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Is America Prepared to Retire?

Posted on Thursday, 5th April 2012 by

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Two-thirds of us have no financial plan.

provided by Paul H. Risser

64% of Americans have no financial strategy at all. That’s right – no plan whatsoever to build wealth or keep it. That finding comes from the 2009 National Consumer Survey on Personal Finance conducted by the Certified Financial Planner Board of Standards, Inc. (The survey collected data from 1,700+ U.S. residents.)1

Only 17% of us have a written financial plan that is updated regularly. So congratulate yourself if you are in that group. The CFP Board found that just 17% of the 36% polled who did have a written financial plan had reviewed it in light of changing times. Notably, 48% said they had benefited from having a written plan.1,2

Just 38% of the 36% having written financial plans retain a financial advisor. The really troubling part: 37% of those with written plans are doing their financial planning on their own. Another 12% of respondents with written plans have consulted a friend or family member who isn’t a financial services professional for advice.1

Why don’t more people have a financial plan? After all, Americans of all incomes and savings levels certainly are free to set financial goals. In the survey, the reasons varied. Some cited the expense of engaging a financial advisor; some said they get along just fine without a financial plan, and others felt their finances weren’t complicated enough to warrant one. Others were hazy about financial services industry qualifications – 40% of respondents had no idea that there were professional credentials or designations for financial advisors.

Syndicated financial columnist Humberto Cruz recently noted that when he told some fellow vacationers in Orlando that he wrote about financial planning, they all asked him if he gave stock tips. He had to explain that he was simply a journalist, not a financial planner.3,4

Defined goals lead to definite plans. If you set financial objectives and plan for them, you vault ahead of most Americans – at least according to the CFP Board’s findings. A written financial plan does not imply or guarantee wealth, of course; nor does it ensure that you will reach your goals. Yet that financial plan does give you an understanding of the distance between your current financial situation (where you are) and where you want to be. Too many Americans, it seems, have little comprehension of their financial situation or their financial potential.

How much planning have you done? Retiring without a financial plan is an enormous risk; retiring with a financial plan that hasn’t been reviewed in several years is also chancy. A relationship with a financial advisor can help to bring you up to date about what you need to do, and provide you with more clarity and confidence when it comes to the financial future.

Paul H Risser is a Representative with Transamerica Financial Advisors, Inc.

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-Securities products and services are not offered through TFA.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer nor Bookhaven Press, and should not be construed as investment advice. Neither the named Representative 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.

LD34290-11/11

Citations.

1 cfp.net/downloads/CFP_Board_2009_National_Consumer_Survey.pdf [7/24/09]

2 reuters.com/article/pressRelease/idUS132983+24-Sep-2009+BW20090924 [9/24/09]

3 sltrib.com/business/ci_13467337 [10/2/09]4 chicagotribune.com/topic/hc-cl-cruz-bio,0,84843.story [10/9/09]

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Don’t Get Burned by Your Old Divorce Decree

Posted on Saturday, 31st March 2012 by

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Do you know what that divorce from years ago is going to do to your federal retirement? Even though you may be a couple of years away from retirement, early out offers and changes in retirement law may tempt you to jump ship and retire sooner than you had originally planned.  That old divorce decree should be part of your retirement financial planning.




So, if you have a divorce in your history since May 1985 which mentions your federal retirement, get out that decree and look it over.

  • Does your decree say that a QDRO or Qualified Domestic Relations Order is to be written to implement a division of benefits?
  • Have you sent in a conformed “fuzzy seal” copy to the OPM Court Orders Branch in Washington DC to know that your order meets the OPM criteria for payment?  You should have received a letter back stating how OPM will pay your former spouse.  If this is not what you had in mind when you divorced, NOW is the time to go back to court and get things straightened out.
  • Does you decree award any part of your retirement to a former spouse?
  • Does the formula for dividing the retirement meet the OPM criteria?
  • Does that former spouse get any kind of a survivor benefit awarded in the decree?

There are many different paragraphs that can be put into a decree or into the implementing orders which can turn your retirement into a search for another job.  If your decree awards any kind of a survivor benefit to a former spouse, you will need to have a conformed “fuzzy seal” copy to send in with your retirement application, so now is the time to go back to the courthouse where you were divorced and get that “fuzzy seal” copy of the original decree and any modifying orders.

