Our daily roundup of retirement news your clients may be thinking about.
An expert believes that a solution to the looming Social Security crisis is the setting up of an investment account for every newborn with the federal government providing the initial funding of $7,000, according to this article on Kiplinger. The account would return the principal to the government after 35 years and would grow through compounding to nearly $1 million as the account holder turns 70, the expert says. The proposal would cost the federal government below $1 trillion over 35 years, but the amount would be smaller compared with proposed tax increases and benefit reductions, the expert adds.
Clients are advised to account for their tax situation and other factors before paying off their home mortgage before they retire, according to this article on CNBC. Such a move could be more tax-efficient than carrying the debt through the golden years, but they should not use their retirement savings to pay off the debt, says a certified financial planner. "That additional withdrawal could bump you into a higher tax rate and could even cause more of your Social Security to be taxable. These additional taxes are likely to be far more than any potential tax deduction you would have received on the mortgage interest."
Clients must consider various factors to make a good estimate of the amount of savings that they will need in retirement, according to this article on Motley Fool. For example, clients who have paid off their home mortgage and face a low property tax rate will need lower retirement income than those who opt to carry the debt into the golden years. Other factors to consider are longevity, inflation and risk tolerance.
A study shows that clients can use the formula for computing requirement minimum distribution from a tax-deferred account in calculating their lifetime retirement paycheck, according to this article on CBS Moneywatch. The method is most effective when it is combined with Social Security, pensions and guaranteed lifetime annuity payouts. This strategy allows retirees with these guaranteed income streams to invest in low-cost target-date funds or adopt a higher stock allocation if they have a high tolerance for risks.
Maintaining a "no withdrawal" portfolio can help clients generate sustainable retirement income from their investments, writes an expert on Forbes. With this strategy, retirees adjust their spending on the portfolio returns without withdrawing their base of capital, writes the expert. A grandmother who retired with $387,000 in savings has been using this "no withdrawal" strategy for seven months now and has seen her balance grow to $396,000.
