Buying annuities is often a confusing process, and insurance companies and other providers aren’t doing enough to educate the public on how annuities are acquired, or even how they work. This, in turn, makes it, so fewer people are purchasing annuities, which in turn makes it, so there are higher fees from advisors who work in this field, which then makes it so that the value of buying an annuity is much lower, which in turn makes them less of a sound investment. It’s a self-sustaining cycle that needs to be broken.

But all hope is not lost, and here I will be illustrating the various ways that purchasing an annuity can be improved upon.

First, let’s look at the vocabulary surrounding annuities.

A regular, immediate annuity can go by many names: income annuity, single premium immediate annuity, or the acronym SPIA. A deferred income annuity can be a reference to longevity insurance, but not necessarily, and to top it all off, longevity insurance is sometimes called longevity annuity, even though it’s not exactly an annuity itself. And this is just the tip of a large confusing iceberg of terminologies.

Standardization of terms across the industry would do much to clear up the confusion among not only people looking to purchase annuities, but also help those who work in the industry as well. Three things are necessary to know when purchasing an annuity, those being the type of product, the provider, and who else is providing said annuity. Blanket terms would do a lot to streamline this process.

A standardization of illustrations would also be beneficial to those looking to purchase annuities as well.

The housing industry has already done this by providing estimations for loans when people are looking to mortgage a home. In the case of annuities, we would start with the most basic annuity, life insurance, with no protection against inflation. From there, you show the additional things you can add on that are mandatory, and then to the optional features and how they would affect the cost to you as you combine different things in your attempt to craft the perfect plan for you. This would need to be the same illustration across all providers, like with our housing industry example above. This would also give those looking to enroll the ability to compare insurers and pricing.

While several apps are built to aid you with the application process, most of them are developed by the insurers themselves. This is not a good way to get unbiased information. Third-party app development would help with this, and the industry as a whole should be pushing for more of it. And not only would the information be provided in a bias-free manner, but it would all be organized and automated, making it easier for people to access the data immediately.

In addition to that, online portals where you could track your transactions in process would help keep people connected to their investments, as well as making sure they’re aware of anything that needs immediate attention. Filling out a policy doesn’t take a lot of time, but it often takes weeks for that policy to fully kick in. A place to track the progress of this would cut down on consumer frustrations, and make investing a more active process instead of a passive one.

1035 exchanges could also use streamlining. A 1035 exchange is the process of moving money between insurers. Different insurers have different requirements when doing a 1035 exchange, without much reason as to why they are different. A standard set of practices across all insurance companies would make such a process easier. This would help with frustration among people enrolled, and make it easier for insurers to make sure all requirements are fulfilled too.

Simplification of online accounts on the insurance end too would go a long way to helping policyholders manage their annuities. A portal where all contributions are aggregated, and you can view at a glance all your owned and potential policies. Some insurance agencies don’t even offer online services, and at this point history, that is pretty much unacceptable. The banking industry is very up to date with their online services. There’s no reason the insurance industry can’t follow suit.

Most of these changes will help not only people who already own annuities but the companies that provide them, as well as help,  ease new and curious parties into policies. With annuities becoming more and more commonplace, they can easily be the cornerstone of most future retirement plans. As it is, it can be a treacherous system to navigate. Going forward, something should be done to make the industry easier for all sides involved.

The idea behind the recently introduced Secure Act is to protect 401(k) providers from financial liability when they diversify their investments in annuities, in case the annuity provider is either found to be fraudulent or goes out of business for whatever reason. The lack of protection is why 401(k) typically have steered clear of annuities in the past.

While there are plenty of reasons the Secure Act is a positive thing, there are certainly lawmakers and industry leaders out there who don’t think the Act is quite up to snuff. Some believe it could potentially be more intended to protect the insurance industry than it is beneficial to the people enrolled

One such critic of the Secure Act is Knoxville News Sentinel writer, David Moon. His argument is that the Secure Act’s biggest supporters are also some of the biggest receivers of donations from the insurance industry.

As Moon argued, in a recent article, that he sees it as a piece of insurance company legislation jokingly masquerading as something to help the little guy when in reality it does the exact opposite.

On the opposite end is the CEO of NAFA (or the National Association for Fixed Annuities) Chuck DiVencenzo. His argument is that Moon’s ascertains are misguided and ill-informed. While the bill isn’t forcing 401(k) providers to purchase annuities, it does require that employers make sure that once a year their employees are offered a chance at education as to what benefits annuities could provide and how they could help them stay financially secure throughout retirement.

NAFA and other proponents of annuities have spent many years approaching Congress, looking for legislation such as the Secure Act, as well as trying to combat a lot of detractors (such as Moon) who use their platforms to decry annuities and complicated investments that often misrepresent the types of hidden fees you’ll encounter when investing in them.

The problem is a general ignorance from the public as to the various types of annuities offered and the combinations therein. DiVencenzo further elucidates: “They can be complicated, as they have components that mitigate risks through insurance features like a death benefit and lifetime payouts as well as annuities that are registered as investment products.” DiVencenzo later went on to explain how those who are critics of annuities will generalize all annuities as being equal and then highlight the worst features of them all. But DiVencenzo feels that education on annuities is the right path and making it easier to put your money into such investments through a 401(k) can only benefit most retirees. “People in the 50-plus age bracket understand the need for products that guarantee a lifetime income and secure a stable retirement income,” he said.

While there are always places for things to be improved upon, the Secure Act at least is structured to help educate people on the importance of having a guaranteed income beyond the basics like Social Security for the rest of their retirement years.

The month of May saw the passing of a new act in Congress, The Secure Act, which is designed for companies to add newer options for annuities to their 401(k)s along with other retirement plans to help ensure a guaranteed income for enrollees.

While The Secure act sill needs approval from the Senate, it is a good idea to know about the positive and negative aspects of this new Act that could soon be affecting you.

As the Insured Retirement Institute’s Vice President in charge of research, Frank O’Connor, wisely notes “As with any investment, It’s important to understand how it works, what it costs and how it fits into your overall financial plan.”