If your decree states that a QDRO or a COAP will be written and one has not been written, OPM will wait to receive that order before dividing your retirement with a former spouse and this will slow down your retirement processing and receipt of a full retirement check.  So, now is the time to get that done.  You might even find out one was written by your former spouse and entered into the court record without your knowledge.  If this QDRO order gives your former spouse more that the original decree, OPM will treat it as a modification of the original decree and go with the latest order on file.

When OPM receives the QDRO or COAP, it will process it proactively, not going back and making back payments to your former spouse.  This means that you will get to make those payments and pay the taxes on the money your former spouse received before OPM started making the payment.  Once OPM begins making payments to the former spouse, OPM will take taxes out of the former spouse’s share and that payment will be taxable to the former spouse.

OPM will interpret the language in your decree for awarding a portion of your retirement to your former spouse.  It will not accept any language which references a state court decision or a (such and such name) formula.  All the variables must be spelled out in the order or the word “prorata” used.  Unless there is specific language in the decree which stops the calculation of your high-3 as of the date of your divorce/separation, your final high-3 salary will be used.  There is also specific language which can include or exclude the counting of sick leave time and creditable military time in the calculation.




If you are thinking that the remarriage of your former spouse means s/he doesn’t get anything from your retirement: think again.  Unless your decree specifically states that fact, the remarried former spouse will still be eligible for the portion of your retirement specified in the decree.  If s/he was awarded a survivor benefit, and remarried before age 55, the former spouse loses the survivor benefit.  However, if you two were married for 30 years, your former spouse gets to keep the survivor benefit, even if s/he remarried before age 55.

Even the death of a former spouse may not stop the payments if your decree states that his/her benefit will continue to be paid to the court or the estate or children upon your former spouse’s death.

If your former spouse was awarded a “full” survivor benefit or a “maximum” survivor benefit in the decree and you now have a current spouse at time of retirement, you will need to consider your survivor benefit elections carefully.  The survivor benefit is not free in retirement.

If the decree is silent as to who pays for the survivor benefit or it states that you do – here is up to another 10% of your retirement you won’t get.  Then if your current spouse is dependent on you for health benefits or income, you will need to consider electing an “insurable interest” for your current spouse at retirement.  Read the section in the retirement application on instructions for survivor benefits elections very carefully.

Bottom line……If you have a divorce in your history, get it out now as part of your retirement planning.

I once had a client ask me “I am thinking of retiring and getting a divorce in the near future – which should I do first?”

My answer “Get a retirement estimate from your agency first and decide if you can live on half of it.  If the answer is yes, then get your divorce before you retire.  That way, if the divorce turns out to be more costly than you first thought, you can always work longer.”

The preceding is a high level overview of things to consider.  Individual circumstances and orders may affect the final outcomes.  OPM has the final say in how they pay benefits.

Ann Ozuna is TheFederalRetirementLady.com and assists feds and their attorneys making sense of what happens to federal benefits in a divorce.  Her website is www.thefederalretirementlady.com .

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Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Uunderpublicized 2012 Tax Changes & Reminders

Posted on Monday, 26th March 2012 by

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Little details worth paying attention to as April approaches.

Presented by Paul H. Risser

Every year, the IRS institutes big and little changes – and some don’t get as much notice as they should. This year is no exception. Here is a rundown of some of alterations and asterisks affecting taxpayers this year.

Don’t forget Form 8949. If you are reporting capital gains or losses for 2011, you must file this new form along with your return. Speaking of new paperwork, if you own foreign financial assets whose total value exceeds the applicable reporting threshold, you will need the new Form 8938.1

Be sure to report Roth rollovers. Back in 2010, did you convert or roll over a traditional IRA to a Roth IRA or other Roth account? If you didn’t report the amount of the rollover on your 2010 federal return, you can report half the amount on your 2011 return 2011 and the remaining half in 2012.1

A select few can still take the first-time homebuyer credit. By 2011, the credit had disappeared for just about everybody … but select military personnel and intelligence agents are still able to claim the credit for 2011.1

If you’re deducting mileage, rates changed in the middle of 2011. The IRS is giving taxpayers a better break given the recent hikes in gas prices. So, if you’re deducting mileage driven while operating an automobile for business, the rate for the first six months of 2011 is $0.51 per mile, and the rate for the last six months of 2011 is $0.555 per mile. The standard deduction rate for medical or moving mileage was also raised: $0.19 a mile from January 1-June 30, $0.235 a mile from July 1-December 31. The mileage deduction rate for providing services for charitable organizations got no boost – for all of 2011, it is $0.14 per mile.2

Fewer cars qualified for the alternative motor vehicle credit last year. Only new fuel cell motor vehicles qualified for the tax break in 2011.1

