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Hold Up on the Retirement Celebration until You Cross These off the List

Happy retirementFolks who are retiring like to plan their retirement date in either the springtime or the early summer. But Kiplinger’s article, “4 Actions to Take If You’re Retiring in 2017,” warns that before you begin planning your retirement party, do these things if you’re retiring in 2017.

  1. Make sure to get the match. Your employer may “match” and/or offer “profit-sharing” contributions to your 401(k) or other retirement plan. You typically must be actively employed on the date of payment in order to receive these funds, so be sure that you understand the terms before setting your final work date.

You may want to up your personal contribution percentage to help you reach your annual maximum. Employers frequently limit the amount you can contribute to your plan from each paycheck, so you may need to increase your contribution percentage long before you retire to max out.

  1. Review Your Risk Profile. Retirement is a major change in your life. It’s a transition from saver to spender, where you’ll start spending your retirement nest egg. Rebalancing your investments is critical to keep things in balance when you retire.

Don’t keep too much of your portfolio in riskier assets like stocks, or you’ll be vulnerable to a potential market downturn.

  1. Don’t Underpay Your Taxes. When you retire, by default, taxes aren’t withheld on your retirement income. You have to opt in to have taxes withheld from your Social Security benefits, pension benefits, and IRA or 401(k) distributions.

If you don’t have taxes withheld, you’ll need to pay estimated taxes.

Reference: Kiplinger (May 2017) “4 Actions to Take If You’re Retiring in 2017”

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Get Rockin’ on a Solid Estate Plan

Wills-trusts-and-estates-coveredIt seems pretty natural that people postpone planning their estates. After all, who wants to anticipate or dwell on his or her own demise? What’s more, there are those that think only the wealthy or those with tax issues need estate planning.
The Sabetha (KS) Herald’s recent article, “Understanding the estate planning process,” says that both notions may be wrong because your level of wealth and the ultimate tax consequences of your estate take a back seat to the planning and care of your family and other heirs.
A revocable trust allows you to control the distribution of your assets and possessions, as well as designate guardians for your children or plan care for other dependents. This trust typically has a “pour over will” prepared to “fund” the trust with any assets not titled in the trust while you are alive or designated to pass to the trust (or directly to beneficiaries) at your death. Your estate planning attorney can create this for you and assist you with a complete analysis of your current estate by reviewing your financial position as of today and analyzing your family’s needs in the future.
An experienced estate planning lawyer will help you plan for a family member who has special needs or requires medical attention, prepare for the cost of a college education when your children reach that age and determine how estate taxes may impact your assets as they are currently held. Disclosing relevant information to your estate planning attorney will help you develop an estate plan that will properly provide for your family’s needs.
In order to conduct a complete and thorough estate analysis, your attorney will ask for all materials involving your current or future income, property ownership, insurance and any legal arrangements already in place. In addition, you’ll need to inform him or her about all of your retirement benefits and plans: Social Security, IRAs, pensions and profit-sharing plans, investments, certificates of deposit, real estate, life insurance policies you own (as well as policies you have on others), beneficiaries, other trust agreements and your will.
Along with this, bring a list of your current and anticipated debts—like mortgage and loan balance, real estate liens, taxes, consumer debts and estimates on funeral costs and estate settlement fees.
Once all of this information is ready, your estate planning attorney can start a complete analysis that will form the basis for a rock solid estate plan.
Reference: The Sabetha (KS) Herald (August 9, 2016) “Understanding the estate planning process”

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Tying the Knot Finances

Young couple with giftThe average age of a couple getting married today is older: age 31 for a man and 29 for a woman. This often means merging two households. CBS Boston says that if you both own your own home, you may want to think about selling them and buying one jointly, according to its recent article “Couples & Money: Ours? His? Hers?”
If you go ahead and sell one home and move into the other, you need to decide ownership issues. Will you add your new spouse to the deed and add him or her to the mortgage as a responsible party?
Another thing to consider is that marriage doesn’t automatically combine your credit reports. If one spouse has a poor credit report and is getting out of debt, you may want to keep things separate. If you do want to purchase a house in the future, you’ll have one good credit report and one good credit score. If you bring credit card debt or school loans into your marriage, you’re responsible for paying that off yourself.
As far as banking, think about a joint checking account for household expenses and savings. However, you should keep your individual checking accounts if you’re both working, so then you’ll have your own money.
Keep your own credit card, but know that you’re responsible for the payments. You may want to have a joint card for the household purchases.
Any assets you bring into the marriage—like stocks, bonds, mutual funds, and savings—should be kept in your individual accounts. You can talk about using joint accounts for your future goals and tapping into your individual accounts to help you achieve those goals.
Make certain that you’re both taking advantage of retirement plans when available from your employer. Contribute the maximum you can afford.
As far as beneficiary designations, ensure that your spouse inherits your life insurance, IRAs, retirement plans, pensions, and annuities by updating the beneficiary designations. Review your health insurance policies to see who has the better insurance. And finally, you need to redo your estate planning now that you are married.
Reference: CBS Boston (June 8, 2016) “Couples & Money: Ours? His? Hers?”

