retirement savings

Find Out the Difference Between Retirement Income and Retirement Savings. Sponsored By: Todd Carmack

October 1, 2021 /by todd carmack

What most individuals want to do with their retirement funds is save, grow, make income, and pay as minimal income taxes as possible.

Many people do a good job when saving, even increasing savings in their retirement accounts annually. Growing such funds over time usually becomes difficult. Aside from the market’s ups and downs, there’s also the emotional rollercoaster that follows. When the markets are rising, everything appears to be OK. On the other hand, a downturn might cause many people to reconsider their investments and the level of risk they’re taking. Then, when the funds accumulate and the time comes to consider retirement, there are issues of transforming this accumulated money into income. With that comes the likelihood of having to pay income taxes on the retirement income.

There are ways that can help you in continuing the savings process while considering a re-alignment of your savings to build income-tax-free funds eventually. This might be achieved by simply relocating your savings over time rather than adjusting the amount you save. Market volatility and emotional plays, as well as trying to build your savings over time, can be addressed by considering active money and risk management. It’s possible to increase money by limiting downturns and having non-emotional choice triggers. That might then lead to considering strategies to generate retirement income, converting savings into income while reducing the income tax effect.

The savings and accumulation phase is referred to as “climbing up the mountain.” As an example, consider Mount Everest. You’re doing your best, attempting to save as much as you can while climbing the mountain. Your goal is to achieve a specific rate of return on your investment and see it increase over time. The emphasis is on increasing your money and asset allocation; this is your Accumulation Phase. That is where you might consider repositioning your savings, or a portion of them, to accumulate funds that’ll be tax-free when withdrawn.

You can also explore the use of Roth accounts and cash value in adequately designed life insurance plans. Discussions would revolve around your current income tax situation and where you expect it to be in the future. The distinctions between tax deferral and tax-free can also be explored. For instance, if you’re saving $10,000 each year in your retirement account on a pre-tax basis (your regular 401(k), 403(b), TSP, and so on) and you are in a federal and state tax rate of, let’s say, 25%, you’re ‘deferring’ $2,500 per year in taxes. That is not to say that taxes won’t be due. They’ll be due when you begin taking money from your accumulated savings and its growth. That income tax may easily exceed your deferred tax of $2,500. Of course, a time value of money estimate would be required. However, as you may have heard, the general question is whether you would prefer to pay taxes now on the seed or later on the products grown from that seed?

As you go up the mountain and get closer to the top, the peak, you may begin to wonder, “What will my retirement income be?” You can do a good, if not a great, job of saving money and have a better understanding what your number is or will be. The next stage is to figure out how to transform that number into income.

You want to keep your money coming into the house. But where will it come from? This is your Distribution Phase as you make your way down the mountain. This period of time can last as long as, if not longer than, your climb up. You wish to survive (more people have died on the descent of Mount Everest than the climb up). You’ll prepare for this by exploring your income sources and recognizing the risks involved.

Social Security income (perhaps a pension) and withdrawals from accumulated savings accounts are all sources of retirement income. The risks to consider are the following:

Longevity risk – people now live longer and don’t want to outlive their savings and run out of money. This also results in the possibility of health concerns in the long run.
Stock and bond market risk – the investments’ volatility and the market’s ups and downs.
Sequence of returns risk – how your assets perform over time, not simply as you accumulate, but also when you take income from them.
Withdrawal rate risk – how much or what proportion of your savings can you withdraw each year (5%, 4%, 3%) and still have your money last.
Inflation risk – the risk that the cost of products and services may rise over time and your capacity to generate enough income to keep up.
Tax risk – understanding the income taxes payable on your retirement income, as well as taking into account any potential estate taxes due.

Now, you’ll want to think about your legacy. Will income keep coming into your household if something happens to you? What is it going to be for your partner? Do you want to keep your money in the family and see it increase over time?

You can take control of your savings and retirement income, regardless of your age or where you are on the mountain while trying to reduce your taxes.

Five Reasons Why Federal Employees Should Consider a Roth IRA. By: Ricardo Viader

September 28, 2021 /by rick viader

Tax-free investment growth is not the only one.

There’s not a person in this world that wants to pay more in taxes. We should all want to pay our fair amount of taxes, but none of us want to leave a tip.

That’s why it’s critical to have a strong tax plan in retirement to ensure you can lawfully decrease your taxes as much as possible.

Different Tax Buckets

There are three main tax buckets one can have. Those are pay-as-you-go, pay-later, and pay-never.

The pay-as-you-go buckets can be non-retirement investments like a brokerage account. You pay taxes in these accounts when you get dividends or sell investments for a profit. One benefit of this bucket is that it may be subject to long-term capital gains tax rates, and they’re always lower than your regular tax rates. The disadvantage is that you must pay taxes as you go, and not only when you withdraw money from the account.

The pay-later bucket includes a traditional IRA, traditional Thrift Savings Plan (TSP) account, or traditional 401(k) savings account. Simply put, you get a tax deduction for placing money in this bucket, since it grows tax-deferred, and you don’t have to pay taxes on it until you withdraw it.

But, of the three tax buckets, the pay-never bucket is unquestionably our favorite. This bucket covers Roth IRAs, Roth TSPs, and Roth 401(k)s. In essence, you deposit after-tax money into this bucket, and it grows tax-free. Afterward, when you withdraw the money, both what you initially contributed and the growth may be taken out without paying any taxes.

If tax-free growth isn’t enough to persuade you to open a Roth IRA (or other Roth account), consider the following five advantages:

1. Steer Clear of Required Minimum Distributions

You must begin withdrawing funds from some types of retirement accounts at 72. For instance, if you have a traditional TSP or IRA, Required Minimum Distributions (RMDs) stipulate to withdraw a specific portion of the funds from these accounts each year—money that must be taxed.

A Roth IRA is the only form of retirement account that is not subject to RMDs. That implies that you may keep your money in a Roth IRA for as long as you want, and it will keep growing tax-free.

2. Make a Hedge Strategy Against Higher Taxes

It’s difficult to predict what changes may be made to the tax code in the future, but most people think that tax rates are unlikely to be reduced anytime soon. So, if taxes rise in the future, paying taxes now at a reduced rate (through a Roth account) can be an excellent strategy to decrease your tax burden in the long term.

3. Reduce Medicare Part B Premiums

Medicare is an essential component of retirement for most Americans, and Medicare Part B is not free. The cost of Medicare Part B rises in direct proportion to your income. That is, if your income exceeds specific limits, your rates will increase.

Money withdrawn from pre-tax accounts (traditional IRAs, traditional TSPs, and traditional 401(k)s, for instance) qualifies as taxable income when withdrawn. Thus withdrawing too much in one year may raise your premiums. Money withdrawn out of a Roth IRA, on the other hand, is not considered taxable income—having Roth money can help you save a lot in Medicare costs.

4. Minimize Taxes for Your Children

Having Roth money is beneficial not just to you but also to others to whom you leave money in your will. If you die and leave your children a traditional IRA, they’ll have to pay taxes on any withdrawals from the account. However, if you leave them a Roth IRA, they’ll be able to withdraw the funds tax and penalty-free.

5. You’ll Have Greater Financial Control

The last reason for having some after-tax money in retirement is to have additional retirement alternatives. After all, we can’t know what tax laws will look like in the future, but having money in several tax buckets will offer you some control over your taxable income during retirement.

Do You Actually Understand Thrift Saving Plan (TSP) Investments? By: Aaron Steele

September 23, 2021 /by aaron steele

How well do you understand the TSP fund options? Here’s a quick rundown.

As the world’s largest employer-sponsored savings plan, the Thrift Savings Plan (TSP) plays a role in the retirement plans of every FERS federal employee.

