Before you turn 60 years old, your 401k plan has a set up that you may want to take advantage of. In the past, there has been a lot of middle-aged taxpayers who were scared to open certain bank accounts. Nowadays, those thoughts of being financially taken advantage of are not what investors are thinking about. In fact, if you have contributed to a 401k plan, you can have in-service withdrawals happen before you turn 60. Primarily, these withdrawals are those who are still employed at that age.


Whenever you are starting a 401k plan, it's best to ask about all of the benefits of having the account before starting your investing process. There are some advantages and disadvantages that you would have to think about. For instance, the advantages of taking charge of your 401k through in-service withdrawals are:

  • greater flexibility
  • benefits for beneficiaries
  • exceptions on certain penalties
  • protection of the money you have invested or earned over the account
  • if you have stock in your company, this could be a great retirement plan
  • early retirement could be an option
  • 401k plans will move to another employer when you turn 55 or older with no penalty


When choosing to find out about the disadvantages that an in-service withdrawal contains, you may run into the following issues: 

  • If you have an IRA, your penalties will take place if you are under 60 years old
  • moving your money from a 401k plan to an IRA changes the rules for your account
  • 401k protects you from creditors that would want to be paid through your account


There are different employers that will offer in-service withdrawal plans. On the other hand, there are employers that don't offer this valuable money-making tool. For advice on investing, you can speak to someone in the administrative department at your job. From there, you should be guided to the right solution. For more information, you can research 401k plans at contolling your assets.

When an employee qualifies for an in-service withdrawal, it can be looked at as an early retirement contribution to themselves. In fact, you can use that money to vacation and travel without worrying about penalties at all. Additionally, you don't have to worry about tax laws diminishing what you've earned. Each employer that offers this in-service withdrawal plan has ordering rules. If you want to read about in-service withdrawal plans a little more, you can research the topic at in-service withdrawl.

Believe it or not, your employer will start helping you plan an in-service withdrawal through your 401k at 59½ years old. You could feel your best days once you plan the withdrawals. For affluent individuals, a 401k plan could be the very reason why you start a new adventure or look for a new trade. Moreover, there could be a new lease on life for you as well as your family. 

 

 

Retirement income is not a one size fits all calculation as wants and needs vary significantly from one person to the next. Several factors such as life expectancy inflation, and balances do play a huge part but considering your retirement expectations for the "golden years" will help in the planning process to make the most of your retirement.


Remember your first payday? How excited were you to get that hard-earned cash in your hands? You opened the envelope and found all sorts of deductions from your pay, federal taxes, social security, and healthcare expenses. You officially started paying bills and contributing to your retirement years with that first paycheck. You continued to work hard and grew in your career, you were given opportunities for employee stock purchase plans, profit sharing, and retirement plans, including pensions and 401Ks. You on your way and building your nest egg.

As you get closer to the retirement years, you need to start making plans. Whether it be traveling, a summer home purchase, or just relaxing with family, your plans are important to your retirement income needs. Some people retire right at 62 when they can collect social security benefits. Did you know if you continue to work till 66 you will receive the full benefit payout? And if you work till 70, you will receive a 32% bonus!

Sadly, but understandably, many new retirees worry they haven’t saved enough. Sometimes life happens and plans become changed. You may hesitate and not do the things you looked forward to during your working years due to fear of over spending or running out of money. When this happens, retirees often realize they had enough funds for their plans when it’s too late. Their health deteriorated, and that can make it hard for us to enjoy the things we were looking most forward to in our retirement years.

How can we prevent emotions from controlling our spending? By planning. Part of your retirement plan should include setting an amount for your retirement paycheck. Much like the paycheck received from work, a retirement paycheck is an amount you set to cover all monthly expenses and include the costs of your retirement activities, like traveling or moving.

It’s generally safe to assume you will need 80% of your current salary. This should serve as a good starting point. Then, you can look at your plans. Is there a big wedding or healthcare costs that may incur a large payment? Where will you be living? Many retirees may move into a retirement community while others may just downsize their home or stay put where they are.

As you look at your plans, be flexible but realistic. Your income needs may vary from year to year. You may buy a new car ever 5 years or so and vacations may be every other year. Some people will continue to work after retiring. Adjust accordingly. There is no need to take more money than out of your retirement vehicles than required. Allow those long-term savings to grow until it’s necessary to retrieve them. You will find confidence in knowing you have a steady income stream with consistent retirement paychecks to meet your spending needs.