Annuities can help provide a steady income stream for retirees, and as it currently stands, only 9 percent of companies offer annuities as part of their 401(k) plans. Fear of being held liable if the annuity provider fails is what keeps a lot of companies from pushing annuities with their plans, but The Secure Act aims to eliminate that.

Currently, the average age of a retiree is 84 (for a man) and 86 and a half (for a woman) respectively, with a third of all people living past the age of 90. For those people getting up there in age, a continued income is a primary concern, and outliving your nest egg is certainly not an ideal situation for anyone. That is why annuities are so important. To make sure you have enough money going forward. But it can often get confusing, and there are different hidden costs and options that could trip up less experienced investors. It would make sense to enlist the help of an advisor or fiduciary to help guide you through the red tape.

The payout for your annuity can begin right away, if you choose, or come many years in the future, giving the fund time to mature and get bigger. They can come in variable options, which are often the most expensive, but have the best options, or fixed, which is a simple return to investment ratio set up when the contract is drawn. This is the safest option, and market fluctuations don’t affect the amount of money paid.

To further elaborate, variable annuities are typically a mix of stocks and bonds, meaning they are subject to the ups and downs of the market.

On the other hand, index annuities are a blend of the stocks, but as protection against ruin only a portion of it is based off the how well, or poorly the index is doing, topping off at 60 percent. And indexes are often capped, meaning if a fund is doing particularly well, you only get so much in return before you can no longer collect on it.

Most 401(k) plans are interested in expanding their portfolios with annuities for their enrollees. Research done by the Employee Benefit Research Institute says nearly three-fourths of 401(k) would like to take advantage of this market. It is the hope that The Secure Act can work towards getting more companies to that goal and help secure the financial future of their employees.

Regardless, the idea behind annuities isn’t to make you rich, but rather work as a fraction of a solid retirement income alongside programs like Social Security.

Your financial future is in your own hands, of course, but The Secure Act looks to be a big step in making that journey easier for you and your financial providers.

With experience for 40 years, what he has learned from other people’s retirement experiences as well as his own contributes to his ability to offer helpful lessons. Here are some useful tips on retirement (as told by this retirement pro).

Money is somehow always on your mind. Yes, even if your sources of retirement income are generous and you are very well prepared, money is always on your mind. This could be due to the fact that income resources become finite, and there are no do-overs.

The ability to rebuild savings remains essential in retirement. Your financial future can hardly go without being put on the line with an unexpected yet significant expense from your main retirement savings. This means that outside of your regular retirement plan, you have to have some emergency money put away. Not only that if the emergency fund gets used, but it also needs to get replenished.

The three-legged stool of retirement. The three include; company pension, personal savings, and social security. That has since changed, putting into consideration Americans in the private sector, for them there’s no company pension instead, in its place is a 401(k) plan. The current legs are Social Security, other savings, and employer plan savings. It is safe to have a good amount of savings that go well beyond what you will accumulate in your employer’s plan.

Maintenance of lifestyle. This is not as easy as it looks. Your lifestyle can try to be maintained by a certain level of frugality. In addition, instead of taking the standard advice of aiming to replicate 80% of your salary, it is better to try 100% of your salary.

Inflation. This concern is genuine; there is no escaping inflation everywhere from property taxes, rent, and healthcare spending. It would be advisable to just have an untouched amount of money growing somewhere and only touch it when you need to offset expenses later in retirement.

Transition. Moving from professional life to retirement is anything but easy. In the blink of an eye, a routine that you had for the longest time is now suddenly gone.

“Friends” will go. Your relationship may seem like more than business once you work with people for many years. Let’s face it; once you retire, you lose grasp of the authority and influence you once had. Your real friends will stay, but your value to others will no longer be there, and the same applies to them.

Retirement has and end. Not to pop anyone’s bubble, but retirement does come to an end. During our careers, we look forward to retirement, and when retirement comes knocking, we look forward to waking up. It can be depressing when you receive notices of former co-workers passing. But just keep living each day.

A retirement annuity is capable of providing continuous monthly payments that will last all your life. Retirement experts advise on purchasing retirement annuity from an insurance company if other guaranteed sources of income will not cover your basic expenses.

Potential advantages of a retirement annuity

-Regardless of how long you live or the occurrences in the stock market, you can’t outlive the money.

-Your investment is guaranteed protection against dangers such as losing money to fraud, bad advisors, and bad investment decisions.

-Contrary to what you may expect of low-risk investments, the payments are generally higher.

-You may be able to take more risks and consequently get better returns from the remaining investments.

-Annuities are protected against insurer insolvency by state guaranty associations up to some limits(usually $100000 to $300000 for each owner).

The potential disadvantages:

-For each monthly $500 payment, starting at age 65, you will need around $100000, which is a large amount of money.

-You need to commit the money upfront, and if you have an emergency later, you cant dip into it.

-Depending on the options you choose, after your death, beneficiaries may or may not get the check.

-The payout will be lower if the interests are low when you purchase compared to when they are high.

-It’s essential to select an insurance company that is financially stable to make sure your payments are truly guaranteed.

The Best Type of Annuity for Retirees

Annuities can be in many forms. A single premium immediate annuity (otherwise known as an immediate fixed annuity) is the best type for most retirees. They offer monthly payments that begin shortly after they are bought with a lump sum payment. With this form of an annuity, the payments are fixed and are not affected by the occurrences in the stock market, unlike variable annuities whose value fluctuates depending on the performance of investments that the investor chooses.

The monthly annuity payment

-The major determinants of the monthly payment are the age and gender of the people buying the annuity.

-According to Charles Schwab’s annuity estimator, a single man that invested $100000 IN AN IMMEDIATE annuity could receive $529 a month.

-A woman that is the same age would receive $501. The reduced amount reflects the woman’s longer life expectancy.

-A woman that is the same age would receive $501 (the smaller amount reflects the woman’s longer life expectancy).

-If a couple would buy the annuity together, the monthly payment could be $438 if they chose the ‘joint life’ option which pays out till the second person’s death.