Every year, many people become millionaires simply by making good use of their TSP account.

However, without at least a basic understanding of the TSP funds, it’s extremely difficult to be successful in the TSP over the long term.

This article will quickly bring you up to speed on the essentials of the TSP fund options.

The Fundamentals

The TSP offers only five core fund options. Here they are, along with a brief description of what they invest in:

- G Fund: Investments in U.S. Treasury Bonds.
- F Fund: Investments in several types of U.S.-based bonds.
- C Fund: Investments in 500 of some of the biggest U.S. companies (Follows the S&P 500).
- S Fund: Investments in most other major U.S. companies (aside from the S&P 500).
- I Fund: Investments in the major companies in Europe, Australasia, and the Far East.

Note: There’re also L Funds in the TSP, but these are simply a mix of the core five funds.

The Conservative TSP Funds

The G and F Funds are the most conservative of the five funds because they are less volatile than the others. However, as a trade-off for being more stable, they lack the potential to grow as much as the other funds.

Although the G Fund guarantees that any money invested in it won’t lose value, it has only averaged about a 2% annual return over the last ten years.

The F Fund’s value can fall, but it remains very stable compared to the other funds. Over the last ten years, it has averaged a 3.6% annual return.

The Issue with the G and F Funds

As they near retirement, many people will invest the majority of their TSP assets in a combination of the G and F Funds. While investing a part of your money in conservative funds might be a wise decision, many individuals overdo it.

The G and F Funds are unlikely to lose value, but they’re also unlikely to grow much. This lack of significant growth, as well as inflation, can have a substantial impact on your money over time.

For example, if the prices of goods and services rise every year (inflation) and your investments don’t increase quickly enough to compensate, you may deplete your TSP far faster than you had planned.

This does not suggest that the G and F Funds are bad investments. They are excellent funds that do exactly what they’re supposed to do. However, you’ll want to ensure that you also have investments to help you maintain your usual lifestyle during retirement.

The Aggressive TSP Funds

The C, S, and I Funds are the aggressive TSP funds.

They are dubbed “aggressive” because they have a far higher probability of sustaining significant growth over time. However, as a result, they can be significantly more volatile than the G and F Funds.

For instance, the C Fund lost more than 35% in 2008 but recovered it all and more in the next several years.

It is advised you not put any money into these funds that you’ll require in the coming years. These funds will perform better in the long run but are less predictable in the short term.

The L Funds

The most crucial thing to remember about the L Funds is that they’re not independent funds. They’re essentially various combinations of the main five funds that we have discussed.

What distinguishes them is that each L Fund is designed to gradually grow more conservative over time. In principle, one might invest in a single L Fund and never have to modify their investment allocation for the remainder of their career.

Final Thoughts

We hope you have a better knowledge of the various TSP funds and what they’re meant to accomplish. Now, you’ll be much more prepared to understand when you read about investing strategies.

What Should You Do if Your Company is Cutting Your 401(k) Match? By: Joe Carreno

September 22, 2021 /by joe carreno

For the first time, unemployment has reached its peak after the incident of the Wall Street crash in 1929. Up till now, millions of people have lost their jobs, as employers claim that they do not have enough money to pay their employees. Meanwhile, only the positions of the people are not getting affected by the COVID-19. Due to the termination of businesses and the lockdown, employers are also unable to pay for their due part in the 401(k) plan of their employees.

As millions of people have become unemployed, their 401(k) plan has automatically gone down. But, those who are at their jobs also do not know how long they will keep on serving at that position—even being the employee under a specific employer. Still, thousands of people have had their 401(k) plan hit.

In reality, the termination of the 401(k) plan is a big issue, as this is one of the most significant sources of income that avoids employees’ threats of outliving money in their retired life. But now, those who have got their 401(k) plan hit by this pandemic are truly vulnerable to the stressed circumstances of the economy.

Moreover, those employees whose retirement is near or who are thinking of taking early retirement will be the weakest people who will be adversely affected by the interruptions in their 401(k) plan.

So, if any one of you is worried due to these prevailing crises, they must not make themselves suffer, as we here have a plan that can reduce the intensity of this damage. Abiding by the following steps, you will have ample relief regarding your 401(k) plan.

But, before we go into the details of those, we would like to add some words about 401(k) plan.

401(k) Plan:

Most of the employees rely on their savings after retirement, and to avoid any financial uncertainty, employees need to tap into some savings plan that could provide them with the accumulated money at the end of their service. So, there are different saving plans to serve employees in this regard.

Thrift Saving Plans and 401(k) plans are the leading plans that provide most employees with the money to spend their retired life respectably. The only difference between these plans is that the Thrift Savings Plan (TSP) is adaptable for federal employees only, and the employees can adopt the 401(k) plan in the private sector.

In reality, a 401(k) plan is a sponsored plan offered by the employer of the employee. According to the set terms and conditions of the policy, a considerable part of the deposited money comes from the employer. Moreover, this installment is either deposited monthly or yearly, according to the conditions of the plan.

Apart from this, a little part of that deposited money goes from the employee, and this part is cut from the salary of every month. So, this is how a small amount is reduced from the wages of employees every month, and the employer pays the more significant part, and in the end, this money is given back to the employees as their retirement income.

But, according to the prevailing situation, employers are unable to pay that more prominent part of the amount that is to be deposited, and in this way, the 401(k) plans of employees have been affected severely.

However, according to the situation, it is tough for employers to maintain the payments for 401(k) plans of their employees. Don’t worry, we have a plan that will help you out in this harsh environment. Following the given instructions, you will match your 401(k) plan payments, and you can conveniently avoid derailing your retirement savings.

Increase contributions from your end

As employers are less willing to contribute to the 401(k) plans of their employees, the only way out is to get your savings plan terminated. But, if you do so, you will have nothing in your hand to spend your retired life.

So, the best option to cope with this problem is to contribute maximum in your 401(k) plan saving plan.

For this purpose, you need to reach out to the HR department of your organization that maintains the record of your saving plan. From there, determine how much part was being contributed by your employer in your saving plan and try to provide that amount on your own.

On the other hand, you may also know about the contributions paid by your employer online from your 401(k) plan portal. There remains a summary of your plan, and you may check that amount from there.

Now, you have to bear the burden of full payment of your savings account, and for this purpose, you have to adjust money from the income you have in your hand. At this point, you will have a question about how you will manage to pay that amount on your own. Here are some practices that could facilitate you in paying the full amount of your savings plan.

#1. Use Coupons While Buying Essential Items

While roaming in the market, you might have seen products along with coupons, and these things are highly recommended in these circumstances because you get something free with the original product. So, by doing this, you can have something extra along with the main thing, and that extra thing will surely reduce your shopping budget, as you will not buy that thing.

#2. Cut Your Discretionary Expenses

If you are habitual of visiting the Appalachians every season, and you watch movies every week, you must reconsider your priorities.

These are discretionary expenses, and even without these expenses, you may comfortably live your life. So, abandoning these expenses, you will save considerable money that you can use for paying the installment of your 401(k) plan’s savings account.

So, these are the steps that you can follow to meet the amount paid by your employer. But, still, if you cannot meet that amount, put the money forward that you accumulated and let your plan go with that amount. But, leaving the plan will never be a good option.

Consider Changing the Savings Plan

Of course, the employer puts a great amount in your 401(k) plan, and if the employer takes a step back, there is real trouble for the employee. So, in the first step, we concluded that you could meet that amount by sacrificing your non-necessary expenses. But, if you still cannot match your 401(k) plan, you might think about moving your savings plan.

You can move your savings plan from a 401(k) plan to an Individual Retirement Account (IRA). Being a 401(k) plan holder, you can conveniently shift your savings plan.

