to start. When you combine that $11,400 with Social Security and assorted investment income, that couple isn’t exactly rich. Sustaining and enhancing income becomes the priority, and legacy planning may have to take a backseat. In Merrill Lynch’s 2012 Affluent Insights Survey, just 26% of households polled (all with investable assets of $250,000 or more) felt assured that they could leave their children an inheritance; not too surprising given what the economy and the stock market have been through these past several years.2

How are you planning for retirement? This is the most important question of all. If you feel you need to prepare more for the future or reexamine your existing plan in light of changes in your life, then confer with a financial professional experienced in retirement planning.

Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. LD42774-2/12

Paul H. Risser may be reached at 1-866-274-7737, prisser@tfamail.com, or www.risserfinancial.com

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Citations.

1 – www.bankrate.com/finance/financial-literacy/ways-to-downsize-during-retirement.aspx [2/28/13]
2 – wealthmanagement.ml.com/Publish/Content/application/pdf/GWMOL/Report_ML-Affluent-Insights-Survey_0912.pdf [9/12]

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. 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 not a solicitation or a 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.

Neither Transamerica Financial Advisors, Inc. (TFA) nor its representatives provide legal, tax nor accounting advice. Persons who provide such advice do so in a capacity other than as a registered representative of TFA.

Posted in ANNUITIES / ELIGIBILITY, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

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TSP Investment Timing and The Retiree’s Dilemma

Posted on Monday, 1st April 2013 by

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The stock market is up and the DOW stock market index has recovered from its low of 6629 in March of 2009 to over 14,000 recently. Interest rates and yields on CDs, treasuries, and savings have remained historically low. The government has artificially maintaining interest rates well below norm to stimulate the economy and to encourage savers to spend and dive into high yielding and higher risk investments like stocks and housing. Most of this nation’s Gross Domestic Product (GDP) is based on consumer spending since we lost much of manufacturing years ago.  I discussed in Size Matters, Especially in Retirement  how the government is taxing all of us, especially retirees on fixed incomes, by maintaining artificially low yields on safe and secure CDs, savings accounts, and treasuries.  

The dilemma that we face now is do we continue to suffer with miniscule yields on our savings or dive back into higher risk investments such as stocks to take advantage of the upswing.  Unfortunately the ship has already sailed; the market is up over 100% and a correction may be in sight. Nothing goes straight up forever and many experts anticipate a market correction while other suggest the market will continue on this trajectory at least until the end of the year.  

Many jump back on the band wagon long after the gains have been made. Some panicked in 2007 and jumped totally out of the THRIFT stock funds into the G Fund and stayed there after losing a good portion of their savings.  Too often we ride the wave of sentiment and that means we sell low and buy high and lose both ways.  Federal employees in their early to mid careers have time to recover and are still contributing to their TSP accounts.  Many financial planners suggest those in early to mid career stay invested in a diverse mix of stock and bond funds until you are close to retirement.  The closer you are to retirement the more you have to play defense and PROTECT what you saved for a lifetime.

If you’re close to retirement or now retired ask yourself if you can afford to lose a significant portion of your TSP, IRA or other 401K funds if the market takes an unexpected and undesirable turn? Retirees have time against them to recover their losses. If you will need these funds to live on you may have to accept the lower returns and you will sleep well at night. If you can take some risk look for a market correction and jump back in with a conservative lower risk level you can live with. The Life Cycle L TSP funds do moderate the risk and as you approach the target date of the fund the mix becomes more conservative until the majority of your TSP is in the bond fund. In retirement many consider the L Income fund that still keeps a small portion of your account invested in stocks to help you keep up with inflation.

For other savings and investments retirees may wish to pursue a conservative approach such as I discuss in When CDs Come Due Earn Higher Yields.  If you are unfamiliar with investing in general you may need to consult a professional for help. Managing retirement funds isn’t easy and it does take time and even with understanding there is always risk no matter what you are invested in.