Three healthcare changes to note. If you qualify for the health coverage tax credit (HCTC), that credit might be larger for 2011 thanks to recent law changes. Did you receive the 65% tax credit in any of the last 10 months of 2011? If so, you get to claim an additional 7.5% retroactive credit on your 2011 federal return – the HCTC was bumped up to 72.5% from 65%.3

The range of qualified medical expenses was reduced for HSAs & MSAs last year. In 2011, only prescription drugs and insulin counted as qualified medical expenses for these accounts. Another asterisk worth noting: if you took a distribution from an HSA or MSA in 2011 that wasn’t used for a qualified medical expense, the tax penalty for that increased to 20% last year.1

Lastly, take the self-employed health insurance deduction on your Form 1040 for 2011. If you are looking at Schedule SE and wondering where it went, it has migrated over to line 29 of Form 1040.1

The AMT exemption amount got another COLA. Thanks to this adjustment, you are subject to the AMT for tax year 2011 only if you earned more than $48,450 as a single filer, $37,225 if married filing separately, or $74,450 if filing jointly.1

Don’t send your return to an obsolete filing address. Some of the filing locations for federal tax returns have recently changed. Visit www.irs.gov to see where you should send your return this year – it is probably the same address as always, but check and see as it may be different.1

Finally, you get two extra days. Procrastinators, take heart: once again, the federal filing deadline this year falls on Tuesday, April 17. That’s because April 15 is a Sunday and April 16 is a holiday within the District of Columbia (Emancipation Day).1

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. (DBA Name) 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.

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Citations.

1 – www.advisorone.com/2012/03/05/irs-top-12-tax-law-changes-for-2012 [3/5/12]

2 – www.irs.gov/newsroom/article/0,,id=240903,00.html [6/23/11]

3 – www.irs.gov/individuals/article/0,,id=109960,00.html [2/24/12]

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Is This Coming Your Way? and the National Debt Crisis

Posted on Saturday, 17th March 2012 by

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Starting in 2013 newly hired FERS employee’s retirement contributions will increase from .8 percent to 3.1 percent of salary. Originally this was intended to apply to all FERS employees. There is another vote pending in the house that proposes increasing all employees’ contributions by 1.5 percent that will be phased in over a three year period starting in 2013. This same bill eliminates the FERS annuity supplement for the majority of those who retire before age 62. Recently the White House proposed a 1.2 percent contribution increase for all employees twice while the House proposed a 1.5 percent increase.  Numerous proposals from the White House and Congress could potentially impact retirement benefits and employee contributions.

The upcoming budget resolution process may further impact federal employees and annuitants. Last year proposals ranged from extending the pay freeze, raising employee retirement contributions even higher, to reducing the federal work force through severe hiring restrictions. With the national debt at 100 percent of our annual Gross Domestic Product (GDP) we may all find uncomfortable times ahead.

Social Security Statements (These may not come your way if the SSA has an incorrect address)

Fran, a SSA employee, replied to my article titled Social Security – When Should I Apply and Replacing a Lost Card to clarify the issue concerning when you can expect to receive your Social Security Statement.  The latest change to the Social Security Administrations (SSA) statement program limited mailings to those age 60 and above. These statements are mailed to the address the IRS has on record. If you don’t get one, consider doing what Fran did. She obtained a copy of the IRS’s 8822 Change of Address (COA) form, completed, and returned it to the specific address listed in the form instructions for your area.

Fran went on to say that the IRS, like SSA, had a data base conversion years ago, which caused statements to go to old addresses. Similarly, but exclusively causing the SSA’s social security number history to be reversed in some cases. Your latest SSA social security number history may have your older information which is known to cause mismatches in the databases. When the IRS, Motor Vehicle Administration, and Social Security have conflicting Bio information it causes e-filing of taxes to reject and driver license renewal problems.

She strongly encourages the next generation to keep their name exactly the same among employers, Federal and State Agencies, and for the 60 plus folks to review their Social Security Statements for possible Date of Birth (DOB), name, and earnings corrections, etc.  If you’re 60 and not receiving an annual Social Security statement do as Fran suggests and submit the COA form ASAP.

My wife had a similar problem with this when she applied for Social Security in January. She listed her complete middle name on the application and the Social Security office only had her middle initial on record. They corrected it over the phone and her application was approved.

The Debt Crisis

I received a number of comments about my “Retirees Under Attack” article. Many are concerned, and rightfully so, about today’s high unemployment, housing, and education costs. Several suggested that I need to have more compassion for all who are struggling.

