Category Archives: Retirement Planning

Michele Clark in the News: US News and World Report about Reliable Retirement Planning Advice

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I was honored to help US News and World Report recently in their article “How to Get Reliable Retirement Planning Advice” with an important topic that is causing some friction in our industry right now.  The public is having their eyes opened to the importance of having a fiduciary relationship with their financial advisor, however, it is looking like the fiduciary rule could possibly get postponed.  Not all brokerage firms and advisors want to be subject to the fiduciary rule.  I am a fiduciary, and I share my thoughts on how to find quality, fiduciary advice.

The advice that I share is to “Look for a seasoned advisor who has been in the business through a market cycle or two, is a fee-only fiduciary and a certified financial planner who works primarily with clients like you.”

Michele Clark in the News: CNBC.com about Relocation in Retirement

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I was honored to be quoted today on CNBC.com in the article “Retirees should look carefully before leaping into a relocation” .  It is a good list of things to consider before a major move to a new state.  Things like:

  • Taxes
  • Real Estate Expenses
  • Quality of Medical Care
  • Quality of Elder Care and Social Services
  • Culture Fit
  • Proximity of Family

When you read the article, based on some of my quotes, you might be able to tell that my mother is a 30 year veteran of the real estate business. She owns a residential real estate appraisal firm and she has passed her knowledge on to me.

2017 IRA and Retirement Plan Limits Announced

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The 2017 figures have been announced for IRA and employer plan contribution limits.

IRA contribution limits

  • The maximum amount you can contribute to a traditional IRA or Roth IRA in 2017 is $5,500 (or 100% of your earned income, which ever is less), unchanged from 2016.
  • The maximum catch-up contribution for those age 50 or older remains at $1,000. (You can contribute to both a traditional and Roth IRA in 2017, but your total contributions can’t exceed these annual limits.)

Traditional IRA deduction limits for 2017

The income limits for determining the deductibility of traditional IRA contributions in 2017 have increased.

  • If your filing status is single or head of household, you can fully deduct your IRA contribution up to $5,500 in 2017 if your MAGI is $62,000 or less (up from $61,000 in 2016).
  • If you’re married and filing a joint return, you can fully deduct up to $5,500 in 2017 if your MAGI is $99,000 or less (up from $98,000 in 2016).
  • And if you’re not covered by an employer plan but your spouse is, and you file a joint return, you can fully deduct up to $5,500 in 2017 if your MAGI is $186,000 or less (up from $184,000 in 2016).
If your 2017 federal income tax filing status is: Your IRA deduction is limited if your MAGI is between: Your deduction is eliminated if your MAGI is:
Single or head of household $62,000 and $72,000 $72,000 or more
Married filing jointly or qualifying widow(er)* $99,000 and $119,000 (combined) $119,000 or more (combined)
Married filing separately $0 and $10,000 $10,000 or more

*If you’re not covered by an employer plan but your spouse is, your deduction is limited if your MAGI is $186,000 to $196,000, and eliminated if your MAGI exceeds $196,000.

Roth IRA contribution limits for 2017

The income limits for determining how much you can contribute to a Roth IRA have also increased for 2017.

  • If your filing status is single or head of household, you can contribute the full $5,500 to a Roth IRA in 2017 if your MAGI is $118,000 or less (up from $117,000 in 2016).
  • And if you’re married and filing a joint return, you can make a full contribution in 2017 if your MAGI is $186,000 or less (up from $184,000 in 2016). (Again, contributions can’t exceed 100% of your earned income.)
If your 2017 federal income tax filing status is: Your Roth IRA contribution is limited if your MAGI is: You cannot contribute to a Roth IRA if your MAGI is:
Single or head of household More than $118,000 but less than $133,000 $133,000 or more
Married filing jointly or qualifying widow(er) More than $186,000 but less than $196,000 (combined) $196,000 or more (combined)
Married filing separately More than $0 but less than $10,000 $10,000 or more