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

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The Sequester’s Many Faces – Furloughs, Pay Freeze, & Fewer Resources

Posted on Wednesday, 13th March 2013 by

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The Sequester has many feds concerned about furloughs, possibly an extended pay freeze, and fewer resources to get the job done.  Retirement applications may also take longer to process if HR specialists are furloughed. The good news is that it isn’t happening overnight and Congress is working to reduce the impact when this kicks in. I recall being furloughed several times for a day or two throughout my career and each time my pay wasn’t docked. That could be different this time around.  Another point is that many agencies hold back filling positions throughout the year and use the money saved to purchase end-of-year equipment, supplies, and to pay other expenses. I wasn’t in headquarters or accounting however from my perspective and understanding as a manager this is how the agency paid for many things on their wish list. Especially considering that in most agencies, the lions share — often as high as 85% or more of their budget — is PC and B, payroll, compensation, and benefits.

Since most agencies hold back on staffing at the beginning of the fiscal year they may be able to weather the storm and hopefully there will be minimal impact within your agency.  Only time will tell. According to FactCheck.org, “The federal government will spend about $3.55 trillion this year, so $85 billion (in cuts) amounts to about 2.4 percent of all federal spending. But that’s misleading, because large parts of the federal budget are exempt from the sequester cuts — including such “mandatory” programs as Medicaid, Social Security, welfare and food stamps. The sequester cuts are split between defense and nondefense spending. They include cuts to discretionary defense spending (such as weapons purchases and base operations, but not military personnel) and to both discretionary and nondiscretionary domestic programs (everything from airport security to education aid to research grants). Cuts to those programs will be much deeper than 2.3 percent.”

Congress knows that they must address the entitlement and healthcare issues to fend off a budget crisis in the next few years and the sooner they get realistic about their options and alternatives the less impact we will all feel. The longer they hold off making meaningful tax and entitlement reforms the worse off we will all be.

Unlike many state governments the federal government has done its part to reduce employee retirement costs, one of the largest budget items on most lists, and the States should follow suit. They enacted FERS reforms in the 1980s substantially decreasing defined benefit plan payouts and converting to a mix of defined benefit and defined contribution plans utilizing the THRIFT Savings program.  They also recently increased FERS contributions for new employees.

Change is always disconcerting especially when you really don’t know what to expect.  The best defense is to be prepared as much as possible for the inevitable budget cutting coming to agencies and departments everywhere.  This applies to employees and retirees alike. Have a sufficient emergency fund set aside and contingency plans to handle a more austere life for awhile. Some agencies are considering furloughs of one day a week for 20 weeks, some longer.  Start economizing now, making sure your emergency fund is sufficient and that you have what you need to get through what may surly be coming your way. 

Employees planning on retiring soon should be prepared to live on less than their total estimated annuity since they may have to live with interium checks for extended periods.  Stock up on non perishable food supplies that are on sale and look for sales and ways to save wherever you can. It may not be easy but if you start now it will help to lesson your burden if the proposed cuts are eventually implemented. 

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Maui is Calling Me – Taking a Winter Break

Posted on Saturday, 9th March 2013 by

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Those days when I loved going out and playing in the snow are long gone.  I think they disappeared when I got rid of my skis in the 80’s. I do like watching the cardinals eating at the feeders in the trees after winter snow storm, but after about a month of that and temperatures hovering around the freezing mark or lower, well I’m ready for warm weather.  But knowing that spring and warmer temperatures are still more than a couple of months away draws me to flight or cruise deals that will take me someplace warm. Maui in February is the perfect trip given that I love whale watching, snorkeling, watching the surf and sitting under the palms on the beach.

Resorts are great if you’re the type of person who wants to have activities available all day.  Resorts are also a great place if you don’t plan to cook at all during your vacation.  For my break, I am spending a week at a resort on Oahu with family and friends before we all head to Maui for a week. After being at the pool with 30 or more kids during the day, spending a ton on eating out and nights at the clubs enjoying music and Mai Tai’s we’ll be looking for some quieter time when we land on Maui.

This visit to Maui, I opted to look for a vacation home to rent for my winter break.  Finding a vacation home rental is easy; selecting one is the hard part.  You can use one of several vacation home web sites or any local real estate office that manages vacation rentals with a web search.  It can be frustrating though since the smaller homes that are reasonably priced are the first to go.  Of course planning far in advance can help you get a great deal.  This time, with some help, I was guided to local owners who manage their own properties.  I found a gem, perfect for 4 people with 2 private bedrooms and baths near Lahaina. The West Maui Lodging offers nine distinct options for travelers all managed by owner Jan Hendrix.  She also happily shares a wealth of information for your trip including planning your island activities.

