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January 22nd, 2013 by

It’s not a good sign when people raid their retirement dollars to pay bills, college tuition, or auto repairs, but more workers have been borrowing from their accounts or taking hardship withdrawals over the past few years.

At the end of 2010, 28% of active 401(k) participants had outstanding account loans, and another 7% took early withdrawals.1 In 2011, retirement nest egg account loans rose by 20% across all demographics.2 Although it’s understandable that people might turn to their retirement accounts for a source of ready cash, it is generally not a good idea. Fifty-five percent of employees who took a cash distribution when changing jobs said they regretted having done it.3

Keep Your Money Working

With certain exceptions, a 10% federal income tax penalty applies to early withdrawals (before age 59½) from tax-deferred plans such as IRAs and employer-sponsored retirement plans. That’s a significant deterrent in itself, but the greater penalty could be the loss of future increases needed for retirement.

Consider the impact of a $10,000 early withdrawal from a traditional IRA. Not only could the distribution be subject to the penalty ($1,000) but also income taxes ($2,800 for someone in the 28% tax bracket), which could leave a net amount of $6,200. On the other hand, if the $10,000 principal was left in the tax-deferred account, in 20 years it would have the potential to more than triple, assuming a 6% average annual growth; in 30 years, it might reach $60,000 (see graph). This hypothetical example is used for illustrative purposes only and does not reflect the activity of any specific financial vehicle; actual results will vary.

retirement dollars - early withdrawal example

If you change jobs, you may be able to leave your retirement account monies in your former employer’s plan. Another option is to roll the money to a traditional IRA. A properly executed trustee-to-trustee transfer to your own IRA could help preserve the tax-deferred status of the funds and potentially avoid unwanted current tax consequences and penalties. It may also give you more control of the nest egg dollars, open up additional options, and help you manage overhead costs.

Sources
1) Reuters, February 17, 2012
2) advisorone.com, January 17, 2012
3) advisorone.com, January 26, 2012

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January 17th, 2013 by

The number of Americans aged 90 or older almost tripled from 1980 through 2010 and is projected to quadruple by 2050.1

Of course, reaching 90 is still an unusual accomplishment, but the average 65-year-old can expect to live another 19 years.2 A retirement plan that provides steady monies for both the short and the long term could help you enjoy a long, comfortable retirement.

retirement planning annuitiesAn annuity is a contract with an insurance company in which you agree to make one or more payments in exchange for a current or future monies. An immediate annuity typically begins to pay money to the contract holder immediately, whereas a deferred annuity begins paying monies at a specified time in the future.

Withdrawals of annuity increases are taxed as ordinary income and may be subject to a 10% federal income tax penalty if made prior to age 59 ½. Withdrawals reduce annuity contract benefits and values. Most annuities have surrender charges that are assessed during the early years of the contract if the annuity is surrendered.

Generally, annuities have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, management fees, administrative fees, and charges for optional benefits. Any guarantees are contingent on the claims-paying ability of the issuing company. Annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association.

life_guide_retirementSources:
1) U.S. Census Bureau, 2011
2) National Vital Statistics Reports, Volume 59, Number 4, 2011

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January 7th, 2013 by

According to a 2010 industry study, 44% of households without life insurance admitted that they haven’t bought a policy because they don’t know how much coverage they need.1 If you have dependents who rely on your income, it may not be wise to let uncertainty keep you from purchasing life insurance protection.

A common formula that recommends replacing eight to ten times your income works for some people but may be too simple for your specific situation. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable. As with most decisions about money, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. If a policy is surrendered prematurely, there may be surrender charges and income tax implications.

Source: 1) LIMRA, 2011

Your Safe Money KitLife Insurance is about keeping your money safe. Download my FREE resource : safe money kit. Then, let’s talk about your life insurance needs. It’s always a free consultation. 833-313-7233.