Financially speaking, what moves might you want to make?
Provided by Reeve Conover
By choice or by chance, some people wrap up their careers before turning 60. If you sense this will prove true for you, what could you do to potentially make your retirement transition easier? As a start, you may need to withdraw your retirement funds strategically.
The I.R.S. wants you to leave your retirement accounts alone until your sixties. To encourage this, it assesses a 10% early withdrawal penalty for most savers who take money out of traditional retirement accounts prior to certain ages. For a traditional IRA, the penalty applies if you withdraw funds prior to age 59½; for a workplace retirement plan, the penalty may apply as early as age 55.1
You may be able to avoid that 10% penalty by planning 72(t) distributions. Under a provision in the Internal Revenue Code, you can withdraw funds from a traditional IRA prior to age 59½ in the form of substantially equal periodic payments (SEPPs) over the course of your lifetime. The schedule of payments must last for at least five years or until you reach age 59½, whichever period is longer. Once the schedule of periodic payments is established, it cannot be revised – if the payments are not taken according to schedule, you will be hit with the 10% early withdrawal penalty. All 72(t) distributions represent taxable income.1,2
You can also take 72(t) distributions, in the form of SEPPs, from many employee retirement plans. To do this, you must “separate from service” with your employer, i.e., leave or lose your job. Should that happen in the year you turn 55 (or in subsequent years), you can take a lump sum out of the plan without any early withdrawal penalty. If you quit or leave before age 55, you may arrange SEPPs over your lifetime or prior to age 59½, as per the above paragraph.3
If you have a Roth IRA or Roth employer-sponsored retirement account, things get easier. You can withdraw your contributions to these accounts at any time without incurring taxes or tax penalties. At age 59½ or older, both account contributions and account earnings can be distributed tax free and penalty free if you have held the account for at least five years.3
In addition to your retirement funds, you will need health coverage. A decade may pass before you are eligible for Medicare, so what are your options past 18 months of COBRA?
The health insurance exchanges may be your best resource to find coverage at a decent cost. In fact, you may qualify for health insurance subsidies because your income will drop when you leave work. Retirement (and the loss of employer health coverage) counts as a “qualifying life event,” giving you a special 60-day enrollment window outside the usual November-December enrollment period.4
In the best-case scenario, your employer keeps you on its group plan for a few years after your retirement. (If you have paid for your own health insurance for years, you can keep doing so.)
You may appreciate having a health savings account. Contributions to HSAs are tax deductible, and the assets within them grow tax-free. HSAs are sometimes called “backdoor IRAs” because you can use the money within them for any reason without penalty once you turn 65, not just for qualified health care expenses. (All HSA withdrawals are taxable.)5
Think about a conservative retirement income withdrawal rate. The standard 4% baseline may be too optimistic; 3% or 3.5% may be more realistic if you feel you will be retired for 30 years or longer.
Should you claim Social Security at 62? You can, as long as you are prepared for the trade-off: the probability of proportionately smaller monthly benefits over the rest of your life compared with larger monthly benefits you could receive by claiming later.
Any early retirement decision should prompt a consultation with a qualified financial or tax professional. This is a critical financial juncture in your life, and whether you find yourself at it by choice or by chance, your decisions could have lifelong impact.
Reeve Conover can be reached at 843-800-8190 or at email@example.com
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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 neither a solicitation nor 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.
1 – cnbc.com/2017/07/05/three-retirement-savings-strategies-to-use-if-you-plan-to-retire-early.html [7/5/17]
2 – forbes.com/sites/greatspeculations/2017/08/28/the-basics-of-taking-hardship-distributions-from-self-directed-iras/ [8/28/17]
3 – schwab.com/resource-center/insights/content/thinking-of-taking-an-early-401-k-withdrawal-think-again [8/2/17]
4 – investopedia.com/articles/personal-finance/080516/top-3-health-insurance-options-if-you-retire-early.asp [9/9/17]
5 – investopedia.com/articles/retirement/060116/early-retirement-strategies-make-your-wealth-last.asp [8/23/17]
A great short is in this months Entrepreneurs Magazine, along with a number of other great articles. They got CEO’s to divulge their new interview questions and approaches…
“Tell me about your best and worst days at work”-
“What do you do when you are not at work?”-
Ask an unusual question to see how they apply logic.
Pull the candidate back in after they leave the room, ask them to tell you everyones name they met. Ask them if they got the job.
“IF I called your current boss, what would they say about you.”
From HEalth Affairs Online:
“On December 28, 2017, Maine Community Health Options (MCHO)—a nonprofit insurer in Maine—filed what is believed to be the first lawsuitagainst the U.S. Department of Health and Human Services (HHS) for failing to reimburse marketplace insurers for cost-sharing reductions (CSRs) for 2017. MCHO seeks an estimated $5.6 million in CSR payments for the 2017 plan year.
“Although much of the damage of CSR nonpayment has been mitigated for 2018 through higher rates, it remains to be seen whether MCHO will be successful and whether other insurers will sue HHS for outstanding CSR payments. ”
For the full Article, click here.
