Retirement

Do Americans have a saving problem for retirement? Many Americans do not have enough savings ever to be able to retire comfortably. The median family of retirement age has $12,000 in savings. Using the 4% safe withdrawal rate, that’s only $40 per month in retirement income. That is a terrifying figure to remind younger people to save for retirement.

About 70 percent of Americans have access to to retirement accounts through their employers, but just over 50% take advantage of the retirement saving plan. To this segment of population that has access to retirement accounts,  the average American household has just about $100,000 in 401(k)’s and IRA’s.

The U.S. Census Bureau reported in September 2016 that real median annual household income was $55,775 in 2015. To be financially secure in retirement, retirees would need about six to eleven times annual earnings. Given that retirement saving is nothing other than giving up money during one’s working years to be able to spend more in retirement. So how will Americans with low savings survive in retirement?

The savings-poor households can still thrive in retirement. Many of them depends on Social Security and state pension for monthly incomes. Older retirees could also rely on other family members to avoid the retirement crisis.

The Pension Plan is a tax qualified retirement plan designed to provide you with additional income when you retire. Most of the time you don’t need to make any contributions and the money is funded solely by your employer. This cash-balance pension is kept in a safe interest bearing accounts. The interest credits on your pension balance might be based on the annual interest rate on 30-year U.S. Treasury bonds. Any distribution of benefit you receive from the Pension Plan is considered taxable income.

So can you cash out a pension early? Yes you can. The best way to avoid any penalty when you cash out your pension early is to roll your money into an IRA when you leave the company. But first, let’s talk about the penalty when you cash out your pension early.

Penalty for Cash Out Pension Plan Early

If you receive a lump sum distribution prior to reaching age 55, you may be required to pay an additional 10% Federal income tax. You can avoid paying the additional tax on a lump sum distribution by rolling over this distribution into an IRA, Roth IRA, or another eligible retirement plan, which is usually sponsored by another employer. [Read more…]

The amount of your Social Security retirement benefit is based on your year of birth, your age when your benefits begin, and the earnings on which you paid Social Security payroll taxes—not on the amount of taxes you paid. I will claim my social security benefit at 70 years old while my wife, Mrs. PFN, will claim at 68 years old. Here is how I deride our plan to claim social security benefits.

Background of Social Security Benefits

Retirement income from Social Security has the extra benefit of an automatic cost-of-living adjustment (COLA) that increases your payments annually to keep pace with inflation. You should apply for benefits about three months before you want them to begin. You may apply for your benefits to begin between the ages of 62 and 70 if you have at least 10 years of coverage. Benefits are permanently reduced if they begin before full retirement age. A retired worker’s spouse can apply for benefits at age 62 or later.

A surviving spouse of a worker or retired worker can apply at age 60 or later. Since both Mrs. PFN and I were born after 1960, our full retirement age is 67. At first we plan to use the file-and-suspend strategy to maximize our benefits: I will file and suspend my benefit at the age of 67 while my wife claim the spousal benefits. However, Congress passed the new law that close the file-and-suspend strategy. May 1, 2016 is when the laws grace period ends, eliminating people’s ability to file-and-suspend in order to trigger benefits for a spouse. So we have to come up with a new plan. [Read more…]

Christian Weller, University of Massachusetts Boston writes:

This week marked the beginning of the presidential primary season, and economic fears such as jobs and wages have taken center stage on the campaign trail. Yet one of voters’ biggest economic problems has thus far received short shrift from the candidates: Americans’ growing inability to save for retirement. A handful of Republican and Democratic candidates have laid out proposals for Social Security reform, but none have adequately addressed the substantial and growing deficit in total retirement savings. The retirement crisis is real, as I’ve also been documenting for the past 15 years and most recently in my new book, Retirement on the Rocks. More than half of us won’t have enough savings when we retire to maintain our current standard of living and will have to make substantial spending cuts once we stop working. How did we get here, what are the consequences and how can we fix the problem? [Read more…]