Published on February 19, 2014
Planning for Retirement Don’t just wish for it. Plan for it.
Potential obstacles Disappearing pension plans The future of Social Security Health care costs Inflation Taxes Outliving your retirement savings
You could outlive your savings At age 65 50% chance 25% chance of living to: of living to: Single man Age 85 Age 92 Single woman Age 88 Age 94 Married couple (at least one spouse) Age 92 Age 97 Source: Annuity 2000 Mortality Table, Society of Actuaries
The road to retirement Pay yourself first Spend less now, have more later Minimize debt Save for long-term goals
Don’t wait $100,000 $75,000 $83,572 Contributing $100 a month If you start today If you wait three years $50,000 $68,603 $41,274 $32,186 $25,000 $6,828 $15,592 $10,074 $2,529 $0 In 5 years In 10 years In 20 years In 30 years Assumptions: (1) Contribute $100 at the beginning of each month. (2) Earn a 5 percent annualized rate of return. This hypothetical example is not intended to illustrate the performance of any Modern Woodmen annuity.
Don’t wait $125,000 $105,123 $104,157 $100,000 Contributions Account balance at age 60 $75,000 $60,000 $50,000 $30,000 $25,000 $0 Age 30 $3,000 for 10 years Age 40 $3,000 for 20 years Assumptions: (1) Contribute $3,000 at the beginning of each year. (2) Earn a 5 percent annualized rate of return. This hypothetical example is not intended to illustrate the performance of any Modern Woodmen annuity.
Benefits of tax-deferred growth $150,000 $125,000 Tax-deferred account – $139,521.58 Taxable account – $111,633.42 $100,000 $75,000 $50,000 $25,000 $0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Assumptions: (1) Contribute $2,000 at the beginning of the year for 30 years. (2) Earn a 5 percent annualized rate of return for 30 years. (3) 25 percent effective income tax rate. This hypothetical example is not intended to illustrate the performance of any retirement option.
Potential solutions Option Benefit 401(k), 403(b), 457(b) and Pretax contributions SIMPLE IRA plans Traditional IRA Potential income tax deduction Roth IRA Potential for income tax-free withdrawals Annuities Guaranteed income options
It’s not too late to catch up Plan Basic contribution limit Additional catch-up contribution 401(k), 403(b), 457(b) and employee deferrals $16,500 $5,500 Traditional and Roth IRAs $5,000 $1,000 SIMPLE IRA $11,500 $2,500 Catch-up contributions are allowed for those who turn age 50 or older by year-end.
Don’t cash out! What should I do with my old plan? $150,000 $132,664 in 20 years $50,000 401(k) $100,000 $50,000 $30,000 now $0 Take cash now Rollover IRA Assumptions: (1) $50,000 rollover from a 401(k) plan to a Traditional IRA earning a 5 percent annualized rate of return for 20 years. (2) A 40 percent effective income tax rate is applied to taking cash now (25 percent federal income tax plus 10 percent federal penalty plus 5 percent state income tax). This hypothetical example is not intended to illustrate the performance of any Modern Woodmen annuity or the income tax rates for a particular individual. Income taxes must be paid on any amount withdrawn. Some states may impose additional penalties.
Retirement income – the big picture Create a paycheck for life, don’t outlive your money Be aware of inflation Have savings for a rainy day Manage risks Protect income against market volatility
Retirement income options Occasional partial withdrawals Automatic withdrawals Withdrawal of interest Guaranteed income payments for a certain time period (for annuities only) Guaranteed income payments for life (for annuities only)
Put it all together Pay yourself first and save for retirement Protect your retirement savings Know your retirement income options Work with someone who can help
Modern Woodmen can help Don’t just wish for a good retirement. Plan for it. Let us help. Steve Baker (615) 669-0539 Steven.W.Baker@mwarep.org Securities offered through MWA Financial Services Inc., a wholly owned subsidiary of Modern Woodmen of America, 1701 1st Avenue, Rock Island, IL 61201, 309-558-3100. Member: FINRA, SIPC. Products are available in most states. Individual representatives may not be licensed to sell all products. Tax issues are complex. Please consult a tax professional before making a decision.
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