My frustration is with those who choose to be irresponsible including our government, not those who acted responsible and got caught in the cross fire. All of our investments, our children’s futures, retirement, Medicare, and Social Security are at risk if government doesn’t get its act together and soon. Our national debt is now 100% of our GDP, not far behind Greece’s debt level of 130% of GDP. The government is borrowing 40 cents of every dollar they spend and we can’t continue on this path. The United States is now the largest debtor nation in world history and the debt just keeps mounting each and every day.

The following chart was sent in an email recently and it puts the budget crisis into perspective better than any words I could put down on paper. It shows the scope of the problem and unfortunately the dire straights we find ourselves in today.  This chart compares the United States’ financial position to an average American family in plain simple English. The first table lists actual government budget statistics.

  • $2,170,000,000,000 – United States Tax Revenue
  • $3,820,000,000,000 – Federal Budget
  • $1,650,000,000,000 – New Debt (Federal Budget minus Tax Revenue)
  • $15,514,000,000,000 – National Debt
  • $38,500,000,000 – Recent Budget Cut

Now, remove eight (8) zeros and imagine it’s a household budget as noted below. The title for each entry was changed to a related household category:

  • $21,700 – Annual Family Income
  • $38,200 – Money the Family Spent
  • $16,500 – New credit card debts
  • $155,140 – Outstanding Credit Card Balance
  • $385 – Total Budget Cuts for Year

This really hit home for me and my wife. How long could a family continue doing this without going bankrupt and insane to boot. Having unmanageable debt would drive me CRAZY. The government knows this is a problem but continues to try and spend its way out of debt.

Imagine having a $100,000 loan and to pay it off you decide it’s best to borrow more each year without substantial payments on the outstanding debt. Have you ever heard of anyone spending their way out of debt?  Then, adding insult to injury, the government brags about the huge cuts they made a few months ago! Just how huge do you think the budget cuts were when compared to a typical family financial statement?  A drop in the proverbial bucket!

We are truly in a debt crisis. Our government must pass a balanced budget amendment to restore our financial health and ensure future Congressional bodies won’t break the bank.  You frequently hear about 10 year budget reduction plans that are passed such as the recent one a few months ago. What they don’t tell you is that after the next election the new congress is not obligated to continue with those plans and often ignores them completely. Only a balanced budget amendment will hold our representatives feet to the fire.

In my opinion we don’t have a revenue problem:  we have a chronic spending problem! We need a flat tax where undue influence from lobbyists will become a thing of the past since they won’t be able to seek and obtain preferential tax treatment. There are hundreds of billions in wasteful spending across the board and we must eliminate the fraud, waste, and abuse in all programs. Tort reform is an essential part of the equation as well along with cutting foreign aid dramatically and term limits for our Congressmen and Senators that get too powerful and indignant. It isn’t going to be easy but it is necessary to avoid a collapse like we see in Greece and around the world 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.

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TSP Basics

Posted on Sunday, 11th March 2012 by

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Over the years I’ve talked to many federal employees about their Thrift Savings Plan (TSP). Unfortunately most don’t have an understanding of what their options are at retirement.

First, let’s discuss your current TSP allocation. Does your current allocation still meet your needs and goals? What I have found is most folks seldom reallocate investment options during their working years. The issue is that when you finally sit down to prepare for retirement you may find most or all of the money in your TSP invested in more growth oriented funds C, I, and S; which may have added more risk than you were aware of. It’s a good thing to look at your account at least yearly to see if your allocation meets your specific needs and adjust your allocation to align with your personal situation.

Secondly, should you consider taking advantage of the new Roth TSP option that will be available in May. Dennis Damp wrote an article titled Roth TSP Contributions – Are They Right For You That you will find informative.

Thirdly, let’s look at the TSP options you have when you retire.