Compared to any single life expectancy, the life expectancy of two people is longer. The life expectancy for males is 84, and for females, it is 86.5. According to the Society of Actuaries, there is a 50% chance that one of them will live past age 92.

If you start the annuity when you are older or if a couple chooses a reduced payment after the first person dies, the monthly payments can be higher, according to the Senior Manager of Retirement and Annuities at TD Ameritrade. If you select any of the add-on guarantees commonly offered, payments may be smaller.

For example, you could opt for ‘joint life with ten years certain.’ You and your partner would receive income during your lives, but until the end of ten years your beneficiaries would receive the remaining income payments. if you both die within the first ten years. A cash refund is another common option. It gives your heirs a lump sum equal to your original investment minus any of the payments you received.

Inflation

Many immediate annuities offer protection against some kind of inflation. Although the checks will go up over time, this option makes the initial payment significantly smaller. According to retirement experts, the inflation adjustment can be helpful if you have expectations of living longer than average. Spending of money drops as people grow older and become less active, although healthcare expenses increase towards the end of one’s life. 

‘Laddering’ annuity purchases is another option for people who wish to protect against inflation or benefit from higher interest rates. This means taking your lump sum and using a part of it to buy an annuity every few years. For example, if you have $300,000, you might buy a $100000 annuity at the beginning of retirement, another at 70, and a third at 75.

Choosing an annuity

Before choosing an annuity, you should get quotes from at least three insurers. This is because payout amounts vary. Also, you may want to buy annuities from more than one company depending on your state guaranty association’s insurance limits. For instance, if your state only protects $100000, you could buy $100000annuities from three different companies to stay within limits.

Even though this insurance is in existence, it is not a substitute for making sure you only buy annuities from those companies that are financially strong. Resolving insolvencies takes time, and for years, your payments could be held up.

You should be sure that the company is well off financially that they can make the payment long term to you. Also, check the insurer’s ratings with one or more rating agencies. An ‘A’ rating indicates the company is strong enough financially to be around and meet your needs.

Here we look at the difference between an annuity and a lump sum. If you have a pension plan or you are among the few who are lucky enough to win the lottery, you will have to decide whether you want your money in an annuity or lump sum.

Annuity vs. Lump Sum

An annuity is a payment that is made in equal intervals. These steady payments can be made annually or monthly. This allows you to collect portions of your money yearly, or monthly over a period of time.

Lump-sum, on the other hand, is a payment that is processed one time, rather than over a period of time. This allows you to collect all your money in one payment.

Pros and cons of annuity and lump sum

 Pros of an Annuity

-Your spouse or a different beneficiary may be able to get this lifetime pension if you pass it down to them

– You will have a whole lifetime income.

Cons of an Annuity

-Your financial stability may be lessened with annuities.

-In death, some annuities may not pay benefits to your beneficiaries or family.

-If you, unfortunately, get sick, the annuities may not be able to cover the medical bills.

-Sadly, you could die before collecting all the money that is owed to you.

Pros of Lump Sum

-Large amounts of money can be pumped into investments earlier.

-Debts can be paid quickly if you have any.

-The remaining amount can be passed as an inheritance.

Cons of Lump Sum

-Due to poor management, the money could end up running out before you die.

It is wise to analyze your situation as well, even after weighing the pros and cons. In this analysis, there are three important factors to consider.

Of the three factors, life expectancy is the most important one. If you have a good reason to believe that you and your spouse will live well beyond life expectancy or if your healthy, the monthly payments might be better for you. This can also work if your spouse is younger than you. On the other hand, the lump sum option could work better for you if your health is poor, and you don’t see yourself living beyond life expectancy. Still, it will be wise to overestimate your life expectancy in case you outlive what you expected, better than running out of cash ten years earlier.

The Federal Employees Compensation Act and disability retirement have some significant differences in them. An employee, who is applying for benefits, must be disabled via a work-related injury and cannot work a regular job. The OPM, however, will accept any disability retirement application regardless of where the injury took place.

Since benefits for federal disability retirement and compensation cannot be paid at the same time, a choice must be made between the two options.

If you receive compensation benefits, your disability retirement benefits are on hold, but if the compensation benefits end or fall below the annuity benefit amount, they can be restarted. The one exception is if you are given a scheduled award (fixed payments for loss of function) that is paid at the same time as the disability benefits.

Retirement benefits are paid under situations in which compensation benefits are not. For example, a former spouse has been awarded by the court for retirement benefits but are not eligible for compensation benefits. A widower or widow who gets married before 55 years old but divorces is eligible for a reinstatement of the retirement benefit (so long as they have not attained a refund of the retirement contributions). A compensation benefit, however, cannot be reinstated.

If you are disabled due to a job-related injury or illness, but die of something else, your survivors are not permitted to attain compensation benefits but rather CSRS survivor benefits.

Single individuals with no dependent children or former spouse eligible for benefits will have no payable monthly survivor annuity benefits. Instead, a lump-sum of the retirement contributions are paid to survivors under the order of precedence noted above.

The key to finding the best financial advisor is to find one that aligns with your goals. For you to find this person, it’s important to get at least three referrals and meet with all of them.

If you have an interest in investment advice, you want to talk with a financial consultant of a brokerage firm or registered investment advisor to develop your portfolio. You may also want an advisor that can offer advice on other things besides investments such as home buying, budgeting, college funding, taxes, insurance, etc.

Perhaps you’re interested in making investments but on your own; there’s no need for the assistance of an investment advisor. However, you could still want one for any of the situations as mentioned earlier. There’s no need to hire an investment-focused advisor if you’re not doing any kind of investments.

If you hire an advisor, you will pay for their services. However, do not sign anything until you inquire about the compensation arrangements to ensure you understand what is in the contract.

Commissions – Brokerage firms typically charge a sales commission on trades made. If you make a limited number of trades, this could be financially beneficial for you.

Fees – Investment advisors and brokers may charge you fees based on the investment assets being managed. Yearly fees can run up to two percent. This means a $500,000 investment could mean a $5,000 to $10,000 maintenance fee. Fee-based accounts are not subjected to trade commissions, which means the broker has no reason to build sales commissions. They do, however, want to grow the account so the management fee increases too.

