What Happens with Social Security When I Pass Away?

When you think of Social Security, you probably think of how it can help you through retirement.

But Social Security provides benefits that can be useful for more than retirement.

In fact, they can also provide much-needed income for family members when you’re gone. To get the most out of your benefits, though, it’s important to understand what’s available and how the process works.

Survivors’ benefits

Survivors’ benefits pay some or all your Social Security benefits to your surviving spouse or dependent children. Your work credits record is based on your age and when you die, and determines your payout amount. The younger you are, the fewer credits your family members need to receive your benefits. No one needs more than 40 credits (which amounts to 10 years of work) to pass along these benefits.

Who can receive survivors’ benefits?

Some general rules about who qualifies for survivors’ benefits include:

  1. Your surviving spouse can receive your full benefits at their full retirement age, which varies depending on their birth year. For some, it’s currently age 66. For others, it’s 67 and could continue to change, so be sure you know your full retirement age.
  2. Your surviving spouse could choose to receive reduced benefits as early as age 60.
  3. Your widow or widower can receive benefits at any age if they’re providing care for your child under age 16, or if your surviving spouse is disabled and already receives Social Security benefits.
  4. Your unmarried children under 18 (or 19 if they’re attending school full time).
  5. Dependent parents age 62 or older.

How much will your survivors receive?

Essentially, the more you’ve paid into Social Security, the greater the benefit your survivors can receive up to a maximum cap. Your family members will get your “basic Social Security benefit,” a monthly sum based on your average lifetime earnings. How much of your basic Social Security benefit your family members will receive depends on your survivors’ age and relationship to you.

For example, at full retirement age or older, your spouse may receive 100% of your basic Social Security benefit. If your spouse hasn’t reached full retirement age at the time of your death, he or she will receive typically between 71% and 99% of your basic benefit. Dependent children may also receive 75% of your basic benefit.

Keep in mind that there’s a cap on the total amount your survivors can get each month. It’s usually between 150% and 180% of your basic benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced.

Don’t forget the lump-sum benefit

Your spouse may receive a lump-sum benefit of $255 if you lived together at the time of your death and you accumulated enough work credits. If you weren’t married at the time of your death, your Social Security benefit may be split among eligible children.

Apply right away

When a loved one has passed away and you’re eligible for survivor benefits, it’s important to contact the Social Security Administration (SSA) sooner rather than later. If you and your children are already receiving benefits based on your spouse’s earnings record, the SSA will change those to survivor benefits. If not, you’ll have to fill out an application for benefits.

Here is a list of documents you may need when you apply:

  • Proof of death (a death certificate or funeral home notice)
  • Your Social Security number
  • The deceased worker’s Social Security number
  • Your birth certificate and your marriage certificate, if you’re a widow or widower
  • Your divorce papers, if applicable
  • Dependent children’s Social Security numbers
  • Deceased worker’s W-2 forms or federal self-employment tax return for the most recent year
  • The name of your bank and your account numbers for direct deposit

Social Security benefits are helpful in retirement and can also provide a helpful financial boost for your loved ones after you pass – but only if you and your family know how to take advantage of them. You’ve worked hard for decades to earn Social Security benefits. Make sure you understand how those benefits can keep working for your loved ones after you’re gone.

 

Disclosure:

Some information sourced from Broadridge Investor Communication Solutions, Inc.

©2017 Financial Engines, Inc. All rights reserved. Financial Engines® is a registered trademark of Financial Engines, Inc. All advisory services are provided by Financial Engines Advisors L.L.C. or its affiliates. Financial Engines does not guarantee results and past performance is no guarantee of future results.

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The Sandwich Generation: How to Juggle Family Responsibilities

Taking care of aging parents AND raising kids of your own? Congratulations and welcome to the club. You’re now a member of the Sandwich Generation.