  • In-Service Withdrawal: If you’re over 59 ½ and still working you may do a one time in-service withdraw. You may withdraw the funds in cash or roll it over into a personal IRA.
  • Partial Withdrawal: After retirement you are allowed one partial withdraw. In short, if you would like to withdraw a lump sum to pay bills, go on a trip, buy a vehicle, roll to an IRA, or whatever you choose, you are allowed to do one partial withdrawal.
  • Monthly Income: You are allowed to take monthly payments. Each year you will be able to set a withdrawal amount for the year; which can be recalculated to the prior December.
  • Annuity Options: Moving your TSP to an annuity is an option. There are a number of annuity options to consider. I’ve been asked a number of times to compare and evaluate annuities available to the general public versus TSP annuity options. To be honest, annuities available to the general public typically have a higher payout. For example: let’s take a husband, age 64 and his spouse, age 60. They were looking at an annuity with joint life income with installment. The regular annuity available to the general public allowed for an approximate $100 monthly increase in income. You may ask why? In short, annuity calculations are determined based on current age, length of income period, and a current interest rate. It does make sense to evaluate your income options if you are considering the annuity option.
  • IRA Rollover: You may roll your entire TSP account into an IRA and have a few different options. One of the most common misconceptions is that you will be taxed on the entire amount should you take this option. That is not true. If you roll your entire amount directly to your new IRA using a direct or trustee-to-trustee transfer, you will not pay tax until you start taking income. You may also create multiple IRAs and transfer the funds directly to accommodate various beneficiary designations. Your IRA can be funded using various investment vehicles. Let’s explore some of our options.

IRA Funding Options:

  • Fixed Annuity: The first option would be a fixed product; which may be a fixed annuity or an income annuity. As mentioned prior, I have performed a number of analyses comparing the benefits of the annuity offered by the Thrift Saving Plan and what is available in the private market. If you’re leaning toward this option, I would evaluate what is available before making a decision.
  • Variable annuity: Variable annuities provide some living benefits that vary by insurance company and various state regulations. Variable annuities can offer a death benefit guarantee and/or a lifetime income guarantee. Most variable annuities offer a number of different choices with regard to income and growth options called riders that can be added at an additional cost to the annuity to meet your specific needs.
  • Mutual Funds: A mutual fund is a professionally managed type of collective investment account that pools money from investors to buy stocks, bonds, short-term money market instruments, and/or other securities. Your current TSP is invested in mutual funds. There are many different mutual funds offering a wide range asset class, objectives, and risk tolerance.
  • Managed accounts: Managed accounts employ third party money managers who invest in a variety of different assets including stocks, bonds, mutual funds, exchange traded funds (ETFs), etc. One of the advantages of a managed account is that fee’s are assessed on an annual basis so that there is typically no front end or back-end charge. A managed account allows you to have multiple investments, fund companies, and possibly multiple investment vehicles in one account. Since there are no sales charges assessed, you have greater flexibility to utilize different investments and different investment companies without concerns about meeting break point levels which allows you to make changes as the need arises.

Withdrawals of a tax-deferred accumulation are subject to the ordinary income tax, and possibly a 10% federal tax penalty for withdraws prior to 59 ½. Guarantees are backed by the claims –paying abilities of the issuing insurance company and do not apply to the investment return or principal value of a sub-account.

Before investing, consider the mutual funds and/or variable annuity’s investment objectives, risks, charges, and expenses. Contact Paul Risser for a prospectus containing this information. Read it carefully.

In short, your options are quite varied when looking at your specific financial situation. Take the time to asses what’s best for you. Seek professional help to determine answers to your retirement questions such as:

  • How would you like to take your income in retirement?
  • Do you want the flexibility to pick and choose and make changes as the need arise?
  • Do you want to take lump sum withdrawals or change your monthly income amount anytime you wish?
  • Do you prefer to be in a more static position where you’re allowed one partial withdrawal and a fixed income?

There’s no right or wrong answer, but you should be informed so you can make a decision that best fits your financial situation. I’m fully licensed to be able to assist you with your personal financial questions and would be happy to help.

Paul H Risser, host of this site’s Financial Planning Forum, is an 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. TFA and Risser Financial Services are not affiliated.

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.

LD42986-2/12

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Roth TSP Contributions…Are They Right For You?

Posted on Friday, 2nd March 2012 by

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This May the Thrift Savings Plan is launching a new investment option that provides more flexibility for TSP participants. Federal employees and military members will be able to allocate their contributions between a Roth and the traditional plan shortly. The flexibility is in the tax treatment of the employee’s contributions and it may be beneficial to look closely at this option.  A Roth is one of the very few investments that all capital gains, dividends and interest are 100% tax free if held in your account for 5 years.  I converted one of my retirement accounts to a private sector Roth a year ago to take advantage of the long term tax advantages and my Roth IRA has gained 23%; all of the gains, if withdrawn after 5 years, will be tax free.

The down side is that your Roth contributions are taxed as regular income unlike the tax deferred traditional TSP contributions.  Fortunately you don’t have to opt for one or the other. You can allocate your contributions in whatever percentage you desire to either option.

