Financial Planning and Advice Blog for Syracuse

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Social Security and You: What Does the Future Hold?

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By wpadmin May 7, 2015

Social Security and You: What Does the Future Hold?

If you’re counting on Social Security to provide you with a secure retirement, think again. Social Security benefits only account for less than half of today's retirees' income. Longer life expectancies and the aging of the population will put an increasing burden on the Social Security system, making your own retirement funding more important than ever.

The exact amount of your Social Security benefit will depend upon the number of years you’ve been working and the amount you’ve earned. Retirement benefits are collectible at any time on or after age 62, but can be delayed until age 70. How much you get depends upon when you retire; reduced benefits are paid if you retire between ages 62 and your "normal retirement age," as defined by Social Security, while delayed retirement credits apply if you wait until beyond your normal retirement age. In some cases, your children and your spouse may also be eligible for benefits on your account.

Note that retirement benefits are not automatic, and you must first apply for benefits before you can receive them. Some time is required to process all the paperwork, so plan to apply several months in advance. Regardless of your Social Security options, think of Social Security as only a small percentage of your total retirement plan, and set aside a portion of your income on a regular basis.

Social Security benefits currently represent approximately 37% of the aggregate total income of Americans aged 65 and older, according to the Social Security Administration. For future generations of retirees, Social Security may represent a much smaller percentage of retirement income.

A System at Risk When Social Security was established in 1935, the average life span among Americans was 63. Today the average lifespan is more than 78 years, according to the National Center for Health Statistics.

In 1950, 16.5 workers paid retirement benefits for each retiree. By the year 2031, when Baby Boomers will be leaving the workforce in large numbers, the ratio may be approaching two workers to every one retiree. By then, the burden of taxes on each worker may well be unmanageable. This aging of the population has led some experts to predict that the Social Security Old Age and Survivors Insurance Trust Fund may run out of assets by the year 2033, a possibility that makes building your own funds for retirement more important than ever.

Does all of this mean you will have no Social Security to draw on when you retire? While an exact timetable of what will happen to Social Security is uncertain, present trends clearly indicate that your own efforts to build financial security for your retirement years are more crucial than ever. The time to begin planning for retirement -- no matter what your age -- is now.

Even under the best scenario, the Social Security system was created as the foundation for retirement, but it was never intended to provide the sum total of financial security during the retirement years. So the more you can do for yourself to save and invest for retirement, the better off you may be.

How Much Will Social Security Pay? The exact amount of your Social Security benefit will depend upon your earnings history. You can obtain an estimate of your benefits at the Social Security Administration's online estimator. You can also call the Social Security toll-free number at (800) 772-1213 and request form SSA 7004, the "Request for Personal Earnings and Benefit Estimate Statement." Complete the form and send it back. You will receive a personalized estimate of your benefits, plus a statement showing your annual earnings. Like reconciling your bank statement, your Social Security summary of annual earnings should be verified against your tax return statements, W2 forms, or your own records. If there are any discrepancies, report them at once.

How...

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Withdrawing Your Assets: Understanding RMDs

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By wpadmin March 6, 2015

When it comes time to start withdrawing the money you've spent a lifetime accumulating in your retirement portfolio, you want to ensure that you make the right decisions. One that the government makes for you is requiring that you withdraw at least some of your funds annually, depending on the account type.

This is known as a required minimum distribution, or RMD, and it must be taken from your non-Roth retirement accounts by April 1 each year, starting the year after you turn age 70½.

An RMD is generally determined using uniform life expectancy tables that take into consideration the account owner's and/or account beneficiary's age and marital status, as well as their account balance(s) as of December 31 of the year prior to the distribution year.

Here are some important considerations for those entering the "distribution phase" of their investing lives.

  • You can pick the account(s) you withdraw from ... If you have more than one of the same type of retirement account -- such as multiple traditional IRAs -- you can either take individual RMDs from each account or aggregate your total account values and withdraw this amount from one account. As long as your total RMD value is withdrawn, you will have satisfied the IRS requirement.

  • Unless they are two different types of accounts. If you own more than one type of account, such as an IRA and an employer-sponsored plan account, you'll need to calculate your RMD for both types of accounts separately and take the proper amount from each.

  • You may be able to defer if you're still working. If you are still employed at age 70½, you may be able to defer taking RMDs from your employer-sponsored plan until after you retire. You'll need to check with your employer to see if this applies to you.

  • The penalties can be severe for failing to comply. If you fail to take your full RMD, the IRS may assess an excise tax of up to 50% on the amount you should have withdrawn and you'll have to take the distribution.

  • Taxes are still due upon withdrawal. You will probably face a full or partial tax bite for your distributions, depending on whether your traditional IRA was funded with nondeductible contributions. Note also that the amount you are required to withdraw may bump you up into a higher tax bracket.

  • You can donate your RMDs to charity. IRA owners can donate up to $100,000 of their annual distributions to qualified charities and have it count toward their RMD. If you've inherited an IRA, these donations are allowable as long as you are over age 70½.

  • Roth accounts are exempt. If you own a Roth IRA or Roth 401(k), you don't need to take an RMD. However, note that any distributions taken from a Roth do not count toward your RMD amount and that restrictions apply to the beneficiaries of inherited Roth accounts.

For More Information

Everything you need to know about retirement account RMDs can be found in IRS Publication 590, including the life expectancy ...

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