Category

Retirement Plan – Employees

Don’t Let Student Loan Debt Get In Your Way of Financial Success

If you find yourself in a position of not being able to pay off your student loan debt and save for your future, you’re not alone. According to the New York Federal Reserve, more than two million student loan borrowers have student loan debt greater than $100,000, with approximately 415,000 of them carrying student loan debt in excess of $200,000.

Here are some steps you can take to help eliminate your student loan debt:

  1. Make a Budget

Do you have a budget that you’re following each month? If not, create one today! With a monthly budget you can track where you are spending your money and where you can cut back. Then take your savings and put it towards your student loans!

  1. Pay More Than the Minimum

It’s no secret that paying the minimum each month will not get you far. By paying more than the minimum you can attack the principal at a quicker rate. Then your loans will be paid off faster.

  1. Apply Raises and Tax Refunds to Your Student Loans

When you get some extra dough from a raise or tax refund it may be tempting to run out and spend it. Wouldn’t it be so much more beneficial to put any extra money you receive towards your debt? Doing this will get you to your goal of being debt-free much quicker.

  1. Find Out if Your Employer Offers a Student Loan Repayment Program

Last year the IRS issued a Private Letter Ruling stating that companies offering a retirement plan can amend their plan to include a program for employees making student loan repayments. Under this program, employers make retirement plan contributions into the accounts of employees who are making student loan repayments.

Is it Time for a Retirement Plan Check-Up?

It’s important to conduct regular check-ups on your retirement plan to make sure you are on track to reach your retirement goals. Below are a few questions to ask yourself, at least annually, to see if (and how) they affect your retirement planning.

 

  1. Review the Past Year
  • Did you receive a raise or inheritance?
    If yes, you may want to increase your contributions.
  • Did you get married or divorced?
    If yes, you may need to change your beneficiary form.
  • Are you contributing the maximum amount allowed by the IRS?
    In 2018 you can contribute up to $18,500 ($24,500 for employees age 50 or older).
  • Did you change jobs and still have retirement money with your previous employer?
    You may be able to consolidate your assets with your current plan. (Ask your human resources department for more details.)
  1. Set a Goal

What do you want your retirement to look like? Do you want to travel? Will retirement be an opportunity to turn a hobby into a part-time business? Will you enjoy simple or extravagant entertainment?

Take time to map out your specific goals for retirement. Participants that set a retirement goal today, feel more confident about having a financially independent retirement down the road.

  1. Gauge Your Risk Tolerance

Understanding how comfortable you are with investment risk can help you determine what kind of allocation strategy makes the most sense for you. Remember, over time, and as your life changes, so will your risk tolerance.

  1. Ask for Help

If you have questions about your retirement plan or are unsure of how to go about saving for retirement, ask for help. Your retirement plan advisor can help you evaluate your progress with your retirement goals, determine how much you should be saving and decide which investment choices are suitable for you.

Financial Wellness II

We are excited to continue the seven-part series on financial wellness that covers several financial struggles Americans are facing and ways to overcome them. This is the second half of the series and includes parts 5-7.

Part 5: Retirement 101

All approach retirement, some sooner than others. To enjoy your retirement years and not be a burden on family members, it is essential that you save sufficient assets to carry you through your retirement. No one knows precisely the amount of assets you will need for a comfortable retirement, but the more you save now, the more comfortable you are likely to be at retirement.

Here are the essentials to know about your retirement plan:

What is it? Your employer’s retirement savings plan is a defined contribution plan designed to help you finance your retirement. As a participant in the plan, you own an individual account within the plan that you contribute money to for your retirement.

What are the limits? For the year 2018, you can contribute a total of $18,500 towards your retirement plan. Individuals age 50 and over can contribute an additional $6,000.

Salary deferral advantages. Participating in your company’s retirement savings plan allows you the benefit of saving via payroll deduction on a tax deferred basis. Every dollar you save goes directly into your retirement savings account. Tax deferral on both savings and asset growth via payroll deduction helps you save more money and pay less tax upon distribution at retirement.

Tax deferred growth. Not being taxed on the growth of your assets helps accumulation during your working years. With your qualified retirement savings plan you not only defer taxes on the amount you save, but earnings on your savings is also tax deferred until distribution.

Employer contributions. Employer contributions, if offered, help you accumulate assets for retirement and can add considerably to your retirement account balance. You are also not taxed on your employer’s contributions until distribution. As an example, if your employer contributes 25 percent on your contribution that is the equivalent of earning a 25 percent return on that portion of your contribution, in addition to whatever return your investment generates.

Portability. If you change employers at some point in your career, you typically can keep your assets in the current plan, roll your assets over to your new employer’s plan or roll your assets into an IRA.