I am so excited about staying in a house on the hill near Lahaina to call home for a week.  We’ll be close to the action of Lahaina but enjoy the privacy of a home and what it offers.  We can probably whale watch from the Lanai first thing in the morning while enjoying a coffee and in the evening watching the sunset with a Mai Tai. We will be able to enjoy breakfast every morning in the Palm House and evening meals rather than eating out.  We can also relax as long as we like without needing to clear the table for waiting customers. Having a full kitchen and a grill allows us to plan ahead, stop at the store and pick up items to enjoy a meal outside or inside depending on the weather of the day.  Jan provides a list of restaurants in the area, including her favorites and also an idea of costs for her guests.  I plan to try some for lunch while we’re in Lahaina shopping or following a whale watch trip.

I’ve planned some of my favorite things to do and have also picked a couple of new adventures for this winter break. I accomplished this with the help of the owner of my vacation rental who recommended Tom’s Barefoot Tours and a specific customer representative who’s very responsive. With Andreas help at Barefoot we found some great activities that fit what we want to do on Maui.  We’ll be spending a day boating around the island of Lana’i with snorkel and beach stops throughout the trip.  We also will spend our last night on a sunset dinner cruise.  The advantage of having Andreas make our reservations is we will pay for the activities the week prior to our arrival on Maui.  Of course we can still cancel 24 hours prior to any activity for a full refund.  But if you do your own bookings and exploring numerous sites yourself, you may miss an activity that is unique and you’ll also have to pay when you book on line.  I was glad to have been given this tip from Jan when we reserved the Palm House.

Well, that’s my winter break plan.  I need to start packing.  Don’t wait for summer.  Start planning your winter break.  There are lots of deals out there.

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The information provided may not cover all aspect of unique or special circumstances. Travel policies and packages are subject to change without notice. To ensure the accuracy of this information, contact travel providers and hotels at the time of your bookings to confirm pricing, itinerary, and all costs. The comments and observations are limited to the author’s personal experience and your results may vary significantly. This article and replies to comments are not intended to substitute for professional travel services. Our reply is time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

Posted in LIFESTYLE / TRAVEL, RETIREMENT CONCERNS, Travel

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A Roth IRA’s Many Benefits

Posted on Sunday, 3rd March 2013 by

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Why do so many people choose them over traditional IRAs?

The IRA that changed the whole retirement savings perspective. Since the Roth IRA was introduced in 1998, its popularity has soared. It has become a fixture in many retirement planning strategies, because it offers savers so many potential advantages.

The key argument for going Roth can be summed up in a sentence: Paying taxes on your retirement contributions today is better than paying taxes on your retirement savings tomorrow.

Think about it. All other variables aside, would you like to pay more taxes in retirement or less?

What if federal tax rates are higher in the future than they are today? Would you like to see a) your retirement savings taxed at those higher rates tomorrow, when you may have medical bills or other emergency expenses to contend with, or b) have the dollars you are saving for retirement today taxed at possibly lower rates?

Here is a closer look at the trade-off you make when you open and contribute to a Roth IRA – a trade-off many savers are happy to make.

You contribute after-tax dollars. You have already paid federal income tax on the dollars going into the account. But in exchange for paying taxes on your retirement savings contributions today, you could potentially realize great benefits tomorrow.1

You position the money for tax-deferred growth. Roth IRA earnings aren’t taxed as they grow and compound. If, say, your account grows 6% a year, that growth will be even greater when you factor in compounding. The earlier in life that you open a Roth IRA, the greater compounding potential you have.2

You can arrange tax-free retirement income. Roth IRA earnings can be withdrawn tax-free as long as you are age 59½ or older and have owned the IRA for at least 5 years. (That 5-year clock starts on January 1 of the tax year in which you make your initial Roth IRA contribution.)3

The IRS calls such tax-free withdrawals qualified distributions. They may be made to you, to your estate after you are deceased, and/or to a beneficiary. (If you die before the Roth IRA meets the 5-year rule, your IRA beneficiary will see the IRA earnings taxed until it is met.)4