There is much to consider before deciding on whether or not a Roth is right for you.  You will either pay taxes now for Roth accounts or defer them until retirement with a traditional TSP account. Other Roth advantages are that you don’t have to take a minimum distribution at 70 1/2 like your must take with the traditional TSP account, and your heirs inherit the account tax free if the account was open for at least 5 years.

If you believe you will be in a lower tax bracket when you retire the traditional plan may be your best option. The problem is that we don’t know what future tax rates will be and an incorrect assumption now could cost you big time down the road.  Remember the old adage: don’t keep all of your eggs in one basket.  I subscribe to that philosophy.  If they would have had a Roth available when I was still working in government I would, even at my age, placed a portion of my contributions in a Roth.

Situations are different for everyone. Whether you would be better off making traditional or Roth contributions depends on your income tax rate now and in the future and other factors.  For example, you might benefit from making Roth TSP contributions if:

  • You are in a low tax bracket now, but think your tax rate may be higher in retirement. With Roth, your contributions are taxed at your current lower rate, and you avoid paying taxes at the expected higher rate in the future.
  • You are not in a low tax bracket now, but anticipate that your marginal Federal tax rate will increase in the coming years.
  • You want tax diversification and see an advantage in making after-tax contributions so that you can have tax-free withdrawals in retirement.

Many savvy investors prefer Roth IRAs. Active managers strive to achieve substantial tax free retirement income by making prudent and timely investment decisions.

For more information on Roth TSP options click on the following links:

Updates

  • Did you know that you can request a presidential letter for retiring employees from former presidents? I didn’t until Roger, one of our site visitors, asked this question recently. Retirees may appreciate a letter from a former president rather than a sitting president for whatever reason. We added contact information for all living former president’s staff on our site.
  • Retirement Savings – My daughter is going on vacation this summer and was having a difficult time finding reasonable car rentals. The best deal she could find was $350 for a weekly rental fee until she bid $220 for a car rental and won the bid for a savings of just under 40% on the Priceline site!  I added a link to the Priceline online bid service to our list of other ways to save in retirement.
  • Retiree Job Postings – We continue to post new job listings on our Jobs Board from employers nationwide that are looking for retired federal employees. Many retirees supplement their retirement income with full or part time work. Visit our Jobs Board to review the listings.

Recent Forum Host Articles:

Request a 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

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

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RMD PRECAUTIONS & OPTIONS

Posted on Sunday, 26th February 2012 by

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Meeting your obligations & finding some opportunities.

Presented by Paul H. Risser

After you turn 70½, the IRS requires you to withdraw some of the money in your retirement savings accounts each year. These withdrawals are officially called Required Minimum Distributions (RMDs).1

While you never have to make withdrawals from a Roth IRA, you must take annual RMDs from traditional, SEP and SIMPLE IRAs, pension and profit-sharing plans and 401(k), 403(b), TSP, and 457 retirement plans annually past a certain age. If you don’t, severe financial penalties await.1

If you are still working as an employee at age 70½, you don’t have to take RMDs from a profit-sharing plan, a pension plan, or a 401(k), 403(b),  457 plan, or TSP . Your initial RMDs from these accounts will only be required after you retire. However, you must take RMDs from these types of accounts if you own 5% or more of a business sponsoring such a retirement plan.2

You must take RMDs from IRAs after you turn 70½ regardless of whether you are still working or not.2

The annual deadline is December 31, right? Yes, with one notable exception. The IRS gives you 15 months instead of 12 to take your first RMD. Your first one must be taken in the calendar year after you turn 70½. So if you turned 70½ in 2011, you can take your initial RMD any time before April 1, 2012. However, if you put off your first RMD until next year you will still need to take your second RMD by December 31, 2012.1

Calculating RMDs can be complicated. You probably have more than one retirement savings account. You may have several. So this gets rather intricate.

  • Multiple IRAs. Should you have more than one traditional, SEP or SIMPLE IRA, the annual RMDs for these accounts must be calculated separately. However … the IRS gives you some leeway about how to withdraw the money. You can withdraw 100% of your total yearly RMD amounts from just one IRA, or you can withdraw equal or unequal portions from each of the IRAs you own.
  • 401(k)s and other qualified retirement plans. A separate RMD must be calculated for each qualified retirement plan to which you have contributed. These RMD amounts must be paid out separately from the RMD(s) for your IRA(s).
  • Inherited IRAs. The same applies – a separate RMD must be calculated for each inherited IRA you have, and these RMD amounts must be paid out separately from RMD(s) for your other IRA(s).1