Membership isn’t exclusive. Studies indicate that 47% of all Americans in their 40s and 50s are currently in this situation,1 which is why it’s important to understand how to prepare for what you may face in your future:

  • Have a plan. Review your financial goals regularly and adjust your financial plan as needed so you can deal with an unexpected event like a career change or a healthcare emergency.
  • Save for college. If you haven’t started, you’ll need start saving for your kids’ college tuition as soon as possible. Education after high school isn’t getting cheaper, so it’s a good idea to start putting away as much as you can now.
  • Get your debt under control. For many Americans, this may be a tall order. Installment debts (car payments, credit cards, personal loans, college loans, etc.) should account for no more than 20% of your take-home pay.
  • Stay focused. Put as much as you can into a retirement plan, where your savings (which may be matched by your employer) grow tax-deferred until you retire.
  • Set expectations. Be realistic with your children about which colleges you can afford.
  • Talk to your parents. Do they have long-term care insurance? Adequate retirement income? Know where their documents are and get a list of the professionals and friends they rely on for advice and support.

Caring for your parents.

If your folks don’t live near you, you’re probably monitoring their welfare from a distance. Daily phone calls can be time consuming and relying on your parents’ support network may be frustrating. If their needs are great enough, consider hiring a professional geriatric care manager to help make sure their needs are met and to show you helpful community resources. Eventually, they may need to move in with you. If so, keep in mind:

  • Parents will want to feel part of your household and may be happy to take on some responsibilities. Share your expectations in advance.
  • Your parents may need a separate living space and phone for privacy.
  • Local civic and religious organizations have programs to involve your parents in the community.
  • When you need a break, enlist other family members to help with temporary care.
  • Be sympathetic and supportive of your children. They’re trying to adjust, too. Be honest about the pros and cons of having a grandparent in the house. Ask them to do certain chores, but don’t make them be caregivers.

Consider your children’s needs, too.

Your kids may feel the effects of your situation more than you think, especially if they’re teenagers. They’ll also need your patience and attention. As you balance their needs with those of your parents, remember to:

  • Explain what to expect when caring for your parent. Children usually only need their questions and concerns to be addressed before making the adjustment.
  • Discuss their college plans. They may have to settle for a different school than they wanted or take on a job to help meet expenses. Try not to dip into your retirement savings to pay for tuition. Instead, use other options like student loans or grant programs. Your retirement savings may be the only income you have when you stop working.
  • Make sure your “boomerang children” (i.e., kids who have moved back in after finishing college) know your expectations. You shouldn’t be afraid to discuss a date for when they’ll move out.

Don’t forget to take care of yourself.

It’s easy to neglect your own needs when taking care of aging parents. The situation can be stressful and pull you in all sorts of directions. Get enough rest, try to maintain a healthy lifestyle and stay involved with your friends and your interests. You can’t support your parents or your children if you don’t take care of yourself first.

Finally, talk with others about how you’re managing your situation. With so many people in the Sandwich Generation, you’re bound to know at least a handful of others who are juggling these responsibilities. They may have some useful advice they’ve learned through personal experience.

 

1 Passy, C. (2015, October 10). 6 lessons for the sandwich generation. Retrieved March 14, 2017, from http://www.marketwatch.com/story/6-lessons-for-the-sandwich-generation-2015-09-10

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When It Comes to Finances, Don’t Leave it to Luck

We wish that financial planning was as simple as finding a pot of gold at the end of a rainbow, but most of us aren’t that lucky. Instead of searching for four-leaf clovers, focus on creating a long-term financial plan and sticking to it.

Here are a few dos and don’ts to help you get started.

  • Do create a budget and hold yourself accountable – Luck is fickle, but creating and sticking to a budget is one way to stay within your means and set yourself up for a successful financial future.
  • Don’t rely on credit cards to fund your lifeCredit can be helpful if you’re trying to make a large purchase like a home or car, but debt can be an albatross around your neck preventing you from saving for major life purchases and for retirement. Don’t add credit card debt into the mix! The sky-high interest rates could result in you owing much more than you originally spent, and if you have trouble paying it back, your overall credit could suffer. Luck won’t help you there.
  • Do make and grow your emergency fundTry to save at least six months of living expenses in an emergency fund. That goal might seem tough to reach, but start small by setting achievable goals and working your way up.
  • Don’t break into your emergency fund for anything other than emergencies – That impromptu vacation you just got invited to doesn’t count as an emergency. In the event that you lose your job, your car breaks down, or you have a medical emergency, you’ll feel very lucky to have that cash cushion set aside.
  • Do plan ahead for retirement Retirement can feel very far away, but plan ahead by envisioning your retirement and setting up a savings plan to help you achieve that vision. The improved confidence you may feel from knowing you’ve prepared for financial security in retirement will be far more satisfying than wondering if you’re going to hit the financial lottery.
  • Don’t feel like you have to go it alone – Connect with a financial advisor who can help you create a budget, stay on track, invest in your future and design a plan to help maximize your retirement savings. Partner with someone you can trust—a good rule of thumb is to ask if they are a fiduciary and expect a yes or no answer.

