Retirement plans: What are your options?

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Retirement plans What are your options?

• Issues in Retirement Planning
• Types of Retirement Plans
• By Storick Group

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ISSUES IN RETIREMENT PLANNING

• Higher Health Costs
• Higher-income individuals are often in better
  health at retirement and will face higher
  lifetime health costs as they live longer.
  Planning for these higher costs will be
  challenging, but very important.
• Longer Life Expectancy
• A 65-year-old married couple retiring today will
  likely see at least one spouse live longer than
  the 30 years.
• Balancing Risk and Return
• Developing a proper asset allocation in a
  portfolio requires balancing many factors
  including risk tolerance, cash flow needs, time
  horizon and return requirements. Planners want
  to reduce risk as much as possible in the
  portfolio while still achieving a sufficient
  return to achieve the clients financial goals.
• Enjoying Retirement
• While it is important to come up with a
  retirement withdrawal rate that is sustainable,
  it should also allow clients to enjoy their
  retirement.

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• Withdrawal Strategy
• It can be very difficult to move from a lifetime
  of spending what comes in to drawing down on a
  portfolio. Coming up with an amount to keep in
  cash reserve and maintaining it is critical.
• Monitoring Expenses
• Expenses are often much different in retirement
  than they are during working years, but they are
  still incredibly important to the overall plan.
  Often, clients will spend more in the early years
  of retirement, see expenses dip in the middle,
  then rise as the near the end of their lives and
  medical expenses climb.
• Social Security Uncertainty
• The role of Social Security in the retirement
  planning process is changing as concerns grow
  over the availability of benefits for future
  generations.

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• Long-Term Care Needs
• Long-term care costs are increasing -- as is the
  percentage of the population that will need this
  kind of care at some point in their lives.
  Looking broadly at how to fund these costs is
  important, whether that means self-insuring if
  you have enough assets or buying some form of
  LTC insurance.

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TYPES OF RETIREMENT PLANS

• Individual Retirement Account (IRA)
• An IRA is a tax-favored retirement account that
  lets you contribute a certain amount each year
  and invest your contributions tax deferred. That
  means you pay no taxes on annual investment gains
  (which helps them to grow more quickly). With a
  regular IRA, you pay income taxes on the money
  when it's withdrawn at retirement.
• An IRA is an investment account. Once the money
  is placed within, you can invest in stocks,
  bonds, mutual funds, ETFs, and other types of
  investments. You can buy and sell investments
  within the IRA, but if you try to cash you
  entirely before retirement age at 59 ½ (known as
  a premature distribution), you will most likely
  pay a 10 percent penalty fee and may be subject
  to federal, state and local income taxes.

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• Roth IRA
• Unlike a regular IRA, Roth IRA contributions are
  made after tax, but any money generated within
  the Roth is never taxed again. The best part
  you can take withdraw contributions you've made
  to a Roth IRA before retirement age without
  penalties. If you are just starting out and
  think your income will grow, putting money in a
  Roth is a great place to invest extra cash while
  giving your future self an amazing tax break.
• 401(k) Account
• A 401(k) is a workplace retirement account,
  offered as an employee benefit. This account
  allows you to contribute a portion of your
  pre-tax paycheck in a tax-deferred investment
  account. One of the benefits of contributing
  pre-tax money is it lowers the amount of income
  your taxes are based on (If you earn 75,000 and
  contribute 10,000, you are taxed on a 65,000
  income). Plus, as with an IRA, investment gains
  grow tax deferred until retirement. If you
  withdraw funds from the plan before retirement
  age, you will pay a 10 percent penalty and could
  be subject to federal, state and local income
  taxes. However, some employers do offer 401(k)
  loans.

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403(B) PLAN

• A 403(b) plan is a retirement plan for certain
  public school employees, employees of tax-exempt
  organizations and ministers. Individual 403(b)
  accounts are established and maintained by
  eligible employee.
• Accounts under a 403(b) plan can be one of the
  three following
• types
• An annuity contract provided through an insurance
  company these 403(b) annuity plans are also
  known as tax-sheltered annuities (TSAs) and
  tax-deferred annuities (TDAs).
• A custodial account provided through a retirement
  account custodian investments are limited to
  regulated investment companies, such as mutual
  funds.
• A retirement income account, for which
  investments options are either annuities or
  mutual funds.

