Income

A Retirement Fact Sheet

Some specifics about the “second act.”

Does your vision of retirement align with the facts? Here are some noteworthy financial and lifestyle facts about life after 50 that might surprise you.

Up to 85% of a retiree’s Social Security income can be taxed. Some retirees are taken aback when they discover this. In addition to the Internal Revenue Service, 13 states levy taxes on some or all Social Security retirement benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. (It is worth mentioning that the I.R.S. offers free tax advice to people 60 and older through its Tax Counseling for the Elderly program.)1

Retirees get a slightly larger standard deduction on their federal taxes. Actually, this is true for all taxpayers aged 65 and older, whether they are retired or not. Right now, the standard deduction for an individual taxpayer in this age bracket is $13,600, compared to $12,000 for those 64 or younger.2

Retirees can still use IRAs to save for retirement. There is no age limit for contributing to a Roth IRA, just an inflation-adjusted income limit. So, a retiree can keep directing money into a Roth IRA for life, provided they are not earning too much. In fact, a senior can potentially contribute to a traditional IRA until the year they turn 70½.1

A significant percentage of retirees are carrying education and mortgage debt. The Consumer Finance Protection Bureau says that throughout the U.S., the population of borrowers aged 60 and older who have outstanding student loans grew by at least 20% in every state between 2012 and 2017. In more than half of the 50 states, the increase was 45% or greater. Generations ago, seniors who lived in a home often owned it, free and clear; in this decade, that has not always been so. The Federal Reserve’s recent Survey of Consumer Finance found that more than a third of those aged 65-74 have outstanding home loans; nearly a quarter of Americans who are 75 and older are in the same situation.1

As retirement continues, seniors become less credit dependent. GoBankingRates says that only slightly more than a quarter of Americans over age 75 have any credit card debt, compared to 42% of those aged 65-74.1

About one in three seniors who live independently also live alone. In fact, the Institute on Aging notes that nearly half of women older than age 75 are on their own. Compared to male seniors, female seniors are nearly twice as likely to live without a spouse, partner, family member, or roommate.1

Around 64% of women say that they have no “Plan B” if forced to retire early. That is, they would have to completely readjust and reassess their vision of retirement, and redetermine their sources of retirement income. The Transamerica Center for Retirement Studies learned this from its latest survey of more than 6,300 U.S. workers.3

Few older Americans budget for travel expenses. While retirees certainly love to travel, Merril Lynch found that roughly two-thirds of people aged 50 and older admitted that they had never earmarked funds for their trips, and only 10% said they had planned their vacations extensively.1

What financial facts should you consider as you retire? What monetary realities might you need to acknowledge as your retirement progresses from one phase to the next? The reality of retirement may surprise you. If you have not met with a financial professional about your retirement savings and income needs, you may wish to do so. When it comes to retirement, the more information you have, the better.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - gobankingrates.com/retirement/planning/weird-things-about-retiring/ [8/6/18]

2 - fool.com/taxes/2018/04/15/2018-standard-deduction-how-much-it-is-and-why-you.aspx [4/15/18]

3 - thestreet.com/retirement/18-facts-about-womens-retirement-14558073 [4/17/18]

Is Generation X Preparing Adequately for Retirement?

Future financial needs may be underestimated

If you were born during 1965-80, you belong to “Generation X.” Ten or twenty years ago,

you may have thought of retirement as an event in the lives of your parents or grandparents;

within the next 10-15 years, you will probably be thinking about how your own retirement will

unfold.1

According to the most recent annual retirement survey from the Transamerica Center for

Retirement Studies, the average Gen Xer has saved only about $72,000 for retirement.