 

If you’re looking for planning help, we are here to guide you to and through your retirement years.

 With each passing year, more baby boomers are reaching retirement age. There is a lot of discussion surrounding the management of retirement savings and how to turn this money into an income stream. This conversation is becoming increasingly important as pensions are obsolete for many and the Medicare system is being squeezed for all it is worth.


According to the U.S. Census Bureau, the median retirement income for household age in 2019 is as follows:

AGE OF HOUSEHOLD MEDIAN INCOME

Households Aged 55-59 $73,645

Households Aged 60-64 $63,919

Households Aged 65-69 $54,124

Households Aged 70-74 $46,797

Households Aged 75 and Older: $31,893

Whether you fall below or above these average numbers, it is important to overview your potential or current retirement income. Here are the five areas from which retirees see the most income. We will also be discussing ways in which to boost your income from each.

1. Average Social Security Income:

Over 85% of retirees age 65 and older receive Social Security income. In 2019, these monthly payments were increased by 2.9% to adjust for the increased cost of living. The average monthly income was raised from $1,422 in 2018 to $1,461 in 2019. Other than occasional adjustments for inflation, the monthly payments from Social Security remain quite constant. The only way to receive more money is to postpone the time you start collecting the payments.

2. Average Asset Income:

Surveys and studies show that retirees in 2019 only receive an average of $164,000 from their assets such as 401(k)s and IRAs. Although this number is up from previous years, it is still not enough money to survive. The best way for a retiree to make this money last is by spending less money. Individuals who are younger should continue investing into their IRAs and other retirement funds.

3. Average Pension Income:

Pensions are quickly becoming obsolete, as only 31% of retirees track income from this source. Those retirees who do have pensions often have double the amount of income than their non-pensioned counterparts. While it is nearly impossible to increase the income of a pension, you can be diligent about taking out monthly payments versus a lump sum. 

4. Average Work Income:

The percentage of elderly individuals in the workforce is expected to rise to 32% by 2020. Transamerica predicts that two-thirds of all baby boomers will be working past retirement age. Retirees can actually experience some social, financial and mental benefits by joining the workforce. It is recommendable to find a job you love doing or to find streams of passive income.

5. Veteran's Benefits or Public Assistance:

According to the Pensions Rights Center, about 7% of all retirees are receiving financial help from the government. This public assistance ranges between $5,866 and $6,542 in median benefit. Low-income seniors can conduct research on all of the organizations that are willing to aid retirees in need. Veterans should also contact their local VA office for more information about the available benefits.

Important Trends for Retirees to Follow in 2019

The median income for retirees today was decided in part by the behavior of retirees in the past. However, there are also factors happening today that contribute to these averages.

Focus on De-accumulation: In retirement age, individuals should be focusing on how to spend their money wisely. The goal should be on de-accumulation, not on creating more income.

Rising Interest Rates: Interest rates are on a steady rise after some historic lows. This is bad news for people starting to pay back loans.

Stock Market and Home Prices: Both the stock and housing markets are experiencing a plateauing effect after years of great returns.

Tax season is once again in full swing. While many concerned taxpayers file tax returns to meet the required deadline, criminals work harder to cash in taking advantage of the hectic tax season. Tax fraud remains a growing concern nationally, and counterfeit scams cost millions of dollars. Individuals who take a proactive approach can deter fraud and protect their identity, information and their finances. Here are a few recent scams catching the watchful eye of the IRS.


TAX PREPARATION SCAMS
 
The IRS just released notice IR-2019-09 to alert taxpayers of unscrupulous tax preparers. Deceitful tax preparers file erroneous tax returns for many unknown taxpayers. The law requires all preparers who receive payment for preparation of federal tax returns to have a valid Preparer Tax Identification Number (PTIN). The tax preparer must include their PTIN and sign the return. For e-filed tax returns, a dishonest preparer will omit his electronic signature. Additionally, they may falsify tax information to increase the refund, while directing the refund into their bank account. Tax payers must review their tax returns for accuracy of income and deductions. Ensure the tax preparer signs the return and includes their PTIN. Make sure the bank account and routing numbers are correct. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications provides an excellent resource to locate established tax preparers with the IRS.