Therefore, if you cannot meet the match of the 401(k) plan, you can invest that money in the IRA savings plan. Typically, you move your accumulated cash from your 401(k) plan’s account to your newly opened IRA account. Now, it is up to you how much of an investment you want to make in the IRA account based on your earnings.

This savings plan through an IRA will allow you to invest your money in different kinds of stocks, and the interest that you will earn through that investment will keep on accumulating in your IRA savings account. At the end of the term of your service, you will get this collected money as money for your retirement.

So, changing the savings plan from a 401(K) plan to an IRA savings plan seems to be the best solution; otherwise, you might lose your retirement money. And of course, it will not be possible for any of the people to live their retired life without having their retirement payments.

Redraft Your Retirement Plan

So, if you do not match your 401(k) plan, you may change your savings plan. Moving to the IRA will be a good option, as we discussed above. But, the need of the hour is that everyone, either having a 401(k) plan or IRA savings plan, must check the status of their savings plans, as this status will provide them with the bright idea that how much money they will be having at the end of their retirement to spend in their retired life.

Therefore, for this purpose, make a list of expenses that you make at your home every month and estimate the money that you will receive at the end of your service. The estimated retirement money can be seen from the portal whose savings plan you have opted for. So, now you have both estimated expenses and the estimated amount of retirement. And do not forget adding 3% of inflation, which is most likely to rise every year.

Now, compare both of these numbers, and see whether your retirement amount is enough for your estimated expenses or not. If it is sitting right with the expenses, that is good, but if this is not the case, you must take the pain of this thing, and consider how you can eliminate this gap between your expenses and income.

In this situation, you need to explore other options that could provide you with a solution to this problem. For example, if you do not have enough money out of your IRA saving plan, you can go back to your 401(k) plan once your organization restarts that policy. On the other hand, you may also move to the annuities.

However, in short, you have to keep yourself to the safe end by calculating the estimated income and expenses.

Final Words:

In the meantime, when the pandemic of COVID-19 is creating chaos all over the world, a vast number of small businesses have shut down forever, and unemployment is also at its peak. Moreover, those who are at their jobs are also uncertain about the security of their career. Meanwhile, the saving plans of the employers got a tight blow due to the abandonment of businesses due to the lockdowns in the USA.

So, the problem becomes even worse when employees face the situation of termination of their 401(k) savings plan. This is because employers are claiming they do not have enough money to put in the savings plans of their employees. Therefore, this service has been temporarily cut from employers. Now, the only option appears to contribute to your plan on your own; otherwise, you might ruin your investment savings.

TSP Participants Want Changes in the Program, but Majority Are Satisfied with the Savings Scheme. By: Ricardo Viader

September 21, 2021 /by rick viader

The Federal Retirement Thrift Investment Board, in conjunction with Gallup, recently conducted a survey with 36,000 participants. The board aims to evaluate consumer satisfaction with the surveys, which help the agency make suitable changes to its plans and tools. 89% of participants said they liked the savings plan. This figure is slightly higher than the 87% of participants who said they liked the TSP in last year’s survey.

The increase in the satisfaction rate can be attributed to the service members participating in the Blended Retirement System (BRS). Last year, the satisfaction rate amongst service members had been 77%. That figure rose to 88% in this year’s survey. In addition, 33% of service members who liked the BRS said they were “extremely satisfied” with the system. In last year’s survey, only 22% of service members had chosen this option.

The FRTIB said its biennial and triennial surveys will now be conducted annually.

In January 2021, the Employee Benefit Research Institute (EBRI) had also conducted a survey that revealed that 84% of workers said they liked the TSP. That survey and the more recent one shows that the retirement saving scheme continues to outshine similar plans of the private sector.

Another notable thing about the survey is that TSP participants who save less money show lower satisfaction with the program, unlike those who save more. 50% of the participants said they contribute over 5% to the TSP. 94% of these participants said they were satisfied with the system. On the other hand, 29% of the participants said their contribution to the plan was 5%. 90% of these participants said they were satisfied with the system. Of the last group, participants who contribute less than 5%, only 86% said they were satisfied.

For members of the last group, 43% said they didn’t have enough money to contribute above 5%, 31% said they didn’t increase their savings amounts, and 26% said they didn’t see the need to change their savings amounts. The TSP noted that fewer people cited affordability as a reason for low contribution in 2021 — the percentage had been 53% in 2017 and 47% in 2020.

Participants Requested More Changes to the Plan

In a 2017 survey, the FRTIB found that 62% of participants wanted more flexible withdrawal options. The agency had made a few changes in 2019. Many participants said they liked the changes, but others had clamored for even more flexible options.

In this year’s survey, 67% of the participants said they were satisfied with the withdrawal options. The percentage is an improvement on the rate of previous years, but withdrawal options remain the weakest point of the TSP. According to the survey, participants preferred recurring payments, partial payments, and life expectancy installments over other TSP withdrawal options.

The FRTIB also conducted another survey to discover factors that participants consider when buying an annuity or making a withdrawal. The board has not released the survey results but promised to do so in a few months.

About 40% of the respondents also plan to take money out of the TSP after retirement. These workers said they would get more and better investment choices outside the TSP. They also hope to get higher returns on their investments and strengthen other investments with the funds from the TSP. About 58% of BRS participants, more compared to other participants, said they would transfer funds from their TSP accounts.

90% of the respondents want to be able to choose the investment funds they use for withdrawals. The board stated that it would consider adding this option when it completes its modernization projects. The projects will allow the agency to enhance its customer services and internal IT mechanisms and offer participants new tools, such as a mobile app.

Respondents’ Reactions to TSP Fees

The vast majority of participants, some 60%, said they knew about the TSP’s fees or had an opinion of them.

Not many respondents were satisfied with TSP fees. 46% of the respondents want to take money out of the TSP in search of better fees. About 60% of the respondents said they didn’t have much knowledge about the TSP fees. The other 40% who claimed they knew actually believed that the scheme has some of the lowest fees compared to similar plans. Three quarters said the TSP fees are low, 22% said the fees are similar to other defined savings plans, and 4% said the TSP fees are high.

The board said the agency’s expense ratio is between 0.49% to 0.6%. Steve Huber, the board’s enterprise portfolio management chief, said a majority of similarly defined contribution plans have an expense ratio of less than 2.5%. Huber explained that the board was surprised that most of the respondents didn’t know about the TSP fees and that those that knew felt the fees were higher or at the same level with similar plans. The board said it would seek ways to educate participants about the TSP’s lower fees.

TSP Finds that New Workers Are Investing More in Age-Appropriate Lifecycle Funds. By: Kathy Hollingsworth

September 20, 2021 /by leslie "kathy" hollingsworth

The agency that oversees the Thrift Savings Plan (TSP) has noticed a difference in the investment patterns of new workers. The agency found that these workers are moving their default investment fund from the government securities (G Funds) to age-appropriate lifecycle funds (L Funds). The TSP recently analyzed investor behavior and found that younger workers are investing more in L Funds.

The agency found that workers below the age of 30 invest 63% of their assets in L Funds. Those between 30 and 39 invest around 39% of their assets in the funds. In addition, workers between ages 50 and 59 invest 20% of their assets in the funds. Those between age 60 and 69 invest 17%, and those who are 70 and above invest 13%.

In its report, the agency stated that the 2015 shift of default investment from the G Fund to age-appropriate L Funds had changed the fund-utilization ratio. It also stipulated that the beliefs about the advantages of utilizing the L Funds also constitute a factor.

