Not affiliated with The United States Office of Personnel Management or any government agency

June 18, 2021

Federal Employee Retirement and Benefits News

Category: Articles

Articles

All the latest articles covering the information that you will be craving to devour will be available via this category. From getting to know how indebted our company is to reading about the presidential elections; from knowing about new retirement plans to finding out how security breaches can affect your life; you can browse it all!

For more articles, visit our articles’ section.

Public Sector Retirement, LLC (‘PSR,’ ‘PSRetirement.com’ or the ‘Site’) is a news channel focusing on federal and postal retirement information.  Although PSR publishes information believed to be accurate and from authors that have proclaimed themselves as experts in their given field of endeavor but PSR cannot guarantee the accuracy of any such information not can PSR independently verify such professional claims for accuracy.  Expressly, PSR disclaims any liability for any inaccuracies written by authors on the Site, makes no claims to the validity of such information.  By reading any information provided by June Kirby or other Authors you acknowledge that you have read and agree to be bound by the Terms of Use

Most Americans Are Still Struggling Financially Due to the Pandemic, Survey Finds.

The coronavirus pandemic and the accompanying recession have continued to hit the finances, lifestyle, and actions of common Americans. A recent Freedom Debt Relief (FDR) survey showed a shift in consumer behavior with possible long-term impacts.

While we have made significant progress with the vaccine and most states are gradually reopening, there are still substantial challenges with the health and finance of the nation.

The last $600 stimulus check was intended to help boost the economy through consumer spending. However, most people that got the check either kept it as savings, used it to pay down debt, or cover everyday expenses.

Those who received the stimulus checks say they spent the money on:

Savings: 38%

Debt payoff: 32%

Everyday expenses like gas, groceries, coffee, and the like: 31%

Discretionary spending: 27%

41% of men spent the stimulus money on themselves, while only 13% of women did the same. Similarly, only 23% of men spent the money on everyday expenses, while 40% of women did. Lots of Americans expect to adjust their financial habits due to the impact of the pandemic:

75% plan to spend less on retail expenses.

75% say they intend to spend less on dining out.

28% say they would look for additional income opportunities.

12% say they’re considering sharing housing and other living expenses with friends and family.

The survey also identified some worrisome long-term healthcare impacts. 40% of respondents say they had someone in their household suffering from worsening health conditions due to avoiding healthcare services. However, 80% of those say the decision led them to eventually spend more on medical bills or see an increase in their healthcare cost.

75% of respondents say they’ve incurred more healthcare costs since March 2020.

60% saw an increase in healthcare costs because someone in their household was exposed to Covid-19 and visited the doctor.

36% say their medical costs increased because someone in their household contracted Covid-19 and had to visit the doctor.

26% saw an increase in healthcare costs because they or the head of their household lost their health insurance coverage and spent more out-of-pocket money.

The pandemic also disrupted normal behaviors regarding preventive and diagnostic healthcare, with offices closed and appointments canceled. Pushing off preventive healthcare needs can have long impacts on the health and wallets of common Americans.

There are also money concerns. 76% of respondents say they feel good about their current financial situation, while 70% say they are confident about their financial outlook. Regardless, consumers are struggling with cash flow and debts.

73% of respondents agree that an unexpected $500 expense would be problematic.

56% worry about their ability to keep up with their bill and payments.

56% say they feel overwhelmed by their financial situation.

Another issue of concern noted was the tax refund delay. With the delay in the opening of the tax season, consumers also expect a delay in receiving their refunds. 21% of respondents say it would become difficult to pay for groceries and household goods if their refund is delayed by two weeks.

The exact number of respondents says such a delay would make them accrue more credit card debts. Considering that credit card debt is already an issue for most, 43% of respondents have more debts than they did a year ago.

The survey also showed a significant difference in the impact of the pandemic between genders.

Financial Security: 86% of men feel good about their finances, while only 66% of women do. Furthermore, 34% of women say they feel poor about their financial security.

Impact of the Pandemic on Finances: fewer women (62%) than men (76%) say Covid-19 has highly or moderately impacted their finances.

Debts: 64% of men say they feel overwhelmed by their debts compared to 48% of women.

Worse off financially: 40% of women say the impact of the pandemic has left them financially worse off than they were a year ago.

 

The survey was commissioned by the Freedom Debt Relief and conducted by Atomik Research. It polled 2,005 adults in the United States.

What’s Next After Your TSP Balance Hits $1 Million?

There are currently over 84,000 TSP millionaires. This figure consists of retired as well as active federal workers. The figure is especially impressive since the number of TSP millionaires before March 2020 was 27,212 TSP. That figure is even more impressive than the 208 TSP millionaires there were in 2011. But we also have to look at others who are yet to hit the $1 million mark. Currently, there are about 5,649,736 TSP account balances that are below that mark. The figure easily trumps the number of accounts with balances between $1 million to $9.3 million. 

With consistent and considerable savings, many of the over five million accounts will also hit the $1 million mark. But what next after you become a TSP millionaire? What changes, and what are the things you have to do before hitting that mark? To answer these questions, here are first-hand accounts from other TSP millionaires and what they feel everyone should do if they are lucky enough to hit the mark. These TSP millionaires are from different regions: Pennsylvania, Florida, California, and the D.C metropolitan area. 

Some of these millionaires said they relaxed better in retirement after they hit the mark. Others said they have learned how to care for themselves better. Everyone agreed that having such a heavy sum in their TSP accounts and knowing they would still get more from the FERS and Social Security benefits made life easier and more beautiful. Though they didn't expect to hit the mark when they started the contributions, some of them have suggestions for others trying to hit the $1 million thresholds. 

One of the millionaires, who wishes to be addressed as James, said he became a federal employee in 1996, two years after he got married and had a one-year-old child. James said he knew he had to start saving immediately because of his family, and he did just that. He started saving 10% of his salary into his TSP account. James also started a mutual fund, saving $50 every month. He added that serving overseas made things pretty easy. He invested half of his TSP balance into the G Fund and the other half into the C Fund. The reason for the investment choice, according to James, was to balance the risk between the stable G Fund and the highly volatile but favorable C Fund. 

The young family also learned to live within the means of James' $29,000 per year starting salary. A few years later, James said he added about 20% to his C Fund to make it 70% of his investments, while his G Fund became about 30% of his investment.  He also raised his contribution to 14%. Finally, after a few years, James decided to go all in. He switched to the C and S Funds and didn't let plunges in the stock market shake his resolve. By 2016, James contributed 16% of his pay to his TSP account and still took hits from the unstable stock market. James explained that he lost $300,000 last year but still didn't get upset. He added that despite it all, his TSP balance is now over $1.2 million, and he still has about five years before retiring. 

Above all, James was able to see two kids through college, put a down payment on a house after returning to the country, and leave his TSP balance intact. He is also still below sixty, so he looks forward to having a lot of fun with his wife before they grow too old. James warns that it is not a race for people who are still trying to build their TSP balance. The best investment decision, James says, is playing the long game instead of selling during highs and buying during lows. He also counsels the need to maximize contributions and have alternative investments and savings. 

Another TSP millionaire who wants to be known as "E" said reaching the millionaire mark is good but not as good as being healthy. E said a near-death situation resulting from the consumption of sugary drinks and food had taught him to value his health above everything. He also points out the effects of the COVID-19 pandemic, urging people to worry less about becoming TSP millionaires and more about their health and treating others right. 

Why Planning Healthcare in Advance Safeguards Your TSP

Did you know that one of the biggest problems for those with a Thrift Savings Plan (TSP) retirement account is actually unexpected healthcare costs? Although we can’t expect the unexpected, we can make better healthcare decisions at a younger age and improve the position of our assets within a TSP. 

 

For those that are unaware, the TSP account is designed for federal workers. While in federal employment, you regularly contribute to the account, and this saves money for retirement. After leaving work and retiring, you should have three reliable streams of income: 

 

Social Security 

TSP accounts 

FERS annuities (defined benefit plans) 

 

If you were to ask federal employees why they contribute to a TSP account, not many would talk about healthcare costs, and this is because the Federal Employees Health Benefits (FEHB) policies are designed for this need. Normally, FSAs (flexible spending accounts) supplement these policies when it comes to healthcare expenses. However, it’s important to remember that retired federal workers don’t have access to an FSA. 