This St. Patrick’s Day, make your own luck by planning for your financial future.

Help! I Can’t Pay My Tax Bill

You’re almost done with your federal income tax return, and you’re already thinking of ways to spend your refund. Then, the unthinkable happens: Instead of a refund, you owe money but don’t have the cash. What do you do now?

Don’t panic, but don’t put your head in the sand either. The IRS won’t go away and the amount you owe will only grow larger if you put off dealing with the situation. You have several options, including:

Pay by installments

An installment agreement is a monthly payment plan with the IRS and is the most widely used method for paying an IRS tax debt. The IRS commonly accepts tax payments in installments if the total tax bill (not counting interest, penalties and other additions) is $50,000 or less1 and if you meet a few other requirements.

To set up an installment agreement, contact the IRS by phone, mail or through their website and explain that you’re unable to pay your tax bill in full. You may spread your tax payments over a period of up to 72 months and have them automatically withdrawn from your bank account or made through payroll deduction. You’ll typically be expected to pay the maximum installment amount you can afford. Although you won’t avoid interest and penalties with this payment method, you’ll avoid more severe collection action or other consequences.

Pay what you can afford when you file the return, then wait for a bill

Perhaps you’re between paychecks, or maybe you just paid a substantial bill. Basically, you’re suffering from a short-term cash flow problem. You’ll eventually have the cash to pay your tax bill, but you just don’t have it right now. If that’s your situation, you may want to consider the following approach:

  • First, pay as much as you can when you file your tax return. This will help reduce your penalties and interest.
  • Next, wait for the IRS to send you a bill for the remaining balance, which should take roughly 45 days. By then you might have enough cash to pay the balance due.
  • If you still don’t have the cash to cover the remainder of your tax debt, call the number or write to the address on your bill, or visit the nearest IRS office to explain your situation.

With this approach, however, interest and penalties continue to accrue on the unpaid balance. So while you may buy yourself some time, you may end up paying a higher total bill than if you had paid it in full when it was due.

Borrow money or take out a loan to pay your bill

One of the quickest ways to pay your tax bill may be to borrow the money from a relative or close friend. Borrow what you need to pay the full bill, and create a payment plan to reimburse the person who gave you the loan. By paying your total tax bill, you’ll be able to avoid IRS penalties and interest. Even better — you may not have to pay interest to your relative or friend. However, be careful if you borrow more than $10,000, as you may be subject to taxes on that loan the following year.

If you can’t borrow from a relative or friend, consider taking out a bank loan or tapping into a home equity line of credit. Although the interest rates on these loans may be higher than what a relative or friend may charge, it would probably be less than the interest and penalties you’d owe to the IRS on the unpaid tax.

Pay by credit card

Another option is to pay your taxes by credit card. Similar to paying your taxes with a loan from friends or family, paying by credit card allows you to pay your tax bill on time, which keeps the IRS from charging you penalties and interest. Note, however, that the interest rate that your credit card company charges may be higher than what the IRS charges on installment payments or late payments, so be sure to look into this first.

If you choose this option, you’ll want to use the card with the lowest interest rate. And if you’re approaching your credit limit on a given card, you can split payments between two different credit cards.

Bankruptcy

Bankruptcy is a way to resolve your debts when you’re unable to pay them. Although many taxes can’t be avoided in bankruptcy, declaring bankruptcy will stop or slow down the IRS in their attempt to collect your tax bill. In some cases, interest and penalties will also stop growing. Finally, reducing your overall debt burden by eliminating certain types of debt (such as credit-card balances) through bankruptcy can leave more money to pay your IRS tax bill.

Facing an unexpected tax bill is unpleasant at any point and can feel like a crisis when you don’t have the cash to cover it. If this happens to you, keep in mind that you’re certainly not the first person to be in this position and that you have options. It’s important to make a plan and act on it quickly to avoid costly penalties.