The report also stipulated that workers who have been using the TSP for longer have more investments in the G Fund than newer participants. Those between the age of 60 and 69 have 38% investments in the fund. Workers who are 70 and above have more assets in the G Fund, with an investment of 43%. On the contrary, only 9% of those under 30 and 18% of those between 30 and 39 invest in the fund.

The report stated that participants focus more of their investments on income-producing assets as they approach retirement. This factor, it stated, could be responsible for the new investment patterns. The agency also stated in its reports that fewer young workers are investing in the G Fund. In 2014, the youngest participants invested 42% of their assets in the G Fund.

The high percentage had prompted the agency to change the default investment fund from the G Fund. The agency explained that the fund is guaranteed against investment losses but has a lower growth potential than other funds. The change has the intended effects, as shown by the recent survey. Fewer younger workers are investing in G Funds, just as the agency wanted.

Though participants can change their default investment fund and amount, the agency said many participants never bother to do that.

Only FERS employees were considered for this survey.

Inflation and the Timeframe of Your Retirement. By: Brad Furges

September 16, 2021 /by brad furges

With the growing inflation, an increasing number of federal employees are doing the figures to determine the financial benefits of working for another year or two. For many, the answer is startling: much more money in retirement for working a few years longer.

Example:

According to benefits expert, a Federal Employees Retirement System (FERS) employee earning $80,000 per year may increase their starting annuity by over $30,000 by staying on for another two years. That is a lot of money by any standard. Both now and later.

The FERS plan covers the great majority of still-working public workers. While it doesn’t have as generous civil service benefit as the Civil Service Retirement System (CSRS) scheme it replaced, FERS employees are eligible for Social Security benefits as well as a 5% government match to their Thrift Savings Plan (TSP) accounts. Retiring under the FERS program might be more complicated since it has more moving pieces and various requirements. But it’s well worth it if done right. Working longer for a greater pension allows many FERS retirees to put off accessing their TSP savings for years.

FERS employees must maximize their retirement benefits since FERS retirees are subject to the Cost-of-Living Adjustment (COLA) scheme opposite of their CSRS colleagues. In short, when inflation goes beyond 2% (as it’ll this year), retirees receive inflation catchup that is 1% less than the actual increase in inflation. The January 2022 COLA for CSRS, Social Security, and military retirees, for example, is 6%. Those on the FERS program will receive only 5%. Compounding-in-reverse indicates substantially reduced purchasing power over time.

So, aside from the obvious, what are the disadvantages of working longer than planned?

According to a benefits expert, the $80,000 per year employee may increase their starting annuity by about $30,000 by working two more years, from age 60 to age 62. At the same time, they can also draw a full salary, qualify for pay increases and within-grade increments, and increase their high-3 year average salary.

Interested?

A benefits expert came up with this example of how postponing retirement may benefit you a great deal. Of course, there are several more factors to consider. However, money, as in having enough in your golden years, is a major one. You may use this example of an $80K employee working longer to receive more in retirement. Here’s the example:

Length of Service at 60: 19 years

- 19 x $80,000 x 1% = $15,200 x .90 = $13,680 (10% reduction under the MRA + 10 retirement as employee didn’t have 20 years of service at age 60 to be eligible for an unreduced retirement)

Length of Service at 61: 20 years

- 20 x $80,000 x 1% = $16,000 + $12,000 = $28,000 (The additional $12,000 is a FERS supplement of $1,000 a month payable to age 62 when retiree can file for SSA and receive an even greater SSA benefit depending on their lifetime of FICA taxed wages)

Length of Service at 62: 21 years

- 21 x $80,000 x 1.1% = $18,400 + $24,000 = $42,480 (The $24,000 is the SSA benefit payable at age 62 of $2,000 a month from their lifetime of FICA taxed wages)

Of course, the individual who left at 60 may claim their SSA benefit, but the shortfall in their FERS basic retirement income would still be close to $5,000 per year or $600 per month – for life! They would have benefited from adding two more years at their presumably best earning years to their SSA record, as well as two additional years of contributions and growth to their TSP account.

They may withdraw $24,000 per year from their TSP account to get $43,000 per year by deferring SSA claims until age 70 and then taking considerably lower payments from the TSP to fulfill the required minimum distributions at 72.

Definitely one to have in your retirement planning toolbox. Also, don’t forget to forward it to a FERS friend.

Things Not to do While Managing Your TSP During a Pandemic. By: Ricardo Viader

September 16, 2021 /by rick viader

We aren’t surprised by the changing activities in the Thrift Savings Plan. After all, the TSP after the coronavirus pandemic clobbered the performance of the stock market.

Kim Weaver, the director of external affairs of the TSP, while giving an interview on the TV show Government Matters this week, said the government saw a hit in the inter-fund transfers. But that spike has been reported only from the 5% of our participants, said Kim. Ninety-five percent of the TSP participants are sitting idle and doing nothing. But she advised people to stick to their old plans.

It is natural to worry about the volatility of the stock market amid the coronavirus pandemic and worry about retirement in general. Kim received an email from a client this week, and we will discuss the email and solutions suggested by Kim.

One client working under the Federal Employees Retirement System (FERS) had already submitted her retirement paperwork in December 2019. She worked for the federal government for 22 years and will retire on March 31, 2020. This decision was made long ago, so she applied for her Social Security benefits and will be receiving her benefits starting in May 2020.

But all of us know about the third leg of our FERS retirement, the TSP. The client took her TSP last September and gave it to a very reliable financial adviser to manage for her. She also has some of the remaining TSP funds which have matured since September 2019. She had been actively saving in her TSP since she started her job with the government and actively contributed to the catch-up contribution. Now she can see her retirement savings declining day by day, and she doesn’t have any time to make it up for her, like the time she had when the market plunged the last time.

According to her understanding of the documents, her paperwork has been reviewed and approved by the government. Still, she has not received the estimate of her annuity due to the agency’s software problems that the agency uses to calculate the annuity. So, she has no idea about the money she will receive monthly. She is in the middle of the checkout process that is expected to complete electronically only if things go as per plans. It’s too late for her to stop or delay her retirement at this point, so what should she do? It looks like she needs to look for a part-time job after retirement—she never planned anything like that!

Kim replied to her email and said, “If you think you are not ready to retire at this time, you still have time to hold your retirement application. Taking retirement is a voluntary action, and you haven’t left your job yet. This guidance comes from the Office of Personnel Management that says an agency must allow a federal employee to hold or withdraw his or her retirement application before the effective date of retirement, giving a valid reason and explaining the reason in writing to the employer.

Though the retirement process will go slowly during this ongoing period of world crisis, if this situation worries you or if you think that you don’t have a three- to six-month month emergency fund, you can delay your retirement until you feel financially strong enough to bring your life to normal.

In the mail, the client mentioned that she withdrew most of her money out of her TSP and put it in the safe hands of a very reliable financial adviser. Kim said that when any financial professional asks you to do so, he or she should give an apparent reason for his or her activity.

Kim said that the client’s financial adviser must have recommended some options to rebalance investments corresponding to retirement plans of this year. That doesn’t mean you would stay safe from the declining markets, but you should have some savings in your account to keep you stable while you withdraw savings from your retirement account without being impacted by the ups and downs of the changing market.