Part 6: Your Retirement Date

Retirement can be the most wonderful time of your life, truly the golden years. It is up to you to do what you can to make it so. Enjoying good health in retirement is key to quality of life. The other major determiner of quality of life in retirement is financial security. Below are some important questions that are never too early to consider.

When is your retirement date?  Life expectancy is constantly being extended by medical advances and lifestyle decisions. Working until age 70 is not a farfetched concept. Many people will be quite physically and mentally capable of sustaining some degree of employment through their 80s, whether for financial reasons or simply because they enjoy the engagement.

What will your expenses be?  Expenses are difficult to estimate. Having your own home is very helpful, but trying to predict other expenses is a challenge. The retirement investing industry has relied on the “old saw” that you should plan to replace 75 percent of your pre-retirement income. That may have worked for your parents, but likely not so much for you. If you retire with some degree of financial comfort you will have much time on your hands to indulge in your interests and hobbies. Don’t worry that you might save too much for retirement, because there is no such thing as too much money. There are many worthy causes you can help, if you have excess assets.

What about working longer?  In some ways work is like school or military duty (during peaceful times), you can’t wait until you are done with it, but then in hindsight, you miss aspects of it. This is not to say you should remain working 40 hours a week, but you may consider part-time work in your current field or begin a new career that is of interest to you, perhaps this may be associated with a hobby or sport you enjoy, or some charitable institution you feel strongly about. There really are many options.

What about Social Security?  In spite of all the Social Security kerfuffle about it being bankrupt, it is likely to still be here when you need it. For every year past eligibility you wait to begin benefits, your monthly amount increases by approximately 8 percent. That is not a bad return for a safe investment. You can delay your benefit until it makes sense not to. Also, consider a potential spouse’s benefit as well.

Part 7: How Long will Your Money Last?

The big question when it comes to retirement is, “How much money am I going to need?” With all of the advanced education and strategy tools available, it is still often difficult to understand the difference between what you can save for retirement and what is needed to retire. Sometimes, it is helpful to see what your account can actually provide over the course of your retirement. It can also help you set an achievable goal.

SavingsMonthly income for 10 years1Monthly income for 20 years1Monthly income for lifetime of individual and spouse
$50,000$493$289$174
$100,000$986$578$349
$150,000$1,479$867$523
$200,000$1,972$1,157$698
$250,000$2,465$1,446$872
$500,000$4,930$2,891$1,745
$750,000$7,395$4,337$2,617
The monthly incomes are hypothetical and not intended to project the performance of any specific investment or insurance product.

Monthly income can be greatly influenced by the number of distribution years.  A shorter payout over 10 years will result in the highest monthly distribution amount, but the risk is if you live longer than 10 years in retirement, you may actually run out of money. Perhaps the most important decision is to decide when you actually want the distributions to begin. Deferring the beginning date of distributions from your account a few years can not only reduce the payout timeframe, but could allow an opportunity for additional asset growth depending on investment performance.

For more information on increasing your deferral amount or other retirement planning questions, please contact your retirement plan advisors at Rathbone Warwick Investment Management at [email protected] or 208-297-5445.
¹Payment increases 2% annually to help offset effects of inflation. Illustrative amounts based on 3.5% interest rate. Lifetime payments assume retirement age of 65. Based on 5.5% annual yield compounded monthly. Investment option performance can dramatically affect these numbers. Inflation can also seriously affect the value of the withdrawals. Rate of return is hypothetical and does not represent any specific investment option or imply guaranteed results. Amounts shown do not reflect the impact of taxes on earnings, your actual return will vary depending on your investment option and your tax bracket. ²Lifetime payments assume start at age 65 over two lives, Joint and Survivor at 100% survivor benefit and 3% COLA. Analytics provided by MassMutual.

Financial Wellness I

We are excited to present a seven-part series on financial wellness that will cover several financial struggles Americans are facing and ways to overcome them. This quarter’s newsletter includes parts 1 – 4. Look for parts 5 –7 in next quarter’s newsletter.

Part 1: Do You Have an Emergency Fund?

If you had an unexpected emergency expense of $400, would you be able to pay for it? If your answer is no, you’re not alone. Forty-six percent of Americans said they would have difficulty with an emergency expense of $400.1 Furthermore, 140 million Americans have little or no savings at all.2

With an emergency fund in your back pocket you will have the money to pay for the little emergencies that pop up in life. Such emergencies are:

  • Job loss
  • Medical or dental emergencies
  • Unexpected home repairs
  • Car troubles
  • Unplanned travel expenses

Your emergency fund should have three to six months’ worth of expenses in it. That way you’ll be prepared for the curve balls life throws your way. Try cutting back on unneeded purchases, such as lattes on the way to work, and put that money towards your emergency fund.

