Lowcountry Investment Advisors, Inc.
Choosing when to retire is one of the most important financial decisions you will make. Consider your options carefully. Careful planning can help ensure you a comfortable and financially independent retirement.
Stats from "2006 Retirement Confidence Survey," Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc.
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Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.
How Social Security Works
The Social Security program was signed into law in 1935 after the nation had endured more than a half-decade of the Great Depression. It was intended to provide a safety net of income for individuals too old or disabled to continue working.
Participation in the Social Security program is mandatory, with most wage earners contributing a percentage of their annual incomes to support the program. In return, participants, their spouses, and certain dependents are eligible for retirement, disability, and survivorship benefits.
Today, approximately 90% of people aged 65 and older receive a Social Security benefit check each month. For many, this benefit is their primary source of retirement income.
How Contributions are Made and Accounted For
Each year you work, you and your employer contribute to the Social Security program in equal amounts. In 2007, 6.2% will be withheld from your paycheck, with another 1.45% going to Medicare, for a total contribution of 7.65% (unchanged from 2006). Your employer matches contributions with another 7.65% of your total earnings. After you reach an earnings cap of $97,500(in 2007), no further Social Security contributions are deducted. However, there is no cap on earnings for Medicare contributions.
How Your Benefits Are Calculated
Your benefits are based on a calculation that includes how many years you worked and how much you earned. These figures are used to determine the number of quarterly credits you accumulated toward benefits. If you were born prior to 1938, you may collect full Social Security benefits when you turn 65, or you may collect 80% of your benefit if you retire at 62. For people born after 1938, Normal Retirement Age (NRA), or the age at which you can receive full benefits, gradually increases from age 65 to age 67. To determine your NRA, visit http://www.ssa.gov. When you die, your surviving spouse is entitled to your benefits, unless he or she would collect more based on their own earnings history.
Your Social Security account opens once you receive a Social Security card. However, it is not activated until you begin earning income. Once your earnings begin, the amount you contribute each year is recorded.
The accuracy of this record is important. You can obtain a copy of your earnings record from the Social Security Administration by filling out and mailing Form 7004. Forms are available at your local Social Security office or by calling 800-772-1213 or online at www.ssa.gov/online/ssa-7004.html.
If you discover errors in your record, you can ask that it be corrected, though you must supply evidence of such errors. The Social Security Administration encourages people to check their earnings records every three years or so, because the earlier a problem is found, the easier it is to correct.
How Your Benefits Are Taxed
Once you begin receiving retirement benefits, you may have to include them as part of your taxable income reported to the IRS each year.
If your total income for the year, including half of your Social Security and your tax-exempt earnings, is greater than $32,000 ($25,000 for single taxpayers), you will owe federal income tax on a portion of your Social Security benefits. The IRS provides a worksheet to help you determine how much you must include in your taxable income each year.
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Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.
Individual Retirement Accounts
You're probably familiar with Individual Retirement Accounts, popularly known as "IRAs." But did you know that recent tax law changes have created three different types of IRAs? Today you can choose from the Traditional IRA, Non-Deductible IRA, or Roth IRA - each of which offers unique benefits and advantages.
Traditional IRA
The granddaddy of them all, a traditional IRA allows individuals under the age of 70-1/2 with earned income to contribute as much as $4,000 of
compensation in 2006 and 2007 (the limit rises to
$5,000 in 2008). In addition, taxpayers aged 50 and
older can now make "catch up" contributions of an
additional $1,000 in the 2006 and 2007 tax years. Contributions and earnings generally grow tax-deferred until qualified withdrawals begin at age 59-1/2 - a powerful benefit that helps IRA owners pursue retirement and other important financial goals.
Married couples that file jointly may contribute up to $8,000 ($4,000 per IRA) each year even if only one spouse has earned income (certain limitations apply).Best of all, your IRA contributions may be tax deductible depending on your participation in an employer-sponsored retirement plan such as a 401(k), your adjusted gross income (AGI), and your filing status. Non-qualified withdrawals are subject to ordinary income tax as well as a 10% federal penalty. Certain exceptions apply, including unreimbursed medical expenses, education expenses, and first-time home ownership.
Non-Deductible IRA
The non-deductible IRA is similar to the traditional IRA except that contributions are made with after-tax dollars and the income tax deduction allowed for traditional IRAs does not apply. This type of IRA is generally used by individuals who do not qualify for a traditional IRA but want the benefits of tax-deferred
compounding that IRAs offer. As with the traditional
IRA, contribution limits are limited to the lesser of
total earned income or $4,000 in 2006 and 2007, plus
the $1,000 catch-up provision for those age 50 or
higher in 2006 and 2007.
Roth IRA
First introduced in 1998, the Roth IRA offers owners a powerful advantage: tax-free distributions. Contribution limits are the same as the previous two types of IRAs, and the earned-income and catch-up provisions both apply. Qualified withdrawals of both contributions and earnings are free from federal income tax. Since contributions are made with after-tax dollars, they can be withdrawn tax-free at any time. As with traditional and non-deductible IRAs, early withdrawals may be subject to federal income tax plus a 10% federal penalty. Also, eligibility to contribute to a Roth IRA begins phasing out for individuals and households with a modified AGI of $95,000 and $150,000, respectively, and those with modified AGIs exceeding $110,000 (individuals) and $160,000 (households) cannot open or contribute to a Roth IRA.
Which is Right for You?
The answer to that question depends on a number of factors, including your age, household AGI, current and projected tax rates, whether or not you are eligible to participate in an employer-sponsored retirement plan, your marital status, and your retirement goals. We'd be happy to discuss your options and help you make the right choice based on your individual needs.
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Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.
Do I have enough to retire?
There are some upsides to being a retiree - senior discounts, lower taxes, subsidized healthcare, and regular Social Security checks among them. On the other hand, mature Americans must contend with worrisome issues such as rising costs for medical care, long-term care, prescription drugs, and even basic necessities such as food and energy.
To determine your monthly expenses during retirement, you might start by dividing costs into two categories: those you believe will change and those you believe will remain largely the same.
Costs You Believe Might Change
Housing expenses - particularly if you plan to live in your paid-off home or plan to downsize to a smaller dwelling
Medical insurance - which may shift from a premium for HMO coverage to a Medigap policy
Costs for dependents - if you have children you believe will be self-sufficient by the time you retire
Entertainment and travel expenses - for some people, these might decline precipitously; for others, they might be far higher
Taxes - most retirees find their combined tax burden is less than during their working years
Automobile-related costs - retirees generally drive less than workers who commute to their jobs every day, thus spending less on maintenance, tolls, gasoline, etc.
Monthly contributions toward retirement savings accounts - not only can you stop making this contribution, you might even consider spending it!
Costs You Think Will Remain the Same
Food
Clothing - unless you previously spent large amounts of money on uniforms or other job-specific wardrobe items
Household expenses - such as telephone, utilities, cable, etc.
Determine Your Individual Needs
Once you analyze all this information, you can determine your estimated monthly income needs as well as how large of an emergency fund to establish. This fund should be held in a liquid form such as a money market account, which provides stability for your funds as well as ready access to them.
Consider reviewing your estimated needs at least annually, because circumstances can and do change in today's fast-moving world.
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Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.