“It’s common for professional financial advisers to contact their clients in situations like this and give them some certainty. I hope your financial advisor contacted you,” said Kim. Those who plan to retire or have recently retired from government services must check these tips from the below-mentioned resources:

Janet Novack has written an article on ways that the coronavirus will impact Boomer retirements. She has written in her report that in times like this, a “bucket strategy,” or allocating retirement savings, always works well. Taking an example, an individual nearing or already retired should save money for at least three to five years of essential expenses in cash or equivalent to cash like laddered CDs or Treasury bonds.
Josh Sacndlen of Heritage Wealth Planning said this bucket strategy helps you to segregate your current income needs into their emergency account. In this way, you don’t need to worry about times like this when the market is getting crushed and making ends meet is difficult.
Mark Keen has talked about many TSP issues that federal employees and retirees face in a webinar at the NARFE Federal Benefits Institute on February 27. Its saved copy is available for free to members of NARFE.
Micah Shilanski said that TSP account holders who reserve a long-term plan for their savings and investments are not scared of the current market volatility. He further added that such employees in this condition consider this time as a buying opportunity because the stock market is low. He and Kim will be coming up with videos on March 27 and March 31, addressing issues of retirement planning during the current situation.

Last but not least, the reminder from the TSP looks relaxing during this time of market uncertainty. By the time you understand the situation and plan to react to it, the entire market situation might have changed. If you skip one or two small ups in a decade, your TSP investments may give the average market return for the entire term. It is advised to stick to your plan and don’t attend these bouncers.

TSP Accounts: After the coronavirus has hit the world economy hard, how long is the road to recovery? By: Kathy Hollingsworth

September 15, 2021 /by leslie "kathy" hollingsworth

The coronavirus has clobbered the world economy and the people depending on it. Some of the geniuses are working hard to find the vaccine and possible solutions for fighting this deadly virus, but until a controllable solution is available, the stock markets around the globe can fall at historical speeds. TSP account holders are amongst those hit worst by this virus and are now looking forward to recovering their losses due to the current market decline.

Many investors already know that this type of stock market decline is inevitable. The two main questions that bother our minds when such decline begins are: (1) How harsh will this decline be? (2) How long will it stay?

We can never predict when the stock market decline will happen, or why it happens. Sometimes, the U.S. or world equities never see a declining market, and sometimes they experience multiple declines. For example, in the year 1990, the decade started with a minor drop of over 10% that ended in January 1991, after a small period of recession and just after the collaboration of military operations in Iraq as part of Operation Desert Storm. The subsequent downturns were not seen until 1997 and 1998, and they were too short-lived and not very noticeable. Before that era, in 1987, the U.S. market saw the sharpest one-day drop of 22%. This was just three months before the C Fund came into operations. Soon a $250,000 portfolio was invested in the S&P 500 stock index fund (tracked by C Fund) after that; the day dropped to about $193,000 overnight. During that time, the stock markets declined by almost 1/3rd in totality.

Many investors experienced multiple downturns in 2020. Initially, it was seen in 2000 and continued for three years. Historically, this was the longest downturn followed by a historic bubble in stock market values – the S&P 500 and the C Fund returned at least 20% in each of the five prior years in the late 1990s in addition to the 9/11 terrorist attacks and a recession during that period. The next downturn was observed in 2008-9, and it was one of the worst drops in the U.S. and global stock markets since the Great Depression that started in 1929 and continued until the late 1930s.

From the stock market data of those years, we can analyze how an average investor would have dealt with stocks during those major declines and after the drop. Smart investors not only dealt with that traumatic period but also emerged as successful investors after surviving those downturns.

A recently released book titled, “TSP Investing Strategies: Building Wealth While Working for Uncle Sam, Second Edition” is a good one to analyze every 20-, 30-, 35-, and the 40-year period between 1900 and 2019, to find how average investors survived despite a variety of market declines during those timeframes. Each period has its own characteristics, but it is very important to check that investments in broad U.S. stock indexes (just like C and S Funds) dropped considerably at a certain point during every period that was analyzed, and they were also able to recover and raise enough after that decline. It was examined that in every 30-year period examined since 1900, an all-U.S. stock index portfolio (especially C Fund) outperformed the all-government bond portfolio (especially G Fund), by a noticeable margin. One exception was seen in the period from 1903 to 1932 when the market dropped evenly during the depths of the Depression (the stock fund was able to recover in the next couple of years).

If we know this in advance and analyze how an average investor deals with the market decline, and how they emerge as winners, then a person needs to be mentally prepared, if not emotionally, for the stock market drops as they happen.

Let’s understand this process. Start examining the 35-year period from January 1983 to December 2017. This period includes the sharp drop in 1987, the bubble years of the late 1990s, the longest drop in the U.S. stock market over three consecutive years in the early 2000s, and finally, the biggest decline in the U.S. equities of over 50% in 2008 and early 2009.

Let’s analyze this timeframe as a period for a new employee who contributes 5% of an entry-level salary of $30,000. According to government rules, this would make $250 in monthly contributions in the first year. Let’s assume that the annual salary and the regular contributions of this employee increase by 5% a year. Over 35 years, this employee would have a total contribution of about $271,000, and if we assume that half of this contribution matches the government’s, then that means a federal employee with a TSP account would have invested less than $136,000 of his or her money over the 35-year period.

To understand this clearly, four portfolios were tested. The first one is investing all contributions monthly in the S&P 500, representing the C Fund. The second one is investing all contributions monthly in an account that returns the 10-year U.S. Government Bond interest rate (closely equivalent to G Fund). A third one is investing about 65% in the S&P 500 and 35% in the 10-year bond, without any rebalancing. The fourth one is investing in the same percentage but rebalancing at the end of each year back to the same percentage (65-35) to account for portfolio drift over time.

Here, are the results of the four portfolios of investors who invested monthly from January 1983 to December 2017:

The highest value after investing for the 35-period is seen in the case of the C Fund; during each market drop, the fund also suffered a sharp drop in account value as compared to other funds. As compared to the balanced funds, it took a long time to recover after each decline, depending on our definition of “recover.”

If we define “recover” as the time starting from the month of peak value before the drop took place to the month when the value surpassed that same value, then we can say that all-C Fund account portfolios took five years to recover their losses after the 3-year decline of the early 2000s, and the 65-35 C-G Fund took just four years while the 65-35 annually rebalanced account took 3½ years to recover losses.

During 2008-9, the market decline was for a short duration, but it was sharper where all-C Fund account portfolio took three years to recover, the 65-35 account took three years, and the annually rebalanced 65-35 account took only 29 months to recover.

This thing may not be visible in the chart, but we can clearly see that the fastest recovery during this period came after the major market declines in the late-1987 period. All-C Fund account portfolios recovered to their original value in a year, and the other funds recovered faster than C Funds. The main reason was U.S. equities that recovered relatively quickly despite the market drop of about one-third.

Well, we must say that the 10-Year Government Bond account never declined despite the coronavirus market decline. The G Fund is the only fund in the TSP funds that have never dropped. In terms of total returns, the G Fund was the last one to end the 35-year period.

These were just a few examples from the previous 100+ years of the history of U.S. stock and government bond index. Overall speaking, the total value of a portfolio consisting entirely of U.S. stock indexes (such as the C Fund), can recover losses within a year or even three after experiencing a significant decline. The most severe and lengthiest drops may take another year or a maximum of two years to recover. Accounts recover comparatively quicker after short-term drops. This means that an active TSP participant does not need to sell his or her stock funds and continue investing despite the market decline. There are many planned strategies that investors can suggest during downturns. But we must mention here that the buy-and-hold strategy is the best one to stay in the market over long periods of time.

Over a period of time, we will find a solution to recover from the coronavirus, and the U.S. and world markets will recover after ongoing downturns too. By continuous investment in funds during these difficult times, TSP account holders will be able to recover from the losses as well. No doubt, we are going through challenging times, but there is a way to reduce anxiety — at least when it comes to investing — to focus on the long-term goals. We hope and pray for all to stay safe and healthy as the world fights on the coronavirus and struggles to recover globally.

