Late Retirement Planning Tips

Image attribution: Bixexe, US CBO. GFDL, CC BY-SA 3.0

According to the above graph the bottom 80 percent of income earners account for approximately 78 percent of the U.S. working population. This can make retirement planning more difficult for lower earning demographic groups and be a contributing factor in late retirement planning. Even so, retirement planning is still possible across income levels when future retirees have a will to exercise retirement planning principles.

Complete article link: http://www.helium.com/items/2292742-how-to-save-for-retirement-in-later-years

How to open an IRA

Opening an Individual Retirement Account is a retirement planning decision. Depending on whether or not your IRA is a traditional, Roth or Simple IRA, opening an IRA can be subject to specific differences in regulation. To open a traditional or Roth IRA for a specific year usually requires 1) an application, 2) IRA disclosure terms, 3) an initial deposit, and 4) funding before the annual April, 15th tax deadline.

Where to find an IRA

IRAs are opened through IRS sanctioned financial institutions or 'custodians' that hold and maintain the account. Depending on the type of IRA, establishing the account may be a direct procedure between you and a financial institution or insurance company or via a third party such as an employer or financial planner. Financial Institutions are often eager to help with setting up an IRA. This can lead to considerable diversity in the products, services and costs associated with owning an IRA.

When choosing to open an IRA, looking for the option with the most financial potential helps optimize your retirement planning. Many financial institutions offer IRAs, however fees, investment products and maintenance can differ significantly between account custodians. For example, an insurance company IRA may have different reporting procedures and fees than a self-directed IRA through a brokerage firm.

How to qualify for an IRA

To qualify for a traditional IRA, which is not the same as a Roth IRA or Simple IRA, you must also meet the IRS requirements that include 1) having earned taxable income for all years that the IRA is invested in, and 2) being under the 70.5 year age limit for traditional IRAs. IRAs can be funded with any amount of value up to the annual contribution limit and within the minimum deposit parameters allowed by the IRA custodian.

In the case of employer funded IRAs such as a Simplified Employee Pension IRA your employer will be required to submit additional documentation such as an IRS Form 5305-Sep to the IRS. Individual Retirement Accounts can be rolled over, but must meet IRS authorized criterion. To find out if your IRA rollover is allowable contacting the IRS directly is a good way to find out. Sometimes an IRA may receive direct deposits of assets such as mutual fund shares held within another account.

The different types of IRAs

The differences between each type of IRA are relevant when determining how to open an IRA. For example, a Roth IRA is contributed to with taxable income and has no opening age limit whereas money placed into a traditional IRA is deductible from taxable income and can only be done so up to age 70.5. For an employer IRA such as a Simple IRA, funds are placed into the IRA before being paid out to an employee. Other variations include when withdrawals are required for traditional IRAs and annual contribution matching in the case of Simple IRAs.

Roth IRAs, unlike Traditional IRAs have income restrictions and cannot be funded if your Adjusted Gross Income is beyond the contribution cap. Married couples are allowed to have individual IRAs making the maximum contribution double per married household provided income limitations are met. Allowable annual payments to IRAs vary according to income, and tax filing status.

Overview: U.S. Savings Bonds

U.S. savings bonds are essentially loans to the Government from whoever is willing to make them. Due to the stability of the U.S. Government, these bonds are considered safe i.e. low risk investments. The receipt for the loan is called a Bond and carries an interest rate paid to the bond holder along with the final face value of the Bond. Depending on the type of bond interest payments vary, and maximum holding periods are between 20-30 years.

Options: If one includes Treasury Inflation Protected Securities, there are four types of U.S. savings bonds according to the U.S. 'Treasury Direct' website http://www.savingsbonds.gov. These bonds can be purchased directly from the U.S. Treasury Department of Public Debt website or through financial institutions such as commercial banks. The U.S Treasury's Bonds are illustrated as follows:

• EE/E: These bonds are fixed rate bonds are fixed rate bonds with interest rates competitive with some money market accounts and less than some Certificates of Deposit. The interest and face value of these bonds are payable upon maturity and/or redemption and the income is state and locally tax free.

• I: Also known as I-Bonds or Inflation Bonds. These bonds offer fixed rates of return competitive with some money market accounts and interest is payable upon redemption.

• HH/H: Pay bi-annual taxable interest through direct deposit at a lower interest rate but are not currently being issued by the U.S. Treasury.

• TIPS: Offer higher yields that vary in accordance with the consumer price index inflation gage. Interest and face value are paid upon redemption and interest is applied bi-annually.

Benefits: Holding savings Bonds almost guarantees the bond holder savings that yield between 1-7% if EE, 3-4% for I 1-4% and 5-7% for TIPS. These benefits can be useful retirement savings tools because all but the HH/H bonds can provide state and local tax free or tax deferred interest income at a higher rate than savings, checking and some money market accounts. Bonds can also be held, bought and sold electronically essentially eliminating the need to go to a bank for bond related activities.

Risks: An opportunity cost presents itself in the holding of bonds. For example, if a U.S. Savings Bond is paying 4.75% interest and a commercial certificate of Deposit is paying 5.5% one is losing 75 basis points in opportunity cost. Additionally, U.S. savings bonds are locked money until the non-redemption period expires, and even though they can be redeemed prior to expiration, there is an interest forfeit penalty associated with early redemption.

Costs: Bond prices vary based on the type of bond issued. I-Bonds and EE/E bonds come in denominations as small as $50 and as large as $10,000 whereas HH/H bonds' smallest face value is $500.00.