Hypothetically, how much would that $72,000 grow in a tax-deferred account returning 6%

over 15 years, assuming ongoing monthly contributions of $500? According to the compound

interest calculator at Investor.gov, the answer is $312,208. Across 20 years, the projection is

$451,627.2,3

Should any Gen Xer retire with less than $500,000? Today, people are urged to save $1

million (or more) for retirement; $1 million is being widely promoted as the new benchmark,

especially for those retiring in an area with high costs of living. While a saver aged 38-53 may

or may not be able to reach that goal by age 65, striving for it has definite merit.4

Many Gen Xers are staring at two retirement planning shortfalls. Our hypothetical Gen Xer

directs $500 a month into a retirement account. This might be optimistic: Gen Xers contribute

an average of 8% of their pay to retirement plans. For someone earning $60,000, that means

just $400 a month. A typical Gen X worker would do well to either put 10% or 15% of his or her

salary toward retirement savings or simply contribute the maximum to retirement accounts, if

income or good fortune allows.2

How many Gen Xers have Health Savings Accounts (HSAs)? These accounts set aside a distinct

pool of money for medical needs. Unlike Flexible Spending Accounts (FSAs), HSAs do not have

to be drawn down each year. Assets in an HSA grow with taxes deferred, and if a distribution

from the HSA is used to pay qualified health care expenses, that money comes out of the

account, tax free. HSAs go hand-in-hand with high-deductible health plans (HDHPs), which

have lower premiums than typical health plans. A taxpayer with a family can contribute up to

$7,000 to an HSA in 2019. (The limit is $8,000 if that taxpayer will be 55 or older at any time

next year.) HSA contributions also reduce taxable income.2,5

Fidelity Investments projects that the average couple will pay $280,000 in health care

expenses after age 65. A particular retiree household may pay more or less, but no one can

deny that the costs of health care late in life can be significant. An HSA provides a dedicated,

tax-advantaged way to address those expenses early.6

Retirement is less than 25 years away for most of the members of Generation X. For

some, it is less than a decade away. Is this generation prepared for the financial realities of life

after work? Traditional pensions are largely gone, and Social Security could change in the

decades to come. At midlife, Gen Xers must dedicate themselves to sufficiently funding their

retirements and squarely facing the financial challenges ahead.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This

information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee

of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is

advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and

may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment

or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular

investment.

«RepresentativeDisclosure»

Citations.

1 - businessinsider.com/generation-you-are-in-by-birth-year-millennial-gen-x-baby-boomer-2018-3 [4/19/18]

2 - forbes.com/sites/megangorman/2018/05/27/generation-x-our-top-2-retirement-planning-priorities/ [5/27/18]

3 - investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator [11/8/18]

4 - washingtonpost.com/news/get-there/wp/2018/04/26/is-1-million-enough-to-retire-why-this-benchmark-is-both-real-and-unrealistic [4/26/18]

5 - kiplinger.com/article/insurance/T027-C001-S003-health-savings-account-limits-for-2019.html [8/28/18]

6 - fool.com/retirement/2018/11/05/3-reasons-its-not-always-a-good-idea-to-retire-ear.aspx [11/5/18]

Let's Think "Outside the Box" Ways to Save

Tip #1

Change Your Tax Withholdings.

Are you giving the federal government an interest-free loan every year? If you get an annual refund from the IRS, the answer is yes. Your employer deducts federal income taxes from each of your paychecks based on the number of “allowances” you claim on your W-4* (the form you filled out when you were hired). Many people claim zero allowances—having the maximum amount of taxes taken—and then file their return with exemptions and other deductions to receive a tax refund. Essentially, they are overpaying their income taxes. Why not pay an amount closer to your actual taxes and increase your weekly discretionary income and have more to save and invest?

People love getting a tax refund. Who wouldn’t love having $1,000, $2,500 or even $5,000 deposited into their checking account each spring? Many even argue that their tax refund IS their savings account. They use their annual refund for larger purchases, vacation, to pay off holiday debt, etc.

But here’s the brutal truth: It’s not smart savings and if you are not in a position to handle an unforeseen circumstance, you don’t need to be going on a vacation or buying a big screen TV. Above and to the right is an actual example of how one person began investing over $6,000 per year without feeling a strain on her day-to-day living or monthly budget.

By simply changing the allowances on her W-4 from zero to two, she was able to start investing 10% of her income ($166.67 bi-monthly), but her take-home pay only decreased by $45. Plus, her company—like many companies—matches her contribution up to five percent. Hence, her actual annual investment is $6,000.

*This example is intended as an illustration only and does not reflect the performance of any specific investment and should not be considered financial advice.