This is why you should talk to your financial or tax advisor about your RMDs. It is really important to have your advisor review all of your retirement accounts to make sure you fulfill your RMD obligation. If you skip an RMD or withdraw less than what you should have, the IRS will find out and hit you with a stiff penalty – you will have to pay 50% of the amount not withdrawn.2

Are RMDs taxable? Yes, the withdrawn amounts are characterized as taxable income under the Internal Revenue Code. Should you be wondering, RMD amounts can’t be rolled over into other tax-deferred accounts and excess RMD amounts can’t be forwarded to apply toward next year’s RMDs. 2

What if you don’t need the money? If you are wealthy, you may come to see RMDs as an annual financial nuisance – but the withdrawal amounts may be redirected toward opportunities. While putting the money into a savings account or a CD is the usual route, there are other options with potentially better yields or objectives. That RMD amount could be used to…

  • Start a grandchild’s education fund.
  • Fund a long term care insurance policy.
  • Leverage your estate using life insurance.
  • Diversify your portfolio through investment into stock market alternatives.

There are all kinds of things you could do with the money. The withdrawn funds could be linked to a new purpose.

So to recap, be vigilant and timely when it comes to calculating and making your RMD. Have a tax or financial professional help you, and have a conversation about the destiny of that money.

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.

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.

LD42643-01/12

Citations.

1 – www.hartfordinvestor.com/servlet/Satellite?c=Page&cid=1284290138050&pagename=Investor%2FPage%2FCommon [9/23/11]

2 – www.irs.gov/retirement/article/0,,id=96989,00.html#8 [1/5/12]

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

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

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Social Security – When Should I Apply and Replacing a Lost Card

Posted on Monday, 20th February 2012 by

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There is much to consider before applying for Social Security. I’ll be 63 in May and my wife turns 62 this year. Do you need your Social Security card to apply? Many misplace their card and it isn’t uncommon to lose a card that you’ve had around the house for 40 years or more. You don’t need your Social Security Card to apply, however the Social Security Administration recommends replacing lost cards because you may need them when you sign up for other programs down the road.

If you misplaced your card complete the SS-5 form. You must send in original documents or copies certified by the issuing agency to prove your identity. They will return your originals if you include a SASE envelope with your application. You can also take the application and documentation to your local Social Security office and they will copy and return them to you during your visit. Many opt to visit their local office to avoid the risk of losing the original documents. You only need one form of documentation for a replacement card except in certain situations. For example, if you take your spouse’s name in marriage you then must also provide an original or certified copy of your marriage certificate.

That was the easy part; now you have to navigate the many options that will impact you and your family for the rest of your life:

  • Do I take my benefit at 62 or wait?
  • Does my spouse’s income impact my benefits?
  • Can I continue to work after I apply and receive my full benefit?
  • If my benefit is considerably lower than my spouses should I wait and take a spousal benefit when he/she applies or take mine now and apply for an increased spousal benefit later?

Each person’s situation is unique and must be evaluated based on their circumstances. The book titled Social Security, Medicare & Government Pensions can help you evaluate your situation. If you have specific questions that need answered call Social Security at 1-800-772-1213 or visit their web site at www.socialsecurity.gov. Social Security representatives are available to help Monday through Friday 7:00 am to 7:00 pm. If you can’t get answers online or through their comprehensive voice prompts system when you call just enter “0” to exit the voice prompts and be routed to an advisor quickly. Waits can be 5 to 30 minutes or longer during peak periods.

OK, you’re 62 this year, what are you going to do?

There are many things to consider. If your full retirement age is older than 65 (that is, you were born after 1937), you still will be able to take your benefit at age 62, but the reduction in your benefit amount will increase compared to those who were born in 1937 or before. My Full Retirement Age (FRA) is 66 and if I elected to take a benefit at age 62 I would receive 25% less than what I would have received if I waited until full retirement age; a significant decrease. Each year, as you approach full retirement age, the reduction decreases. At age 63 my reduction would be 20% and at 65 just 6.66%. The longer you wait to collect the higher your payment will be clear up to age 70. I’m also in the CSRS system and subject to the Windfall Elimination Provision that will reduce my benefit by a predetermined amount.

