Archive for April, 2010

Tap retirement savings early without penalty

Posted on April 28, 2010 by Jason

Marketwatch, April 28th, 2010

For many older workers the recession has been
especially tough. Salaries and benefits have been cut, insurance costs
have risen. That slimmer paycheck isn’t going as far as it once did.

But there is one little known, if troublesome, way that some older
workers might be able to make up some of the shortfall: You can tap into
your nest egg a bit early.

The law dictating when you can use your retirement money is
straightforward: Funds withdrawn from an individual retirement account
before age 59 1/2 are subject to a 10% hit. But the Internal Revenue
Service permits a loophole, part of Section 72(t) of the federal tax
code, where the penalty does not apply if the money is paid out in set
amounts over time.

Be careful. Using this exemption isn’t so straightforward — it does
reduce savings you will need for many years to come.

To qualify, you must take what the IRS calls a series of “substantially
equal periodic payments,” or SEPP, from your traditional IRA. (Roth IRA
withdrawals aren’t penalized.)

This is where the simple part ends.

No one-time payouts

“Periodic payments” means taking installments at least annually for a
minimum of five years or until age 59 1/2, whichever is longer. So if
you’re 50 years old, the SEPP will be in effect for almost a decade
before you can stop. Someone who is 57 years old will be bound to the
plan until age 62, well past the time when the 10% penalty would no
longer have applied.

“Substantially equal” means the periodic payments must adhere to one of
three formulas: a required minimum distribution method; an amortization
method, or the annuitization method.

What’s the difference? The size of the payments can be substantial.
Minimum distribution gives the lowest payment but fluctuates with the
value of your account, whereas the other two options supply higher,
fixed, payments.

These calculations are based on savings, age, life expectancy and a
government-supplied “reasonable” interest rate. You don’t have to do the
math — many financial-planning Web sites have handy 72(t) calculators.
Check out Bankrate.com or, for a comprehensive guide, go to 72t on the
Net (72t.net).

Read more of this article.

Editor’s Note:  No link this time, just a careful warning.  While this article does describe accurately the mechanics, upsides, and downsides to performing this type of operation, it is fraught with danger.  The very concept of drawing upon retirement savings to fund existing costs, even necessary ones, places many people in the gravest of trouble.  Unless there is a desperate need, even if you fully intend to pay the money back, NewRetirement strongly encourages would-be retirees to very very carefully consider this course of action, no matter how sure or necessary it may appear.

Putnam: Workers need to save more for retirement

Posted on April 28, 2010 by Jason

Boston Globe, April 27th, 2010

Americans are less likely to fully fund their individual retirement
accounts this year, in some cases because they lack the cash, according
to a new survey from Putnam
Investments, a Boston mutual funds company that offers retirement
planning services.

Almost 40 percent fewer Americans expect to fully fund their IRAs
this year than they did in 2009, and the survey of 1,000 Americans found
that there is much confusion and uncertainty about IRA investing.

Besides a lack of cash, respondents cited a preference for keeping
money available for other purposes and concerns about risk as reasons
for not fully funding retirement accounts, the survey said.

While a recent rule change makes more Americans eligible to open Roth
IRAs, 41 percent of survey respondents think they will have more money
in the long run if they pay taxes later with a traditional IRA rather
than converting to a Roth IRA and paying taxes now.

Read more of this article.

Professional Retirement Financial Planners:  It’s important even (in fact especially) in times of economic turmoil to keep an objective view of the long term.  Trends that you might react to on gut instinct or without proper research may not be the right way to go.  A professional financial adviser can help you determine what is the best course of action to preserve and secure your retirement.

Five Dumb Things People Do With Their Money

Posted on April 28, 2010 by Jason

ABC News, April 28th, 2010

Some days, I get tired of telling people what to do with their money.

You tell them one thing; they do another and then wonder why they have
so little.

Maybe it’s time for a new approach. Forget about telling them what to
do.

Instead, tell people what not to do with their money. Help them avoid
the stupid mistakes that can spell financial disaster, and then maybe
things like buying a home, saving for retirement
and paying for college will be easier.

Toward that end, I’ve compiled my own list of the worst money moves you
can make. The list is by no means exhaustive, as there are an endless
number of ways to screw up your financial life.

But avoid these money mistakes, and you’ll stand a better chance of
achieving your financial goals.