 

What’s more, retired workers get a further surprise when they realize that FEHB policies aren’t paid with pre-tax dollars, as in the working years, but instead after-tax dollars. These changes to FSAs and FEHB policies can leave many retired federal employees disillusioned (and without the right support for healthcare!). 

 

As life expectancy continually increases, it’s more important than ever to pay attention to retirement healthcare. According to a recent Fidelity study, $295,000 is the average healthcare cost expected for a couple retiring at 65 in 2020. Not only does this seem high, but it gets worse when you consider that this Fidelity study didn’t take long-term care into account. Some sources say that this will exceed $100,000 for a private nursing home room in 2020. 

 

What does this mean for federal workers? For one thing, we recommend visiting the Office of Personnel Management (OPM) website to review the literature on Medicare and the FEHB program. Here, you’ll learn why many workers use a strategy that contains an FEHB policy as well as Medicare Part B for retirement. 

 

This has been the advice of the OPM for some time, but it’s frequently ignored due to the higher monthly costs that come with the approach. Yet, choosing between FEHB and Medicare leads to more risk. For example, it leaves retirees exposed to copays, coinsurance, medical deductibles, and other expenses not covered. Choosing one or the other cost in the long-term also leads to uncertainty and a lack of security for federal workers and retirees. 

 

Choosing Medicare and FEHB 

 

As a financial professional will tell you, a strategy with both FEHB and Medicare provides more security and reliability for financial planning. Additionally, choosing this path also opens up asset allocation options for a TSP. Suddenly, with FEHB and Medicare, you’re no longer worried about a medical emergency draining your TSP assets. 

 

When choosing between the two, you’re risking your TSP assets if something were to go wrong. As such, participants take a more conservative approach and protect these assets rather than focusing on growth potential. Just in case the assets are required, people invest mostly in the G Fund because it provides accessibility. What happens when the G Fund doesn’t offer growth? What happens when your timing is poor, and your TSP portfolio is at risk? 

 

By following the OPM guidance, you’ll have certainty in the shape of Medicare Part B and an FEHB policy. The primary effect is confidence in budgeting for healthcare, and the secondary effect is more freedom with TSP asset allocation. Rather than liquidity, you can focus on growth and building a nest egg for retirement (in other words, the reason for introducing TSP in the first place!). 

Military Retirement Package for Veterans

Unlike many corporations in the United States, the U.S. military still uses the traditional pension system. As a result, veterans in the Armed Forces are eligible to receive substantial benefits upon retirement. But the military does not adopt a single approach to calculate the benefits of veterans. Instead, it employs four different methods based mainly on the year such veterans started serving in the military. This article contains a breakdown of the retirement packages available for Americans who served in the Armed Forces. 

 

Final Pay Retirement System

 

Service members who are eligible for this payment system are those that joined the service on September 6, 1980, or before. The payout calculations under this system are pretty straightforward. If this system applies to you, you can determine your payout by multiplying the last monthly basic pay you received by 2.5%, then multiplying the result by the number of years of service. For example, suppose the last monthly basic salary you receive is $6,000 after twenty years of service. In that case, the calculation of your monthly pension should look like this: 

$6,000 × 2.5 × 20 ÷ 100 = $3,000. 

Based on this calculation, service members who serve for forty years will receive their complete final monthly basic salary as monthly pension payments. 

 

High 36 Retirement System

 

Service members that joined the military anytime after September 7, 1980, and before August 1, 1986, fall under this system. The calculation here is almost similar to that of the Final Pay Retirement System. The only difference is that this system uses a service member's average basic salary for their High three years. Service members usually receive their high three salaries during their last years of service. For instance, service members who spend twenty years in service will receive half of their average highest basic pay within thirty months. 

 

CSB/Redux Retirement System

 

Service members who joined the military between August 1, 1986, and December 31, 2017, will receive pension payments based on the CSB/Redux Retirement System. However, service members who joined in the first years of that period can choose to go with the previous system. The CSB/Redux Retirement System's calculation is similar to that of the High 36. Both systems use the highest basic pay within thirty months. But the CSB/Redux system allows service members to receive a one-time payment of $30,000 after spending fifteen years in service. Service members that accept the Career Status Bonus will suffer a reduction of 1% for every year of service less than thirty years. 

For example, a service member who receives the CSB and retires after twenty years of service will bear a 10% reduction in future payout. That is 1% for each year less than thirty years of service. 

 

Blended Retirement System

 

This system addresses the issue of over eighty percent of service members who do not use up to twenty years in service. People in this category are not entitled to receive regular payments upon retirement. Instead, the system offers those service members fixed benefits and TSP contributions and continuation pay for those who spent over twelve years in service. 

 

Who is eligible for the BRS? 

 

Service members who join service on or after January 1, 2018 (automatic enrollment). 

Service members who join after December 31, 2005, and before January 1, 2018, can choose the regular system or the BRS. However, they should have opted for the BRS on or before December 31, 2018 to be eligible for the system. 

Like the CSB/Redux system, the BRS offers service members the opportunity to receive a bonus. However, the bonus is around 2.5% of their yearly basic salary, and it is receivable after twelve and not fifteen years in service. In addition, the Armed Forces will continue the payment of 1% to their TSP accounts with automatic savings of 3% to the account from the service member's pay. Service members can increase, reduce or completely stop the 3% personal savings at any point.

Impact of Social Security Earnings Test on Your Retirement

A study carried out by Voya Financial showed that more than 50% of the participants plan to continue working after they retire. For federal workers who also wish to follow the same path, it is common to speculate that paid employment will not stop the receipt of retirement savings and social security benefits. However, such speculations might not be entirely accurate. 

Suppose you start receiving your Social Security benefits before attaining full retirement age. In that case, the system will reduce the benefits using the Social Security earnings test. The test uses certain thresholds to limit how much money a retiree in paid employment will be eligible to receive. 

However, the reduction is only temporary. Social Security will return the benefits they withheld as soon as such a worker attains full retirement age. As great as this sounds, the years of reductions can be challenging for retirees trying to adjust their budgets. 

 

What You Need to Know About the Social Security Earnings Test

 

The following criteria will determine how much the earnings test will affect your Social Security benefits before you attain full retirement age.

Phase 1: (For feds who will not reach their full retirement age in 2021). People who belong to this phase can receive up to $18,969 yearly without suffering any reductions to their Social Security benefits. However, for every $2 of earnings over that amount, there will be a deduction of $1. For workers who will get deductions, Social Security withholds payments in the form of whole sums at the beginning of every year, but when it withholds too much money, it has to refund it in the following calendar year. 

Phase 2: (for feds whose full retirement ages begin from 2021). People in this category can earn up to $50,520 yearly from paid employment after retirement without losing a dime from their benefits. Also, deductions begin at $1 for every $3 they earn above that figure. 

Phase 3: (Feds who have reached full retirement age before 2021). People who fall into this category need not be concerned about deductions regardless of how much they earn in their new paid employment. 

Special Waiver: Filers who retire in the middle of the year and fall in categories 1 and 2 can receive their full benefits without deductions if their paid employment stops as soon as they start receiving their Social Security benefits. Paid employment income does not affect people in this category since it stops before they start receiving their Social Security benefits. 

 

Calculation of Social Security Benefits 

 

The amount a person will receive from Social Security upon retirement is dependent on their earnings while in service and their age. Social Security benefits do not begin until retirees attain their full retirement age. Workers born between 1943 and 1960 will start receiving the benefits when they are between ages 66 and 67. 

However, workers can still claim their Social Security benefits before their full retirement age. But, they will have to bear deductions. On the other hand, workers who wait until their full retirement age receive their full benefits or Primary Insurance Amounts (PIA). Workers who start receiving their Social Security benefits after their full retirement age will receive increased sums.

How You Can Withdraw Early from TSP Accounts Without Penalty

As you draw closer to your retirement, you may need to withdraw from your TSP account to cater to urgent needs. However, doing this might lead to a 10% penalty that you most likely will not be ready to part with. In 2020, people had the opportunity to make withdrawals without penalties from their TSP accounts. Those that claimed hardships had the opportunity to withdraw up to $100,000 from specific retirement accounts (401(k), IRA, or TSP), as long as they had not reached 59 years six months of age at the time. The government also gave those people the chance to return the money over the next three years if they wished to do that. 

Since we pray not to repeat the events of 2020, we have to ask if there are ways to make early TSP withdrawals without penalties. This article details the steps you can take to get penalty-free withdrawals. 