If you withdraw money from a Roth IRA before you reach age 59½, it is called a nonqualified distribution. If you do this, you can still withdraw an amount equivalent to your total IRA contributions to that point tax-free and penalty-free. If you withdraw more than that amount, though, the rest of the withdrawal may be fully taxable and subject to a 10% IRS penalty as well. (If you are younger than 59½ and have owned a Roth IRA for at least 5 years, you are allowed to withdraw 100% of your contributions and up to $10,000 of IRA earnings tax- and penalty-free to buy a principal residence, assuming the buyer has not owned a home within the past 2 years.)1,3

You never have to make a withdrawal. When you own a traditional IRA, you must start pulling money out of it in your in your seventies. These withdrawals are called Required Minimum Distributions (RMDs), and the amount is calculated for you using an IRS formula. These forced withdrawals saddle some traditional IRA owners with tax problems. In contrast, Roth IRA owners never have to take RMDs. They are never required to take a penny out of their IRAs.1  

Withdrawals don’t affect taxation of Social Security benefits. If your total taxable income exceeds a certain threshold – $25,000 for single filers, $32,000 for joint filers – then your Social Security benefits may be taxed. (These limits are not adjusted for inflation, incidentally.) An RMD from a traditional IRA represents taxable income, and may push retirees over the threshold – but a qualified distribution from a Roth IRA isn’t taxable income, and doesn’t count toward it.5   

You can direct Roth IRA assets into many different kinds of investments. Invest them as aggressively or as conservatively as you wish – but remember to practice diversification. The range of investment choices is often broader than that offered in a typical workplace retirement plan.1

You can shift dividend-producing investments into a Roth IRA from a taxable account. As dividends are being taxed at higher rates in 2013, keeping dividend-producing stocks out of a taxable account has definite virtues.

You can potentially “stretch” the assets. If an original Roth IRA owner passes away after owning the IRA for at least five years, then its earnings can be withdrawn tax-free by its beneficiaries. (Relevant estate taxes may need to be paid, of course.) If a Roth IRA beneficiary is not a spouse, then other factors come into play: that beneficiary cannot contribute to the inherited Roth IRA, or combine it with an IRA he or she owns. The non-spouse beneficiary can decide to a) receive a distribution of 100% of the inherited Roth IRA assets by December 31st of the fifth year following the year of the IRA owner’s death, or b) receive periodic payments from the IRA over the course of his or her life, an option which may potentially be “stretched” (given proper planning) and extended to subsequent beneficiaries.6

You have 16 months to make a Roth IRA contribution for a given tax year. For example, IRA contributions for the 2012 tax year may be made up until April 15, 2013. While April 15 is the annual deadline, many IRA owners who make lump sum contributions for a given tax year make them as soon as that year begins, not in the following year. Making your Roth IRA contributions earlier gives the funds in the account more time to grow and compound with tax deferral.1

Who can open a Roth IRA? Anyone with earned income (and that includes a minor).1

How much can you contribute to a Roth IRA annually? The 2013 contribution limit is $5,500, with an additional $1,000 “catch-up” contribution allowed for those 50 and older. (The annual contribution limit is adjusted periodically for inflation.)7 

You can keep making annual Roth IRA contributions all your life. You can’t make annual contributions to a traditional IRA once you reach age 70½.7

Does a Roth IRA have any drawbacks? Actually, yes. One, you will generally be hit with a 10% penalty by the IRS if you withdraw Roth IRA funds before age 59½ or you haven’t owned the IRA for at least five years. (This is in addition to the regular income tax you will pay on the funds withdrawn, of course.) Two, you can’t deduct Roth IRA contributions on your 1040 form as you can do with contributions to a traditional IRA or the typical workplace retirement plan. Three, you might not be able to contribute to a Roth IRA as a consequence of your filing status and income; if you earn a great deal of money, you may be able to make only a partial contribution or none at all.3,7

Rollovers are permitted if you make too much to contribute. Even if your income prevents you from funding a Roth IRA, you can still roll traditional IRA assets into a Roth with the help of a financial professional. While this is a taxable event, you may realize significant long-term financial benefits as a result of it – tax-free retirement income withdrawals, and the potential for some of the Roth IRA assets to pass tax-free to your heirs with further growth and compounding. You also will gain the relief of never having to take an RMD each year.8

All this may have you thinking about opening up a Roth IRA or creating one from existing IRA assets. A chat with the financial professional you know and trust will help you evaluate whether a Roth IRA is right for you given your particular tax situation and retirement horizon.

Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. LD42774-2/12

Paul H. Risser may be reached at 1-866-274-7737, prisser@tfamail.com, or www.risserfinancial.com

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Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. LD42774-2/12.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. 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 not a solicitation or a 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.

Neither Transamerica Financial Advisors, Inc. (TFA) nor its representatives provide legal, tax nor accounting advice. Persons who provide such advice do so in a capacity other than as a registered representative of TFA.

Citations.

1 – www.kiplinger.com/article/retirement/T046-C006-S001-8-reasons-you-need-a-roth-ira-now.html [4/5/12]

2 – www.nj.com/business/index.ssf/2013/01/biz_brain_are_roth_iras_really.html [1/21/13]

3 – www.smartmoney.com/taxes/income/when-roth-ira-withdrawals-arent-taxfree-1293571638217/ [12/29/10]

4 – www.hrblock.com/free-tax-tips-calculators/tax-help-articles/Retirement-Plans/Early-Withdrawal-Penalties-Traditional-and-Roth-IRAs.html [1/2/13]

5 – www.investmentnews.com/article/20121216/REG/312169988 [12/16/12]

6 – www.investorguide.com/article/11816/understanding-the-tax-ramifications-of-an-inherited-roth-ira/ [1/8/13]

7 – www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits [11/28/12]

8 – www.boston.com/business/personalfinance/articles/2012/05/20/roth_ira_conversion_not_for_everybody/ [5/20/12]

Posted in ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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TSP Annual Statements and Highlights

Posted on Friday, 22nd February 2013 by

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I received my annual TSP statement several weeks ago and each year I find it informative. It’s a good tool for evaluating your fund’s performance and comparing it to other investments.  The highlights this year pointed out one of the true benefits of the TSP; the low expense ratio that we pay compared to other private sector funds. In 2012 the expense ratio was only .027%, that’s just 27 cents for every $1,000 in your account. The TSP points out that, “Such low fees are very rare in defined-contribution plans, where the average fee is $8.30/$1,000 account, and in 10% of plans, you’d pay more than $13.80.”

The illustration they use shows the dramatic impact a larger expense ratio has on your investments long term.  A $50,000 investment, over a 30 year period, earning an average 7% a year with an expense ratio of .027% would be worth $377,954. This same account would shrink to $257,842 with an expense ratio of 1.38%. That’s a loss of over $120,000 due to an expense ratio of only 1.38%!  Expense ratios matter. You don’t have other account services fees, fund loads or 12-b1 fees to contend with either. Overall you can’t purchase a lower cost indexed fund than what the TSP offers.

The statement also provides a lifetime TSP single life annuity estimate for age 62 or your current age. You can use this figure to shop around and compare private sector annuities to what the TSP can offer. There are significant differences between plans. If you are contemplating converting your TSP to a private sector annuity READ the fine print. Use the TSP’s online annuity calculator to compare plans before signing on the dotted line.

Many, especially the younger new hires, don’t spend the time they need to fully understand their investment options and how they should invest to maximize their gains. Everyone that has an investment account of any type needs to understand the dynamics to avoid panic moves that could prove costly.  Understanding your TSP investment and withdrawal options, and how to maximize your contributions, can help you realize your retirement savings goals.  If you would like to learn more about investing consider joining the (NAIC) Better Investing and sign up for their free 30 day trial and sample copy of their Better Investing magazine.  I was a member of this organization for many years and found it to be very helpful throughout my career. This organization helps you understand and profit from investing. They have many tools; online and traditional courses, local chapters, and investment clubs that teach you the fundamentals and how to invest wisely.