How to Approach Retirement as a Small Business Owner. By: Flavio J. “Joe” Carreno

September 10, 2021 /by joe carreno

Running your own business has numerous advantages, including the ability to determine your work schedule and the possibility of raising your income. However, without the benefits usually provided by large employers, saving for retirement is often left up to you.

When you operate a small business, nearly every aspect of it becomes entangled with your personal life. You are your company, and your company is you, says David Burton, a Harness Wealth’s tax consultant.

Having a retirement plan in place and putting money aside early helps guarantees you will have a stable financial cushion when retirement comes.

Let’s look at four tips that’ll help you prepare for your retirement as a small business owner.

Determine your retirement needs

It’s critical to calculate how much money you’ll need to live a comfortable retirement.

Consider your desired retirement age, estimated living costs, and other relevant considerations such as taxes, inflation, and Social Security benefits.

Make sure to account for various possible scenarios, such as selling the firm or ceasing to generate business-related income.

Financial tools, like a retirement calculator, can help you assess your needs. You might also seek the advice of a financial professional who specializes in retirement planning.

In any case, knowing how much money you’ll need early on will help you decide on the best retirement approach to fulfill your financial goals.

Develop an exit plan

You’ll have to decide what to do with your business once you retire. That means having an exit strategy.

The exit plan might be transferring ownership control to someone else, selling the business, or conducting an initial public offering. When deciding about an exit strategy, consider how long you want to remain a part of the business. Also, consider the best way to protect your business assets, and your financial situation and ambitions.

Many business owners don’t always consider their exit strategy or retirement plan regarding their business. According to Kristen Carlisle, Betterment 401(k)’s general manager, it’s never too early to start thinking about it.

In many situations, your business company plan and pitch should include an exit strategy.

Figure out the best retirement savings plan for you

Once you’ve determined your retirement needs and an exit strategy for your business, it’s time to figure out which retirement savings plan is best for you.

Consider the contribution restrictions of the plans, the number of employees you have, and the tax benefits associated with the kind of account you choose.

No matter at what point in your business planning path you’re currently, it’s essential to consider building a retirement plan for yourself. If you have employees, it’s also a good idea to provide them with a retirement benefit to feel financially secure and prepared, Carlisle stated.

The following are the five types of the most popular self-employed retirement plans:

Traditional or Roth IRA

An IRA, either traditional or Roth, is a tax-advantaged retirement savings account. With a traditional IRA, you only pay taxes on your money when you withdraw it in retirement. Because taxes are deferred, your investment profits may rise faster. Traditional IRAs can be either deductible or not. A non-deductible IRA doesn’t allow you to deduct your contributions on your tax return, whereas a deductible IRA allows that. A Roth IRA requires you to pay taxes on the money you contribute upfront, enabling your money to grow tax-free, and you pay no taxes when you retire. You or your employees can create and fund their own IRAs. 401(k)s from a former job could also be rolled over into an IRA.

SEP (Simplified Employee Pension)

A SEP IRA is a tax-deductible account for self-employed persons or small business owners, including freelancers. SEPs work similarly to traditional IRAs in that contributions aren’t taxed until withdrawn. This sort of account, which an employer or a self-employed individual may set up, allows the employer to contribute to their employees’ accounts. They provide a more significant contribution maximum, on top of traditional or Roth IRA contributions.

SIMPLE IRA (Savings Investment Match Plan for Employees)

Another form of tax-deductible account for self-employed persons or small business owners is a SIMPLE IRA. As opposed to SEP IRAs, employees and not only employers, can contribute to it. SIMPLE IRAs additionally require the employer to make a dollar-for-dollar match of up to 3% of an employee’s salary or a flat 2% of pay, regardless of whether the employee contributes or not.

Solo or Individual 401(k)

A solo 401(k) is an individual 401(k) for a self-employed individual or small business owner who doesn’t have any employees. Solo 401(k)s operate similarly to traditional 401(k) plans offered by larger corporations and organizations. They, like IRAs, are available in both traditional and Roth forms. Contributions can be divided equally between the two.

Defined benefit

A defined benefit plan, like a pension, is a form of retirement account that the employer sponsors. When you retire, your employer determines a fixed compensation depending on criteria such as your income and time spent at the firm. When retiring, you can choose between a lump-sum payout or a monthly “annuity” payment.

Prioritize retirement planning

It’s all so easy to get caught up in the day-to-day activities of running a small business. But no matter what, Carlisle said, don’t make the mistake of ignoring retirement benefits for yourself or your employees.

Make sure that you’re thinking for your future and the future of your staff, regardless of the size of your business, she said. It doesn’t have to be a big start; you may start small and grow from there, as long as you don’t overlook the benefit.

Americans with a DC Plan more Optimistic about Retirement Savings

September 15, 2018 /by Admin

A new survey has revealed that the Americans who have a DC plan are more optimistic about their retirement savings. The satisfaction was mapped against the data collected in 2012. People were also more optimistic about not having to work past retirement and their savings lasting for the lifetime. The survey highlighted that some DC Plan participants were less confident about retirement. It also pointed out that many people were aware that they need to start saving more towards retirement. Many of them also admitted that they have not succeeded in achieving their retirement savings goals last year.

Auto Enrolling for Retirement Savings

A new survey conducted by Mathew Greenwald & Associates in conjunction with J.P. Morgan Asset Management has revealed that Millennials are preferring auto-enrolment and auto-escalation methods to boost their retirement savings. The survey was aimed at knowing how the DC plan participants’ opinion on retirement readiness has changed since 2012.

The Result

The survey found out that the outlook on the matter of retirement savings has somewhat improved since 2012. The survey was conducted in January 2016 and the subjects of the survey were 1,001 plan participants. The survey was conducted online. It revealed that about 59 percent participants think that they would need to work past retirement. This percentage was 70 percent in 2012. The survey also discovered that about 44 percent people are confident that their savings would last throughout retirement. This percentage was earlier just 31 percent.

The Fears

The survey has also found out that over half of the DC participants, 56 percent to be precise, believe that the retirement savings they have may not last the entire lifetime. In the survey, about 68 percent participants admitted that their contribution rates in 2015 were lower than they expected or what it should have been. The same group of people believed that they must save at least 20 percent more than what they are saving right now if they wish to have a better retirement.

Nearly 75 percent of these participants also shared that they must save about 10 percent more of their pretax salary to boost their retirement savings. About 76 percent of people have confessed that they missed this vital target last year. The reasons that are stopping these people from saving more are inertia and increasing financial demands of today’s times.

Investing: A Beginner’s Guide

March 26, 2018 /by Admin

If you’re under the age of 30 or have children under the age of 30, chances are investing is still a strange, confusing idea. Especially confusing is what would seem to be the most basic step- how does one even start investing? However, maybe now is the perfect time to start- the younger, in fact, the better. The best time to start investing is when you are still young since most young people have minimal expenses and almost no debt.

Young people enjoy work-subsidies to commute, parents’ health insurance, and cheap rent, usually leaving them with a good amount of money for investment. The internet has many suggestions on some of the investment opportunities that young people can pursue, but one must be very careful when selecting an investment opportunity. For instance, you can go for certain stocks that seem good, but without proper market analysis you could end up losing all of your money.

The Good News

You no longer need to worry about investment! Most available retirement plans, such as a 401(k) or, for federal and postal employees, the TSP, are perfect investment opportunities for young people. It is important to point out that you only need to contribute 5% of your salary to a retirement plan and enjoy all the benefits that come with this critical invest portfolio. The best time to save for your retirement years is the early years of your adult life. You may not see the benefits of investing in a retirement plan shortly but the long-term benefits associated with this type of investment are not worth missing.

You can achieve your long-term financial goals if you are not a patient person. There are a lot of compound interest benefits during the early years of retirement saving that young people should take advantage of to have financial security in the future. This is a straightforward plan with fewer complications.

