Atlantic Capital Management

Atlantic Capital Management (92)

Wednesday, 16 August 2017 14:46

Will You Really Be Able to Work Longer?

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You may assume you will. That assumption could be a retirement planning risk.

How long do you think you will work? Are you one of those baby boomers (or Gen Xers) who believes he or she can work past 65?

Some pre-retirees are basing their entire retirement transition on that belief, and that could be financially perilous.

In a new survey on retirement age, the gap between perception and reality stands out. The Employee Benefit Research Institute (EBRI) recently published its 2017 Retirement Confidence Survey, and the big takeaway from all the data is that most American workers (75%) believe they will be on the job at or after age 65. That belief conflicts with fact, for only 23% of retired workers EBRI polled this year said that they had stayed on the job until they were 65 or older.1

So, what are today’s pre-retirees to believe? Will they upend all their assumptions about retiring? Will working until 70 become the new normal? Or will their retirement transitions happen as many do today, arriving earlier and more abruptly than anticipated?

Perhaps this generation can work longer. AARP, for one, predicts that nearly a quarter of Americans 70-74 years old will be working in 2022, including nearly 40% of women that age by 2024. That would still leave many Americans retiring in their sixties – and more to the point, working until 70 is not a retirement plan.2 

What if you retire at 63, two years before you can enroll in Medicare? EBRI’s statistics indicate that this predicament has been common. You can pay for up to 18 months of COBRA (which is not cheap), tap a Health Savings Account (if you have one), or take advantage of your spouse’s employer-sponsored health coverage (if your spouse still works and has some). Beyond those options, you could either pay (greatly) for private health insurance or go uninsured.3  

What if you end up claiming Social Security earlier than planned? Given an average lifespan (i.e., you live into your eighties), that may not be so bad – you will get smaller monthly Social Security payments if you claim at 63 rather than at the Full Retirement Age (FRA) of 67, but the total amount of retirement benefits you receive over your lifetime should be about the same. Retiring and claiming Social Security well before Full Retirement Age (FRA), however, may mean a drastic revision of your retirement income strategy, if not your whole retirement plan.4

What will happen to your retirement assets if you leave work early? Will you still be able to contribute to your IRA(s) or pay the premiums on a cash value life insurance policy? Could you postpone withdrawals from your retirement accounts for months or years? How long can you count on this bull market?

If you are a baby boomer or Gen Xer, hopefully you have planned or built wealth to such a degree that the shock of an early retirement will not derail your retirement plan. It is realistic to recognize that it could.

If you want to work past 65, one key may be keeping your job skills current. The Transamerica Center for Retirement Studies reports that only about 40% of baby boomers are doing that.1

Lastly, if you switch jobs, you may improve your odds to work longer. A new study from the Center for Retirement Research at Boston College notes that 55% of college-educated workers who voluntarily changed jobs in their fifties were still working at age 65, compared with only 45% of workers who stayed at the same employer.1 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

       

Citations.

1 - cnbc.com/2017/04/21/the-dangers-of-planning-on-working-longer.html [4/21/17]

2 - aarp.org/politics-society/history/info-2016/baby-boomers-turning-70.html [1/16]

3 - forbes.com/sites/financialfinesse/2017/02/09/how-to-cover-medical-expenses-if-you-retire-before-65/ [2/9/17]

4 - fool.com/retirement/2017/03/04/the-one-social-security-mistake-you-dont-want-to-m.aspx [3/4/17]

Wednesday, 02 August 2017 20:34

Saving More Money, Now & Later

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You could save today & tomorrow, often without that penny-pinching feeling.

Directly & indirectly, you might be able to save more per month than you think. Hidden paths to greater savings can be found at home and at work, and their potential might surprise you.

Little everyday things may be costing you dollars you could keep. Simply paying cash instead of using a credit card could save you four figures annually. An average U.S. household carries $9,000 in revolving debt; as credit cards currently have a 13% average annual interest rate, that average household pays more than $1,000 in finance charges a year.1

The typical bank customer makes four $60 withdrawals from ATMs a month – given that two or three are probably away from the host bank, that means $5-12 a month lost to ATM fees, or about $60-100 a year. A common household gets about 15 hard-copy bills a month and spends roughly $80 a year on stamps to mail them – why not pay bills online? Automating payments also rescues you from late fees.1

A household that runs full loads in washing machines and dishwashers, washes cars primarily with water from a bucket, and turns off the tap while shaving or brushing teeth may save $100 (or more) in annual water costs.1

Then, there are the big things you could do. If you are saving and investing for the future in a regular, taxable brokerage account, that account has a drawback: you must pay taxes on your investment income in the year it is received. So, you are really losing X% of your return to the tax man (the percentage will reflect your income tax rate).2

In traditional IRAs and many workplace retirement plans, you save for retirement using pre-tax dollars. None of the dollars you invest in those plans count in your taxable income, and the invested assets can grow and compound in the account without being taxed. This year and in years to follow, this means significant tax savings for you. The earnings of these accounts are only taxed when withdrawn.2,3

How would you like to save hundreds of dollars per month in retirement? By saving and investing for retirement using a Roth IRA, that is essentially the potential you give yourself. Roth IRAs are the inverse of traditional IRAs: the dollars you direct into them are not tax deductible, but the withdrawals are tax free in retirement (assuming you abide by I.R.S. rules). Imagine being able to receive retirement income for 20 or 30 years without paying a penny of federal income taxes on it in the years you receive it. Now imagine how sizable that income stream might be after decades of compounding and equity investment for that IRA.4

Many of us can find more money to save, today & tomorrow. Sometimes the saving possibilities are right in front of us. Other times, they may come to us in the future because of present-day financial decisions. We can potentially realize some savings by changes in our financial behavior or our choice of investing vehicles, without resorting to austerity.

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

      

Citations.

1 - realsimple.com/work-life/money/saving/money-saving-secrets [7/13/17]

2 - investopedia.com/articles/stocks/11/intro-tax-efficient-investing.asp [8/5/16]

3 - blog.turbotax.intuit.com/tax-deductions-and-credits-2/can-you-deduct-401k-savings-from-your-taxes-7169/ [2/7/17]

4 - cnbc.com/2017/05/15/personal-finance-expert-do-these-6-things-to-save-an-extra-700-per-month.html [5/15/17]

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