Employer retirement plans

  • Most of the significant employer retirement plan limits for 2017 remain unchanged from 2016.
  • The maximum amount you can contribute (your “elective deferrals”) to a 401(k) plan in 2017 is $18,000. This limit also applies to 403(b), 457(b), and SAR-SEP plans, as well as the Federal Thrift Plan.
  • If you’re age 50 or older, you can also make catch-up contributions of up to $6,000 to these plans in 2017. [Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.]
  • If you participate in more than one retirement plan, your total elective deferrals can’t exceed the annual limit ($18,000 in 2017 plus any applicable catch-up contribution). Deferrals to 401(k) plans, 403(b) plans, SIMPLE plans, and SAR-SEPs are included in this aggregate limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan—a total of $36,000 in 2017 (plus any catch-up contributions).
  • The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) plan in 2017 is $12,500, and the catch-up limit for those age 50 or older remains at $3,000.
Plan type: Annual dollar limit: Catch-up limit:
401(k), 403(b), governmental 457(b), SAR-SEP, Federal Thrift Plan $18,000 $6,000
SIMPLE plans $12,500 $3,000

Note: Contributions can’t exceed 100% of your income.

  • The maximum amount that can be allocated to your account in a defined contribution plan [for example, a 401(k) plan or profit-sharing plan] in 2017 is $54,000, up from $53,000 in 2016, plus age 50 catch-up contributions. (This includes both your contributions and your employer’s contributions. Special rules apply if your employer sponsors more than one retirement plan.)
  • Finally, the maximum amount of compensation that can be taken into account in determining benefits for most plans in 2017 is $270,000 (up from $265,000 in 2016), and the dollar threshold for determining highly compensated employees (when 2017 is the look-back year) is $120,000, unchanged from 2016.

Based on an article Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016

Retirement Income: Estimating How Much You Will Need

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Use your current income as a starting point

You have probably read financial press articles that discuss desired annual retirement income as a percentage of your current income. Depending on the article, that percentage could be anywhere from 60 to 90 percent, or even more. The appeal of this approach lies in its simplicity, and the fact that there’s a fairly common-sense analysis underlying it: Your current income sustains your present lifestyle, so taking that income and reducing it by a specific percentage to reflect the fact that there will be certain expenses you’ll no longer be liable for (e.g., costs associated with working such as lunches out, dry cleaning, commuting, etc.) will, theoretically, allow you to sustain your current lifestyle.

The problem with this approach is that it doesn’t account for your specific situation. If you intend to travel extensively in retirement, for example, you might easily need 100 percent (or more) of your current income to get by. It’s fine to use a percentage of your current income as a benchmark, but it’s worth going through all of your current expenses in detail, and really thinking about how those expenses will change over time as you transition into retirement.

Project you retirement expenses

Your annual income during retirement should be enough (or more than enough) to meet your retirement expenses. That’s why estimating those expenses is a big piece of the retirement planning puzzle. But you may have a hard time identifying all of your expenses and projecting how much you’ll be spending in each area, especially if retirement is still far off. To help you get started, here are some common retirement expenses:

  • Food
  • Housing: Rent or mortgage payments, property taxes, homeowners insurance, HOA fees, property upkeep and repairs
  • Utilities: Gas, electric, water, telephone, cell phone, Internet, cable TV, trash
  • Transportation: Car purchases or payments, auto insurance, gas, maintenance and repairs, public transportation
  • Insurance: Medical, Medicare Supplement, dental, life, long-term care
  • Health-care costs not covered by insurance: Deductibles, co-payments, prescription drugs
  • Care for yourself, your parents, or others: Costs for a nursing home, home health aide, or other type of assisted living
  • Taxes: Federal and state income tax, capital gains tax, personal property tax
  • Travel: for fun, to visit family, to go to family events such as weddings and funerals
  • Clothing
  • Debts: Personal loans, business loans, credit card payments
  • Education: Children’s or grandchildren’s college expenses
  • Gifts: Charitable and personal such as Christmas, birthday, wedding
  • Recreation: dining out, hobbies, leisure activities, season tickets to sports or entertainment
  • Miscellaneous: Personal grooming, pets, club memberships, household items

Don’t forget that the cost of living will go up over time. The average annual rate of inflation over the past 20 years has been approximately 2.3 percent. (Source: Consumer price index (CPI-U) data published by the U.S. Department of Labor, January 2015.) And keep in mind that your retirement expenses may change from year to year. For example, you may pay off your home mortgage or your children’s education early in retirement. Other expenses, such as health care and insurance, will increase as you age. To protect against these variables, build a comfortable cushion into your estimates (it’s always best to be conservative). Keep in mind that some expenses have historically gone up at a rate greater than inflation.  For example, in our retirement projections we inflate healthcare expenses at a rate of 6%.

