401(k)

What has the Average American Saved for Retirement?

It’s the question we all wonder about, but not very many of us will come out and ask. A 2019 analysis of more than 30 million retirement accounts by Fidelity Investments found that the average balance in corporate sponsored 401(k) plans at the end of 2018 was $95,600. When it came to traditional, Roth and rollover IRAs, the number was $98,400, reports Investopedia in a recent article titled “What Is the Size of the Average Retirement Nest Egg?” A look at 403(b) and other defined contribution retirement plans in the non-profit sector found that it was $78,7000. These numbers were down between 7.8%-8% from the same quarter of the prior year. Blame the stock market for that.

Averages like this only indicate a few things. Younger workers, for example, tend to have less in their retirement accounts than older workers. Their salaries are smaller, and they haven’t had decades to accumulate tax deferred income in their accounts. However, that gap is wide.

A June 2018 report from the Transamerica Center for Retirement Studies looked at a nationally representative sample of more than 6,000 workers and broke out retirement savings by generation. The boomer members had estimated median retirement savings of $164,000 in 2017, while Gen Xers had $72,000 and millennials had $37,000.

Aside from age, the big factors in retirement savings success seem to be education and income. People with higher income put more money into their retirement accounts. The Transamerica study shows that households with incomes of under $50,000 had estimated median retirement savings of $11,000. Households with incomes between $50,000 and $99,999 had median savings of $61,000 and those with incomes of $100,000 or more had $215,000.

The higher the level of education, the more money people have set aside for retirement.

Therefore, if you’re wondering how your nest egg compares to the average nest egg, the first thing you’ll want to do is decide to whom you want to compare yourself and your nest egg. You can compare yourself to the U.S. population in general, or to people who are more like you in education, age and income.

Here’s an unnerving thought: no matter if your nest egg is way above your peer group, that doesn’t mean it will be enough when retirement rolls around. Everyone’s situation is different, and life hands us unexpected surprises.

One way to prepare is to have an estate plan. If you don’t already have an estate plan, which includes a will, power of attorney, health care power of attorney, possibly trusts and other strategic tools for tax planning and wealth transfer, make an appointment with an estate planning attorney.

Reference: Investopedia (Sep. 24, 2019) “What Is the Size of the Average Retirement Nest Egg?”

Your Will Isn’t the End of Your Estate Planning

Even if your financial life is pretty simple, you should have a will. And once you have a will, that’s not the end of your estate planning.  There’s still some work to be done to make sure your family isn’t left with an expensive mess to clean up.  Assets must be properly titled, so that assets are distributed as intended upon death.

Your Will is only one piece of your estate planning.

Forbes’ recent article, “For Estate Plan To Work As Intended, Assets Must Be Properly Titled” notes that with the exception of the choice of potential guardians for children, the most important function of a will is to make certain that the transfer of assets to beneficiaries is the way you intended.

However, not all assets are disposed of by a will—they pass to beneficiaries regardless of the intentions stated in the will. Your will only controls the disposition of assets that fall within your probated estate.

An example of when a designated beneficiary controls the disposition of a financial asset is life insurance. Other examples are retirement accounts, such as a 401(k) or an IRA. When there’s a named beneficiary, assets will be distributed accordingly, which may be different than the intentions stated in a will.

The title of real estate controls its disposition. When property is jointly owned, how it is titled determines if the decedent’s interest in the property passes to the surviving partner, becomes part of the decedent’s estate, or passes to a third party. Titling of jointly owned property can be complicated in community property states.

In the same light, a revocable trust is an inter vivos or living trust that’s created during the grantor’s life, as part of an estate plan.

Such a trust can be used to ensure privacy, avoid the expenses and delays in the probate process and provide for continuity of asset management. A critical part of the planning is that the grantor must transfer (or retitle) assets to the trust.

Wills are very important in estate planning. To ensure that your estate plan fulfills your intentions, talk to an estate planning attorney about the proper titling of your assets.