A federal worker who leaves service at 55 years or older can make withdrawals without penalty. This rule applies to feds who retire or resign from service. The TSP forfeits the ten percent additional tax for payments made after workers retire or resign from service as long as they are at least fifty-five years old. For public safety workers, the ten percent forfeiture begins at fifty instead of fifty-five. 

 

Why is This Good News? 

 

For workers who retire through the MRA+30 years clause and are still less than fifty-nine years six months, early TSP withdrawals will help them settle immediate bills. Even if a worker decides to defer their pensions until a later date, they can withdraw all or part of their TSP account to keep their head afloat. 

 

Avoid Incurring Heavy Taxes with Huge TSP Withdrawals 

 

Withdrawing the whole of your TSP balance might lead to heavy taxes if you don't roll the money over to an Individual Retirement Account (IRA). To avoid this unpleasant situation, you have to create a solid retirement plan. This plan should make allowances for investments, taxes, and other things that might crop up during your retirement years. 

 

Final Thoughts 

 

Many federal workers think they can only make early TSP withdrawals without penalty at 59 years six months of age. Not many know the rule about 55 years old. If you are eligible for the 55-year-old provision, you should take the opportunity to make penalty-free withdrawals. 

How the Thrift Savings Plan Has Grown Since its Creation 34 Years Ago

A lot can happen in 34 years, especially for a plan with the backing of the most powerful government in the world. The Thrift Savings plan has undergone drastic changes since it started operation on April 1, 1987, with the G Fund. Then, employees who wished to participate had no choice but to invest in the G Fund. The first change occurred in 1988 when the TSP added the C and F Funds to its portfolio. Things remained the same until 2001 when the TSP added the S and I Funds. Four years later, it added the L Funds and expanded them in 2020. Every development allowed participants to diversify their investments. Though TSP Funds are not as diversified as 401(k) plans, they are still pretty decent. 

Apart from the addition of Funds, the TSP also underwent some operation changes. At first, employees that wanted to participate in the plan needed to be FERS employees for six months. As a result, employees who joined the service between January 1 and June 30, 1991, had to wait till the first day of the following year to participate. Also, since 2009, participants have been eligible to get complementary contributions immediately after joining the service. In addition, before 2005, participants could only make contribution elections bi-annually. 

Also, before 1996, contributions to the TSP were arbitrary percentages of incomes. This method was more beneficial to FERS workers than CSRS workers, as the former could save up to 10% of their salary while the latter could only save 5%. After the change, the TSP has been connected to the IRS's elective deferral amount. In addition, catch-up contributions started in 2003, while the Roth TSP came into existence about nine years later. 

This article would be incomplete without discussing the changes the TSP made to its withdrawal laws. With the creation of the TSP Modernization Act in 2019, there was a reduction in the rigidity of withdrawal rules. Though the rules are still not as flexible as those of the Individual Retirement Arrangement (IRA), they are not what they used to be. In fact, during the first years of the TSP, participants didn't have the opportunity to change the sum of their elected monthly payment. 

With the fast developmental growth of the TSP, it is safe to say we can expect even more changes in the coming years. Hopefully, one of the changes will be the introduction of mutual funds for participants. Also, we might finally get to know the international index that the I Fund would track. 

Your Guide to (Finally!) Locating Lost Retirement Accounts

Know that you have some money saved somewhere but don’t know where to start looking for it? This is a familiar story for Americans all over the country. It’s common to take the ‘I’ll deal with it later’ approach when starting a family, changing jobs, and making other major life changes. Thankfully, there are some things you can do to find a lost retirement account. 

 

Treasury Site 

 

First and foremost, we recommend looking at the treasury site for your state. After a certain period, inactive assets change hands to the state. These days, most websites have services to search for unclaimed assets, whether a 401(k) or another pension account. When using this tip, always make sure you’re using the right website since the internet is full of scammers and fake websites. For example, you should see ‘.gov’ at the end of the web address. 

 

From here, follow the steps on-screen or contact the department by phone if you have problems. Search online and you’ll find all sorts of stories of people recovering tens of thousands of dollars after searching their state’s website. With no owner, accounts are passed on to the state and are just awaiting contact. 

 

For those who have changed their name due to marriage or any other reason, ensure you search all previous names. 

 

Contact Financial Company 

 

If you remember a particular account but can’t find anything, contact the company and ask for help. Recently, we saw a story where an individual left $40,000 in a 401(k). Eventually, the money was invested in company stock, and financial experts located the account. Only this time, it contained TEN TIMES the original amount and was now worth $400,000. 

 

Of course, we aren’t saying that your abandoned account is now a secret pot of gold. However, it’s worth chasing down an old account even if it only contains $1,000. These days, it’s easier than ever to roll over a 401(k) account and this means that abandoned accounts are worth exploring. 

 

Third-Party Service 

 

If all else fails, consider getting in touch with a third-party service. Essentially, these are companies that have the resources and techniques to locate missing retirement accounts. Depending on the company, they will either take a percentage of the located account or charge a fee for the service. Therefore, you must do some research before going ahead with a company. Speak to the employees, read reviews online, and get recommendations. Since you’ll provide Social Security numbers and other sensitive information, you need to choose a legitimate service. 

 

Take a Proactive Approach NOW

 

What if you haven’t lost an account, but you’re worried that it will happen through all the chopping and changing that life brings? Well, one of the best tips is to take a proactive approach to your retirement account management. For starters, grab a pen and paper and keep notes of important details. Keep a file with all important accounts, balances, assets and liabilities, and other details. 

 

When an employer sends paperwork such as statements, add them to the file. It’s all too easy to lose letters, put each year’s statement in a different drawer around the house, and ultimately lose them when moving to a new home. 

 

Before consolidating accounts, speak with a financial professional. They will consider your options and provide tailored advice before you fall into a trap or make a common mistake. Since investment options change from one account to another, it may be beneficial to keep them separated (even if it means more effort to keep track of them all!). 

 

If you think that you might have lost retirement accounts, it’s worth exploring because it may help later in life. During the hustle and bustle of life, it’s easy to lose track of your financial accounts. It might be something simple like a profit-sharing plan, but it all helps when you eventually stop working!

Does Healthcare Really Account for 40% of All Retirement Spending?

It’s often said that relying solely on Social Security is not the way to go during retirement. Workers are told to expect the unexpected when it comes to retirement costs and to make sure that a healthy amount is stashed away. With comfortable savings, retirees can meet all unexpected costs rather than struggling to make ends meet after leaving the working world behind. 

 

In particular, workers seem to worry about the unpredictable nature of healthcare costs after retirement. According to a recent survey, Americans expect to pay around four in every ten retirement dollars on healthcare. Is this an accurate estimate? We’re sure the hearts of some readers have started pumping just a little quicker after reading this survey result. 

 

Healthcare Costs in Retirement 

 

Thankfully, we do have an accurate prediction of healthcare costs because Fidelity releases the average figure annually. With the average in 2021 at $300,000 per couple, the 40% estimate from Americans isn’t actually too far from the mark in many cases. 

 

How do you prepare for such spending? Although it sounds obvious, one option is to save more for retirement. If you aren’t contributing the maximum amount in your 401(k) or IRA, now is the time to start. Take advantage of matched employer contributions and max out an HSA (health savings account) too. 

 

Often, workers enjoy better tax benefits in an HSA compared to a 401(k) and IRA. For example, you don’t have to worry about tax when contributing, gaining from investments, or even withdrawing. Of course, this is only true if you use the withdrawals on healthcare-related expenses. In recent years, some people have used their HSA as a savings account since it’s a place to store funds with free withdrawals and very few restrictions. 

 

Today, we want to shift this mindset slightly because we think people should use it as a retirement savings account rather than a short-term solution. If you don’t use these funds, you’ll benefit from tax-advantaged investments. 

 

Sadly, no retirement savings solution is perfect, and participation is only possible for those already benefitting from a high-deductible health insurance plan. For the next two years, you’ll need $2,800 as a family deductible or $1,400 as an individual. If you qualify due to your health plan, HSA contributions are generous. 

 

If you’re an individual under age 55, contribution limits are set to $3,600; this increases to $4,600 for those over age 55. If you’re at the family level and under age 55, the contribution limit is $7,200; this increases to $8,200 when over age 55. 

 

Summary 

 

Healthcare costs account for a HUGE chunk of retirement expenses. Therefore, the best way to deal with them is to plan. Boost your savings, reduce short-term expenses, and take advantage of an HSA. The more you plan, the less this expense will cause problems in retirement!