1. Invest in something you don’t understand: It’s often
said that financial products are sold, not bought. That means there’s a
salesperson behind the transaction, pushing a security or insurance
policy that the buyer did not go looking for and does not truly
understand.

I’m talking about things like variable annuities, limited partnerships,
life settlements or reverse convertibles.

There is a legitimate place for many of these financial products, but
quite often their costs are too high and their benefits not as great as
presented. Often, the biggest advantage is the commission paid to the
broker.

My general rule of thumb is that the less you understand about a
financial product, the more it’s going to cost you. So unless you
understand it, don’t buy it.

2. Refuse to sell at a profit for tax reasons: Remember
when General Electric fetched $57 a share in 2000 or Home Depot stock
approach $70 in 1999? I hope you sold some at the time and paid the
capital gains taxes if you held in taxable accounts.

Because you can be sure there were investors who refused to sell simply
to avoid paying the IRS. They allowed their investment decisions to be
dictated by taxes rather than the investing fundamentals.

The painful consequences of doing this became pronounced during the
financial meltdown of 2008 for the owners of bank stocks. For many
investors, bank stocks had become legacy investments handed down through
the generations. Their values had skyrocketed as banks were bought and
sold in a consolidation wave.

Read more of this article.

Retirement Calculator:  If you’ve made any of the above mistakes, might it not be time to consider the state of your finances?  Our retirement calculator can help you do just that.

How Divorce Affects Retirement Benefits

Posted on April 27, 2010 by Jason

US News & World Report, April 23rd, 2010

Divorce after age 50 can severely disrupt your retirement
plans. Access to pensions, retirement account balances, and Social
Security benefits are all impacted by both marriage and divorce. U.S.
News asked Janice Green, a family law attorney in Austin, Texas
and author of the new book Divorce
After 50: Your Guide to the Unique Legal and Financial Challenges,
how a late-life divorce typically affects retirement assets. Excerpts:

[Use our Mutual Fund Score
to find the best investments for you.]

What should you do before a divorce to make sure you are
still able to retire?

The first important thing to do is to get a summary plan description
of the employment-related retirement plans and see what those say about
the pension and 401(k). The next step, after you know what you’ve got,
is you’re going to have to value it. Let’s say husband has $100,000 in
his 401(k) account and it’s
all marital property and he’s 55 years old. That money is obviously not
the same in value as $100,000 in a CD somewhere or in a money market account because
you can’t get it without penalty and paying taxes on it. But we don’t
know when you’re going to take it. We don’t know what tax bracket you
are going to be in. The closer and the older people are the less
speculation there is in reducing that 401(k) by some factor of estimated
income taxes that you would owe if you were to pull that money out.

How do ex-spouses typically split 401(k) and IRA balances?

You can award it all to one spouse or you can divvy it up. If a
husband has been paying into that 401(k) or IRA prior to marriage then
his separate estate would have a claim to part of that retirement
account. In some states they look at the balance on the date of the
marriage as his property and everything after that is subject to the
division. It’s really wise to divide them by percentages so that it’s
not dollar divisions. If you divide it by dollars and the market takes a
plunge after the time you reach an agreement, that split is going to be
affected. Let’s say the value of that account was $500,000 when they
reached an agreement and dropped to $350,000 at the time it was divided
up. If you have made an award to the wife of $250,000, the husband is
going to get nailed because he is sitting there with $100,000, not
$250,000. That can make people very unhappy. If there is an upswing in
the market, in value, then you may want to allocate that.

[See How
to Save Money by Retiring Abroad.]

What if you started saving for retirement before marriage?

If a husband had put in some money prior to marriage, contributed
during marriage, and then there was a divorce, his separate estate has
an interest in that retirement plan. You have to carve that out and
value that part. It may not be that his entire account is marital
property. There can be some tracing out of separate property within that
pension plan. He may be putting in work time after the divorce before
he reaches retirement age and that could be his separate estate’s
interest.

Read more of this article.

Retirement Calculator:  If you are divorced or in the process of becoming so, then this is a good time to check the state of your finances overall.  Our Retirement Calculator can help you determine where you stand in regards to your retirement overall.

Does Old Age Bring Happiness or Despair?

Posted on April 27, 2010 by Jason

Yahoo News, April 4th, 2010

Aging brings wrinkles, sagging bodies and frustrating forgetfulness.
But getting older is not all bad for many people. Mounting evidence
suggests aging
may be a key to happiness. There is conflicting research on the subject,
however, and experts say it may all boil down to this: Attitude is
everything.