What I was thinking about more than anything else was what government will do to stabilize Social Security. My article titled “Retirees Under Attack,” that I wrote earlier this month, shows you where I’m coming from. Numerous articles and studies including internal government audits confirm that the Social Security fund will be broke by 2036 and sooner if they continue to extend the payroll pay tax cuts that fund Social Security. Nothing is for free and this “Tax Holiday” is really another blow to the Social Security Trust Fund and to seniors collecting benefits. The powers to be will have to work this out and I believe that benefits for annuitants and those close to retirement will not be impacted, otherwise reform will never work and many will suffer. The changes will more than likely impact those younger than 55 and be phased in over time. However, only time will tell.

Another concern for couples that both work is whether the other spouse’s income impacts their ability to collect benefits especially when a couple files a joint return and the joint income exceeds the $14,640 earnings limit. The good news is that each person individually applies for benefits and only that person’s earned income is used to determine eligibility. For example; Joe and Ann are married, Ann is age 62 working part time for a non-profit earning $12,000 a year and Joe is 63 with an annual salary of $82,000 a year. Ann wants to collect benefits now. Joe’s wages exceed the earnings limit so he doesn’t foresee collecting Social Security until age 66, his FRA. At age 66 Joe can start collecting his benefits, if desired, and there are no limits on the amount he can earn. Ann will continue working at the non-profit and because her wages are less than the $14,640 annual earnings limit she can collect her full salary and Social Security benefits now instead of waiting to collect at a later date. If Ann’s earnings were in excess of $14,640 she could continue to work however Uncle Sam would withhold $1 in benefits for every $2 of earnings in excess of the exempt amount.

The earnings limit is only a factor for earned income; income from investments and rental property are not included and will not impact your Social Security payments at any age.

Joe’s Social Security benefits will be much higher than his wife’s. Ann still wants to collect Social Security at age 62 and when Joe starts collecting benefits at age 66 switch to half of Joe’s benefit. Basically, a spouse can collect either half of the spouse’s benefit or theirs, whichever is greatest. The key is that you can only elect half of your spouse’s benefit when they elect to take their benefit and not before.  Since Ann took her benefits early at age 62 the amount she can collect 3 years later at age 65 is 46% of the spouses benefit not the full 50%. If she waits to switch when she is at her FRA, age 66, she would receive 50% of his benefit.

Another consideration is death benefits. What happens if Joe unfortunately dies before reaching his FRA? Ann would receive between 71.5 to 99% of his basic amount under the death benefit rules depending on her age. If she was 65 when Joe died, Ann would receive 97% of his benefit and would give up her lower benefit. If she is 66 or older when Joe passes on she would get 100% of his benefit even though Ann took her benefit early at age 62. She would qualify for his survivor benefit that was not reduced because he didn’t collect until at or after he reached age 66.

Receiving Benefits While You Work – The PLUS Side

When you reach your full retirement age, you can work and earn as much as you want and still receive your full benefits as described above. If you are younger than full retirement age and if your earnings exceed $14,640/yr., some of your benefit payments during the year will be withheld.

This does not mean you must try to limit your earnings. If Social Security withholds some of your benefits because you continue to work, they will pay you a higher monthly benefit amount when you reach your full retirement age.

If you continue to work and earn more than the exempt amount, you should know that it will not, on average, reduce the total value of lifetime benefits you receive from Social Security and may actually increase them.

Here is how it works: after reaching full retirement age, Social Security will recalculate your benefit amount to give you credit for any months in which you did not receive some benefit because of your earnings. In addition, as long as you continue to work, they will check your record every year to see whether the additional earnings will increase your monthly benefit. For more information on this subject download publication # 05-10069 titled “How Work Affects Your Benefits.”

Signing Up For Benefits

Social Security offers an online retirement application that you can complete in as little as 15 minutes. You can apply from the comfort of your home or office 24/7. There’s no need to drive to a local Social Security office or wait for an appointment with a Social Security representative. In most cases, once your application is submitted electronically, you’re done. There are no forms to sign and usually no documentation is required. Social Security will process your application and contact you if any further information is needed.

If you cannot apply online you can call 1-800-772-1213 to make an appointment to avoid any loss of benefits.

Social Security has suspended issuing Social Security Statements due to budget concerns. Use their online Social Security Estimator listed below to determine your benefit. My wife and I used the online calculator to determine our benefits. They use your actual work history file and the reports took less than 5 minutes to generate for each of us. The annual Social Security statements that we all received in the past and the online benefit calculator don’t include the WEP reduction for CSRS employees. To determine the impact WEP will have on your benefit use their online WEP Calculator. The maximum WEP benefit reduction for 2012 is around $370.

Other Helpful Resources

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.

Request a 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.

Visit our other informative sites

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 BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, SOCIAL SECURITY / MEDICARE

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