CHARITABLE GIVING SCAMS

In the fall of 2018, the IRS posted notice IR-2018-188 to inform individuals of charitable giving scams. The 2018 hurricane season ended with Hurricane Florence and Michael wreaking destruction in its pathway, destroying homes and causing millions of dollars in damages. Natural disasters bring out the best in generous individuals seeking to aid donations to humanity in times of a national emergency. Sadly, criminals take advantage of benevolent individuals who desire to financially aid their fellow man in dire need. Counterfeit websites disguise themselves as other well-known established charities to deceive generous individuals to donate money to a dire cause. Additionally, some individuals receive solicitations from fraudulent charities, promising a nice tax deduction in return for your donation. Don’t fall victim to their schemes. Donors can prevent thousands of dollars from falling into the wrong hands. The IRS provides a tool to help prevent against charitable giving scams. Donors can verify if a charity is legitimate by utilizing the IRS search tool, Tax Exempt Organization Search. Never give to a charity who solicits a donation without first verifying the authenticity of their organization.

EMAIL PHISHING SCAMS

In IRS notice IR-2018-226, the IRS alerts taxpayers to a recent spike in email phishing scams. While fraudulent emails and phishing scams have been around awhile, data thieves continue working diligently to improve new tactics to steal valuable information. Emotet is the infected malware of choice in many email scams, and Emotet remains well-known as the most damaging and expensive to fix. Many of these scam emails display tax account transcript in the subject line of the email and include infected attachments with similar wording. These emails appear legitimate. They often disguise themselves as representatives with banks, financial institutions and the IRS. The IRS logo and other well-known bank logos appear real, and many unsuspecting individuals open the infected email attachment. The IRS does not contact individuals through email. The IRS warns individuals to not open suspecting emails. The IRS remains diligent to combat against fraud. If you suspect a suspicious email, you can also forward the email to This email address is being protected from spambots. You need JavaScript enabled to view it..


Democratic Congressman John B. Larson introduced the Social Security 2100 Act on January 30, 2019. The proposed legislation seeks to raise payroll taxes to keep Social Security solvent and expand benefits.

Payroll Tax Increases

Some say that Social Security is in crisis. The program has had a deficit every year since 2010. If Congress does not act, the Social Security Trust Fund is forecast to become insolvent by 2034. The Social Security 2100 Act would address that problem by raising the 12.4 percent payroll tax by 0.1 percent annually until the tax reaches 14.8 percent.

The bill increases payroll taxes in another way. Today, the Social Security payroll tax is levied on all earned income up to $132,900. The new legislation would subject earned income over $400,000 to the payroll tax. Initially, earned income between $132,900 to $400,000 would be exempt from the payroll tax. This exemption gradually would be phased out as long as the cost of living adjustment is going up. All of the bills combined tax increases are projected to keep the Social Security solvent for 75 years.

Benefits Expand

In addition to addressing the insolvency crisis, the other goal of the proposed bill is to expand Social Security benefits. The key measures to increase benefits follow.

  • All recipients would see their benefits rise by about two percent.
    To accomplish this, the primary insurance amount factor would move from 90 percent to 93 percent starting in 2020.
  • The cost of living adjustment would increase.
    Currently, the cost of living adjustment is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Although the Social Security cost of living adjustment has been tied to CPI-W since 1975, the index doesn't reflect the spending habits of the Social Security's primary demographic group, the elderly. The Social Security 2100 Act would base the cost of living adjustment on the Consumer Price Index for the Elderly, which takes into account that the elderly spend more in certain categories such as healthcare.
  • The minimum benefit would increase.
    Today's benefit is below the poverty level. Starting in 2020, the bill would raise the minimum benefit to reduce poverty among new retirees and the newly disabled.
  • Federal income tax would be reduced or eliminated on Social Security benefits for select recipients.
    Currently, Social Security benefits are taxed if the recipient's overall income reaches certain income tiers. For example, single tax filers who have an adjusted gross income (AGI) plus one half of benefits of greater than $25,000 can have up to 50 percent of their Social Security benefit taxed. However, at greater than $34,000 of AGI plus one half of benefits, up to 85 percent of Social Security benefits are taxed. The Social Security 2100 Act would simplify taxation by eliminating the tiers and create one income threshold for each taxpayer filing status. The new threshold is up to 85 percent of benefits are taxed for single filers with an AGI over $50,000 and an AGI over $100,000 for joint filers.

Planning for your own retirement income will likely provide you with peace of mind.  Let us know, we can help.

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