Just how valuable are the tax advantages of retirement accounts? Retirement Scan
Our daily roundup of retirement news your clients may be thinking about.
Just how valuable are the tax advantages of retirement accounts?
An expert says that clients get two tax benefits when investing in retirement accounts, according to this article on Motley Fool. Contributions to traditional accounts are tax-deferred while clients owe no taxes on capital gains, interest and dividends, allowing their savings to grow over time, says the expert. Historical simulations by an analyst show that the value of investing in these accounts is getting an average of 1.7% in additional earnings.
If you’re young and think you can’t afford to save for retirement, try this
Saving as early as possible will enable young people to be ahead of their peers who don't save in securing their retirement, writes an expert on MarketWatch. "Find a way save $5,000 a year for five years ... and invest that money in something as simple as the S&P 500 index SPX, then let it grow until you retire — presumably when you’re 65," writes the expert. "Based on more than 90 years of stock market history, I think it’s reasonable to expect that $25,000 you put in at the outset could be worth nearly $1.4 million by the time you are 65."
Investing insights: Retirement spending and hidden gems
Morningstar's Christine Benz says that knowing the amount of spending in retirement is necessary for clients to determine whether they have a viable retirement plan. By subtracting income from pension, Social Security and other sources from their anticipated spending in retirement, they will determine "the amount that their portfolio will need to step up and replace on an annual basis," says the expert. "You would take that amount and divide it by the portfolio's value to determine your withdrawal rate, and then you can do some testing around whether that, in fact, is a sustainable number..."
The world isn’t prepared for retirement
A survey by Aegon has found that many people in 15 countries are not ready for retirement, according to this article on Bloomberg. More than 20% of the participants didn't understand the impact of inflation on their buying power. Thirty-eight percent of the participants said that reduction in government retirement benefits was a major concern, with 26% of Americans who participated in the survey worried about it. Some 33% of the respondents in these countries were also concerned with developing Alzheimer's or dementia, the survey found.
What to do with your 401(k) money when you retire
Workers who change jobs have the option of leaving their 401(k) assets with their former employer or rolling the funds over into an IRA, according to this article on Forbes. They are advised to weigh their options before making any decision. “It depends on the individual needs of the employee and the quality of the plan,” says an expert.