MONTHLY NEWS AND INFORMATION FOR CURRENT AND FUTURE RETIREES
PRESENTED BY BRENT E. CHAVEZ – FEBRUARY 2020
QUOTE OF THE MONTH
“Rest is the sweet sauce of labor.”
– PLUTARCH
WHAT MATTERS MORE IN RETIREMENT: INCOME, OR SAVINGS?
Retirement saving is not just about accumulating assets. It is also about laying the groundwork for retirement spending. Any retirement strategy has a core goal: the goal of helping an individual or couple pursue their retirement dreams once their careers have concluded. So, from that perspective, the amount that needs to be saved directly relates to the amount a retiree household may need to spend. To live your best retirement, your degree of retirement savings needs to be great enough to try and correspond to that vision.
Often, articles state that pre-retirees will need to live on 70% to 80% of their final working incomes. This is a general guideline, yet it may or may not prove true for a particular household. Some people retire and find they are spending less than they once did. Others spend as much as they did while working, maybe even a bit more, due to traveling, hobbies, and social engagements. What does this imply for retirement saving? While you arguably cannot save too much for the future, you can save too little.1
Travel Tip
Clear cookies, and you might score a cheaper flight
Airlines use dynamic pricing to adjust airfares relative to demand, and they can actually do this per consumer. Most airline websites screen your search history, including the browser cookies you may have picked up while visiting other airline or travel websites. Based on these cookies, they may present you with more expensive flights than they would otherwise. Deleting cookies from your browser just before a fare search may help you avoid this dynamic pricing.
Source: MSN2
HOW THE SECURE ACT IMPACTS RETIREMENT ACCOUNTS
A new federal law, the Setting Up Every Community for Retirement Enhancement (SECURE) Act, directly affects retirees and retirement savers. It changes the rules regarding “stretching” an Individual Retirement Account (IRA) as well as longstanding retirement account rules keyed to age 70½.
Under the SECURE ACT, in most circumstances, once you reach age 72, you must begin taking required minimum distributions (RMDs) from traditional Individual Retirement Accounts (IRAs) and most other employer-sponsored retirement plans. (This new RMD rule applies only to those who will turn 70½ in 2020 or later.) The SECURE ACT also lets seniors contribute to traditional retirement accounts after age 70½, as long as they have earned income; previously, this was forbidden. Both these changes have big implications for savers; large account balances can potentially grow and compound a little more before being drawn down, and amounts contributed after age 70½ could have a chance to compound as well. Turning to the workplace, the SECURE ACT allows employer-sponsored retirement plans the option to include insurance products, offering the potential for lifelong income. It also opens a door for small businesses to join multi-employer group retirement plans (MEPs).
The new law does curtail the Stretch IRA estate strategy. Anyone who inherits an IRA of any kind in 2020 or later must withdraw the whole IRA balance within 10 years of the IRA owner’s death and pay linked taxes, unless that heir is a minor child or a surviving spouse. (Existing inherited IRAs are exempt from the new rules.) The SECURE Act is certainly worth a conversation.3,4
Learn more: The SECURE Act
Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Under the SECURE Act, your required minimum distribution (RMD) must be distributed by the end of the 10th calendar year following the year of the Individual Retirement Account (IRA) owner’s death. Penalties may occur for missed RMDs. Any RMDs due for the original owner must be taken by their deadlines to avoid penalties. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and child of the IRA owner who has not reached the age of majority may have other minimum distribution requirements.
DID YOU KNOW?
The Romans may have built the earliest retirement villages
In the first century B.C., Julius Caesar, Sulla, and other Roman generals founded special colonae (colonies) to serve as retirement communities for Roman army veterans. Pompeii actually began as one of these communities.5
ARE BABY BOOMERS FLOCKING TO BIG CITIES?
A quick look at some federal government statistics provides a quick answer: no. Perhaps it seems like big cities are filled with baby boomers because of the simple fact that this demographic group is larger than others. Research does not back up this assumption, however. As a recent New York Times analysis of Census Bureau data noted, 17.2% of Americans aged 54-72 lived in urban areas in 2018; back in 1990, 21.6% did. This percentage declined gradually, but steadily, over these 28 years, and looking more closely at the decline, the 54- to 72-year-olds of 2018 were 11% less likely to live in urban neighborhoods than the 54- to 72-year-olds of 2000.
As other Census Bureau data from 1990-2018 reveals, the Americans most likely to live in urban settings have been those aged 25 to 29. The least likely? Those aged 70 to 74. The odds of urban living start to increase again after age 80. Even so, just two years ago, only 19.8% of Americans aged 85 or older lived in urban settings.6
ON THE BRIGHT SIDE
A fair number of employers are offering phased retirements. According to the Transamerica Center for Retirement Studies, 30% of U.S. companies permit their workers to move from full-time hours to part-time hours as part of a retirement transition, and 21% allow employees to move into less-stressful roles prior to retiring.7
BRAIN TEASER
What goes up and down each day, yet does not physically move?
STUMPED? CALL 215-766-7002 FOR THE ANSWER!
CITATIONS
1 – forbes.com/sites/kristinmckenna/2019/07/10/debunked-6-myths-about-retirement [7/10/19]
2 – msn.com/en-us/travel/tips/travel-tip-clear-your-browser-before-booking-a-flight-to-get-a-better-deal/ar-AAISUPG [10/17/19]
3 – inquirer.com/news/secure-act-retirement-2020-annuities-rmd-529-plan-taxes-20191223.html [12/23/19]
4 – investmentnews.com/the-stretch-ira-is-dead-175775 [12/27/19]
5 – livius.org/articles/concept/colonia/ [6/8/19]
6 – nytimes.com/2020/01/24/upshot/myth-urban-boomer.html [1/24/20]
7 – cnbc.com/2019/10/04/earning-income-after-65-how-to-make-it-work-for-you.html [10/4/19]
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.