To Address the fact that most military personnel never stay the 20 years they need to earn their maximum retirement benefits, the Military is changing the rules. The new plan, called “Blended Retirement System” or BRS, “combines a traditional pension with a defined contribution plan, similar to a private sector 401(k) plan. As of Jan. 1, service members entering the military will automatically be enrolled in the new BRS program. Those who have served 12 years or more as of Dec. 31, 2017 will remain in the old legacy retirement plan, earning that guaranteed pension.”
For the full article, click here.
A prospect asked me this a while back, and its a good question. Does the person you are interviewing, or using, have the background to handle your account properly? Are they up to date on the latest trends and can give you forward thinking advice?
While initials after your name (I have a few) are important, and require Continuing Education. The biennial license renewals require a set amount of education, and are heavy these days on ethics. The average broker can get away with 24 hours every two years in many states.
Over my 32 hours in the Benefits business, I have come to learn that these requirements are simply not enough. Simply keeping up with the changes is a full time job. Therefore I strive to keep pace with innovation. Here is the breakdown of the 94.5 hours of education I received last year:
Business Growth- 5
401(k) and investments- 35
General Education- 12
Reuters reported in an article this week that “The Trump administration on Thursday proposed a rule to allow Americans who are self-employed or work for small businesses to buy health insurance that does not comply with all Obamacare requirements in an effort to unwind the 2010 healthcare law.
The rule, put forward by the Department of Labor, would allow individuals and small businesses to form an association based on geography or industry and purchase health insurance that would be exempt from some rules of the Affordable Care Act.
The rule also allows sole proprietors to join such associations. Currently, sole proprietors can purchase individual insurance through the Obamacare individual market, created under former Democratic President Barack Obama’s healthcare law.”
IN another related article, it is reported that
“The rule would:
The agency notes that Small Business Health Plans (Association Health Plans) cannot charge individuals higher premiums based on health factors or refuse to admit employees to a plan because of health factors. The Department of Labor’s Employee Benefits Security Administration will closely monitor these plans to protect consumers.”
The reduced enrollment, announced by the marketplace this week, is a 500,000 drop from last year, and down about 1.3 million from earlier years. 2.8 million people didn’t do anything and so automatically got renewed in their current plan, at the new higher price in many cases.
Why it happened seems to depend on your view of the world For some the drop is due to the Trump Administrations’ reduction in the enrollment period length and marketing reductions, and cutting of Cost Reduction Subsidies on Silver plans.
Others believe that the plans are crazy expensive, offer few choices and have few insurance companies.
From where I sit, I think they are all correct to some extent. Cost Reduction Subsidies only affected insurance companies, but did drive prices up. 80% of healthcare.gov customers were eligible for plans costing less than $75 a month – and some at no cost. Humana, Aetna and a number of Anthem/Blue Cross companies left the market. We found more people panicking after the enrollment ended because they didn’t realize it was already over; there was a big rush this year after Thanksgiving we have not seen before.
The new Tax Bill repeals the individual mandate – in 2019. Not this year, mind you, you are still required to have insurance this year. So what affect will this have on ObamaCare going forward?
If you listen to the politicians, Bill Pascrell (D.NJ) said “They obviously couldn’t kill it so they’re trying to starve it to death slowly.” Lindsey Graham (R.SC) said “…we ripped the heart out of ObamaCare…” I think both are a bit off base, and here is why- Despite all kind of claims to the contrary, in my experience with clients, the mandate was not a big modifier of behavior. Do I have some clients that pay premiums to avoid the penalty? A few, yes – but not many. Far more simply said ” I can pay $400- or more- a month for insurance, or pay a penalty a year from now that is far less. If you make $50,000 a year your penalty is $1000; insurance for that time period could cost you $6000 or more.
Another great number is the Congressional Budget Office claim that the loss of the mandate will cause 13 million fewer people to be covered over the next ten years. Considering there are fewer than 10 million under ObamaCare, This trend analysis always seems a bit faulty. Especially in light of the CBO’s estimates in 2012 that 25 million would currently be covered.
Some of the recent modifications may, in the end, have a much greater affect on policyholders. here are some of the less-understood changes:
One thing is for sure – with the changes the Republicans have made, after two years of “repeal and replace” noise – the Republicans now own as much of ObamaCare as the original Architects. I fully expect that to be used against them in the coming midterm election season.
In Tibble vs Edison International, a long-running case that ended up at the supreme court, The Human Resources VP was found guilty. The case involved improper selection of funds – by using retail funds instead of the available institutional funds, which costs the plaintiffs $7,000,000. Additionally, they used the retail fees to offset management fees charged by their record keeper.
It is important to understand how these seemingly small decisions can have enormous repercussions. Recent fee-oriented suits by employees at Nordstrom, BlueCross Blue Shield, Lockheed Martin, and a number of educational facilities show that these suits are not going away. Further, audits are increasing, as the Department of Labor has found that 70% of plans are not in full compliance.
According to a 2012 article in Financial Advisor Magazine, “An estimated 70% of retirement plans audited by the Department of Labor (DOL) in 2009 and 2010 were fined, received penalties or had to make reimbursements for errors–all of which ending up costing plan fiduciaries about $450,000 per plan, according to the department.”