Having that extra stash of cash also keeps your stress level down and keeps you from making poor financial decisions such as taking out a loan or borrowing from your retirement plan.

Part 2: Are You Reducing Your Debt?

If debt is a leading contributor to your overall stress, you are not alone. The national mean for household credit card debt is $16,000. The average total household debt, including mortgages, is $132,500.1 That volume of debt can be a real burden on your wallet, relationships and ability to achieve other important goals like saving for retirement.

Millions of people attempt to juggle these goals all at once, but your method does not need to be mentally and emotionally taxing. Start small, and then continue to roll the money you were paying on that debt into the next smallest balance.

Try the Debt Snowball Method:

Step 1: List your debts from smallest to largest.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.

Ditching the small debt first, and gaining momentum as each balance is paid off is the key to becoming debt-free! Soon the second debt will follow, then the next. Stick to the plan and begin leading a healthy progression toward reducing your debt.

Part 3: Saving for College

You have big dreams for your children. Maybe they will grow to be an astronaut or a doctor—their potential has no limit. Have you considered how they will get there? Have you started to save for your children’s future education? According to the National Center for Education Statistics (NCES), the average annual cost for undergraduate tuition, fees, room and board were estimated to be $16,188 at public institutions, $41,970 at private non-profit institutions and $23,372 at private for-profit institutions—that’s a significant additional cost.

If you haven’t begun to save for your child’s college education, you are not alone. Just over half of families (57 percent) have started to save1. Consider saving in a 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs2.

Benefits of 529 Plans:

  • Flexibility over investment options
  • Tax-free growth and withdrawals made permanent with passing of the Pension Protection Act (PPA) in 2006
  • Some states allow tax deductions and exemptions on gains
  • Donor has control over assets and investments
  • Can be used in any state, any school
  • Can be transferred to another beneficiary at any time
  • No income limitations or age restrictions

Begin saving for your child’s future today and you’ll thank yourself for it when the Ivy League acceptance letters start rolling in.

Part 4: Buying a Home

Purchasing a home is a big decision. There are many factors to consider. Most importantly, what is your budget? Is now the time to rent instead? How do you know?

If you do become a homeowner, what about your mortgage? Should you go full-force and pay it off as soon as possible? Or are there advantages to carrying the mortgage?

The answer is not the same for everyone. Let’s take a look at factors that can help you make this decision.

Buying vs. Renting

First thing’s first, can you afford to buy a home? If the answer is “Yes” to these questions, you may be on your way to home ownership:

  • Are you out of debt?
  • Do you have an emergency fund with three to six months of expenses, plus enough for a 10-20 percent down payment on a 15-year fixed mortgage?
  • Will your mortgage payment comprise no more than 25 percent of your monthly take- home pay?Next consider which is more beneficial. Renting may be less expensive because there are no costs for maintenance, taxes and homeowner’s insurance. However homeownership may be beneficial because your mortgage will not increase annually.

Next consider which is more beneficial. Renting may be less expensive because there are no costs for maintenance, taxes and homeowner’s insurance. However homeownership may be beneficial because your mortgage will not increase annually.

Paying off the Mortgage

Congratulations, you’re a homeowner! Now what?

  • Should you pay it off early?
  • Should you delay saving for retirement in favor of paying off the mortgage?
  • Will the employer match and investment growth sacrificed be worth it?
  • Should you keep the mortgage in favor of the annual tax deduction?These are just a few important questions to consider as you assess and strategize your financial future.

These are just a few important questions to consider as you assess and strategize your financial future.

1Fed Reserve Report on the Economic Well-Being of U.S. Households in 2015. May 2016.
2CFED Study

4 Tips to Save for Retirement

Don’t cash out retirement plans when changing employment

When you leave a job, the vested benefits in your retirement plan(s) are an enticing source of money. It may be difficult to resist the urge to take that money as cash, particularly if retirement is many years away. Generally you will have to pay federal income taxes, state income taxes, and a 10 percent penalty if under age 59½. This can cut into your investments significantly and negatively impact your retirement savings goals. In California, for example, with an estimated 8 percent state income tax, someone in the 28 percent federal tax bracket would lose 46 percent of the amount withdrawn. When changing jobs, generally you have three options to keep your retirement money invested – you can leave the money in your old employer’s plan, roll it over into an IRA, or transfer the money to your new employer’s plan.

