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retirement Archives | R | W Investment Management

Retirement Readiness: Planning for the first day of the rest of your life

Much has been made of the current state of the American worker as it pertains to their retirement savings. According to a recent study by the General Accountability Office, 29% of Americans 55 and older do not have any retirement savings or pension plan and those who have saved are woefully behind with 55-64 year olds averaging $104,000 in retirement assets.1

The bleak outlook can largely be attributed to a lack of education when it comes to retirement planning – and more specifically investment allocation. With a growing number of millennials feeling ill equipped to make investment related decisions – even within their own retirement plans, the numbers prove that ignorance is not bliss. 61% of millennials say they want to invest but are deterred because they don’t know how.2    These numbers alone should serve as a call to action for younger workers who are increasingly finding themselves behind the eight ball when it comes to saving for retirement. A sound, long term, roadmap to retirement can be centered on three key areas.

Develop healthy financial habits
In a society that has become increasingly driven by social media it is very easy to fall prey to a “keeping up with the Jones1” philosophy toward spending. Do you have “friends” that tweet and share every purchase and activity in their lives? Believe it or not, this subconsciously drives the temptation to spend on things we do not need or want, to impress people we don’t even like! Finding a balance and delaying gratification on purchases can single handedly make or break your financial wellbeing and it starts with making tough budgeting decisions.

Live below your means.
Try contributing an extra one or two percent to your company’s retirement plan or open up an IRA. You won’t miss the contribution and your standard of living will adjust accordingly. Seek to live below your means today to ensure a strong financial future tomorrow.

Reduce your debt.
The average American household carries a whopping $15,762 in credit card debt. According to a study this year, the average household is paying a total of $6,658 in interest per year3 – translating to lost dollars that could be pumped into retirement savings and wealth accumulation. In some situations debt, such as a mortgage or a student loan, can improve one’s financial position long term – however, credit card debt in particular carries the highest interest rates and should be paid off as quickly as possible. Try working with an independent financial planner if necessary, to consolidate debt and come up with a game plan to attack it head on.

At the end of the day there is no magic bullet that can singlehandedly solve the retirement shortfall for millions of Americans. Only you can take steps to educate yourself and make prudent, financially savvy choices in your day to day life which will translate in a significantly healthier financial standing. Don’t just hope that the retirement picture in your life becomes clearer as the day gets closer, because the opposite is true. Take measured steps to build confident savings and investment solutions for your household by starting today!

1. http://www.gao.gov/assets/680/670153.pdf
2. http://www.wealthacademyglobal.com/2-in-3-young-people-have-not-started-investing/
3. https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/

Four Reasons to Integrate Health Savings into your Retirement Plan

Kameron Jones, Senior Advisor

As Americans look into the future and towards retirement, many understand that maintaining their health will be
an important part of their overall quality of life after they stop working. However, uncertainty around healthcare
costs – both now and in retirement – is a major financial worry among Americans preparing for retirement. So
how can you help your workers reduce financial anxiety about retirement preparedness and increase the
likelihood that they will be able to meet their healthcare costs in retirement?

Health savings accounts (HSAs) present retirement plan sponsors a unique opportunity to address both the
wealth and health of employees planning for retirement. HSAs are a popular way for individuals to save for
medical expenses while reducing their taxable income – in effect, using their HSA as a long-term investment
vehicle. And though HSAs typically are introduced to employees as part of their high deductible healthcare plans
(these are the only plan types which currently offer HSAs), many recordkeepers are beginning to offer them in an
integrated platform where that can be reviewed alongside retirement savings.

Here are four reasons to integrate HSAs into your retirement plan offering:

1. Health Savings Accounts Address Concerns About Future Costs

In today’s retirement plan marketplace, holistic approaches increasingly feature a multi-faceted
program that offers numerous features, all aimed at improving retirement readiness. While in the past it
was sufficient to offer employees a straight-forward savings vehicle and trust that they would responsibly
go about making contributions, today’s plan sponsors have seen that the introduction of sophisticated
plan design features such as automatic enrollment, automatic escalation and financial wellness
consultation go a long way towards boosting outcomes for their employees. With healthcare being such
an important factor in quality of life, we see HSAs as one more tool you can wield in improving overall plan
health.
HSAs are designed to assist individuals in paying for healthcare expenses both now and in the future.
Today, a healthy 65-year-old male retiree can expect to pay $144,000 to cover healthcare expenses
during retirement, and many studies show that we can expect health costs to rise at a rate that outpaces
inflation, meaning this number will only grow over time. As HSAs are designed to provide a savings vehicle
dedicated to covering qualified healthcare expenses, their ability to grow contributions tax-free helps
defray the effect of future cost increases.

