Our daily roundup of retirement news your clients may be thinking about.
How retirees can stay afloat despite tiny COLA
Despite the small increase in Social Security cost-of-living adjustment next year, retirees can improve their cash flow by investing the right types of assets in the right types of accounts (growth stocks in taxable accounts and interest-earning investments in traditional IRAs, for instance). Another idea would be going back to work for extra income, according to this article on USA Today. They should also reduce their expenses by downsizing or shopping for better Medicare coverage. “While you cannot change your prior 2015 tax return, you can approach year-end financial and tax planning with considerations regarding cash flow strategies that will not increase Medicare income-related surcharges in the future,” says an expert. “Proceeds from a reverse mortgage or distributions from a Roth IRA are just two approaches that produce cash flow that will not affect Medicare premiums.”
Millennial women who take career breaks risk retirement-savings shortfalls
A study by a financial planning and education services firm has found that younger women who opt to take a break from their career should significantly raise the amount they set aside for the golden years to offset the steep shortfalls in retirement savings, according to this article on The Wall Street Journal. Women are more likely than men to take a time off from their career, the study found. Based on the study's projections, women who decide to have a 10-year break early in their career will lose about $1.3 million in retirement savings, while those who take a time off later in life can expect a shortfall of $995,000. The retirement contribution rate should be higher for those who take a break earlier in life to make up for missed compounding growth on savings, says an expert.
The two money questions retirees most often ask
“How much can I spend?” and “How do I actually go about and do that?” are two questions that people commonly ask when they prepare for retirement, says a senior investment analyst in an article in Money. While the answer to the first question is between 3% and 5% of their investment portfolio, the exact amount will depend largely on their age and their life expectancy, says the expert. Clients should be open to adjust these spending numbers, as retirees' needs vary every year.
A good time to do a reality check on your retirement savings
The National Retirement Security Week offers the right time for people to review their retirement savings plans, according to this article on the Washington Post. A reality check-up of 401(k) and other savings plans should include taking advantage of employer's matching contribution, boosting savings rates, and the most of resources provided by the employer. Workers who are older than 50 should consider making catch-up contributions and avoid making a loan from their plan, while those holding assets with their former employer's retirement plans may transfer the funds to their current plan.
The guaranteed 50% return you are forfeiting
A report from Financial Engines shows that 40% of 401(k) participants in their 20s are leaving free money on the table by not taking advantage of their employer matching contributions, according to this article on Barron's. These workers miss out on an aggregate $24 billion in employer's match every year, which translates to an average of $1,366 per worker.
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