Use the TSP’s annual report as a reminder to reevaluate your current investment mix. Those close to or in retirement that will need to withdraw funds from their TSP account, should consider having the majority of your account in the L Income or G fund.  The L Income fund invests 74% in the G Fund, 12% in the C , 6 % F, 3% S and 5% I and the fund is rebalanced daily to maintain that mix.  Over the past three years the L Income Fund has earned a 4.2% return, not bad considering the low interest rates now available for CDs and Treasuries.

If you are uncomfortable with investing and fear the potential price fluctuations associated with equities (stocks), then the G-Fund is a safe haven to consider. The G Fund assets are managed internally by the Federal Retirement Thrift Investment Board. The G Fund buys a nonmarketable U.S. Treasury security that is guaranteed by the U.S. Government. This means that the G Fund will not lose money. With interest rates at historic lows the G-Fund still earned 1.47% in 2012, more than double what you can earn on a CD today.

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

 

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, FINANCE / TIP, RETIREMENT CONCERNS

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1099R Statements, Replacement Copies, & Upcoming Changes

Posted on Friday, 8th February 2013 by

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My 1099R arrived from OPM this week and annuitants should have also received their Notice of Annuity Adjustments, Form R1 20-53 (REV. 12/12), that outlines your new 2013 status and payments. The annuity adjustment statement includes the 1.7% COLA increase and lists any changes to your insurance and elective payments.

Each year we receive many queries from federal and postal retirees that have not received their 1099R. If you need a replacement copy read the article titled 1099R Replacements that I wrote last year on this subject. It will walk you through the process. For federal employees reading this column the 1099R replaces the W2 that you receive for your wages when still employed by an agency. Retirees must report their retirement income to the IRS and the 1099R shows how much federal tax you paid and how much of your annuity is reportable for federal tax.

Government continues to go paperless. Social security payments must now be deposited into a bank account or the annuitant can elect to receive a debit card, you can’t buy paper savings bonds and soon OPM will be asking all annuitants and survivor beneficiaries to sign up for electronic 1099R and tax  withholding statements. All annuitants will be asked to visit their website at www.servicesonline.opm.gov and opt-in to receive electronic distribution of the 2013 1099R form. I can’t imagine that OPM will make this mandatory considering that many retirees don’t have computers to access this account.

In the meantime, if you haven’t accessed Services Online lately, you can prepare for the upcoming online elections and check on your annuity status plus much more. I use this site and it is helpful. You can change allotments, print out missing annuity statements, download replacement 1099R forms, change your mailing address, and elect state income tax withholdings and much more.

OPM advises users not to worry if you don’t remember your password. You can request a new one from the main page of Services Online. If you have set up your security questions and have an email address on file, you may choose to receive your password by email. However, if you don’t have an email address on file or haven’t set up your security questions your password will be sent by mail. Unfortunately, Services Online is currently unavailable for use by persons OPM has approved as “Representative Payees” for annuitants and survivors.

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Request a FREE Retirement Benefits Summary & Analysis from a local adviser. A sample analysis is available for your review. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections. This service is not affiliated with www.federalretirement.net.

Learn more about your benefits, employment, and financial planning issues on our site and visit our Blog frequently at  https://fedretire.net to read all forum articles.

Visit our other informative sites

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

 

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

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IRA CONTRIBUTION LIMITS RISE FOR 2013

Posted on Friday, 1st February 2013 by

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Save a little more for retirement.

 Presented by Paul H. Risser

Time to boost your IRA balance. In 2013, you can contribute up to $5,500 to your Roth or traditional IRA. If you will be 50 or older by the end of 2013, your contribution limit is actually $6,500 this year thanks to the IRS’s “catch-up” provision. The new limits represent a $500 increase from 2012 levels.1

This is an ideal time to max out your annual IRA contribution. If you are in the habit of making a single annual contribution to your IRA rather than monthly or quarterly contributions, try to make the maximum contribution as early as you can in a year. More of your money should have an opportunity for tax-deferred growth, not less. While you can delay making your 2013 IRA contribution until April 15, 2014, there is no advantage in waiting – you will stunt the compounding potential of those assets, and time is your friend here.2

Do you own multiple IRAs? If you do, remember that your total IRA contributions for 2013 cannot exceed the relevant $5,500/$6,500 contribution limit.3