Decide when you will retire

To determine your total retirement needs, you can’t just estimate how much annual income you need. You also have to estimate how long you’ll be retired. Why? The longer your retirement, the more years of income you’ll need to fund it. The length of your retirement will depend partly on when you plan to retire. This important decision typically revolves around your personal goals and financial situation. For example, you may see yourself retiring at 50 to get the most out of your retirement. Maybe a booming stock market or a generous early retirement package will make that possible. Although it’s great to have the flexibility to choose when you’ll retire, it’s important to remember that retiring at 50 will end up costing you a lot more than retiring at 65.

Estimate your life expectancy

The age at which you retire isn’t the only factor that determines how long you’ll be retired. The other important factor is your lifespan. We all hope to live to an old age, but a longer life means that you’ll have even more years of retirement to fund. You may even run the risk of outliving your savings and other income sources. To guard against that risk, you’ll need to estimate your life expectancy. You can use government statistics, life insurance tables, or a life expectancy calculator to get a reasonable estimate of how long you’ll live. Experts base these estimates on your age, gender, race, health, lifestyle, occupation, and family history. But remember, these are just estimates. There’s no way to predict how long you’ll actually live, but with life expectancies on the rise, it’s probably best to assume you’ll live longer than you expect.

Identify your sources of retirement income

Once you have an idea of your retirement income needs, your next step is to assess how prepared you are to meet those needs. In other words, what sources of retirement income will be available to you? Your employer may offer a traditional pension that will pay you monthly benefits. In addition, you can likely count on Social Security to provide a portion of your retirement income. To get an estimate of your Social Security benefits, visit the Social Security Administration website (www.ssa.gov). Additional sources of retirement income may include a 401(k) or other retirement plan, IRAs, annuities, and other investments. The amount of income you receive from those sources will depend on the amount you invest, the rate of investment return, and other factors. Finally, if you plan to work during retirement, your job earnings will be another source of income.

Make up any income shortfall

If you’re lucky, your expected income sources will be more than enough to fund even a lengthy retirement. But what if it looks like you’ll come up short? Don’t panic–there are probably steps that you can take to bridge the gap. We can help you figure out the best ways to do that, but here are a few suggestions:

  • Try to cut current expenses now so you’ll have more money to save for retirement
  • Consider delaying your retirement for a few years (or longer)
  • Lower your expectations for retirement so you won’t need as much money (no beach house on the Riviera, for example)
  • Work part-time during retirement for extra income

The best way to determine if you are on track for the retirement you envision, is to get started now on a financial plan. You don’t have to go it alone; you can enlist the help of a professional.  Contact us today.

Based on an article Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016

 

Michele Clark in the News: Learnvest article about Understanding Retirement Planning Benefits of Different IRAs

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I was honored to be quoted recently in the article “Traditional vs. Roth IRAs: Understanding the Retirement Planning Benefits of Each” on Learnvest. It is a good introduction to the differences between the two types of IRA accounts and when you might choose between them.

Some of the differences and rules covered are:

  • Contribution Limits
  • Taxes
  • Income Restrictions
  • Withdrawals

 

I find when planning with families that the decision is a multi-step process. We need to take into consideration all of the vehicles available to them including work and/or self-employment, their potential matching from employers, if they have a spouse and if the spouse is considered an active participant in an employer plan, the quality of their plans, their income phaseout thresholds, and their entire picture of financial goals ranging from short term to long term to determine how much they can afford to put toward all of their goals.  That then informs us what the best vehicle is, or in most cases, vehicles are.