It is a good idea for young people to start investing in their retirement as early as possible before they can get entangled with other types of investment. Having a strong financial foundation includes; putting aside at least 10% of your salary towards long-term investment like a retirement fund, building good credit, and creating an emergency fund.

Investing in stocks and bonds may have some short-term benefits as you may end up spending the money shortly. Also, there is a possibility of negative returns when you have invested in stocks and bonds and forced to sell some of your shares at a loss. Therefore, the only way to avoid debts and live a comfortable life during retirement is by saving for your retirement.

The Bad News Regarding Retirement Benefits of Baby Boomers

October 5, 2016 /by Matt Pierce

We recently reported how Baby Boomers are meeting the retirement challenges nicely. Unfortunately, all is not as good as it seems. There are some negative findings in the 17th Annual Transamerica Retirement Survey of Workers. These findings state that baby boomers might not be able to work for as long as they wish. It also highlights that baby boomers have low savings, menial backup plans and minimal knowledge of social security.

Why Baby Boomers Won’t Increase their Retirement Benefits by Working Longer?

Many baby boomers expected to increase their retirement benefits savings by working for a few years after retirement but this may not be possible. The reasons may vary from declining health to lack of job opportunities, says the 2016 Retirement Confidence Survey.

Employers are not Aging Friendly

About 47 percent baby boomers accepted in the TCRS survey that their employers may allow them to work past retirement as they are aging-friendly. The rest of them think that they might not be able to keep the job post retirement. About 29 percent admitted that their employers have made flexible transition arrangements.

Savings Difficulty

About 42 percent baby boomers said that their retirement savings are not enough or too low. The median amount they think they need is about $500,000. But when the 4 percent rule is used as a reality check, the annual income would be just $20,000 per year which is not enough to cover the expenses even when the social security income is added to it.

Lack of Financial Counseling and SS Knowledge

It is believed that financial counseling might help in increasing the savings but only 12 percent baby boomers admit that their employers provide any finance related counseling. About 19 percent of baby boomers accepted that they know a great deal about social security and 34 percent expected social security to be the primary source of income post retirement.

Minimal Backup

Only 25 percent of baby boomers have a backup plan in place if they are unable to work until they plan. About 26 percent said that they have only less than $5,000 to take care of a financial setback such as a medical emergency, unemployment, etc. Lack of a backup plan means that more than 28 percent have taken a loan, opted for early distribution or made a hardship withdrawal from IRA or their retirement benefits savings.

Another Report Proves that Many Americans Have No Retirement Benefits Savings

September 21, 2016 /by Admin

Some Americans have got a nice nest egg for retirement but many of them have no retirement plan or retirement benefits savings. This was proven by a report revealed by the EPI. It stated that super savers are pulling the average savings of American families while some Americans have zero savings. The report also proved that people who are in the later stages of life are better savers.

The Sad Fact Regarding Retirement Benefits Savings

The report presented by the Economic Policy Institute states that nearly half of the families in America have no retirement benefits savings at all. It also states that the mean retirement savings of all families come to about $95,776. But this number does not tell the whole story as many families have zero savings and super savers are pulling the average up. The report states that having a look at the median savings or those at 5th percentile is a better gauge. The median for all U.S. families is just $5000 and the median for families who have some savings comes down to $60,000.

A Huge Gap

There is a huge gap between the mean and median retirement savings that are $95,776 and $5000 respectively clearly indicated inequality. It shows that the large account balances of the families that have the most savings are driving the average for all families up. This inequality was pointed out by the researchers of the report.

Another Shocker

The report also highlights the fact that the gap between the rich people and the poor ones is increasing constantly. The rich are getting richer and the poor are getting poorer. The participation in retirement plans is also unequal. About 9 out of 10 families of the rich had a retirement savings account in 2013 and the number of families who were poor barely had one account out of every 10 counted in the report.

Retirement Savings and Age Factor

The EPI report also showed that the retirement benefits inequality is influencing the median savings too. The median savings broken down by age is very different. The average savings made by a family with members between 32 and 37 is $31,644 while their median savings is less than $500. In contrast, the average savings of families that have people close to retirement or between the ages of 56 to 61 is about $163,557. Their median comes down to $17,000.

The Retirement Benefits Savings Gap is Increasing

September 16, 2016 /by Admin

It is a fact that rich people always have more money to spare for their retirement benefits savings as compared to an average income person. This fact was reiterated recently by a report which shows that the savings gap due to different incomes is rising. The rich are growing richer and the poor are growing poorer as per the report. The report calculated the exact amount of money saved by the families of different earning groups. It studied the savings done by various families during the time span of 1989 to 2013.

How the Retirement Benefits Savings Gap is Increasing?

The report which stated that the retirement benefits savings gap is increasing was compiled by the Economic Policy Institute, known as the EPI at times. The crux of the report is that the rich are growing richer and the poor are growing poorer. This is the phrase that perfectly applies to the current state of the American retirement.

The Inequality

The report also pointed out that the participation of people is quite unequal across varied income groups. In the year 2013, about 9 in 10 families in the top income fifth had some retirement benefits savings as compared to less than one family that has retirement savings and was a part of the lower income fifth.

Gap Between Haves and Have-Nots

The median working age family just had only $5,000 saved in the year 2013 while the amount saved by an 80 percentile family was about $116,000. The 90 percentile family had even more savings at $274,000. The 60 percentile families had $20,100 stashed towards retirement in 2013 while the 70 percentile families had more than $50,000 stashed for the same purpose. The top 1 percent of families are doing better than everyone. They had more than $1,080,000 kept away towards their retirement benefits savings as per the EPI report.

The Disclosure

The disclosure of the retirement benefits savings of families within the age of 32-61 was done by savings percentile by EPI. It also studied how the retirement saving capabilities of various income group families have changed in the last few decades. The sample period taken for the study was from 1989 to 2013. During this period, the savings done by the poor families have not increased by much but the savings done by the richest families have grown exponentially.

Uber Offering Retirement Benefits Options to All Employees

September 7, 2016 /by Admin

Uber, a San Francisco-based ride-hailing company has recently announced that it will offer retirement benefits saving options to its employees. The drivers can create a benefits account via the app only. The company also mentioned that as the employees are considered as independent contractors, it is unable to pay them a 401(k) like plan. The company also clarified that it won’t be matching the employee contribution to the retirement savings account.

Uber’s Initiative for Retirement Benefits Savings

The popular company has launched this initiative in conjunction with an automated investor service known as Betterment. Currently Uber is running a pilot program as per which the drivers belonging to specified markets are allowed to start retirement accounts by using the ride-hailing app. They can begin an IRA or Roth IRA account with the help of a robo-advisor. They are not required to keep a minimum account balance.

A major benefit of this initiative is that the drivers won’t have to pay any money to use this service for the first year. After that, they are expected to pay 0.25 percent of the average account balance for any given year.

The Benefit

Uber Technologies Inc. made a statement regarding this new initiative. It said that this new initiative would benefit tens of thousands of drivers, particularly those who are in Seattle, New Jersey, Boston, and Chicago. The drivers of New York would soon be able to try this new option too as Uber is working with New York-based Betterment to roll out the initiative there. The company also plans to roll out the program nationwide but it has not shared when the roll-out would be complete.

Non-Monetary Deal

Arielle Sobel who was representing Betterment recently shared that her company and Uber would contribute non-monetary resources to this new initiative and that while forming this unusual partnership, no money was exchanged.