Your IRA contribution may be tax-deductible. Are you a single filer or a head of household? If you contribute to both a workplace retirement plan and a traditional IRA in 2013, you will be able to deduct the full amount of your IRA contribution if your modified adjusted gross income is $59,000 or less. A partial deduction is available to such filers with MAGI between $59,001-69,000.4

The 2013 phase-outs are higher for married couples filing jointly. If the spouse making the IRA contribution also participates in a workplace retirement plan, the traditional IRA contribution is fully deductible if the couple’s MAGI is $95,000 or less. A partial deduction is available if the couple’s MAGI is between $95,001-115,000.4

If the spouse making a 2013 IRA contribution doesn’t participate in a workplace retirement plan but the other spouse does, the IRA contribution may be wholly deducted if the couple’s MAGI is $178,000 or less. A partial deduction can be had if the couple’s MAGI is between $178,001-188,000. (The formula for calculating reduced IRA contribution amounts is found IRS Publication 590.)5

You cannot contribute to a traditional IRA in the year in which you turn 70½ or in subsequent years. You can contribute to a Roth IRA at any age, assuming your income permits it.1

What are the income caps on Roth IRA contributions this year? Single filers and heads of household can make a full Roth IRA contribution for 2013 if their MAGI is less than $112,000; the phase-out range is from $112,000-127,000. For joint filers, the MAGI phase-out occurs at $178,000-188,000 in 2013; couples with MAGI of less than $178,000 can make a full contribution. (To figure reduced contribution amounts, see Publication 590.) Those who can’t contribute to a Roth IRA due to income limits do have the option of converting a traditional IRA to a Roth.7

As a reminder, Roth IRA contributions aren’t tax-deductible – that is the price you pay today for the possibility of tax-free IRA withdrawals tomorrow.8

Can you put money in an IRA even if you don’t work? There is a provision for that. Generally speaking, you need to have taxable earned income to make a Roth or traditional IRA contribution. The IRS defines taxable earned income as…

*Wages, salaries and tips.

*Union strike benefits.

*Long-term disability benefits received before minimum retirement age.

*Net earnings resulting from self-employment.

Also, you can’t put more in your IRA(s) than you earn in a given year. (For example, if you are 25 and your taxable earned income for 2013 amounts to $2,592, your IRA contributions for this year can’t exceed $2,592.)9

However, a spousal IRA can be created to let a working spouse contribute to a nonworking spouse’s retirement savings. That working spouse can make up to the maximum IRA contribution on behalf of the stay-at-home spouse (which does not affect the working spouse’s ability to contribute to his or her own IRA).

Married couples who file jointly can do this. The IRS rule is that you can contribute the maximum into this IRA for each spouse as long as the working spouse has income equal to both contributions. So if both spouses will be older than 50 at the end of 2013, the working spouse would have to earn taxable income of $13,000 or more to make two maximum IRA contributions ($12,000 if only one spouse is age 50 or older at the end of 2013, $11,000 if both spouses will be younger than 50 at the end of the year).6,9

So, to sum up … make your 2013 IRA contribution as soon as you can, the larger the better.

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Citations.

1 – www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits [11/28/12]
2 – finance.zacks.com/can-ira-contribution-carried-forward-5388.html [1/9/12]
3 – helpdesk.blogs.money.cnn.com/2012/06/06/can-i-contribute-more-than-5000-to-multiple-iras/ [6/6/12]
4 – www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work [11/26/12]
5 – www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-NOT-Covered-by-a-Retirement-Plan-at-Work [11/26/12]
6 – www.irs.gov/publications/p590/ch01.html#en_US_2011_publink10002304123 [2011]
7 – www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013 [11/27/12]
8 – www.irs.gov/taxtopics/tc309.html [12/17/12]
9 – www.creators.com/lifestylefeatures/business-and-finance/money-and-you/can-you-contribute-to-an-ira-if-you-don-t-have-a-job.html [2011]

Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Security products and services are not offered through TFA. Risser Financial Services and TFA are not affiliated.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. 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 not a solicitation or a 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.

Neither Transamerica Financial Advisors, Inc. (TFA) nor its representatives provide legal, tax nor accounting advice. Persons who provide such advice do so in a capacity other than as a registered representative of TFA.

Posted in ANNUITIES / ELIGIBILITY, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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