Hack the System with Semi-Retirement

Unfortunately, the global pandemic has caused more money problems for millions of Americans. If there was a retirement-saving issue before, this has only grown stronger with people forced away from work (and even let go by their employers). According to one survey, nearly two-thirds of workers aren’t on track for a secure retirement. 

 

The pandemic has forced people away from work, student debt is still a problem, and Americans are struggling to save. With this in mind, some are hacking the system somewhat and semi-retiring instead. 

 

Essentially, semi-retirement is the idea of earning a small amount of income while working less and ticking things off the bucket list. We know that some people will read this with a confused look, wondering how they can work less with so many bills and other costs. We’re here to bring you a secret today – if you want to semi-retire and start enjoying more free time, reduce your costs. 

 

With lower costs, you don’t have to work so hard to meet them. It might sound obvious, but the reason many Americans are forced to continue working is that they have so many ends to meet. By reducing costs and commitments, you don’t have to work so many hours and you have more time for vacations, walks with friends, pets, grandchildren, and more. 

 

Tips for a Successful Semi-Retired Life 

 

Want to work a little and live a lot? If so, follow the tips below to set yourself up for a successful semi-retirement. 

 

1. Consider Downsizing

 

Do you really need a large house? Housing is the largest expense for many Americans, and some have homes that they simply don’t need. We’re sure you’ve worked hard for your home, but you’ve also worked too hard to struggle in retirement. By downsizing, you immediately reduce expenses with lower utility bills and less maintenance (you could also have a pot of money from the profit!). 

 

After selling your large home and buying a small one, you can use the difference to start ticking items off that bucket list. If you want to enjoy semi-retirement, downsizing after children have left the nest is one of the best things you can do. 

 

2. Pay Off the Mortgage 

 

If you talk to all those who enjoy retired life, you’ll soon find that a paid-off home is a common denominator. The sooner you pay your mortgage, the more freedom you have with earnings. Suddenly, you don’t have a mortgage taking most of your earnings each month. We spoke about reducing those costs, and what better way to reduce the amount you need to survive than paying off your mortgage? 

 

Although some people will recoil at this suggestion, you might find it easier to pay off your mortgage than you first thought. Realistically, many homeowners can save themselves five to ten years on a 30-year mortgage just by paying an extra $100-200 per month. Not only do you save time, but you also save thousands in interest payments. 

 

Even if you don’t have this amount to spare, perhaps you can pay an extra $50? Every little extra payment helps. Can you eat out fewer times per month? Can you cut back on the TV subscriptions? Can you cut back in other areas to lose that mortgage sooner? 

 

3. Simplify Living 

 

We mentioned it in the previous tip, but try to simplify your life. As well as saving money, you’ll also relieve yourself of much stress (hooray!). With fewer possessions, you save money and don’t need to find room to store it all. For example, many couples can get by with just one vehicle. This makes a huge difference because you’re no longer paying registration, insurance, maintenance, taxes, and other expenses twice. 

 

As a test, walk around your home now and see if there’s anything you can sell to lighten your load. With a minimalist lifestyle, you declutter your home and decrease your cost of living. 

 

4. Create Avenues of Passive Income 

 

Imagine a world where you earn income for work that you’ve already done – this is called passive income, and examples include peer-to-peer lending, investing, and book publishing. With self-publishing easier than ever through Amazon Direct Publishing, you can write books, make them available for Kindle, and sell them for many years to come. Although only one initial investment (mostly in time), you’ll earn for every sale. 

 

Normally, passive income sources come from a large initial investment. Writing an ebook might take some time, but the idea is that the quality should keep sales coming in for many years. Even if you only sell 100 per month at $1 each, this is still an extra $100 per month. Now imagine having several books on the Amazon Kindle store all generating passive income. 

 

Even if you don’t have much to start, investing is another strong option. Even if you only have $100 sitting in an account, everybody must start somewhere. 

 

5. Remove All Debt 

 

Again, we know that nobody has a magic wand. However, just imagine a world without debt (and all that nasty interest!). Don’t just accept that debt is a part of life; start paying everything off. Whether a credit card, medical bill, or car loan, do everything you can to reduce the amount owed. If possible, consolidate all your loans into one so that you aren’t punished with interest several times. 

 

Eventually, you’ll have the double benefit of keeping income and not having to pay interest on top of all loans. Set SMART goals in the short term to achieve your long-term goals. Most people dig their heads into the sand when it comes to debt; instead, set an achievable goal, work out how much you can pay each month, and get started today. The sooner you eliminate all debt, the sooner you can enjoy a semi-retired life. 

 

Five Steps to Semi-Retirement 

 

Downsize 

Pay off the mortgage 

Simplify your lifestyle 

Earn passive income 

Remove all debt 

Improving Your Retirement with Three Funds

While some people certainly invest in the stock market for fun, most people are simply trying to build a nest egg for retirement. With all the uncertainty in the world, it’s good to know that there’s a sum of money growing for the days after work. With small investments now, the goal is to reap the rewards later in life. 

 

However, the unpredictable nature of the stock market makes this difficult for some. Often, it seems as though every decision is the wrong one, and we’re not actually getting closer to that magical retirement goal. 

 

If you’re constantly frustrated at how your investments are going, we have some advice today. The first thing you need to do is stop chasing that mythical, high-gain treasure. Sometimes, the best route for your retirement fund is patience with some growth prospects. While they may not provide as much excitement, they do generate larger retirement savings. 

 

With this in mind, we’ve listed three funds to help your retirement fund in the coming years! 

 

PayPal Holdings 

 

In the eWallet market, it’s fair to say that PayPal has seen some new competition in recent years. For example, some people are now using Adyen and Square. Yet, PayPal is still dominant in the market, and we don’t expect this to change any time soon. PayPal is the original and trusted middleman service for online payments (and a great investment!). 

 

In 2020, the world went on a shopping spree as they sought entertainment during the pandemic. Just because this wave is over, it doesn’t mean that PayPal’s growth has slowed. For the first quarter of 2021, revenue increased by nearly 30%, and the number of payments going through PayPal increased by over 45%. During this same period, nearly 15 million people created an account and started using the payment system. 

 

In total, nearly 400 million now use PayPal, but it has the potential to improve its reach even further. With consumers wanting reliable and safe payment methods, more are turning to eWallets and middleman services. Of course, there’s also the issue of privacy and personal information. PayPal is a way to buy products online without giving too much away. 

 

According to Juniper Research, the $5.5 trillion in payments from 2020 will almost double to $10 trillion in the next five years. PayPal is encouraging growth itself with the recent acquisition of Happy Returns. If you haven’t seen this name before, the service helps consumers to return products from online orders. In 2020, while the world was trying to cope with a global pandemic, PayPal helped consumers to shop the market with Honey. 

 

What about future prospects? We’ve seen that the market will grow, and PayPal has spoken about offering stock trading, savings accounts, and check-cashing services. If all goes to plan, those invested in PayPal will do well. Even if the plan goes awry, PayPal should have enough to offer security. 

 

Apple 

 

From one of the planet’s biggest companies to another, Apple is one of the most recognizable names in the world right now, and it has earned this right with supreme customer service and quality products. The reason Apple is so attractive from an investor’s perspective is the steady long-term growth. 

 

Believe it or not, there was a time when investors would question the viability of Apple for long-term growth. With so much reliance upon the iPhone, investors were concerned about what would happen when consumer demands changed. Now, we can see iPhones aren’t just a trend. Even if they were, Apple has enough room elsewhere to expand (the recent TV service is a great example of this!). 

 

At the beginning of 2021, Tim Cook, CEO of Apple, revealed that 1 billion iPhones were active around the world. According to some statistics, this means that one in every four mobile devices in the world is an iPhone. With 4 billion active mobile devices worldwide, we’re almost certain that Apple wants to increase this percentage in the coming years. 

 

Apple is always supplementing its income with different services, including various subscriptions and apps. In the first quarter of 2021, revenue figures nearly hit $17 billion, a growth of 27%. Apple continues to reinvest, launch high-quality products, and add value to various markets. Ultimately, this makes for a strong retirement investment. 

 

Amgen 

 

As the third fund for retirement savings, we want to suggest Amgen. While many major drug companies rely on one single product, Amgen has eggs in various baskets. Enbrel is currently the best-selling product for the company, and it still only contributes around 20% of all revenue. According to Amgen, no other drug contributes more than 10% of revenue each year. Therefore, you’ll invest in a diverse portfolio with this one investment alone. If one drug were to fail or suddenly fall from grace, Amgen has several others to pick up the slack. 