Put time on your side

When you give your money more time to accumulate, the earnings on your investments, and the annual compounding of those earnings, can make a big difference in your final return. Consider a hypothetical investor named Martha who saved $2,000 per year for a little over eight years. Continuing to grow at 8 percent for the next 31 years, the value of the account grew to $279,781. Contrast that example with George, who put off saving for retirement for eight years, began to save a little in the ninth and religiously saved $2,000 per year for the next 31 years. He also earned 8 percent on his savings throughout. What is George’s account value at the end of 40 years? George ended up with the same $279,781 that Martha had accumulated, but George invested $63,138 to get there and Martha invested only $16,862!          

Don’t count on Social Security

While politicians may talk about Social Security being protected, for anyone 50 or under, it is very likely that the program will be very different from its current form by the time you retire. According to the Social Security Administration, Social Security benefits represent about 34 percent of income for Americans over the age of 65. The remaining income comes predominately from pensions and investments. They also state that by 2035, the number of Americans 65 and older will increase from approximately 48 million today to over 79 million. While the dollars-and-cents result of this growth is hard to determine, it is clear that investing for retirement is a prudent course of action.

Work with a financial advisor

Historically, investors with a financial advisor have tended to “stay the course,” employing a long-term investment strategy and avoiding overreaction to short-term market fluctuations. A financial advisor also can help you determine your risk tolerance and assist you in selecting the investments that suit your financial needs at every stage of your life.

 

 

 

 

 

 

 

In addition to the options listed here, there may be other options available. You should also consider your other options before rolling over retirement savings. Consider the differences in investment options, services, fees and expenses, withdrawal options, required minimum distributions, other plan features, and tax treatment. This material is not intended to replace the advice of a qualified attorney, tax advisor, investment professional or insurance agent.
This is a hypothetical illustration and does not represent an actual investment. There is no guarantee similar results can be achieved. If fees had been reflected, the return would have been less.

The 10% Savings Goal

Most people need to save more — often a lot more — to build a nest egg that can meet their needs. Many financial experts recommend putting away 10 to 15 percent of your pay for retirement. There’s a relatively painless way to reach that goal.

Take small steps

  • Begin by contributing enough to receive your employer’s matching contribution
  • Consider gradually raising your contribution amount to 10 percent or higher
  • Raise your plan contributions once a year by an amount that’s easy to handle, on a date that’s easy to remember—say, 2 percent on your birthday. Thanks to the power of compounding (the earnings on your earnings), even small, regular increases in your plan contributions can make a big difference over time.

A little more can mean a lot

Let’s look at Minnie and Maxine. These hypothetical twin sisters do almost everything together. Both work for the same company, earn the same salary ($30,000 a year), and start participating in the same retirement plan at age 35. In fact, just about the only difference is their savings approach:

 

Minnie contributes 2 percent of her pay each year. Her salary rises 3 percent a year (and her contributions along with it), and her investments earn 6 percent a year on average. So, after 30 years of diligent saving, Minnie will reach retirement with a nest egg worth $68,461.

Maxine gets the same pay raises, saves just as diligently, and has the same investments as her sister—except for one thing: She starts contributing 2 percent, but raises her rate by 1 percent each year on her birthday until she reaches 10 percent. She will keep saving that 10 percent for the next 22 years, until she retires by Minnie’s side.

Maxine tells Minnie that she’s never really noticed a difference in take-home pay as her savings rate rises. Instead, she looks forward to having $285,725 in her retirement fund by age 65. Think ahead and take action now. To increase your deferral percentage, contact your HR department today.

This memo was contributed by Transamerica. This example is hypothetical and does not represent the performance of any fund. Regular investing does not guarantee a profit or protect against a loss in a declining market. Past performance does not guarantee future results. Initial tax savings on contributions and earnings are deferred until distribution. You should evaluate your ability to continue saving in the event of a prolonged market decline, unexpected expenses, or an unforeseeable emergency.

Retirement IQ Test

If you’re participating in your company’s retirement plan, you understand the importance of saving now for your future. But, how savvy are you when it comes to knowing how much you should be saving for a comfortable retirement? Take this short quiz and find out!

1) In order to maintain living standards in retirement, what percent of annual income do financial professionals think people should save?

A.      About 3%

B.       About 6%

C.      About 9%

D.      About 12%

E.      About 15%

 

2) If an investor could set aside $50 each month for retirement, how much might that end up becoming 25 years from now, including interest if it grew at the historical stock market average?

A.      About $15,000

B.       About $30,000

C.      About $40,000

D.      About $50,000

E.     More than $60,000

 

3) Roughly how much do many financial professionals suggest people think about saving by the time they retire?