Other Arrangements – If an advisor won’t manage the money, there’s no reason to have an asset-based fee account. For total financial advice, it may be best to hire an advisor on an hourly fee or yearly retainer.

No matter what your financial needs, be sure to find an advisor that will meet your goals and will be paid, that’s best for your situation.

Children who suffer the loss of one or both parents can receive annuity benefits up to age 18, but children enrolled full-time in higher education are permitted to these benefits until they turn 22 years old.

However, there is yet another situation where these benefits can continue past these cutoffs. If a child has suffered a physical or mental disability before 18, is not married and cannot support themselves, the benefits can continue until they no longer meet the requirements (if ever).

For a disabled child to qualify for this benefit, the OPM must be provided with the following information about the child:

-Residence
-Education
-Employment

The doctor, your child, sees must also provide information documenting the medical condition.

More information can be found in OPM Form RI 25-43 that can be attained online by going to the Forms tab at www.opm.gov or in an agency personnel office. Should the Social Security Administration have awarded the child with benefits based on documentation that he/she cannot support themselves due to the before 18 mental or physical disability, the OPM will need this letter.

Their monthly benefits are similar to the FERS and CSRS programs, and the same for disability-based or standard benefits. Therefore, a child with one living parent married to an employee or retiree will receive a monthly benefit of $537 up to $1,611 a month divided by the number of children.

If both parents are dead, the child receives $644 a month up to $1,932 divided by the number of children. Cost of living adjustments will increase these numbers each year.

Special Note: Children of FERS or CSRS Offset employees/retirees will get a reduced benefit by the amount the SSA pays to them.

Beginning in 2003, Medicare Part D, the section of Medicare specifically designed to help supplement the cost of self-administered prescriptions, is a complicated system. You enroll in it through private insurers by adding it onto your existing Medicare plan.

The two sections of Medicare Part D work in tandem to help you pay for your prescriptions up to 3,820 dollars: standard coverage, and “catastrophic coverage.” This is the amount that Medicare pays for after you reach a threshold in out of pocket expenses. That amount, as part of Part D’s original design, is 5,100 dollars.

The difference between those two amounts is Medicare Part D’s fatal flaw, what people refer to is the “donut hole,” wherein there is a coverage gap that you would be completely responsible for financially. That would be 1,280 dollars in out of pocket expenses, even with Medicare Part D.

But there might be a way around this, and it involves the Affordable Care Act, or what is commonly referred to as Obamacare.

Over the last nine years, the ACA has slowly gotten rid of that insurance gap, first by limiting what companies that manufacture these prescription drugs can charge, making the part you’d be responsible for much lower. As of last year, that was 44 percent on generic drugs, and 35 percent on the brand names. And as of this year, that gap is now totally gone. Now, you’d be liable for only 25 percent, as a copay, until the catastrophic coverage begins.

With brand name drugs, you are responsible for all costs up until you hit 415 dollars. That is the deductible, and once reached Medicare kicks. Then you are in the 25 percent copay range on brand name drugs. Then, as per the coverage outlined, a discount of 70 percent will be applied to the drug via the company that makes it, with your insurance then covering 5 percent of that amount. When you hit the catastrophic coverage amount of 5100 dollars, your copay is then reduced to only 5 percent yourself, with your insurance paying 15 percent, and Medicare covering the other 80 percent.

The generic drug plan functions much the same way as the brand name drug plan, except during the gap. Currently, you’ll be responsible for 37 percent of the cost, instead of 25 percent. The insurer pays nothing, and the drug companies reduce their cost by 63 percent, with that amount not part of the 5,100 dollar limit that would count as catastrophic coverage. This will change in 2020 when generic drugs may fall in line with the brand name drug plan, as outlined in the previous paragraph.

But still, even with the bulk of the costs of drugs being taken on by Medicare Part D, people still often struggle to keep up with their drug prices.

With the 37 percent deductible on the generic drug plan, you could still end up spending several thousand dollars annually, especially since the out of pocket on generic drugs do not count towards the catastrophic coverage limit. But even then, once the catastrophic coverage limit is met, people enrolled in Medicare are still liable for 5 percent of costs indefinitely, and that could really add up depending on the drugs needed. Added to this, the repeated attack on the Affordable Care Act from Senators and other lawmakers. Were the Affordable Care Act be eliminated, that gap in coverage would open up like it was prior to the ACA’s implementation.

So while Medicare can certainly help you the drugs you need at an affordable rate, it is not a totally clean solution, and the parameters of it are constantly shifting. Your best bet is to check regularly to keep up with any changes that new laws may have made to your coverage.

Most financial planners agree the best and quickest way to save some money is to pay yourself first. But what does that mean?

Essentially, it is about taking out the money you’re going to put money into your savings before you work out your budget for the pay period. You can put that money into investment accounts like IRAs, or a simple savings account, whatever you prefer, but the important part is not ever touching that money yourself, essentially paying yourself “in the future” by not using that money for bills or purchases you have lined up.

This is also called reverse budgeting, as your savings is the primary budget concern, with your bills and everything else paid for with what you have leftover. This is counter to what most people do, which is take care of their current responsibilities first, and saving what is left over. But paying yourself first flips that, thereby meaning you are saving the same amount each paycheck, setting you up for a solid future you can plan for.

Paying yourself first is also instrumental for other savings habits you may want to learn in the future too. You learn discipline, and budgeting, as you are working with a finite amount of money to make ends meet after sticking some away in savings.

Paying yourself first also doesn’t have to be for retirement, and can be used to help establish an emergency fund instead. This can help get rid of some of the stress of not knowing how you’re going to handle those unexpected bills. The discipline is the same either way.

And if you are putting that money away into an account specifically designed for retirement, like a 401(k) you will be set up to have a successful retirement when the time comes. Paying yourself first means you are contributing to your future regardless of the market around you. Consistency is key when paying yourself first.

