Retirement planning today has taken on many new dimensions that never had to be considered by earlier generations. For one, people are living longer. A person who turns 65 today could be expected to live as many as 20 years in retirement as compared to a retiree in 1950 who lived, on average, an additional 15 years. Longer life spans have created a number of new issues that need to be taken into consideration when planning for retirement.
Lifetime Income Need
There actually is a lifetime after retirement and the need to be able to provide for a steady stream of income that cannot be outlived is more important than ever. With the prospect of paying for retirement needs for as many as 20 years, retirees need to be concerned with maintaining their cost-of-living.
Health Care Needs
Longer life spans can also translate into more health issues that arise in the process of aging. The federal government provides a safety net in the form of Medicare, however, it may not provide the coverage needed especially in chronic illness cases. Planning for long-term care, in the event of a serious disability or chronic illness, is becoming a key element of retirement plans today.
Planning for the transfer of assets at death is a critical element of retirement planning especially if there are survivors who are dependent upon the assets for their financial security. Planning for estate transfer can be as simple as drafting a will, which is essential to ensure that assets are transferred according to the wishes of the decedent. Larger estates may be confronted with settlement costs and sizable death taxes which could force liquidation if the proper planning is not done.
Paying for Retirement
Retirees who have prepared for their retirement usually rely upon three main sources of income: Social Security, individual or employer-sponsored qualified retirement plans, and their own savings or investments. A sound retirement plan will emphasize qualified plans and personal savings as the primary sources with Social Security as a safety net for steady income.
Social Security was established in the 1930’s as a safety net for people who, after paying into the system from their earnings, could rely upon a steady stream of income for the rest of their lives. The age of retirement, when the income benefit starts was, originally, age 65 which was referred to as the “normal retirement age”. Now, for a person born after 1937, the normal retirement age is being increased gradually until it reaches age 67 for all people born in 1960 and beyond. The amount paid in benefits is based upon the earnings of an individual while working. If a person wanted to continue to work and delay receiving benefits, they could do so build up a larger benefit. Conversely, early retirement benefits are available, at a reduced level, as early as age 62.
Employer-Sponsored Qualified Plans
Most employer-sponsored plans today are established as “defined contribution” plans whereby an employee contributes a percentage of his earnings into an account that will accumulate until retirement. As a qualified plan, the contributions are deductible from the employee’s current income. The amount of income received at retirement is based on the total amount of contributions, the returns earned, and the employee’s retirement time horizon. As in all qualified plans, withdrawals made prior to age 59 ½ may be subject to a penalty of 10% on top of ordinary taxes that are due.
Depending on the size and type of the organization, they may offer a 401(k) Plan, a Simplified Employee Pension Plan or, in the case of a non-profit organization, a 403(b) plan.
Small Business Retirement Plans
Choose the right retirement solution for your business. For employee groups, we can offer advice on small business retirement and pension plans.
- Simplified Employee Pension Individual Retirement Account (SEP IRA)
- Savings Incentive Match Plan for Employees Individual Retirement Account (SIMPLE IRA)
- Individual 401k
SEP-IRAs offers business owners maximum flexibility for contributions - providing the ability to scale contributions based on employee wages and to change contributions depending on business conditions.
For business owners, group retirement and savings plans can play a key role in attracting and retaining quality employees.
Just like you, your dedicated employees are working towards a safe, secure future. Either provided independently or paired with group benefits, a group savings plan is a convenient, flexible and affordable way to help your employees reach their long-term financial goals.
Employees gain instant tax savings for their Group contributions, since they are made using pre-tax payroll deductions. They also receive the peace of mind that comes from knowing every month they are building towards retirement.
I can help you and your valued employees choose group retirement and savings products. We will design an investment plan tailored to fit the needs of everyone involved. Choose from products like:
- Deferred profit sharing plans
- Defined contribution pension plans
Contact us today to learn about how group retirement and savings plans can benefit your business.
Individual 401(k) plans
Individual 401(k) plans offer high contribution limits and a flexibility plan design, plus they allow business owners to make a tax-deferred contribution as both the employee and employer - increasing your chance of meeting increasing your chance of meeting your individual retirement goals.
Please note that you should consult with your tax or legal advisor before establishing a business retirement plan.
Traditional and Roth IRAs
Individual Retirement Accounts (IRA) are tax qualified retirement plans that were established as way for individuals to save for retirement with the benefit of tax favored treatment. The traditional IRA allows for contributions to be made on a tax deductible basis and to accumulate without current taxation of earnings inside the account. Distributions from a traditional IRA are taxable. A Roth IRA is different in that the contributions are not tax deductible, however, the earnings growth is not currently taxable. To qualify for tax-free and penalty-free withdrawals of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes..
Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching 59 ½ , may be subject to an additional 10% federal tax penalty.
For more information on retirement income needs and income sources, please contact us today.