A.      About 2-3 times the amount of your last full year income

B.      About 4-5 times the amount of your last full year income

C.      About 6-7 times the amount of your last full year income

D.     About 8-9 times the amount of your last full year income

E.       About 10-12 times the amount of your last full year income

 

4) Which of the following do you think is the single biggest expense for most people in retirement?

A.      Housing

B.       Health care

C.      Taxes

D.      Food

E.       Discretionary expenses

 

5) About how much will a couple retiring at age 65 spend on out-of-pocket costs for health care over the course of retirement?

A.      $50,000

B.      $100,000

C.      $170,000

D.     $260,000

E.     $350,000

 

Answers:

  1. E. About 15%. 2. C. About $40,000¹. 3. E. About 10-12 times the amount of your last full year income. 4.  A. Housing². 5.  D. $260,000³.

 

How did you score? Is it time to increase your deferral percentage? Contact your Human Resources department for assistance.

 

This information is intended to be educational and is not tailored to the investment needs of any specific investor. Investing involves risk, including the risk of loss.
¹This hypothetical estimate assumes the individual or household sets aside $50 a month for 25 years. Rate of return is 7.0% annual interest which is compounded monthly. Estimated increases in retirement monthly income are in constant 2015 dollars. This estimate assumes the $50 deferral amount stays constant through the entire 25 year period and represents a nominal value. It is assumed that the participant took no loans or hardship withdrawals from these savings. All dollars shown are pretax dollars. Upon distribution, applicable federal, state, and local taxes are due. No federal, state, or local taxes; inflation; or account fees or expenses were considered. If they were, the estimated amount would be lower. Actual realized value may be significantly more or less than this illustration. ²Bureau of Labor Statistics, “The Experimental Consumer Price Index for Elderly Americans” ³Estimate based on a hypothetical couple retiring in 2016, 65-years-old, with average life expectancies of 85 for a male and 87 for a female. Estimates are calculated for “average” retirees, but may be more or less depending on actual health status, area of residence, and longevity. Estimate is net of taxes. The Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care. Life expectancies based on research and analysis by Fidelity Investments Benefits Consulting group and data from the Society of Actuaries, 2014.
Distributions before the age of 59 ½ may be subject to an additional 10% early withdrawal penalty.

2017 Tax Saver’s Credit – Are You Eligible?

You may be eligible for a valuable incentive, which could reduce your federal income tax liability, for contributing to your company’s 401(k) or 403(b) plan. If you qualify, you may receive a Tax Saver’s Credit of up to $1,000 ($2,000 for married couples filing jointly) if you made eligible contributions to an employer sponsored retirement savings plan. The deduction is claimed in the form of a non-refundable tax credit, ranging from 10% to 50% of your annual contribution.

Remember, when you contribute a portion of each paycheck into the plan on a pre-tax basis, you are reducing the amount of your income subject to federal taxation. And, those assets grow tax-deferred until you receive a distribution. If you qualify for the Tax Saver’s Credit, you may even further reduce your taxes.

Your eligibility depends on your Adjusted Gross Income (AGI), your tax filing status, and your retirement contributions. To qualify for the credit, you must be age 18 or older and cannot be a full-time student or claimed as a dependent on someone else’s tax return.

Use this chart to calculate your credit for the tax year 2017. First, determine your AGI – your total income minus all qualified deductions. Then refer to the chart below to see how much you can claim as a tax credit if you qualify.

Filing Status/Adjusted Gross Income for 2017
Amount of CreditJointHead of HouseholdSingle/Others
50% of amount deferred$0 to $37,000$0 to $27,750$0 to $18,500
20% of amount deferred$37,001 to $40,000$27,751 to $30,000$18,501 to $20,000
10% of amount deferred$40,001 to $62,000$30,001 to $46,500$20,001 to $31,000
Source: IRS Form 8880

 

For example:

  • A single employee whose AGI is $17,000 defers $2,000 to their retirement plan will qualify for a tax credit equal to 50% of their total contribution. That’s a tax savings of $1,000.
  • A married couple, filing jointly, with a combined AGI of $38,000 each contributes $1,000 to their respective company plans, for a total contribution of $2,000. They will receive a 20% credit reducing their tax bill by $400.

With the Tax Saver’s Credit, you may owe less in federal taxes the next time you file by contributing to your retirement plan today!

 

Distributions before the age of 59 ½ may be subject to an additional 10% early withdrawal penalty. Securities offered through Kestra Investment Services, LLC (Kestra IS), Member FINRA/SIPC. Investment Advisory Services offered through NFP Retirement, Inc. Kestra IS is not affiliated with NFP Retirement, Inc., a subsidiary of NFP.Source: Principal Financial Group