Paying yourself first will change the way you look at your money too, as it will force you to budget smarter, as well as give you confidence in the future, as you are now saving instead of constantly struggling and never having anything to show for it.

But how does one begin this process? It might not be as simple as you might think, but still, it isn’t that complicated and can be boiled down to two basic steps.

Firstly, you should be aware of what your weekly, monthly, and yearly expenses are. You’ll know the bare minimum you’ll need to keep surviving, and therefore know how much you can start paying yourself with. If you don’t have enough money to pay yourself, you can use this time to figure out how to consolidate and cut down on certain expenses.

Next, you have to figure out how to have the money you’ll be paying yourself with can get taken automatically from your paycheck, so you never have the opportunity to touch it. You can talk to your company’s payroll department, or even your bank when figuring out the best and easiest way to accomplish this each payday.

You’ll see, with a little planning, you can start paying yourself today. Your future self with thank you.

Firefighters, police officers, and air traffic controllers are among the few who fall into what is know as the “special category” when it comes time to retirement.

The minimum age of retirement for both police officers and firefighters is 50 years, but only if you have 20 years of job experience in that field. This is on a voluntary basis, and you won’t be forced into retirement from these industries until the age of 57.

Retirement benefits work a little different for people who fall into the special category when it comes to federal retirement, you’ll be able to collect more through your employer as well as more through the system, and the traditional formulas used to figure out what you’ll be able to collect is not the same as what other federal workers use. To figure out the amount you can collect with special category retirement, you take your highest 3 years of pay and average them out, then take 2.5 percent of that amount and times it by however many years you put into the service, traditionally, for a career, that would be 20 years or more. From there you take an additional 2 percent of that 3 year average as well. You will not be penalized for retiring earlier than allowed under typical CSRS conditions.

Now, there is also the FERS annuity you will be able to collect, and that one is figure by taking the highest earning 3 year average, taking 1.7 percent of that, and times it again by your years of service up to 20, with 1 percent per year for every year over 20.

For your retirement under FERS and CSRS you will afforded a yearly adjustment for cost of living, and will most likely be eligible for the Special Retirement Supplement, which is a check that comes for the qualifying federal employees who retire but aren’t at the age that they’ll be able to start collecting Social Security. The Special Retirement Supplement is there to replace that amount.

For air traffic controllers, you have an additional set of circumstances surrounding your profession and retirement from it. Generally, you must retire from this line of work on the last day of your birthday month when you turn 56 years old.

25 years of service it takes for an air traffic control to qualify for special retirement, or if you have 20 years behind you, you can opt to retire at age 50. The main difference that air traffic controllers get extra that other CSRS retiring workers don’t has to do with their annuity, which is guaranteed to be higher than half of their highest 3 years of average pay. They also are exempt from any age based reductions when it comes to annuities.

And as for FERS with air traffic controllers, they have their benefits figured out in the say way as the police officers and firefighters that we’ve talked about a few paragraphs back: take the average of your highest three years of pay, figure out 1.7 percent of that, and then multiply it by the years of service up to 20, with an additional 1 percent for any years worked over that. And like the other two professions listed above, air traffic controllers will also be exempt from any annuity reductions based off of the age they retire at.

It is widely accepted knowledge that to have a successful retirement you should have a minimum of 1 million dollars stashed away. While that may seem like a daunting goal, you can begin the process no matter when you were born, or where you are on your journey to retirement.

There are certain factors that are generation applicable, of course. Baby boomers have a higher chance of having a pension than, say, a millennial, while Gen Xers are just about the right age to be at the top apex of their earning potential right now.

Here, we will look at some generation-specific tips and tricks to help you achieve your retirement goals.

First, let’s consider the baby boomer generation, which just now is rounding that retirement age. Even with some of them saving their whole lives and cashing in on their pensions, 63 percent still feel that their money may run out before their lives will.

Some helpful tips for boomers include how and when to collect Social Security, for which you are eligible when you turn 62. Social Security is meant to replace a certain portion of your income (not all of it) and delaying your collecting until the maximum age you can be, age 70, can really do a lot to beef up the amount each check will be if it’s all possible, delay collecting Social Security for as long as you can.

Another tip for boomers involves housing. Look for a cost-effective place to relocate yourself, if the taxes or mortgage on your place is too high. There are lots of states that offer tax incentives for retired residents, not to mention other countries where the US dollar might stretch a bit further than it does here at home.

One might also want to consider part-time work in their retirement. This can help mitigate unforeseen costs in areas like home repairs or healthcare. You might even find part-time work with full health coverage, which can end up saving you quite a bit.

And finally, boomers with stocks and bonds in the market may want to delay cashing those in, as life expectancy increases, so do the years you have to manage and grow your assets. Take advantage of it while you still can.

Generation X has a different set of circumstances they are currently dealing with, including figuring out how to afford to help re-home their aging parents, or how to send their kids to college. A lot of times, these costs may come at the expense of retirement savings. So what can one do?

Figuring out a budget is instrumental for Gen Xers when saving for the future. Taking care of their own debts, while planning for substantial future costs can help you manage your money much easier, giving you some extra cash to stash away for your own old age.

You should also be wary of borrowing money to help send your kids to school. Saving for their education is one thing, but once you start borrowing against your own equity for their benefit, it could spell trouble for your own financial future. Remember, there are no loans for your retirement savings.

If your job offers some kind of retirement plan, be it a 401(k) or pension, you should be contributing towards it to the best of your ability. Companies often have matchback programs with the incoming funds, so the more you put in, the more you’ll get back.

Millennials are in for the longest haul and are often a bit wary of investing, having lived through the recession at the onset of their working careers. While being informed and smart when investing is good, being too cautious can be a detriment and cause your savings to stagnate, or possibly even shrink.

Millennials should start saving as soon as they can. If you are cashing in your retirement fund at the age of 70, and the return rate is the standard 7 percent, figure this: saving $5000 dollars a year at age 45 will net you $338,000 dollars, whereas if you began saving that same amount at age 35 you’d have 740,000 dollars, nearly doubling it. And if you began at age 25, that amount would be 1.5 million dollars. The earlier you start saving, the greater the difference that the return rate can make.