 

There are some risks to an Amgen investment, and it’s perhaps riskier than PayPal and Apple combined. For example, other companies can create a competitor to Enbrel after 2029. Also, the drug manufacturing industry is always changing, with companies constantly investing in competing products. Manufacturers are always researching and developing, and the battle is a furious one. 

 

Yet, Amgen is doing the same research and aiming to introduce yet more successful drugs to the market. For example, one trial is investigating the impact of particular products on gastrointestinal issues and other health problems. 

 

There are certainly concerns about this investment, but the company seems to have a production line of reliable and functional drugs. With a strong portfolio that’s always evolving, the company had a cash flow of $10 billion in 2020 which shows the company’s ability to constantly research (and keep its position at the top of the industry!). 

 

Just recently, the company acquired Five Prime and made moves to keep all retirement savers confident (this includes purchasing Rodeo Therapeutics). Five Prime is working on gastric cancer treatment, and Rodeo Therapeutics will contribute new anti-inflammation solutions to the company. 

Retirement Savings Tracking Tools

Retirement savings is hard, especially when you're managing different investment accounts. Due to the increased availability of tax-advantaged accounts, the majority of people juggle between various retirement accounts. Some tools that track investments will help you manage all your retirement accounts, and here are the three best tools that can track your investments.

 

Types of portfolio management software

 

The three basic types of portfolio management software are manual entry, linked account, and spreadsheet-based tool. Each class has its advantages and disadvantages.

 

If you are an investor, you can link all your investment accounts with the linked account app, and this is possible because the app is an online tool. You can upload your investment information to the linked account app. The app will show you your investment data. This tool is the most convenient, and it gives a high level of security to your data. Yet, some investors do not want to provide their investment account details. This is the principal disadvantage of the linked account app.

 

The second tool can track your investments only when you provide your investment information manually. Therefore, this tool will take a lot of time if you want to update your investment data. The advantage of this tool is that it does not require you to provide your login details.

 

The third type of investment tracking tool involves the use of a spreadsheet. This tool cannot give the kind of analysis that other tracking tools will provide. Still, many people prefer this tool because they can control their investment information effectively with the spreadsheet. If you use Google Sheets, you can pull in your investment data using the Google Finance function.

 

The three best apps for tracking your investments 

 

Below are the three best investment management apps. Each app works for one of the portfolio management software programs mentioned above. 

 

Personal Capital

Personal Capital is one of the best investment trackers. It is free, and it can link all your accounts, such as IRA, bank accounts, student loans, and mortgages virtually. It can also use Zillow to pull in your real estate value. The website has A+ ratings by the Qualys SSL Labs, and this rating is stronger than the rating of most brokerages.

 

Once you connect your account to Personal Capital, it will give you a lot of information about your finances. For your investments, this tool will accumulate data from all your accounts into many dashboards. And this shows the exact value of the individual investment and how it changes from the last day of trading. 

 

Personal Capital analyzes the amount charged by each portfolio mutual fund while tracking investment performance. It captures data in charts, graphs, and financial dashboards.

 

The significant advantage of Personal Capital over other tools is its comprehensive analysis. For example, in addition to its display of each mutual fund fee, it also analyzes each mutual fund. It shows the impact they will have on your portfolio balance over a definite period. Personal Capital helps an investor know if they are right for retirement or not with its retirement planner. The retirement planner considers inflation, pensions, and Social Security benefits. Also, you can add time expenses to your retirement planner. 

 

Lastly, Personal Capital can effectively manage your finances with its cash flow tools that can track your spending by category. You can modify these categories, and you can add new ones.  

 

Morningstar

Morningstar is best for people who prefer to input their account data manually. It is the most flexible investment tracker, and it provides a lot of information about investments and the total portfolio. It takes a lot of time to input the data whenever you want to update your account information.

 

Immediately after you input your portfolio, Morningstar will track different information such as dividend growth, dividend yield, and portfolio management over time.

 

The majority of investors use Morningstar together with Personal Capital because of the vast information it provides. Morningstar has a free and a premium account. Investors can track their investment portfolio with a free account. In contrast, the premium account offers more information about portfolios and investments.

 

Google Sheets

Google Sheets is the best for investors who want to have total control over their financial data. It provides sufficient information that can manage most portfolios. Still, it doesn't provide analysis and data like Personal Capital and Morningstar. 

 

Google Sheets is best because you can use Google Finance to get information about mutual funds, stocks, and ETFs. You can also use the Google Sheets ticker to pull in the security and accompanying price details. You can use Google Sheets or a spreadsheet to rebalance your investment portfolio since it is easier to use than the other tools that require automation.

 

With the availability of many tax-advantaged accounts, you can have more than one investment account. But how will you manage your investments if you have a 401(k), traditional IRA, Roth IRA, HSAs, and your taxable account? These three tools will help you to manage all your investment accounts without stress.

 

8 Steps To Know Whether You Are Financially Prepared For Retirement

If you have a goal to save money this year, then you are not alone. A study by Fidelity Investments found that about 44% of Americans also have the same goal of increasing their savings. 

But whether you are saving for retirement, college or healthcare, making smart financial decisions would ultimately help you achieve your retirement goals over time. Here are some steps you can take to prepare your finances ahead of retirement.

Build an Emergency Fund

Grow an emergency fund with at least enough cash to cover six months of your expenses. As such, when you have an unexpected bill, you can tap your emergency fund instead of making premature withdrawals from your retirement savings and attracting penalties. 

Instead of a traditional savings account, consider putting your emergency fund in high-yield access or money market account. These accounts typically have no minimum balance or monthly fee.

Make a CD ladder

A bank certificate of deposit (CD) allows you to save money over a period like six or twelve months to take advantage of high-interest rates. After saving enough for your emergency fund, you can put the money into a CD to earn higher fixed interest than obtainable with a savings account while also avoiding market volatility.

CDs also earn higher interest than future saving account when the federal benchmark decreases. It has a grace period when savers can make penalty-free withdrawals.

Save 20% of Your Income.

Adopt the 50/30/20 rule that requires saving at least 20% of your income for future financial goals like retirement, debt repayment, and home down payment. Look for a way to cut down your expenses, so you only spend 50% of your income on fixed expenses, 30% on variable expenses while saving at least 20%.

You can schedule your payment, so 20% of your income is automatically deposited to a CD, high-yield savings, or investment accounts.

Create a Budget

There’s no fixed amount to save for retirement. The amount you save is dependent on your situation. First, calculate your current expenses and then your expected expenses in retirement. These figures can help you ascertain how much your monthly or annual retirement expenses would be, so you can know how much you need to save.

Set a Retirement Savings Goal

A more straightforward way to ascertain your retirement savings goal is to adopt “Rule 25,” which requires multiplying your annual expenses by 25. For instance, if your yearly expenses are $30,000, then you multiply it by 25. Meaning you’ll need a minimum of $750,000 for retirement. You can then use a retirement calculator to estimate how much you need to save each month from achieving your goal.

Identify Debt To Pay Off

If you have debts, then there’s a need to strategize on how to repay your debts. Start by paying off high-interest debts like credit cards and personal loans. Also, consider consolidating high-interest credit cards and other loans after comparing the interest rate offerings. Then you can move to pay off your student loans and mortgage debts.

Get 401(k) Match

If you have access to a 401(k) plan and your employer offers matching contributions, consider investing in getting the full match. Not taking advantage of matching contributions is like leaving free money on the table.

If you’re unemployed, a solo 401(k) account can provide the same benefit as a traditional 401(k). Also, consider an IRA to prepare for a seamless transitioning into retirement.

Contributing to an IRA

Paying off your debts doesn’t just improve your credit score but also provides you with more money to invest for retirement. If you want to lower your taxable income, then choose an IRA. Roth IRA allows you to make pre-taxed contributions and tax-free withdrawals in retirement. You can use an IRA calculator to determine how much you can contribute until retirement, bearing in mind the annual contribution limits.

Conclusively, making saving for retirement a priority is the ultimate strategy to achieve your financial goals in retirement. It’s also essential to start saving early and tackle your debts while building long-term wealth. Consider consulting with a financial advisor to make more informed decisions.

