Our daily roundup of retirement news your clients may be thinking about.
A professor at Yale Law School published a book that calls for changes to Social Security, including raising the full retirement age to 76 and imposing a steep 80% penalty for the highest earners who opt to claim their benefits early, writes an expert on MarketWatch. While the proposal accounts for people's increased longevity and would allow low earners to file for benefits at age 62, raising the FRA to 76 and imposing a stiff early filing penalty for rich Americans could be a bad idea, the expert writes. Moreover, "the public might see [the professor's] changes imposing means testing, which would undermine support for Social Security.
Many 401(k) plans charge hefty administrative and investing fees, as the plan's "baroque structure" and complicated rules require legal paperwork, filings with the Internal Revenue Service and other professional services, according to this article on The Wall Street Journal. Vanguard Group estimates that plan managers charge 0.14% fee for administrative and record-keeping services, an adviser fee of 0.25% plus fund fees of 0.19%. While workers should take advantage of their employer-sponsored retirement plan, they may also consider contributing to the government’s Thrift Savings Plan, where the fee is only $2.90 for every investment worth $10,000.
Retirement investors are advised to determine the consequences of buying an annuity before making a decision, according to this article on Motley Fool. Annuity holders face no contribution limits but the contributions are subject to tax. While an annuity offers tax-free growth on the contributions, withdrawals are taxable and could trigger a 10% penalty if the clients are younger than 59 1/2. Clients can also cancel the annuity and avoid a surrender charge by doing so within 10 to 30 days of signing the contract.
In this new age of retirement planning, clients are advised to spend down their savings in tax-deferred accounts first before collecting their pension or Social Security benefits, according to this article on Kiplinger. This is to avoid bigger taxes on their retirement income. Retirement investors should also diversify their portfolios, choose in-demand stocks, and hold a cash reserve. Clients should also give retirement a test run and they should not just focus on finances when planning for the golden years.
The median family between the ages 32 and 61 has saved a paltry $5,000 for retirement, and the shift from pension to 401(k) plan is to blame for this shortcoming, according to a study by the Economic Policy Institute. Meanwhile, the wealthiest households have saved at least $1 million, says an economist with the EPI. "Our retirement system used to reduce inequality, but since the shift to 401(k)s it has only served to magnify it."