Reference: Forbes (May 20, 2019) “For Estate Plan To Work As Intended, Assets Must Be Properly Titled”

Will the RMD Age Be Raised by New Legislation?

RMD Age
The new retirement bill may boost the RMD age to 75.

Senator Ben Cardin and Rob Portman’s Retirement Security and Savings Act of 2019 overlaps with some provisions in the Retirement Enhancement and Savings Act (RESA) of 2019. That bill was introduced on April 1, but RESA only raised the RMD age to 72.

Think Advisor reports in the article “New Retirement Bill Would Boost RMD Age to 75” that the RESA bill, which was introduced by Senate Finance Committee Chairman Chuck Grassley, R-Iowa, and ranking member Ron Wyden, D-Ore., is similar to H.R. 1994, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The latter bill is expected to get a vote on the House floor very soon.

The Portman-Cardin bill phases in the RMD age increase over several years. The bill would also update mortality tables to reflect longer life expectancies.

The bill would also broaden the ability of employer-sponsored 403(b) plans to offer collective investment trusts (CITs). A CIT is a mutual fund-like vehicle used in some 401(k)s and pension plans that can help plan sponsors save on expenses.

The Insured Retirement Institute, a lobbying group for the annuity industry, added its support for the bill.

“Section 117 [of the bill] would level the playing field, by providing insurance products with the same exemptions as CITs,” the group said in a letter to senators, sparking “a robust and competitive marketplace which is vital to ensure Americans have access to the appropriate savings option for their financial situation.”

The bill would also let those with Roth accounts in 457(b), 401(k), 401(a), and 403(b) plans roll Roth IRA assets into these plans. It would also allow 457(b), 401(a), 401(k) and 403(b) plan participants to make qualifying charitable distributions. Right now they are only allowed from IRAs.

Reference: Think Advisor (May 14, 2019) “New Retirement Bill Would Boost RMD Age to 75”

Common Mistakes with Beneficiary Designations

Questions about beneficiary designations are among the most common we hear from new clients in our law practice.  This is a topic that should be among those discussed by an estate planning attorney during your first meeting.

Many people don’t understand that their will doesn’t control who inherits all of their assets when they pass away. Some of a person’s assets pass by beneficiary designation. That’s accomplished by completing a form with the company that holds the asset and naming who will inherit the asset, upon your death.

Estate Planning Attorney
Assets with a beneficiary designation will not be distributed according to your will.

Kiplinger’s recent article, “Beneficiary Designations: 5 Critical Mistakes to Avoid,” explains that assets including life insurance, annuities and retirement accounts (think 401(k)s, IRAs, 403bs and similar accounts) all pass by beneficiary designation. Many financial companies also let you name beneficiaries on non-retirement accounts, known as TOD (transfer on death) or POD (pay on death) accounts.

Naming a beneficiary can be a good way to make certain your family will get assets directly. However, these beneficiary designations can also cause a host of problems. Make sure that your beneficiary designations are properly completed and given to the financial company, because mistakes can be costly. The article looks at five critical mistakes to avoid when dealing with your beneficiary designations:

  1. Failing to name a beneficiary. Many people never name a beneficiary for their retirement accounts. If you don’t name a beneficiary for retirement accounts, the financial company has it owns rules about where the assets will go after you die. For retirement benefits, if you’re married, your spouse will most likely get the assets. If you’re single, the retirement account will likely be paid to your estate, which has negative tax ramifications and may need to be handled through the costly and time-consuming probate courts. When an estate is the beneficiary of a retirement account, the assets must be paid out of the retirement account within five years of death. This means an acceleration of the deferred income tax—which must be paid earlier, than would have otherwise been necessary.
  2. Failing to consider special circumstances. Not every person should receive an asset directly. These are people like minors, those with specials needs, or people who can’t manage assets or who have creditor issues. Minor children aren’t legally competent, so they can’t claim the assets. A court-appointed conservator will claim and manage the money, until the minor turns 18. Those with special needs who get assets directly, will lose government benefits because once they receive the inheritance directly, they’ll own too many assets to qualify. People with financial issues or creditor problems can lose the asset through mismanagement or debts. Ask your estate planning attorney about creating a trust to be named as the beneficiary.
  3. Designating the wrong beneficiary. Sometimes a person will complete beneficiary designation forms incorrectly. For example, there can be multiple people in a family with similar names, and the beneficiary designation form may not be specific. People also change their names in marriage or divorce. Assets owners can also assume a person’s legal name that can later be incorrect. These mistakes can result in delays in payouts, and in a worst-case scenario of two people with similar names, can mean litigation.
  4. Failing to update your beneficiaries. Since there are life changes (like marriage and divorce for example), make sure your beneficiary designations are updated on a regular basis.
  5. Failing to review beneficiary designations with your estate planning attorney. Beneficiary designations are part of your overall financial and estate plan. Speak with your estate planning attorney to determine the best approach for your specific situation.

Beneficiary designations are designed to make certain that you have the final say over who will get your assets when you die. Take the time to carefully and correctly choose your beneficiaries and periodically review those choices and make the necessary updates to stay in control of your money.

Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

What’s the Difference Between Per Capita And Per Stirpes Beneficiary Designations?

A will covers the distribution of most assets upon your death. However, any assets that require beneficiary designations, like 401(k), IRAs, annuities, or life insurance policies, are distributed according to the designation for that account. A beneficiary designation takes precedence over the instructions in a will or trust.

Benzinga’s recent article addresses this question: “Estate Planning: What Are Per Capita And Per Stirpes Beneficiary Designations?” Have you changed the beneficiary designations, since the account or policy was first started? If you need to update your beneficiary designation, talk to the company responsible for maintaining the account. They’ll send you a form to complete, sign and return. Keep a copy for your own records.

You should also name a contingent beneficiary to receive the account, in case the primary beneficiary passes away before you can update the beneficiary list. Without a listed contingency, your account designation goes to a default, based on the original agreement you signed and the state law.

With per capita distribution, all members of a particular group receive an equal share of the distribution. Within a will or trust, that group can be your children, all your combined descendants, or named individuals. Under per capita, the share of any beneficiary that precedes you in death is shared equally among the remaining beneficiaries. Within a beneficiary designation, per capita typically means an equal distribution among your children.

Per stirpes distribution uses a generational approach. If a named beneficiary precedes you in death, then the benefits would pass on to that person’s children in equal parts. Spouses are generally not part of a per stirpes distribution.

Assume that you had two children. With per stirpes, if one child were to precede you in death, the other child would receive half, and the children of the deceased child would get the other half.

Create a list of all your accounts that have beneficiary designations and keep it with your will. If you don’t have a copy of the latest beneficiary designation form, write down the primary beneficiary, contingent beneficiary, and the date the beneficiary designation was last updated for each one.

Remember, it’s important to keep both your will and all beneficiary designations up to date.

Reference: Benzinga (December 26, 2018) “Estate Planning: What Are Per Capita And Per Stirpes Beneficiary Designations?”

Celebrated Your 50th Birthday? Here’s What You Need to Do Next

The 50s are the time of life when your kids are starting to become more independent and may have moved out. If that’s true, you may have a little more disposable income. That presents a good opportunity to ramp up your retirement savings, advises Sioux City Journal in the article “In Your 50s? Do These 3 Things to Plan for Your Retirement.”

Unfortunately, many people who turn 50 start thinking now is the time to retire early, go on extravagant vacations or buy themselves big ticket items that they’ve always wanted. A better approach: consider this a time to make the most of your income, keep saving for retirement and stay on a steady course.

Use the catch-up options available to you. The federal government knows that many people don’t have the means or the motivation to save for retirement until later in their careers. That’s why there are several provisions in the tax laws that let you catch up, once you reach 50.