4 Reasons Why You Should Choose a Roth IRA

Every year, more and more people seem to put the Roth IRA on a pedestal while claiming it to be the best retirement account around. In short, it’s a way to use post-tax money in a savings account and invest in growing a portfolio. If you’re not sure why you should pay attention to the IRA while planning retirement, we’ve compiled four of the biggest reasons in this guide! 

 

Free Withdrawals

 

Sometimes, we find that this benefit goes under the radar (some people don’t even know that the feature exists!). However, you can withdraw contributions at your own discretion. Growing up, we’re told to leave all retirement accounts alone and NEVER touch them during the working years. However, the Roth IRA is one of the most flexible accounts in this regard. 

 

After investing in the account, you can withdraw your own funds at any point. As an example, you might invest $9,000 and earn $3,000 in interest. As long as you don’t touch the new $3,000, you’re free to withdraw however much you like. Once you start taking the $3,000 of earnings, however, this is where you’ll be subjected to penalties and tax requirements. Also, bear in mind that any money you take out can’t be put back easily. 

 

Tax-Free Income 

 

If you want to know the biggest reason why the Roth IRA gets so much attention, it’s probably because of the tax-free income that account holders receive in retirement. To contribute to your account, you’ll need to meet two requirements: 

 

Earn income in the year 

Ensure this income doesn’t exceed a certain amount 

 

When saving for retirement, you’ll find two different types of accounts. While some don’t charge tax, and you’ll pay this when withdrawing, others charge tax on the way in. A Roth IRA falls into the latter category; since you’re paying tax when contributing, often directly from a paycheck, you won’t have to pay tax when withdrawing later in life. 

 

Despite all the positives, one frustrating feature for account holders is the capped contributions. Those under 50 are limited to $6,000 per year in 2021, while the limit for over 50s is $7,000. Also, we should note that you cannot contribute more than you earn in a particular year. 

 

What does this mean? Well, $6,000 a year for 35 years is $210,000. Over time, your money will enjoy compound growth as the money is invested. Depending on the annualized rate of return, which can reach 7%, you’ll have close to $1 million at the point of retirement. Save for longer or enjoy a higher annualized rate of return, and you’ll surpass this amount. 

 

Of course, you’ve already paid tax on this money which your future self will absolutely love in retirement. Once you reach 591/2, you’ll have access to the funds without the IRS breathing down your neck. 

 

No RMDs 

 

This might mean nothing to you now, but it’s another one that your older self will appreciate. RMD is short for required minimum distribution, and it doesn’t exist with Roth IRAs. Essentially, some retirement accounts have a rule which suggests that all account holders over 72 must withdraw a certain amount from their tax-deferred retirement plan each year. With every distribution accompanied by a tax bill, it’s nothing but a nuisance for retirees. 

 

If you have several sources of income, you want to dictate when and where you take your distributions rather than being forced into it—no need to panic with a Roth IRA because you control everything. If you want to leave the funds without touching it, do exactly this. Assuming you qualify for the pre-retirement benefits or meet the account requirements, you only take withdrawals when YOU say so. 

 

Simple Inheritance Strategies 

 

Finally, it’s often the case with retirement accounts that you have to take all of the funds in your lifetime. Thankfully, this isn’t a requirement with a Roth IRA. Rather than spending unnecessarily or trying to find a place to put money, you can keep it in the Roth IRA, and this makes inheritance planning much easier. After you die, your beneficiaries simply take control of the Roth IRA. 

 

Again, they have access to the tax-free funds, and you aren’t worrying about draining the retirement income as you get closer to the end. Speak with a financial professional, and they’ll tell you how to pass the Roth IRA down to loved ones and ensure that they enjoy the same benefits as you. 

 

Choose a Roth IRA Today 

 

Why are people endlessly talking about Roth IRAs? Because there are no RMDs, you get tax-free income, withdrawals are free, and it makes inheritance and passing funds down to heirs easier. This is a brilliant retirement solution and one that could just make your retired life less stressful! 

Here are Six Benefits of a 401(k) Plan You May Not Know

As traditional pensions gradually phase out, the gap is being filled by 401(k) plans. 401(k)s have become the primary retirement savings plan for American employees. According to Jodan Ledford, CEO of Smart USA, “having a 401(k) account is important.” Ledford based his assertion on the data that shows that individuals with retirement plans save more.

The 2020 Retirement Confidence Survey by EBRI found that 51% of retirees with a retirement plan had at least $250,000 saved, while only 5% of those without a goal had that much. 

One reason why workplace plans are so important is that employers often offer matching contributions which boost employees’ retirement savings. Several other lesser-known benefits of a 401(k) plan would appeal to an employee. Here are six of them.

Multiple Tax Benefits

Depending on the plan offered by your employer, you may be able to choose to pay your taxes now or later. Contributions to traditional 401(k) accounts are tax-deductible up to $19,500 in 2021, and $26,000 for individuals aged 50 and above. With a tax-deferred strategy, you get to pay the taxes when making withdrawals at retirement. You will, however, also be required to make a required minimum distribution (RMD) once you reach age 72.

Some employers also offer Roth 401(k) plans. Contributions to these plans are tax-deductible, and as such, there’s no RMD, and your money would be tax-free at retirement.

Both accounts have their advantages, but you have to choose based on your situation. With the uncertainty in tax rates, younger workers should forgo tax deferrals and choose a Roth IRA.

After-Tax Contributions

In addition to tax-advantage and Roth 401(k)s, workers have the option to make after-tax contributions, which opens up more saving opportunities. The first after-tax strategy is known as a ‘mega backdoor” Roth. In 2021, employees are allowed up to $58,000 in employee contributions and $64,500 for individuals age 50 and above. Those with income lower than the limits are restricted to 100% of their income.

Assuming you max out your tax-advantage contributions, you can make up to $38,500 in after-tax retirement contributions, depending on if and how much your employer matches. Assuming your employer offers an after-tax plan, you can transfer the funds in it to a Roth IRA so that future gains can be withdrawn tax-free.

However, only a few employees have the financial resources to make that much in contributions, which is why the backdoor Roth 401(k) may not be so popular. However, it’s a valuable tool available to savers.

Some plans offer automatic after-tax contributions that can be used as emergency funds and can be accessed anytime without paying any fees or penalties.

Financial Safeguards

All 401(k) plans must follow the Employee Retirement Income Security Act (ERISA). It requires that employers offer plans that are in their employee’s best interest. Plan administrators aren’t allowed to push investment plans to maximize profit. They must also disclose all essential details like administrative charges and historical fund performance to enable employees to make an informed decision. Another benefit of the ERISA is that it protect retirement assets from creditors. However, the protection doesn’t extend to federal income taxes or criminal fines.

Automatic Enrollment

Most companies offer automatic enrollment to 401(k) plans for new employees. This keeps workers from procrastinating, allowing them to start saving as early as possible. According to a study by Vanguard, 92% of new hires in companies with automatic 401(k) enrollment are saving for retirement, while only 47% of recruits in companies that don’t have auto-enroll are saving for retirement.

Loans and Early Withdrawals

Making withdrawals from 401(k) accounts comes with a 10% penalty so that you can take a loan from your 401(k) instead. The loan is usually capped at 50% of the balance and can be paid back using conventional payroll deductions.

However, if you leave your job, you must pay the loan before the next tax filing; otherwise, it may become taxable and subject to the 10% penalty.

A Major Incentive To Stay On The Job

Experts say 401(k)s are amongst the things employees consider when deciding whether to take, stay or leave a job. Small businesses can now offer their employees 401(k) plans by taking advantage of pooled plans.

In conclusion, a 401(k) plan comes with immense benefits to employees. Not only does it provide valuable tax incentives, but it also offers options to enable you to make smart financial decisions.

Is There Anything Wrong with the Thrift Savings Plan Today?

Although a thrift savings plan (TSP) works like a 401(k), it isn't a 401(k) plan since it's not under section 401(k) of the IRS tax code. The TSP walks, talks, and quacks like a 401(k), which would make it the largest 401(k) plan with over $800 billion.

One would expect such a massive plan containing over 6 million federal employees' retirement assets to be run cautiously and allow smaller organizations to lead the charts. The goal for TSP should be to perform respectively and avoid conspicuous failure.

The Claim

This is, however, not the case based on the email released last week. The note said Uniformed Service and Civil Servants deserve healthier performance, oversight, and service than what the Federal Retirement Thrift Investment Board provides. It also says that;

The board's low capacity and lack of financial literacy have led to mismanagement of the plan.