Ideas to Consider before Purchasing Bonds:

In terms of getting the most return on money loaned, TIPS offer the best interest rates of the bonds discussed above. However, depending on what one's needs are the HH/H Bonds might be a useful source of liquidity if held in a large volume. Since EE/E bonds and TIPS have tax deferred interest income both these financial instruments are possible considerations for a retirement portfolio.

The time value of money is also an important consideration because the longer one holds a Bond the greater the potential decrease or increase in savings is in relation to alternative financial investments. For example, in reverse of the opportunity cost risk mentioned above, there may also be adversity protection from harsh market conditions, recessions or any other event that might reduce the value of non-Government backed investments. As time progresses the combination of market forces, economic conditions and investment decisions amount to either an opportunity cost or gain depending on the circumstances.

Bonds are generally secure and stable investments that can anchor an otherwise volatile investment portfolio. However, if one invests entirely in HH/H or I bonds, one may forfeit higher returns available through other investment vehicles. Since some bond rates are variable the rate can become more favorable after one has purchased them. In this respect it can be wise to consider past, present and possible future prices of bonds when deciding whether or not to buy them.

Financial planning in your 60s

One's spirit and zest for life may never age, but financial planning in the 60's is often more practically linked to retirement considerations for good reasons. Whether it be having enough money to retire, being financially able to choose new lifestyles or knowing one doesn't have to continue working if necessary are some of the reasons financial planning in the 60's is useful.

Financial strategy during these years ideally edges toward a more conservative allocation of market based retirement assets so as to lower risk as one prepares for retirement. The reason for lowering risk in the 60's is because owning high-risk investments just prior to retirement entails a greater probability of fluctuations in asset worth which can be detrimental to a retirement plan if those assets have swung to low valuations at the time of retirement. There are several considerations one may think about when in the 60's.

• Having enough money to retire
• Financially accounting for a shift or change in lifestyle
• Preparation of expenses that may not exist in earlier years
• Feeling monetarily able to make new decisions and choices

For many, retirement income is generally lower than the working income because social security payments may be calculated as a fractional percentage of the last few years of working income which amounts to a lower income in retirement if no other sources of income exist. For this reason it can be quite prudent to prepare for retirement using a comprehensive and thought out life stage financial plan. Such a plan may include one or more of the following factors.

• Shifting of market based assets into more conservative investments
• Conversion and/or rollover 403B's
• Assessment of social security payments and/or pension plan payments
• Calculation of cost of living after retirement
• Property relocation, purchase and/or sale
• Distribution of annuity and/or retirement savings

Another financial variable one may consider in the 60's is health whether it be supplemental insurance, long term care insurance, prescription plan insurance etc. being ready for changes to one's health whether such changes are imminent or not is a prudent consideration as health related decision could end up saving a lot of money.

If one begins to receive retirement distributions in one's 60's, tax planning is also important as receiving too much taxable income in one year such as through a lump some payment and then reallocating those funds could end up costing one a large amount in taxes.

If one is not financially ready to retire in the 60's strong decisions can be beneficial. For example, in a worst-case scenario where one has no pension, social security, health care etc. serious thought should be given to how one will survive in later years. This may or may not involve purely financial decisions but may include choices that affect one's cost of living so that retirement is possible.

Examples of the aforementioned decisions include downsizing of a mortgage, paying off an automobile, relocating to a city or region with a lower cost of living, and finding a state that has more favorable policies for people nearing or entering retirement. There are often at least a few options available to persons in their '60's even if financial planning has never been a strong suit or concern.

Monetary record keeping and review can also be a good idea in the '60's. This may involve going through retirement plans, accounts, pension plan documents, social security distribution estimates, insurance documentation etc. to make sure 1) what is owed within a pension or government retirement plan is accurately accounted, 2) one has applied for pensions and health benefits at the pre-determined time and 3) that one has reviewed insurance distribution and other retirement plans for most optimal distribution without penalty. If these tasks seem overwhelming, enlisting the assistance of a financial planner, tax advisor and/or insurance agent may be well worth the time. In other words, asking as many questions as possible can help avoid several circumstances such as the following.

• Avoid unforeseen financial scenarios
• Minimize taxation of income, property and assets
• Reduce fees, costs and/or expenses
• File for benefits on time to avoid disqualification
• Properly account for inflationary changes to value of money

Financial circumstances in the 60's can vary quite a lot between person to person and for this reason, properly understanding what one's net worth is and what one's net worth will be at or after retirement are useful. Moreover several factors are generally more important in the 60's than at earlier ages. These factors include 1) net worth 2) income 3) cost of living and 4) financial forecasts of post 60's years.

How long one lives generally increases the total amount of money one will need, and thus making sure one's present and future savings and income will be enough to last a full life is also quite important. This may involve preparing a financial plan before it is actually used. For example, the following questions can be useful in preparing such a plan.

• Will one have to pay rent or a mortgage and for how long?
• What will one's expenses be like in 10 years? 20 years? Or longer
• How much will the cost of living rise due to economic conditions?
• Are insurance costs and premiums going to increase?
• Is enough money allocated to unforeseen expenses or costs?

In review, the 60's are a unique time in one's life where financial planning can be especially important. This is because 1) retirement may be on the horizon 2) changes in income may occur and 3) lifestyle adjustments are often a consideration. Such being the case, specific financial planning tailored to persons in their '60's are prudent whether or not one plans on retiring or not.

It may simply be wise to be prepared for retirement whether or not that is one's choice. Generally, reviewing one's financial records, meeting with financial planners, forecasting lifestyle adjustments and costs and being financially prepared for the future of importance in the 60's. Thus, knowing the financial reasons to adjust, and/or review a financial plan in the 60's is a key element of financial planning in the 60's.