2. Health Savings are Triple Tax-Free Now and in Retirement

HSAs are unique in that they are designed specifically for healthcare expenses yet act more like an
individual retirement account (IRA). HSAs are the only triple-tax advantaged savings vehicle of its kind.
Participants with an HSA make contributions with pre-tax income, earnings and interest grow tax-free,
and withdrawals are tax-free when used to pay for qualified medical expenses. Once in retirement, HSAs
include no minimum required distributions and no Social Security or Medicare tax on contributions.

3. HSAs Can be Easily Integrated into an Existing Plan

You may be concerned about the administrative burden of incorporating an HSA into an existing plan, but in reality it can be done with little added administrative effort. In fact, it is possible for you to reduce administrative complexities with a single platform for both defined contribution plans and HSAs (as mentioned previously, many major recordkeepers offer their own HSA programs). With one portal that handles enrollment, retirement plan management, financial wellness programs, and HSA management, participants and sponsors can enjoy the added benefits of having these additional features seamlessly incorporated into their existing accounts. To improve the overall implementation of HSAs into a plan, we also encourage plan sponsors to incorporate HSA education into the front end of employee training, alongside other educational efforts for defined contribution plans and healthcare benefits.

4. Health Savings Accounts can Boost Employee Recruiting and Retention

If American workers are as anxious about medical expenses in retirement (and financial wellness in general) as surveys indicate, then a holistic retirement plan offering can be leveraged for marketing to potential new hires. A retirement plan that alleviates an employee’s concerns about the future will help employers retain existing workers and help attract new talent. By integrating an HSA into a robust retirement plan, your company signals that it understands the challenges to retirement preparedness and is ready to offer benefits that do the most to prepare them. The HSA account also rolls over in the same way a retirement account does, even if they choose to change jobs later on, making the benefit to the employee portable.

Conclusion

With the ultimate goal of providing a holistic retirement plan that prepares participants for financial security in retirement, you may want to consider adding HSAs to your plan offering. As a unique vehicle designed to reward savers with triple-tax benefits, HSAs can be seamlessly integrated into existing retirement plans while helping employee recruitment and retention. With healthcare costs continuing to increase with each passing year, HSAs provide a welcome sense of financial preparedness for Americans planning for their retirements

About the Author, Kameron Jones
Kameron provides extensive knowledge of the provider marketplace to help reduce plan-related costs and improve plan-related services. He has assisted hundreds of mid- to large-market 401(k), 403(b), 457(b), 401(a), NQDC, Cash Balance, and DB plans. Kameron was also voted as a National Association of Plan Advisors (NAPA) top advisor under 40. Kameron graduated from the University of Pennsylvania with a Bachelor of Arts in philosophy, political science and economics and played outside linebacker on UPenn’s football team.

Financial Wellness II

We are excited to continue the seven-part series on financial wellness that covers several financial struggles Americans are facing and ways to overcome them. This is the second half of the series and includes parts 5-7.

Part 5: Retirement 101

All approach retirement, some sooner than others. To enjoy your retirement years and not be a burden on family members, it is essential that you save sufficient assets to carry you through your retirement. No one knows precisely the amount of assets you will need for a comfortable retirement, but the more you save now, the more comfortable you are likely to be at retirement.

Here are the essentials to know about your retirement plan:

What is it? Your employer’s retirement savings plan is a defined contribution plan designed to help you finance your retirement. As a participant in the plan, you own an individual account within the plan that you contribute money to for your retirement.

What are the limits? For the year 2018, you can contribute a total of $18,500 towards your retirement plan. Individuals age 50 and over can contribute an additional $6,000.

Salary deferral advantages. Participating in your company’s retirement savings plan allows you the benefit of saving via payroll deduction on a tax deferred basis. Every dollar you save goes directly into your retirement savings account. Tax deferral on both savings and asset growth via payroll deduction helps you save more money and pay less tax upon distribution at retirement.

Tax deferred growth. Not being taxed on the growth of your assets helps accumulation during your working years. With your qualified retirement savings plan you not only defer taxes on the amount you save, but earnings on your savings is also tax deferred until distribution.