If your job offers a 401(k), it may be wise consider it. And when you change jobs, see if you can keep the same IRA account that you had at your last one, which would make things easier for you and help you avoid any fees for transferring that money or withdrawing it.

And it is essential not to wait until your debts are all paid off to start saving. You just need to figure out a realistic budget and then keep with it. Whatever you can, put it into retirement. Your future self will thank you later.

Tax code is something that is continuously changing, and many taxpayers are often not comfortable planning for their financial future with a system that is always in flux. In 2017 new legislation was enacted that changed the standard deduction in many fields, as well as the bracketing for tax groups, and added additional credits and deductions too.

We asked several financial planners their best tax tips to help keep you as prepared as you can become the next tax season. Their advice is as follows:

1. Group Deductions

Hospital and drug bills make sense to be grouped, along with other deductible things like charity. This is due to the 2017 Tax Cuts and Jobs Act, which raised the standard deduction amount, which can make itemizing your deductions not as necessary as it was in the past. If a couple over 50 makes over $125,000 a year, their tax bracket is 24 percent, and they are given a standard deduction of $24,400. Taking in all their receipts, they believe they would be able to deduct 23,250 dollars, below the standard rate. Now, let’s say, of that amount, their donations to charity equaled 6000 dollars. It would make sense for them not to count those donations towards their 2019 taxes, as they are already below the standard deduction rate, and if they put off their charity until 2020, they can potentially itemize that then, as it might help exceed the standard deduction rate then.

2. Roth Retirement, Yes or No?

Roths and 401(k)s are standard for many places of employment. The money in your Roth account can accrue tax-free, but the contribution is taxed before you put it into the account. The tax breaks recently enacted are in effect through 2025, with higher rates kicking in after that date. In order to maximize your savings, it would make sense to put your money into an IRA or Roth now, paying the taxes on the money while the rate is still lower.

3. Save More with a Health Savings Account

Health Savings Accounts are charged the 7.65 percent payroll tax as you’d get on other accounts. Additionally, they are exempt from income tax, and can also possibly be deductible if the money is spent on certain qualified costs. Adding to that, some Health Savings Accounts also allow idle funds to be reinvested, making it a tax smart way to grow your money.

4. Start a Savings Account to Pay for Other Taxes

There are certain tax breaks specifically tailored for people to use towards their savings accounts, mostly through certain qualified plans through your job, though some personal plans also can qualify too. If you can contribute to your 401(k) or IRA at least 5000 dollars annually, that amount should not count towards your taxable income; the taxes due will be deferred until you start taking the money out of that account.

5. Charity

You can start an account specifically dedicated to tax-friendly charities with Advised Donor Funds, which are approved already by the IRS and through them you can get deductions on your taxes for the full value of the securities in the fund you’ve invested in. This helps you avoid paying taxes on accrued interest and gains and allows you to double down by getting an additional deduction once you donate the money in the account.

6. Open a Business Account and Keep Track of Everything

For those who are self-employed, opening an account just for what you make through your work might be more beneficial than mixing your profits with your personal account. It makes filing for taxes much more comfortable, as you won’t have to comb through all your transactions to get the ones you need for your business while making it easier to find additional transactions that could be eligible for possible deductions. It also keeps the IRS out of your personal account should you ever get audited.

7. Capital Gains Tax

When you are moving stocks at a gain, it is liable for taxes across the board. This tax percentage can vary depending on how long you’ve had the stock and how long it took to accrue a profit, up to a possible 37 percent for Federal taxes alone! While this might not be avoidable, knowing ahead of time the tax laws surrounding capital gains will help you plan for tax season better, and help you plan your wealth better too.

Savings bonds have a reputation for being a boring investment, perhaps because they are traditionally the safe way to go. But currently, savings bonds are looking extra enticing, and there are a few surprising reasons why that is.

Up until very recently, the international bond market was in a downswing, dropping 62 points on a ten year U.S. Treasury. And this downturn affected everywhere, including the Japanese economy, at a negative .17 percent, and the German economy too, at a negative .36 percent, respectively. While not what you’d want out of an investment, these rates have been holding steady since at least last year.

Currently, here is what you can expect out of the terms of your bonds:

Series EE Bonds are set at a .1 percent inflexible fixed rate. While that is not a good return, what you can expect out of EE Bonds are a guaranteed investment, which should double if held steady over 20 years. That gets the total yield to 3.5 percent on your initial investment.

Series I Bonds are a combination of a variable rate adjusted for inflation, which is 1.4 percent right now and revised each year, while also paying out a fixed interest rate of .5 percent. So if you bought a bond today, the rate you’d be receiving is 1.9 percent total, set for the next 30 years or until you redeem the bond, whichever comes first. The variable rate is typically adjusted every six months to compensate for any inflation on the dollar.

I Bonds are guaranteed to have at least a .5 percent return. You can cash in your I Bond after a year by paying a small early penalty. If you cash it in after five years, you do not have to pay that penalty. They are not subject to the market when it comes to that .5 percent, and will not lose value due to deflation.

EE Bonds, on the other hand, has to be held for 20 years to get the full 3.5 percent interest rate. Otherwise, it reverts to the yearly .1 percent that had been accruing over that time.

Both bonds can be tax-deferred, and both bonds have a limit of 10,000 dollars per year, meaning you can’t buy any more than that annually.

So which of these is the better investment, you’re wondering?

Since they offer the same terms, it can be confusing which bond would be the best bet.

Charting the I Bond for ten years, wherein the market has dipped and not completely recovered, you can see that when the yields dropped below the .5 percent return rate, the I Bond became the better investment, as that money is guaranteed at that percentage at a minimum. You add that with the protection you get against the bond bottoming out, and the tax-deferred status of it, and you have a great investment that will eventually show results.

