5 Tips for Retirement Planning
Shelley Kostrunek, ChFC, CMFC CRPC, Mutual of Omaha Advanced Markets, is a NAFE member who specializes in retirement accumulation and distribution planning. She has been working in the financial services industry for the past 24 years, providing case consultation and training for MOO’s national agency sales force, and has contributed articles to several financial periodicals. Shelley serves on the board of the Omaha National Association of Financial Services Professionals as the professional development chairperson.
Ninety-five percent of all women in America will ultimately bear sole responsibility for their finances. Why? Women live longer than men. According to the Department of Labor, women on average can expect to live four more years in retirement than a man. If we marry, we also tend to marry men who are an average of three years older. Consequently, we need to pay special attention to saving and protecting the assets that will carry us through our retirement years. Here are some strategies that can help you plan ahead for a secure and long retirement.
1. If your employer offers a retirement plan, contribute as much as the plan will match at a minimum. Most employers with a 401(k) plan match a percentage of the employee's contribution. The most common match is fifty percent of the employee's contribution up to a maximum percentage of wages or salary, usually six percent.
Starting as soon as you can allows you to maximize the tax-free compounding of your investment, which makes a surprising difference over time. If there is a new Roth deferral feature, consider this option carefully. Most planners believe tax rates are headed upwards, so paying the taxes now may make sense for you and allow you the flexibility to manage your tax bracket when you retire.
2. In many companies, you may have to work for five to seven years to become eligible to receive one hundred per cent of your retirement benefits. Some workplaces have a shorter vesting period. Sometimes we leave employment for family reasons, transfer to another job, or interrupt our work lives just short of the time required to become vested. Ask human resources or your retirement plan administrator about the vesting period and other details of your company’s plan so that you are well informed about vesting prior to making a decision.
3. You should keep copies of the summary plan description (SPD) and any amendments. This is the document where retirement plan administrators are required to outline your benefits and how they are calculated. It also spells out the financial consequences – usually a reduction in benefits – if you decide to retire.
Remember to keep retirement-related records from all jobs. They provide valuable information about your benefit rights, even when you no longer work for a company. It can be a long time until you start receiving these benefits, if they are in the form of a pension; so don’t trust your memory. It is surprising how many retirees forget about benefits they are entitled to.
4. If you receive your retirement benefits in a lump sum, and don’t roll them over to a new retirement plan, you will owe additional income taxes, and may owe a penalty tax. This may also bump you up into a new tax bracket, so be cautious.
If you are going to reinvest the money, it is best that you don’t receive the check directly. If you do, you may have to pay a 20% withholding tax on the amount you receive and will have to file for a refund in the next tax year and prove that you have transferred the money to the new plan. Usually you’ll need to fill out a form with the current retirement plan to transfer your retirement money directly.
5. Use of an immediate or deferred annuity in a retirement income plan will ensure that you don’t live longer than your money. This is a special concern for women, as is the need to protect your retirement assets with long term care insurance for your spouse, since you are statistically likely to outlive him.
It is important to most women to make sure that they are protected, so that they aren’t financially vulnerable and dependent on loved ones in the ‘golden’ years of our retirement. Adequate planning for a secure retirement takes careful and continuous effort. Make certain you are working with a qualified advisor who has expertise and experience in this area.
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