  • You can put away an additional $1,000 above the annual contribution limit to an IRA.
  • You can add $6,000 in annual contribution to 401(k)s and similar employer-sponsored plans after age 50.
  • Once you pass your 55th birthday, you can make an additional $1,000 annual contribution to health savings accounts.

If you’ve got the cash to spare, these are great opportunities.

Educate yourself about Social Security. Many people rely on Social Security for their retirement, while others use it as a safety net. You’ll want to start learning about the rules.

When you take your first benefits has an impact on how much you’ll receive over your lifetime. Yes, you can start at age 62, but the difference in the amount you’ll get at 62 versus 70 is substantial. If you plan to keep working indefinitely, maximizing earnings is the best way to boost your Social Security benefits.

Get access to savings in the early years of retirement. If you can afford to retire in your 50s, know when you can tap your retirement savings. If you’ve used regular taxable accounts to invest your savings, it won’t matter when you make withdrawals. However, if your money is locked up in 401(k)s, SEPs, IRAs and other tax favored accounts, you’ll need to know the rules. Penalties for taking withdrawals before the specified age, can take a big bite out of your retirement accounts.

It is hard to think about working every day for another 15 or 20 years, once you’ve celebrated your 50th birthday.  However, keeping these three key ideas in mind as you plan for the future will help put you in the best financial state possible.

Another post-50th birthday task? Meet with an estate planning attorney and make sure you have a will, Power of Attorney and other legal documents to protect yourself and your loved ones in case something unexpected should happen.

Reference: Sioux City Journal (Aug. 25, 2018) “In Your 50s? Do These 3 Things to Plan for Your Retirement”

A Four Decade Retirement Plan? Here’s How

Not everyone gets the good genes or good fortune that has Orville Rogers flying around the country to attend master’s level track meets, but he is an inspiring example to follow. Money describes Rogers in a title that says it all: “This 100-Year-Old Has Been Retired for 40 Years, Has a Healthy Savings Account and Is a Track Champion. Here’s His Impressive Path to a Rich Retirement”

Longevity in savings that aligns with his years is a powerful force. He started saving in 1952, 25 years before the creation of the retirement savings plan, we know today as a 401(k). Back in the day, companies provided their employees with pension plans and those without a pension plan lived on Social Security when they retired. Life expectancies were shorter, so you didn’t need quite so much money. Rogers was born in 1917, and his peer group’s life expectancy was about 48.4 years old.

By saving for retirement and using his downtime between flights to educate himself about money, he started investing and says that his account is now worth around $5 million. He says he wasn’t particularly frugal either and supported his church and other Christian causes throughout his life. However, he had time on his side, making periodic investments over an extended period of time.

Another practice that extends life: exercise. Rogers took up running at age 50 and hasn’t stopped yet. Studies have shown that anyone, at any age or stage, is helped by a regular schedule of physical activity, tailored to your personal needs. Even people who are wheelchair bound and living in a nursing home can benefit from a chair exercise program. Among older seniors, the ability to walk a quarter mile (one lap around a track), is linked to better health outcomes.

Until recently, Rogers ran five to six miles a week. He’s in rehab now and working his way back to his prior running and training schedule.

When you live as long as Rogers has, you outlive a lot of family members and friends. Rogers moved into a retirement community two years after his wife died, making new friends because, as he says, “… if I don’t, I’d have none left.”

Faith has also been a strong force in his life over these many years. At 98, he wrote a book, The Running Man: Flying High for the Glory of God. When he was starting out in his retirement years, he flew church missions in Africa.

“I’m enthusiastic about life,” Rogers says. That kind of inspiration is a lesson to us all.

Reference: Money (Nov. 2018) “This 100-Year-Old Has Been Retired for 40 Years, Has a Healthy Savings Account and Is a Track Champion. Here’s His Impressive Path to a Rich Retirement”

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