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• Employer-sponsored Plans The two types of
  employer- sponsored retirement plans are
  qualified and non-qualified retirement plans.
• Qualified retirement plans meet the Internal
  Revenue Code requirements and the Employee
  Retirement Income Security Act of 1974 (ERISA)
  requirements. These plans offer several tax
  benefits they allow employers to deduct annual
  allowable contributions for each participant
  contributions and earnings on those contributions
  are tax- deferred until withdrawn for each
  participant and some of the taxes can be
  deferred even further through a transfer into a
  different type of IRA.
• Non-qualified retirement plans are those plans
  that either do not meet the IRS Code
  requirements or the ERISA requirements.

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• Profit sharing Plan An employer alone makes contr
  ibutions
• based on an employee's current-year compensation.
• Contributions Employers can decide what amount
  and whether to contribute to the plan each year.
  The maximum that the employer can contribute is
  15 whichever is less. In addition,
  contributions can only be made on the first
  170,000.
• Eligibility Employees can be eligible to
  participate in the plan immediately or after one
  or two years of employment the vesting schedule
  is up to six years.
• Stock bonus plan A type of profit sharing plan,
  where contributions are made in the form of
  company stock.
• Money purchase pension plan A retirement plan
  with fixed- percentage compensations by the
  employers. Unlike profit sharing plans, these
  contributions are mandatory every year,
  regardless of profits.

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• Combination plans The profit sharing and money
  purchase plans are often combined by companies
  that have varied earnings from one year to the
  next. Through the establishment of proper
  contribution percentage rates in both plans, the
  employer can make the maximum contribution in
  good years and not during more difficult years.

• Contributions The total percentage for contributi
  ons in a
• of be

combined plan cannot be more than the lesser of 10
0
compensation or 40,000, and no more than 25 can
contributed to the profit sharing plan.

• Eligibility Employees can be eligible to

participate
in the

• combination plan immediately, or after one or two
  years of employment if employees are not
  allowed to enroll immediately, those
  participants must be 100 vested at all times.
• Savings plan Contributions are made by both the
  employer and the employee where the employer can
  match all or a percentage of the employee's
  contributions.
• Employee stock ownership plan (ESOP) The
  employer contributes shares of the company's
  stock to employees in return for special tax
  benefits . The shares of the company stock have
  to vest before a participant receives them. As
  an example, he vesting period can be 20 a year
  for 5 years. Employees are eligible to
  participate in this plan if they work at least
  1000 hours in a year.

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457 PLAN

• Deferred-Compensation-Plans 457 plans are aimed
  at state and local government employees of
  tax-exempt organizations. In 2013, participants
  can defer up to 17,500 of their annual income,
  and contributions and earnings are tax-deferred
  until withdrawal. Distributions start at
  retirement age but participants can also take
  distributions if they change jobs or if they
  have an emergency, including death. Participants
  can choose to take distributions as a lump sum,
  annual installments or as an annuity.
  Distributions are subject to ordinary income
  taxes and the amounts cannot be transferred into
  an IRA.

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• Simple IRA
• Savings Incentive Match Plan for Employees
  (SIMPLE)IRA A SIMPLE IRA is a retirement plan
  that may be established by employers, including
  self-employed individuals (sole proprietorships
  and partnerships). The SIMPLE IRA allows
  eligible employees to contribute part of their
  pretax compensation to the plan. This means the
  tax on the money is deferred until it is
  distributed. This contribution is called an
  elective-deferral or salary-reduction
  contribution.
• If a participant under the age of 59.5 wishes to
  take a distribution and it has been less than
  two years since their first contribution into
  the plan, they could be penalized up to 25 (10
  if more than two years) by the Internal Revenue
  Service. This two-year rule applies to all
  distributions, including rollovers from the
  SIMPLE IRA. Any amount withdrawn and not rolled
  over, regardless of age, is also be subject to
  ordinary income tax for the year in which the
  distribution is made.

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SEP IRA

• If you are self-employed and have no one working
  for you, a SEP IRA will allow you to contribute
  a portion of your income to your own retirement
  account, and fully deduct them from your income
  taxes. The maximum annual contribution limits
  are higher than most other tax-favored
  retirement accounts.