Our daily roundup of retirement news your clients may be thinking about.
Despite Social Security's financial woes, experts at Boston College Center for Retirement Research say that future retirees can expect to receive their benefits as the revenue shortfall can be easily fixed, according to this article on personal finance website Motley Fool. However, seniors should not rely solely on Social Security for income, as the benefits are meant to replace only 40% of pre-retirement income. Moreover, a report also shows that the benefits' value has been shrinking since 2000. That's because the cost-of-living adjustments have not kept up with inflation.
Seniors who worry about retiring during a bear market should avoid delaying their retirement date and focus instead on things within their control, writes an expert on The Wall Street Journal. Clients who are preparing to retire next year are advised to create a budget, minimize their debt and develop a claiming strategy that will maximize their Social Security benefits, writes the expert. They should also consider annuitizing their retirement savings to create a pension-like income stream and achieve tax diversification in their portfolio to minimize the tax bite on income.
Data from Fidelity Investments show that about 50% of its IRA investors who need to take required minimum distributions have not taken any amount to comply with the mandatory withdrawal, according to this article on The New York Times. Retirees aged 70 1/2 and older who fail to take the RMD will face a 50% tax penalty. A Fidelity expert says that this might not mean that these retirees forgot to take the distribution, except that they are taking the minimum withdrawals from outside sources. Seniors may be exempt from taking an RMD from their workplace plans if they are still working, while those who do not need the money may donate the funds to a charity through a qualified charitable distribution to meet the RMD requirement and avoid paying income taxes.
Clients may want to consider buying an annuity product to create a source of guaranteed income after they retire, according to this article on Barron's. The product comes in different types, such as simple income annuity, deferred income annuity and variable annuity. For retirement savers, an expert recommends a qualified limited annuity contract, which they can buy inside their tax-deferred 401(k) plan. One great benefit of QLAC is that as much as $130,000 invested in the annuity will not be subject to required minimum distribution rules.