That’s not to count EE Bonds out though, as they are the most solid investment you could have. They are immovable when it comes to their return, so long as you can put off cashing your bonds in for the 20 year period before they’ve had a chance to fully mature. At this point, the bond effectively doubles, and you will see a return of 3.5 percent on that investment. EE Bonds too have a deferral on the taxes. You invest, double your money, and that’s basically it. Couldn’t be simpler. The only disadvantage for an EE Bond is the 20 year period you’d have to wait, and if you’re already past retirement, 65 years or older, this might not be the best option for you.

The fact of the matter is, both investments are safe and solid, and you couldn’t go wrong with either. The I Bond ekes out slightly ahead, as the return on it is much faster, especially in a market upswing. And I Bonds tend to be the investment of choice for people looking to preserve their money in a tax-deferred and inflation-protected account.

These are typically the types of investments anyone can do, as most brokers and financial advisors don’t deal with bonds because they offer no fees for them, nor are they particularly challenging when it comes to their acquisition. You can see a return in just a few short years by investing in bonds today.

Making your money last after retirement can be tricky. There are lots of programs in place to help with this, of course: Social Security should make up for about 40 percent of your annual income, but what about the rest? You are past your working years, and you shouldn’t have to live in poverty. But luckily, with some planning, you won’t have to. Here are a few tips you should be aware of that can help make sure your money lasts the rest of your life.

1. Spending Less

Most people who are transitioning into retirement will notice their monthly expenditures going down. To throw a few numbers your way: J.P. Morgan found that a couple in their 70’s spend an average of 53,000 dollars a year, as opposed to a couple in their 50’s spending 84,000 dollars annually.

This reduction comes naturally through a few different avenues, but things like housing costs, commuting costs, travel, and food expenses all tend to go down the older you get. While healthcare costs might increase in old age, it rarely surpasses the amount you’re now saving in other areas of your life.

2. Budget

Of course, counting on your expenditures going down is not going to make a difference unless you have a plan of attack in the form of a good, substantial budget. It is especially important to take into account things like inflation and interest rates when figuring out a budget that can work within your means.

If inflation rises at a rate of 3 percent annually, then within 24 years, a retired person’s expenses will nearly be twice as much. If you retire at 65, that means if you live to be 89, a feasible age, then you’ll be paying double for everything within that time. Without a strong income, this could spell trouble.

Traditional knowledge would dictate that the best way to budget for this is to only tap into about 4 percent of your savings each year without exception. This may or may not work, as flexibility and continued investments might make for a more wise withdrawal strategy.

3. Clear Goals

Having clear goals is always a smart move when discussing finance. But developing those goals, especially realistic ones, takes a bit of planning, and it might make sense to divide them up into smaller, more obtainable goals to start with. Paying off loans and mortgages should be a priority, but other goals such as desired holiday trips you want to take, as well as planning for healthcare costs should be factored in. Then you can weigh the risks and rewards of working towards each goal in more bite-sized chunks.

Short term goals like vacations should be put into high-interest markets so that the return comes much quicker. This markets are often riskier and not a wise strategy for long term savings. For the longer goals you have, certain stocks or IRAs might be the way to go that can help mitigate any fluctuations in the overall market.

4. Retire At The Right Time

This is often overlooked, but when you retire can have lasting implications on your future. While investing to help deal with inflation and other hidden retirement costs is the right strategy, if the market had taken a downturn right before you retired, this might not be the best time to put your eggs in that basket. If you can put off retiring until the market takes another upturn, then it might be a wise decision.

While predicting the stock market ups and downs might be a bit of a challenge, you can still do a few things to protect yourself, and each of the tips mentioned before this one may be an excellent place to start.

Traveling is a pleasure that many retired federal employees look to indulge in as they transition out of their working years. There are lots of hot spots for travel, such as Florida and other island destinations, but for the adventurous retiree, there are plenty of good deals on travel to other destinations.

Take a Cruise on a River in Europe

Taking a river cruise might seem like an expensive treat, but they are typically all-inclusive, so additional expenditures are not always applicable, sometimes even including the cost of flying. You go to Amsterdam and Budapest and other stops on the Danube or visit other smaller European cities that line rivers like the Rhine. And then other places are slightly off the beaten path, like cruises that go around Belgium, Holland, and even Russia.

Look into planning your trip in the off-season (early Spring and late Fall), and you can save some money, as well as not have your trip be as crowded with other tourists. And if you’re open to a last-minute deal, prices can drop as they try to fill up all the rooms in the boats before they cast off for the next week or so.

You Don’t Need a Passport to Visit Hawaii

Hawaii, while a part of the United States, isn’t the most accessible place in the world, located in the middle of the Pacific Ocean. And when people do tend to visit Hawaii, they normally stick to the big island, where the capital is. But in order to take advantage of this beautiful tropical place, you should look into cruises which stop by different locations across all the islands of the state. This could save you money in the long run, as once again, most cruises are all-inclusive, and Hawaii itself is known for its high prices on dining and lodging.

Head North to Alaska

For nature-loving retirees, you can’t do much better than Alaska. The summer season in Alaska is short, being so far up north, but if you can get in on the early part of the season, you can save a few bucks. It might be cooler than it is later in the year, but that will only help cut down on the other tourists.

And, of course, an all-expenses-paid cruise around Alaska is also one of the best and most cost-effective ways of seeing the sights. You could depart from Seattle, head up to Anchorage, and take in the city for a few days, before returning home. There are lots of national parks and other things to see, as well as plenty of whale-watching when you’re on the water.

Cruises are inexpensive in Alaska compared to some more tropical locales. And if you have a flexible schedule, some cruises go from Alaska to Los Angeles or even Hawaii. These are longer than your typical cruises and offer you an excellent chance to socialize with your fellow passengers.

Visit the Wondrous Machu Picchu

Located in Peru, Machu Picchu is one of the oldest cities in the world.

There are plenty of ways to visit this city, from the more active walking tours to the ones that come by bus or by train. There are two seasons in Machu Picchu, the dry season and the rainy season. If you don’t mind getting a little wet, you could certainly save a few bucks booking your trip between December through March.