Employer contributions. Employer contributions, if offered, help you accumulate assets for retirement and can add considerably to your retirement account balance. You are also not taxed on your employer’s contributions until distribution. As an example, if your employer contributes 25 percent on your contribution that is the equivalent of earning a 25 percent return on that portion of your contribution, in addition to whatever return your investment generates.

Portability. If you change employers at some point in your career, you typically can keep your assets in the current plan, roll your assets over to your new employer’s plan or roll your assets into an IRA.

Part 6: Your Retirement Date

Retirement can be the most wonderful time of your life, truly the golden years. It is up to you to do what you can to make it so. Enjoying good health in retirement is key to quality of life. The other major determiner of quality of life in retirement is financial security. Below are some important questions that are never too early to consider.

When is your retirement date?  Life expectancy is constantly being extended by medical advances and lifestyle decisions. Working until age 70 is not a farfetched concept. Many people will be quite physically and mentally capable of sustaining some degree of employment through their 80s, whether for financial reasons or simply because they enjoy the engagement.

What will your expenses be?  Expenses are difficult to estimate. Having your own home is very helpful, but trying to predict other expenses is a challenge. The retirement investing industry has relied on the “old saw” that you should plan to replace 75 percent of your pre-retirement income. That may have worked for your parents, but likely not so much for you. If you retire with some degree of financial comfort you will have much time on your hands to indulge in your interests and hobbies. Don’t worry that you might save too much for retirement, because there is no such thing as too much money. There are many worthy causes you can help, if you have excess assets.

What about working longer?  In some ways work is like school or military duty (during peaceful times), you can’t wait until you are done with it, but then in hindsight, you miss aspects of it. This is not to say you should remain working 40 hours a week, but you may consider part-time work in your current field or begin a new career that is of interest to you, perhaps this may be associated with a hobby or sport you enjoy, or some charitable institution you feel strongly about. There really are many options.

What about Social Security?  In spite of all the Social Security kerfuffle about it being bankrupt, it is likely to still be here when you need it. For every year past eligibility you wait to begin benefits, your monthly amount increases by approximately 8 percent. That is not a bad return for a safe investment. You can delay your benefit until it makes sense not to. Also, consider a potential spouse’s benefit as well.

Part 7: How Long will Your Money Last?

The big question when it comes to retirement is, “How much money am I going to need?” With all of the advanced education and strategy tools available, it is still often difficult to understand the difference between what you can save for retirement and what is needed to retire. Sometimes, it is helpful to see what your account can actually provide over the course of your retirement. It can also help you set an achievable goal.

Savings Monthly income for 10 years1 Monthly income for 20 years1 Monthly income for lifetime of individual and spouse
$50,000 $493 $289 $174
$100,000 $986 $578 $349
$150,000 $1,479 $867 $523
$200,000 $1,972 $1,157 $698
$250,000 $2,465 $1,446 $872
$500,000 $4,930 $2,891 $1,745
$750,000 $7,395 $4,337 $2,617
The monthly incomes are hypothetical and not intended to project the performance of any specific investment or insurance product.

Monthly income can be greatly influenced by the number of distribution years.  A shorter payout over 10 years will result in the highest monthly distribution amount, but the risk is if you live longer than 10 years in retirement, you may actually run out of money. Perhaps the most important decision is to decide when you actually want the distributions to begin. Deferring the beginning date of distributions from your account a few years can not only reduce the payout timeframe, but could allow an opportunity for additional asset growth depending on investment performance.

For more information on increasing your deferral amount or other retirement planning questions, please contact your retirement plan advisors at R|W Investment Management at [email protected] or 208-297-5445.
¹Payment increases 2% annually to help offset effects of inflation. Illustrative amounts based on 3.5% interest rate. Lifetime payments assume retirement age of 65. Based on 5.5% annual yield compounded monthly. Investment option performance can dramatically affect these numbers. Inflation can also seriously affect the value of the withdrawals. Rate of return is hypothetical and does not represent any specific investment option or imply guaranteed results. Amounts shown do not reflect the impact of taxes on earnings, your actual return will vary depending on your investment option and your tax bracket. ²Lifetime payments assume start at age 65 over two lives, Joint and Survivor at 100% survivor benefit and 3% COLA. Analytics provided by MassMutual.