Older adults tend to be more optimistic and to have a positive
outlook on life than their younger, stressed, counterparts,
research is
finding. The results take on more meaning in light of the ongoing
increase in
life expectancy.

In one study, the average number of years a 30-year-old in
the United States could expect to live increased 5.4 years for men and
3.6
years for women between 1970 and 2000. During that same time period, men
gained
6.8 years of happy life and shed 1.4 unhappy years. Women chalked up 1.3
happy
years, but the number of unhappy years didn’t change for them, according
to
research published in 2008 by Yang Yang, a sociologist at the University of
Chicago.

Her work suggests that an increase in years of happy life for
the 65-plus age group accompanied the increase in life expectancy on
average.

The big question, of course, is why
seniors are happier.

Rose-colored memories

A more recent study by another team of researchers,
published this month in the journal Cortex, suggests one reason: Older
adults
remember the past through a rosy lens.

The researchers recorded brain activity using fMRI scans
while young and older adults viewed a series of photos with positive and
negative themes, such as a victorious skier and a wounded soldier.

Read more of this article.

Friends, Not Grandkids, Key to Happy Retirement

Posted on April 27, 2010 by Jason

Yahoo News, April 15th, 2010

It’s said that one of the
joys of old age is taking pleasure in your grandchildren, but an English

research team begs to differ.

An active social life, being married and having a
partner who is also
retired all make a huge difference in seniors’ enjoyment of life, but
having children or grandchildren matters little, the University of
Greenwich team found in its study of 279 British retirees.

Grandchildren are a source of pride, but there are
trade-offs to having
them, said lead researcher Oliver Robinson, of the university’s department
of psychology and counseling.

“There are both benefits and drawbacks to the
presence of children and
grandchildren in retirement, which balance each other out,” Robinson
said.
“The positives are that having children and grandchildren imparts a sense
of purpose and meaning, while the drawback is the frequent
commitment for
child care that can potentially interfere with the sense of freedom and
autonomy that is at the heart of a positive retirement.”

Read more of this article.

Diet can sharply cut Alzheimer’s risk: study

Posted on April 26, 2010 by Jason

Yahoo News, April 12th, 2010

A diet rich in olive oil, nuts, fish, poultry and certain fruits and
vegetables may have a powerful effect at staving off Alzheimer’s
disease, researchers reported on Monday.

People who ate nutrients specifically selected for brain health had a 40
percent lower risk of developing Alzheimer’s disease compared with others,
Yian Gu, an Alzheimer’s disease researcher at Columbia University in New
York and colleagues found.

“Diet is probably the easiest way to modify disease risk,” said Gu,
whose study appears in Archives of Neurology.

She said because there are no cures for Alzheimer’s, prevention is key, especially
as the population ages.

“If we follow this diet, that means the risk of getting the disease will
be lowered for the population,” Gu said in a telephone interview.

While other studies have looked at individual nutrients, Gu’s team
studied groups of foods high in nutrients that have been shown to be
associated with Alzheimer’s
disease risk.

Some, such as saturated
fatty acids in red
meat and butter, need to be avoided. Others, such as omega-3
fatty acids, omega-6 fatty acids, vitamin E, vitamin B12 and folate,
benefit the brain.

To study this, the team collected information on the diets of 2,148
healthy people over 65 for an average of 4 years. They were checked for
Alzheimer’s disease every 18 months.

Of these, 253 developed Alzheimer’s, which has no cure.

Those least likely to develop the disease ate more olive oil-based salad dressing, nuts,
fish, tomatoes, poultry, cruciferous vegetables such as broccoli,
fruits, and dark and green leafy
vegetables and ate less red meat, organ meat or high-fat dairy products.

Read more of this article.

A Graying Population, a Graying Work Force

Posted on April 26, 2010 by Jason

The New York Times, April 24th, 2010

One recent morning Antonia Antonaccio, a home care aide, got a call to
help an elderly couple whose regular aide could not make it. The regular
aide, who is 68 years old, had thrown out her back.

Ms. Antonaccio said she empathized. Sometimes her legs hurt from going
up and down stairs. “But it’s nothing I pay attention to,” she said. “I
don’t have the time.”

Ms. Antonaccio is 73.

In an aging population, the elderly are increasingly being taken care of
by the elderly. Professional caregivers — almost all of them women —
are one of the fastest-growing segments of the American work force, and
also one of the grayest.