And make sure you visit a few other places in Peru while you’re there. For most people, this is a once in a lifetime trip, and you want to maximize that. Some tours go through the nearby valleys and cities before hitting up Machu Picchu and then rounding out with a visit to the capital city of Lima. Couple that with a winter trip, and you’ll undoubtedly be getting the most bang for your buck with your Peruvian vacation.

Have a Glass of Wine

While Napa Valley might be the most well known, there is a myriad of excellent vineyards and wining communities located all across the United States, and beyond. If your a big wine drinker, retirement is a great time to indulge in this boozy hobby.

Wine can be costly, and so can the areas to cater to wine enthusiasts, not to mention a lot of the small town hotels tend to sell out in some of the more rural wine communities. To save money and aggravation, again focus on the off season, when they’ll be fewer people there.

Or consider again an all-inclusive cruise, which is offered in a lot of places all over the world. That way, all your food, drink, and lodging is already paid for, and you can focus on what vacations are about: relaxing!

All Over Italy

Venice and Rome have always been popular tourist destinations, but Italy has much more to offer than just those two cities. There’s the Leaning Tower of Pisa, Mt. Etna, and the Amalfi Coast. The weather is nice most of the year, but there is an off-season too that could be more friendly to your budget.

The best way to see most of Italy is with a cruise, of course, and those are cheapest in November through the end of March. You can even find a cruise that sets sail around the Mediterranean Sea and visits a few other countries along with Italy within the same trip.

See The World

Or, if you can’t decide, a cruise around the entire world might be the way to go. There are some out there that last for over 100 days and travel all over the planet, visiting many countries and ports in one long trip.

These kinds of trips are ideal for retired people who don’t have to take off work to spend several months globetrotting. And while they are more expensive than a few days cruise around Alaska or Hawaii, they are not always as expensive as you might assume. If you don’t have a residency somewhere else, like an adult community, this cruise would cost you about the same price.

While the entire 100-day cruise might run you over $15k, there are many that allow you to only come aboard for certain segments of the trip, allowing you to see your most desired ports. These can last from 20 days up to almost two months but are a fraction of the price. These long cruises are ideal for people looking to bond with their fellow passengers, as you’ll probably be spending a lot of time together at sea, taking in the events and activities the cruise ship offers.

If you have stopped working before the minimum retirement age of 62, which is when you are allowed to start drawing from Social Security, there is a special FERS supplement that can help make up the difference.

There are a few provisions that need to be met before you can collect on this though. You must have worked 30 years before you reach the minimum retirement age, or hit 20 years of service at age 60.

But how is this supplement calculated? The standard formula looks like this:

Your Social Security Benefits x [25 Years of Service Under FERS / 40] = Your Special Retirement Supplement

You take what your Social Security benefits are going to be at age 62, and then you multiply that by the years you’ve put into working under FERS, then divide that number by forty. Keep in mind this is just a projection and does not take into account any cost of living adjustments you might get between now and then.

So let’s say you’ve worked in federal service for 30 years and now you’re retiring at the age of 56. Calculating your potential Social Security benefits, you see you’d collect $1200 per month. Plugging those numbers into the equation:

1200 x [30 / 40] = 750

That is, 750 dollars a month you are allowed to collect from FERS. This adds up to $9000 supplemental pay per year under FERS.

Unfortunately, there are a few other things that can get in the way of your collecting your Special Retirement Supplement, and one of them is the MRA +10 Provision. With MRA +10 Provision, you have to retire normally to collect any benefits.

Financial advisors should be available to help walk you through some of these complicated areas, especially with figuring out the right time to retire within the benefits you are eligible for.

And it should be noted that you don’t have to collect Social Security at age 62, and in fact, you can raise the amount you collect annually just by delaying your first withdrawal as long as possible.

With the Special Retirement Supplement, if you make more than a predetermined amount after you retire, it can reduce what you collect. With Social Security, you can simply collect once you passed the age limit. When it comes to your SRS, for every two dollars you make past the limit, you will have one dollar withheld from what you can collect. The limit you could make in 2019 was $17,640 before money starts being reduced. This only counts for reported earned money of course, as what you’d claim on your taxes, and things like annuities and other sort of benefit withdrawals won’t count against your earnings test.

If you’re the type of person, who likes to do things yourself, beware: tax law is not the most forgiving institution in the world, and if you make a mistake, it could be dire. While professionals can help you prepare your portfolio, or help mitigate the damage done if you mess up your portfolio if you’re planning to do it yourself, you have to be careful, or else things might not turn out well.

Let’s say you own an IRA, and you want to covert $20,000 of it into a Roth account. First, you go online and punch in the numbers. But, let’s say you accidentally type in a few extra zeros or miss a decimal point somewhere, and now you’re requesting a 2 million dollar conversion. Because of the Tax Cuts and Jobs Act, once this transaction goes through, there is no reversing it.

If an advisor made this error, it could be fixable, as it was not your fault. If you sign off on an error while preparing yourself, that’s on you though. You could appeal to the IRS, but they are notoriously fickle about what rules they bend if a mistake has been made, and even then, it could be costly (in both time and money) to try and correct it.

If you have talked to a financial advisor, they would’ve told you this: don’t do Roth conversions by yourself, they can not be redone if an error is made.

Or let me give you another example:

Let’s say you are enrolled in the Thrift Savings Plan. You want to take some of that money and reinvest it in an IRA. You do it yourself, paperwork and all, and in the process, you make a mistake on the forms and have failed to try and correct it with the deciding institutions.

Let’s say the box you check on those forms was for full distribution instead of just moving the money directly into that IRA. You will be required to pay taxes on that money at that time, whether you intended to distribute it or not. And it is often a losing court battle, as the TSP is just doing what you requested them to do, in writing.

If this egregious mistake was made, you should seek help from a professional immediately. Doing anything else yourself could result in more errors and more penalties. An advisor would know to take that money that was sent to you and stick it immediately into your IRA, making up for the money you had to pay in taxes by moving around other funds and investments you may have.

If you work with professionals financial advisors, you wouldn’t be liable for any of these mistakes. The best course of action is to use professionals from the get-go and avoid any headaches you may suffer as a result of ignorance or negligence.