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Where’s My Pension?

401k piggy bankThose lucky enough to have earned a defined-benefit pension are in a great position. This allows them to retire with a steady income stream for life. However, it's no dream when the promised benefits don't appear. And an investigation by the U.S. Department of Labor says that many retirees aren't getting the benefits they've earned. The plans the government has looked at thus far owe more than $500 million to retirees.
Kiplinger's article, "Missing Pensions Costly to Retirees," reports that since last summer the Labor Department has investigated more than four dozen large pension plans and has found staggering results: some of them are not doing a very good job of monitoring retired participants and paying benefits when they're owed. Some plans don't even have the names or ages of many of their participants.
In addition to poor recordkeeping, corporate mergers, spinoffs, and bankruptcies make it difficult for retirees to track down and claim pensions from employers they left years ago. In light of this unfortunate reality, plan members must maintain employment records, plan documents, tax returns, and other paperwork that show they're eligible for a pension. Plus, they must be proactive in claiming their benefits when the time arrives. These plans don't have much motivation to pay benefits when they're due.
If you've earned a pension, hang on to your individual benefit statements and the summary plan description that outlines the requirements for earning benefits. Also, keep your records of employment—including W-2 forms and pay stubs—as well as all of your old tax returns. When you claim your benefits, the plan might say that it's already paid you a distribution, so you'll need your old tax returns to show if that's accurate.
In the event you leave a job before the plan's retirement age, make certain that you have a vested benefit and get the plan's most recent summary plan description. This will tell you the benefits you get in retirement. Update the plan for any changes in your contact info and marital status. If your plan is terminating, make sure you know who's going to be administering the plan. If the plan is sufficiently funded, an insurance company will take over payment of the benefits. If not, the plan will likely be turned over to the Pension Benefit Guaranty Corp.
If you lose track of a pension, go to https://www.pensionhelp.org to find pension counseling projects funded by the U.S. Administration on Aging. Look at your old W-2 to find your former company's employer identification number (EIN)—that can help you find the company. Look for a "notice of potential private pension benefits." This is a reminder from the Social Security Administration to those who've earned a private pension. Plans turned over to the PBGC may be found at www.pbgc.gov/wr or click "find an unclaimed pension" at the site to find out if your name is on the PBGC's list of missing participants. If you've been omitted from your plan's records, you have to document your work history and eligibility for the benefit. If you lack W-2s and other employment documentation, you can get a Social Security earnings statement using Form SSA-7050 for $136.
Reference: Kiplinger's (June 2016) "Missing Pensions Costly to Retirees"

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Beneficiaries…What Are Those?

Kids in grass"When was the last time you updated, or even thought about, the beneficiary designations listed on your retirement accounts, life insurance, or annuity contracts?"

If you don't remember when you last checked your beneficiaries, it's definitely time to review!

Beneficiary designations allow certain assets owned by an individual to transfer efficiently at her or his passing. These include retirement accounts like IRAs, Roth IRAs, 401(k)s, 403(b)s, 457(b)s, and pensions, as well as life insurance death benefits and the residual value of annuities.

These types of assets with designated beneficiaries will transfer automatically, despite anything written to the contrary in a person's will or trust. These assets with designated beneficiaries are also excluded from the decedent's probate estate unless the "estate" is the designated beneficiary.

Owners can designate both primary and contingent beneficiaries. The primary beneficiary inherits the asset, but if he or she dies before the owner, then the contingent beneficiary will be the new owner. If you don't name a contingent beneficiary, the asset will go into your general estate for distribution, which is what you're trying to avoid in the first place by naming beneficiaries.

There are no restrictions on how many beneficiaries can be designated to inherit an asset. You can split your 401(k) 50-50 if you have two children, or 60-40 or 90-10. You can also name a charity as your beneficiary, which can be a nice way to transfer assets to a special organization at your passing. Charities don't pay income tax, so they would get 100% of the value of the asset. If an individual inherits this asset, he or she will be liable for income tax right away or as funds are distributed.

A trust can also be designated as beneficiary to provide control over the asset to someone other than the inheritors. Many times it's used when minor children or individuals with disabilities are to be the ultimate beneficiaries. You should work with an estate planning attorney if you go this route, as the tax and distribution rules are complex.

Review your current beneficiary designations now to be sure they reflect your desires. You also should look at them whenever life circumstances change, like a marriage, birth, divorce, or death. You can change a beneficiary designation at any time.

Since assets with beneficiary designations transfer automatically, make sure that beneficiary designations complement your estate documents. A qualified estate attorney can assist you with how beneficiary designations should be stated to mesh with your overall estate plan.

Reference: Inside Indiana Business (February 29, 2016) "Who Are Your Beneficiaries?"

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