Our daily roundup of retirement news your clients may be thinking about.
3 smart Roth IRA moves you can make right now
Unlike a traditional IRA, a Roth IRA does not offer upfront tax deduction, but offers tax-free growth on savings, according to this article on Motley Fool. Retirement savers should set up a Roth IRA as soon as possible to start making the most of this tax-free treatment, and consider converting their 401(k) assets into a Roth. When investing in a Roth IRA, clients should rebalance their portfolio by replacing good performing holdings with more value-priced investments.
When two policies collide — what should 401(k) plan sponsors do about retirees?
From an employer's perspective, having retiree participants in their 401(k) plan is a liability, as they increase the plan's costs, according to this article on Kiplinger. Retirees are better off moving their 401(k) assets to an IRA, which offers more investment and strategy options, as well as personalized services not found in 401(k) plans. Retirees are advised not to cash out the plan, as this option could trigger a tax event and reduce their savings by as much as 50%.
This financial adviser takes diversification to another level
Instead of having a pension, Social Security, and investments in equities and bonds as retirement income sources, clients should consider buying an ownership stake in a private company, acquiring income-producing real estate and investing the rest of their assets in traditional stocks, bonds and other standard investments, says a financial adviser quoted in an article in MarketWatch. “You gain diversity from your primary job income if you get into a different field,” and “[y]ou also gain other sources of income that tend to react to different economic scenarios differently," says the expert. "And there are often tax advantages as well” to putting a stake in businesses.
What is the appropriate planning age for retirees?
Planning for fixed retirement durations that are longer than life expectancy is an approach that clients can use to factor in longevity in retirement planning, writes Wade Pfau, a professor at The American College and principal at McLean Asset Management, in an article in Forbes. Planning for a longer or a shorter retirement horizon has both an upside and a downside, the expert writes. "It truly depends on your unique preferences regarding these tradeoffs."
How to know if you're underfunded in your retirement account
One way for clients to determine their retirement fund shortage is to get their Social Security benefit estimate, according to an article on Yahoo Finance. "Know the delta -- (the difference) between the Social Security amount you will receive and your monthly expenses," says a financial planner. "Remember, this is the number you have to solve for. Tax laws change regularly, and the financial markets can throw curveballs -- so you'll never know exactly how much you are underfunded."
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