Participants can achieve better results investing in ETFs and private sector funds at a personal level.

Inept supervision has led to low performance of funds and inferior services offered to participants with inefficient record-keeping, data security, and fund windows. 

Several pages of analysis followed this to support the claim of weak returns. Next was a recommendation that the current investment lineup is replaced with selected private sector investment options.

But while the note seemed convincing on the surface, someone with investment experience would find the charges a bit awkward. The allegations were conducted haphazardly – which sets off an alarm. Also, the author failed to analyze every thrift savings plan's performance using the exact, consistent measurement.

The Investigation

So we'll do that to see if these allegations are true. TSP has a limited investment menu, which consists of five standalone funds, including small U.S stocks, large U.S stocks, international stocks, short government, and intermediate-term bonds.

These are all custom offerings. The annual expense ratio for various TSPs options ranges from 0.04% to 0.07%. This means participants pay about $40 to $70 in management fees for every $100,000 invested. Amongst these funds, only the short government is run in-house. The other stand-alone funds are BlackRock-run. This alone defeats the statement that the boards bypass the private sector.

The lifecycle fund is composed of all five funds, with allocations set by the board. The image below shows the 10-year performance of each TSP fund through December 31, 2020, alongside the Morningstar Category average for the mutual fund alternatives.

The funds are arranged in order of size because TSP’s two largest funds account for two-thirds of its assets – and their performance matters most when analyzing TSP performance to its participants.

The chart shows that the thrift savings plan U.S stocks performed excellently. Its international stock and fixed-income funds exceeded their rivals' average. The longer-dated Lifecycle funds matched their competition, while the Lifecycle income fund only lagged by a percentage point.

The email author focused on numbers from five-year performance, which isn’t a bad yardstick for evaluating retirement plans, but it is worth seeing if there’s anything to the contrary in the long run.  

The second image below shows the results of the exercise for the trailing five years. It also contains an additional fund, the Lifecycle 2050, which only has a five year history at that date.

While these results are worse, the U.S stocks still performed optimally. The small fund also performed well, but the other funds slipped. Still, with five of the nine funds outperforming their competitors, one can claim that investors could do “much better” by choosing other funds.

Also criticizing the Lifecycle funds’ performance during a strong bull market is bed analysis. The lifecycle income has about 22% of its assets in equities compared to its competitors averaging 28%. Should equity performance reverse, they’ll experience a strong performance.

To succeed with 401(k), all plan sponsors had to provide participants with low-cost access to the market and allow them to make the decisions themselves. The TSP board did just that.

If there's anything that should attract criticism to the board, it's the fact that one-third of TSP assets are in short government funds, which is an equivalent of cash accounts. The percentage is higher than the industry-recommended 10 percent in cash and 10 percent in bond funds.

The board addressed this by launching the Lifecycle series, which would attract funds that would otherwise be invested in a short government fund. Unfortunately, the implementation has been slow.

In conclusion, dissing the thrift savings plan due to its investment selection would be reasonable but somehow harsh, considering that it's not the only 401(k) plan with an imperfect asset allocation.  Still, the claim would merit discussion, not an email with allegations. There's no proof that the TSP would improve by having the private sector manage its funds.

High Optimism for Medicare and Social Security

After 2020, a year of isolation and fears over the pandemic, it was initially assumed that Medicare and Social Security confidence would decrease. However, it seems the opposite is true and not only for retirees but current workers as well. While millions of households struggled financially and the economy went through a turbulent phase, optimism remains high for both of these programs. 

 

Will Social Security pay the same benefits as time goes on? 53% of workers and 72% of retirees answered that they were ‘very or somewhat confident that this would be the case.’ Around three years ago, the results were 28% and 45% for workers and retirees, respectively. 

 

What about Medicare? Well, you probably guessed from the introduction, but it was essentially the same outcome. Three years ago, only 34% of workers and 46% of retirees were confident in the program. In 2021, this increased to 56% and 75%, respectively.

 

Consistent Benefits 

 

Despite the circumstances of 2020, including the collapse of the stock market and people forced to work from home, benefits remained consistent and steady. For many retirees, it was almost as if the pandemic was non-existent in terms of their Social Security income. Social Security is now considered a vital income source for over 60% of retirees, and benefits remained the same throughout the pandemic. 

 

Furthermore, federal stimulus checks were also available for recipients of Social Security. While the first payment was $1,200 per person, the second and third were $600 and $1,400, respectively. We would never understate the impact of the pandemic and how it has affected millions of lives around the world, but, from Social Security’s perspective, little has changed. 

 

In a recent EBRI survey, the same survey from which the aforementioned data was drawn, shows that retirees are more confident in their financial position compared to twelve months ago. In March 2020, 76% of respondents said they were confident of their financial position – this increased to 80% a year later in March 2021. Therefore, high optimism seems to be present right across workers and retirees. 

 

Trust Funds 

 

Of course, there’s a difference between the feelings of people and the reality of a situation. Just because people are confident doesn’t change the fact that the trust funds supporting Social Security benefits are under extreme pressure. Before the pandemic took hold, the Social Security Administration estimated 2035 as the year where the money effectively runs dry. 

 

Although benefits wouldn’t necessarily stop immediately, less than 80% of benefits would remain as payroll taxes step in to fund certain amounts. One year later, over 500,000 people are dead, millions have either lost jobs or accepted fewer hours, and industries have suffered from temporary closures. Could this bring the Social Security extinction date forward? Lawmakers are doing everything they can to stop this from happening. 

 

Why the optimism for retirees? For one thing, most retirees only have a small percentage of their portfolio invested in the stock market due to the conservative strategies. Secondly, most of the disposable income for older generations is spent on entertainment, travel, and leisure. With these three industries all but closed down over the last year, spending has likely decreased for retirees. Consequently, they have money sitting in accounts that otherwise wouldn’t have been there, thus boosting their financial position. 

 

Varying Consequences for All 

 

This being said, it’s fair to say that the pandemic and resulting recession have hit everybody differently. On the one hand, some people sit in a similar (or better) position to one year ago – this includes the rich and those with a college education. On the other hand, many still face job losses, which is a particular concern for those without a college education, the poor, and minorities. 

 

There was some good news recently as the United States economy welcomed over 900,000 new jobs and reduced the unemployment rate to 6%. Compared to February 2020, however, over 8 million jobs have disappeared (and are yet to return). 

 

Of all those who lost a job or hours due to the pandemic, only 40% said that their retirement was unaffected. For the other 60%, it has led to damaged retirement plans and savings. Of all those who didn’t lose income or work hours, seven out of eight people said their retirement plans were unaffected. 

 

It’s an interesting time for both workers and retirees, and only time will tell how the COVID-19 generation recovers from one of the most prominent historical events in recent times. Despite all the doom and gloom, one thing is for sure, and that’s the fact that optimism is high for Medicare and Social Security. Can reality follow? 

Important Considerations for Moving States for Tax Purposes

The pandemic has changed many aspects of our lives. However, it seems as though the wave of people moving state for tax purposes is a habit that remains. In 2020 alone, 400,000 people in the United States decided to leave their old homes behind and move state for retirement purposes. Thanks to Census Bureau, we can see that the pandemic didn’t stop people from making this retirement decision. 

 

With this in mind, we’ve listed some of the most important considerations when planning your future (and your future home!). Should you move to a tax-friendly state? Let’s take a look! 

 

Income Sources 

 

Primarily, we suggest looking at your income sources and how they will change from now to the future. The reason people often get confused during this research is that each state taxes pension, retirement income, and Social Security benefits differently. While some states tax ALL retirement income, others don’t tax anything at all. Equally, some states offer retirement income credits or don’t tax a certain component of retirement income, such as Social Security. 

 

Before moving, consider how different states tax the sources of income that you’ll rely on when living there. You don’t want to move only to find that your main income sources are taxed more heavily than your previous location. Remember, all states need to earn income somehow. Just because they don’t tax in one area, it doesn’t mean they won’t make up for this loss elsewhere. 

 

One of the themes throughout this guide is going to be research – it might cost time, but it could save lots of money in the long-term. Research is the key to success whether you’re withdrawing from a 401(k) or an IRA, collecting a pension, or preparing to move state. We’ve seen that some states tax all income, and some states tax no income, but your retirement type can also play a role. For instance, some states have special rules for former military workers or teachers. 