A recent study by PHI National, a nonprofit
organization that advocates on behalf of caregivers, found that in 2008,
28 percent of home care aides were over age 55, compared with 18
percent of women in the overall work force.

The organization projects that from 2008 to 2018, the number of direct
care workers, which includes those in nursing homes, will grow to 4.3 million from
3.2 million. The percentage of older caregivers is projected to grow to
30 percent from 22 percent.

The average caregiver in Rhode Island from Home Instead Senior Care,
the private agency that employs Ms. Antonaccio, is about 60, said
Valerie Topp, chief operating officer for the state franchise. Younger
aides often do not work out, Ms. Topp said, adding that clients
frequently ask that the agency not send over someone too young.

“The older ones came to us after being family caregivers, so they
understood the stresses that families were under,” Ms. Topp said. “They
came with respect for age. They didn’t see age as a disability.”

Read more of this article.

Working in Retirement:  Many industries are becoming more friendly to seniors working part time to supplement their income.  Find out more at NewRetirement.com

Many Alzheimer’s Patients Find Comfort in Books

Posted on April 23, 2010 by Jason

The New York Times, April 22nd, 2010

Familiar music can engage those with Alzheimer’s when almost nothing
else can, researchers have shown. Now it appears that books written for
these patients may have a similar effect.

Researchers have found in a number of studies that reading can
improve a patient’s quality of life. The meanings of written sentences
can be understood by — and prompt cogent responses from — even those who
have difficulty handling verbal exchanges.

Caregivers may be surprised to learn that reading ability is not
always destroyed by Alzheimer’s. “All of my research demonstrates that
people who were literate maintain their ability to read until the end
stages of dementia,” said Michelle S. Bourgeois, a professor of speech
and hearing science at Ohio State University.

At the earlier stages of Alzheimer’s disease, many literate patients
may still enjoy reading books themselves, said Dr. Barry Reisberg, a
professor of psychiatry and director of the Fisher Alzheimer’s program
at New York University. Large-type reading materials can be used to
assist later-stage Alzheimer’s patients to continue reading.

Even at later stages of the disease, many patients are engaged by
books read to them. Lydia Burdick, a businesswoman in New York, was able
to get her mother to respond by reading to her even at a relatively
late stage of Alzheimer’s disease, although it had long been hard to get
through to her.

One afternoon she persuaded her mother to read a sentence — “I love
to feel the sunshine on my face” — and asked, “How does the sun feel?”

“Warm,” her mother said, and both women smiled.

Ms. Burdick went on to write three
books for caregivers to read aloud to, or with, “memory-challenged”
adults.

Books published for children and young adults may be easy to read,
but they can be off-putting for people with Alzheimer’s. “If they see
something as being childish, you have lost them,” Dr. Reisberg said.

Read more of this article.

In the Health Bill, a New Focus on Elder Abuse

Posted on April 23, 2010 by Jason

The New York Times, April 23rd, 2010

Tucked into the huge new health care law is a whopping $777 million,
spread over the next four years, for programs to prevent and prosecute
elder abuse. Advocates for these programs have been begging Congress for
more money since 1978. Now they are celebrating as if they had won the
lottery.

The provisions
in the law are all but identical to those in the Elder Justice Act,
which was championed by the National
Center on Elder Abuse and its coalition partners for more than 30
years, through Congressional hearings and four failed attempts since
2002, despite bipartisan support, to get the bill to the Senate floor.

Under the new plan, state and local adult protective service programs
will have the first dedicated financing stream from the federal
government. These agencies investigate reports of abuse, neglect and
financial exploitation of elderly and disabled adults, and then insure
the safety of those proven to have been victimized.

“It’s a momentous day for the victims and the people who serve them,”
said Joe Synder, the director of older adult protective services at the
Philadelphia Corporation for Aging and the public policy chairman and
former president of the National Adult Protective Services Organization.
“We have been waiting for this forever.”

The act provides financing for 1,700 new investigators of elder abuse
around the country, for state demonstration grants to test various new
approaches to adult protective services, to support existing state
ombudsmen and to train new ones to investigate complaints related to
long-term care facilities, including assisted living facilities and
nursing homes.

Read more of this article.

Long Term Care Insurance:  With additional protections in place against Elder Abuse, the question now becomes one of whether you will be able to afford Long Term Care should you need it.  One way to ensure that you will is to consider insurance to defray the cost.  Consider the options at NewRetirement.com.

« Older Entries
NewRetirement Blogs Home