Uber’s Stand

Uber shared that it doesn’t offer a 401(k) program to the drivers as they are not considered an employee. They are independent contractors so they cannot expect any benefits like retirement saving assistance or some paid time off. The company also made it very clear that it will not be making any contributions to the retirement benefits accounts set up by the drivers. It has just launched this program to ensure that the drivers take control of their own financial future.

Asian Americans Have Better Retirement Benefits Savings than the General U.S. Population

September 5, 2016 /by Matt Pierce

A new study has revealed that Asian Americans or Pacific Islanders have better retirement benefits savings than the general U.S. population. They plan to retire one year earlier than the general U.S. population. They also don’t want to be a burden on the loved ones post retirement and they wish for a comfortable retirement too. The study also explored the reasons on why their savings were better than the rest.

The Study on Retirement Benefits of Asian Americans

The study was conducted by Prudential Retirement and specified that the Asian Americans have similar financial challenges like the general U.S. population. They also have to deal with the problem of saving enough for retirement while managing household budgets. The study found out that Asian Americans also feel better off financially when compared to the general U.S. population. They plan to retire at the age of 64.6 which is one year earlier than the general U.S. population.

The Reasons

Sri Reddy who serves as the Head of Full Service Investments at Prudential Retirement in Hartford, Connecticut states that there are three reasons why Asian Americans are better prepared for retirement. The first factor is that most Asian Americans live on East or West Coasts where the incomes are higher as compared to the national average which ensures that their savings are higher. The second reason is that they are the first generation of immigrants who obtain visas for jobs that need higher education. This means that they work for larger employers who usually offer a defined contribution retirement plans.

The third reason is that when they come into a new country as an immigrant they don’t have a safety net so they start saving as soon as possible. The survey showed that most of the respondents had a year’s worth of funds saved for a rainy day.

Key Findings

The survey also highlighted that 49 percent of Asian Americans want to maintain their current lifestyles in retirement. It also pointed out that 38 percent try hard to not become a burden on their loved ones and make it their number one priority. Reddy says that plan advisors and sponsors can help the Asian Americans to make better financial decisions so that their retirement benefits savings goals can be achieved. He added that Asian Americans need to know that debt can be good at times too.

Saving Towards 401(k) Retirement Plans Stresses Americans

August 18, 2016 /by Admin

Stressing about 401(k) retirement plans is very common among Americans according to a new survey. It overrides other factors such as job security. The top retirement stress of Millennials is a bit different. Experts believe that people stress more about retirement because it’s an unknown element of their lives and they need help to figure it all out. Some employers are helping the employees to get trained on financial management but a bulk of them is not doing so.

The Survey Highlighting 401(k) Retirement Plans Stress

The survey that highlighted the fact about Americans being stressed over the 401(k) retirement plans was conducted by Schwab Retirement Plan Services. The aim of the survey was to check the pulse of the 401(k) plans at a national level. It found out that 40 percent of the Americans who are the participants of the 401(k) are stressed about saving enough for enjoying a comfortable retirement.

This stress surpasses other financial stresses of an average American such as 24 percent people are worried about job security, 21 percent are worried about paying the credit card debts and 20 percent are worried about keeping up with the monthly expenses.

The retirement related worries of 24 percent of Millennials is the worry related to paying off the student loans.

Expert Opinion

The Senior Vice President of the 401(k) business of Charles Schwab, Catherine Golladay stated that there are some other factors that influence the retirement saving stress. She named uncertainty, fear and market volatility among these factors. She believes that when people have to pay a credit card loan, they know that amount but when they think of retirement, they have no idea how much money would be enough.

These people need help in figuring out how much they need to save, when they can afford to retire, how much tax expenses they would need to bear in retirement and what will be their core expenses in retirement.

Employer’s Assistance

It is clear that the employers need to do something about the 401(k) retirement plans stress situation. They need to educate employees on how to prepare for retirement in the best manner by offering financial advice and training from time to time. They also need to automatically enroll all the employees in managed accounts because there they get professional advice for an annual fee. Unfortunately, only a few employers have taken these steps and a lot of them are still lagging behind.

People consider their homes to be a Key Part of their Retirement Plans

August 17, 2016 /by Admin

A new survey has unveiled the fact that most people consider their homes to be a vital part of their retirement plans. Some people have homes worth more than their retirement savings and some are worried about paying off the mortgages. Some even consider it an investment that would pay off later in life. People also want to avoid downsizing post retirement and some even deny that their home is a part of the retirement wealth.

How can a Home be a part of Retirement Plans?

The survey was done by Aviva, a British multinational company offering Insurance plans. It found out that about 46 percent people who are more than 45 years of age think that property is a key part of the retirement plans. In the same survey, about 69 percent admitted that the home they own is worth more than all their savings plus investments plus pension.

About 23 percent of people over 45 were worried about being able to pay the mortgage off. About 16 percent admitted that they may need to borrow money in retirement while 31 percent planned to give money to their children so that the children can become first time buyers. About 56 percent of people also expected the housing wealth to be a tool that can help pay for their care expenses later in life. About 61 percent think that the housing wealth is a vital part of their inheritance planning.

Avoiding the Downsizing

About 80 percent of the respondents were reluctant to let go of their homes post retirement. They want to stay in it as long as possible. In contrast, about 26 percent had already downsized or planned to do it in the future. People who wish to avoid downsizing have many reasons such as not wanting to let go of their friends, the transport links, the communities, etc. They also wish to avoid the stress related to going through the house selling and house buying process. All these factors were shared by Roger Marsden who serves as Equity Release Managing Director at Aviva.

Home as a part of Retirement Wealth

About 39 percent people over the age of 75 said that the home was a vital part of retirement plans because it could help them get some extra wealth. Respondents over 45 years of age wanted to use the wealth for pay for care later in life and they also wanted to use it to pay for house adaptations. About 61 percent of respondents over 45 years of age perceived the property wealth as a crucial part of the inheritance planning process.

Americans Losing Sleep Over Retirement Benefits Savings: Survey

August 15, 2016 /by Admin

The negative thoughts and genuine concerns people have with regard to their retirement benefits savings are making them lose their sleep. This fact was highlighted in a survey. It was also revealed that the percentage of people who save for retirement and still lose sleep is higher than the people who are not even saving for retirement. Experts say that it is clear that Americans need better education of retirement to stop worrying too much and lose their sleep.

The Survey States How People Feel about Retirement Benefits Savings

The survey that highlighted the fact that the Americans are losing sleep over retirement was done by Ramsey Solution which is a leading financial education firm. The aim of the survey was to find out how retirement affects the sleep patterns and stress levels of people. The survey was done with the help of a third-party research panel in February and March this year. The survey respondents consisted of more than 1000 U.S. adults.

The survey has uncovered the fact that 56 percent of Americans are losing sleep due to retirement. It also exposed the fact that eight out of 10 Americans are losing sleep because they feel ashamed, embarrassed and guilty about retirement. In contrast, less than half people who feel confident or excited about their future lose their sleep.

Retirement Savings do not Guarantee Sleep

The survey also found out that saving for retirement does lead to positive feelings, confidence and excitement for retirement but still it is not guaranteed that a person would get enough sleep. Over 60 percent of people who save towards retirement benefits still lose sleep. In contrast, the percentage of non-savers who lose sleep is about 50 percent.

Gen X Concerns

About half of the people belonging to the Gen X have admitted that they are afraid of losing their money even when they are actively spending time in learning about saving enough for retirement and doing the same.

The Expert Opinion

The renowned author, financial expert and spokesperson for Ramsey Solutions Chris Hogan thinks that people are losing sleep over retirement benefits savings because they don’t have any idea about how much money they would require for living comfortably during the retirement years. If they gain this knowledge, their stress related to retirement would lessen and they will have a clear path to all their retirement goals.

Tag: retirement savings