 

To avoid all income tax, then there are seven states that allow you this luxury – Wyoming, Texas, Nevada, Alaska, Washington, Florida, and South Dakota. Meanwhile, Tennessee and New Hampshire only tax interest and dividend income. Most other states tax in some capacity, whether it’s some income or all income. 

 

Other Tax Requirements 

 

Initially, people are attracted to these seven states because there’s no income tax – great, this is a free holiday, right? Not exactly, and this is because Texas has higher property taxes than most other states. On the other hand, sales tax is non-existent in Oregon, but the state makes up for it with higher income tax. 

 

With this in mind, you can’t base your decision on income and retirement income tax alone. One wrong move, and you’re paying more tax than ever before because of higher property taxes or another form of tax. 

 

When planning, keep all forms of tax in mind and weigh up the pros and cons to avoid a catastrophe. For example, you should remember the following: 

 

Property tax

Income tax 

Social Security tax 

Sales tax 

Estate tax 

 

To help start your research, know that the following have some of the highest top-income brackets at 8% and above: Oregon, Vermont, District of Columbia, Iowa, Hawaii, California, New York, Minnesota, and New Jersey. Elsewhere, the rate is below 5% in New Mexico, Ohio, Michigan, North Dakota, Colorado, Indiana, Arizona, and others. 

 

Social Security 

 

We’ve alluded to it a couple of times, but does your chosen destination tax Social Security benefits? For example, you’ll pay tax on Social Security in around a dozen different states around the country. You’ll find that most of these either tax at the IRS rate or use AGI (adjusted gross income) calculations to exempt a portion of the benefits. 

 

Your Individual Circumstances  

 

Often, people browse the internet for the ‘right’ decision, but the right decision is the one that considers your circumstances and finances. If you’re planning to live on a fixed income, it might be better to pay income tax rather than high property taxes. Property taxes are highest in Illinois, New Hampshire, and New Jersey. The states with the lowest property tax are generally Alabama, Hawaii, Wyoming, and Louisiana. 

 

It’s normal to want to move to a state with lower taxes, but there’s more to the financial picture than just income tax. If you don’t look at the whole scenario, you could end up with a negligible difference (or even paying more!). You don’t want to save on income tax only to find that your savings are being eaten by sales and property taxes. 

 

When considering a move, you should also look into your potential for tax exemptions, abatement, credit, refund, deferral, and other systems. Do some states offer senior citizens a tax break in certain circumstances? 

 

Let’s not forget, a state with high estate taxes could severely reduce the amount your loved ones receive after you pass. Work with a financial professional to consider your individual needs before making any big decisions. After all the research, it might be that your current location is actually the best one for you financially. 

 

Just because a state doesn’t tax your income doesn’t mean that they don’t make up for this elsewhere! 

Three Benefits of Claiming Social Security at Your FRA

One of the most outstanding features of Social Security is that we can start claiming at a time that suits us. After reaching 62 years of age, we can have an opportunity to boost our income. However, it’s this same flexibility that scares some people…perhaps you fall into this category? 

 

After 70, the potential benefits no longer grow, so this is normally the latest point of claiming. Therefore, this offers a window of eight years in which you can start claiming Social Security benefits.

 

If you didn’t know, your top 35 years of earnings will contribute to your salary history, which, in turn, decide your monthly retirement benefit. Yet, this benefit is only available at FRA – full retirement age. For example, those born between 1943 and 1954 have an FRA of 66. Meanwhile, everybody born after 1960 has an FRA of 67 – those between 1954 and 1960 have an FRA of 66 and either two, four, six, eight, or ten months. 

 

We understand the temptation that comes when you reach 62 – just one small action could increase your income dramatically. Also, there’s an appeal that comes with waiting until 70 years of age. In this guide, we have three benefits of claiming Social Security at your FRA precisely. 

 

It’s Not a Long Wait 

 

Firstly, it’s true that your prospective benefits increase by 8% per year between FRA and 70 years of age. This being said, you might not want to work until 70, and you might not want to wait this long. By claiming at FRA, you don’t reduce your benefits, but you also don’t need to wait too long. 

 

You Won’t Impact Benefits 

 

We mentioned a reduction to benefits, and this is exactly what happens when you start claiming Social Security before your FRA. The reduction is quite a severe one and affects your benefit for each month claimed before your FRA – this is a permanent change. By waiting until your FRA, you’ll enjoy 100% of your scheduled benefits rather than reducing them permanently. 

 

In retirement, you just don’t know how your expenses will fluctuate with healthcare, housing, or even ticking off items in your bucket list. Consequently, it’s best to wait until your FRA and not reduce your benefits. 

 

You’re More Likely to Break Even 

 

Although Social Security often causes confusion (and many headaches too), it’s actually relatively simple. Ultimately, the idea is to pay you an amount of money for the rest of your life regardless of your filing age. If you file before FRA, you still receive payments for life, but the amount is reduced. If you wait until after FRA, you’ll receive fewer payments, but these will be higher. 

 

Over the course of a lifetime, you should receive a similar amount whether you claim early, at your FRA, or late. If you’re currently healthy and you don’t expect to pass away at a young age, one of the best ways to break even is to claim at your FRA (especially if you don’t also expect to live to triple digits!). 

 

What does this mean? Your FRA isn’t an arbitrary number, and it isn’t calculated randomly. Instead, it’s the age at which you’re most likely to break even if you’re healthy and expect to reach the average life expectancy. 

 

Summary 

 

Don’t let the decision of claiming Social Security take over your life – with these three benefits, you see why more workers are choosing to wait until full retirement age to claim Social Security!

Boost Your Retirement Funds with an Unknown Roth IRA Benefit

Who doesn’t want more income in retirement? Workers and near-retirees have been seeking methods to boost retirement income for many decades. Well, some believe they have now found it with a relatively unknown benefit in their Roth IRA. 

 

Let’s face it, choosing a retirement savings strategy has never been a straightforward process. While some people choose to leave tax for another day and save with a Traditional IRA, others want to pay tax now so that they don’t have the burden in retirement. Often, the latter is achieved with a Roth IRA. 

 

For those unaware, the idea is to pay tax early with a Roth IRA so that the IRS doesn’t swoop in during retirement and take a cut of what you’ve worked so hard to build. After gaining funds due to smart investments, many people don’t want to then lose this amount after leaving the world of work. With tax-free withdrawals in retirement, it’s perhaps not surprising that more and more people are choosing to save this way (not to mention the benefit of having no required minimum distributions!). 

 

However, most people are aware of these benefits because they have been the same for many years. What fewer people know about the Roth IRA is the improved Social Security experience that comes with it. 

 

Relationship Between Roth IRA and Social Security 

 

You might be surprised to learn that your Roth IRA and Social Security affect one another. Although Social Security taxes are a federal implementation, they’re not applicable in every case. Your provisional income will actually determine whether or not your Social Security benefits are taxed. 

 

What’s provisional income? Start with your annual income (without Social Security) and then add half of all Social Security benefits. Depending on your provisional income, this determines whether you’re taxed on 50% of all benefits. For single individuals, the bracket is between $25,000 and $34,000. Meanwhile, the bracket for married couples is between $32,000 and $44,000. If your provisional income is between these two amounts, you could be taxed on 50% of benefits. 

 

What if your income is above these limits? Unfortunately, it’s about to get worse because you could get taxed on 85% of all benefits. Many people in retirement rely on Social Security to live, and this tax is unlikely to affect this group. On the other hand, those with multiple income sources are in the spotlight somewhat. 

 

Thankfully, this is where a Roth IRA is effective. Although a lesser-known feature of Roth IRAs, distributions from these accounts aren’t considered in provisional income calculations. Even if you take $100,000 from your Roth IRA in one year, this won’t affect your Social Security income because it isn’t counted towards provisional income. 

 

One of the potential problems you’ll encounter with a Roth IRA is the contribution limit/restriction for high earners. If you earn over $208,000 as a married couple or $140,000 as an individual, you won’t have access to Roth IRA contributions. Some people have found a way around this by contributing to a Traditional IRA and then converting to a Roth IRA later. Although you’ll need to pay tax on this rollover, you enjoy this neat Social Security tax trick (in addition to all the other benefits!). 

 

Conclusion

 

After a lifetime of worrying about tax, the last thing you want is for these worries to continue in retirement. With a Roth IRA, you leave tax behind and instead enjoy a full retirement utilizing the savings made earlier in life! 

Not affiliated with The United States Office of Personnel Management or any government agency