 

1 Payment Plans, Installment Agreements. Internal Revenue Service. Retrieved March 10, 2017, from https://www.irs.gov/individuals/payment-plans-installment-agreements

Disclosure:

Some information sourced from Broadridge Investor Communication Solutions, Inc.

©2017 Financial Engines, Inc. All rights reserved. Financial Engines® is a registered trademark of Financial Engines, Inc. All advisory services are provided by Financial Engines Advisors L.L.C. or its affiliates. Financial Engines does not guarantee results and past performance is no guarantee of future results.

The information provided is general in nature, is for informational purposes only, and should not be construed as legal or tax advice. Financial Engines does not provide legal or tax advice. Financial Engines cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Financial Engines makes no warranties with regard to such information or results obtained by its use. Financial Engines disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

CPY18478

Managing Taxes on your Investments in Retirement

When planning for your retirement, chances are you’ve been focused on accumulating enough money to last throughout your non-working years – but have you thought about income taxes once you retire?

They’ll play a big role in your future, and understanding how to manage them now may help you from paying out more to Uncle Sam than you need to later.

Here are two keys to taxes in retirement:

Reduce your investment income

The income from your investments must be included in your gross income when you file taxes every year, so you may want to consider the tax efficiency of your investments – for example, taxes on capital gains can be lower than taxes on interest and dividends. Tax efficient investments can help reduce the taxes on your investments and may also help minimize the tax on your Social Security benefits. One way you can lower your investment income is by giving income-producing investments like certain stocks to your relatives.

Know your retirement tax brackets

While most can expect to be in a lower tax bracket after retirement because of lower earnings, it doesn’t always work out that way. If you have large balances in certain tax-deferred retirement plans – such as a 401(k) or IRA – you’ll need to start taking mandatory distributions once you reach age 70 ½ (unless you continue to work, in which case you’re not required to take an RMD from your employer-sponsored 401(k)). The more you have in your retirement plans, the more you’ll have to withdraw each year, and these withdrawals are considered taxable income. Paying Uncle Sam a percentage of those retirement funds could hurt your ability to cover everyday expenses, healthcare costs and other needs.

If you think the money you’ll be required to withdraw from your retirement plans could push you into a higher tax bracket after you reach age 70 ½, you may want to consider taking some of that money earlier. And the good news is that you can start taking withdrawals without penalties as early as age 59 ½. By managing your distributions during your early retirement years, you may be able to prevent a tax-bracket problem later. (Learn more about required minimum distributions here.)

Roth accounts, such as Roth IRAs and Roth 401(k)s, can also be helpful in managing taxes during retirement.

Understanding taxes is always a challenge, and it can become even more difficult when you’re retired. If you’re preparing for life after your career, help yourself by figuring out now what taxes you’ll be facing later. You will have worked hard to reach your retirement years – don’t let unexpected or unnecessary taxes put a damper on them.

 

Disclosure:

Some information sourced from Broadridge Investor Communication Solutions, Inc.

©2017 Financial Engines, Inc. All rights reserved. Financial Engines® is a registered trademark of Financial Engines, Inc. All advisory services are provided by Financial Engines Advisors L.L.C. or its affiliates. Financial Engines does not guarantee results and past performance is no guarantee of future results.

The information provided is general in nature, is for informational purposes only, and should not be construed as legal or tax advice. Financial Engines does not provide legal or tax advice. Financial Engines cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Financial Engines makes no warranties with regard to such information or results obtained by its use. Financial Engines disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

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How Retirement Savings Impact Estate Planning

It’s possible that you’ve spent decades dedicating time, attention and money to your retirement plan(s) – so it’s natural to wonder what might happen to anything that’s left when you pass away.

Who will get the money? And how? What about taxes? Understanding these issues now can help reduce stress and worry in the future, both for you and your loved ones.

To begin, you can specify your beneficiaries. We generally recommend that you designate beneficiaries and their shares as well as any backup beneficiaries (a spouse may automatically have certain rights in claiming remaining retirement benefits).

If you don’t name a beneficiary (or the designated beneficiary passes away before you do and you don’t have a backup beneficiary), benefits will be distributed according to the terms of your retirement plan. Often, a plan will specify certain default beneficiaries, such as a spouse, or your retirement plan benefits may end up distributed to your estate. If this is the case, leftover benefits will be distributed according to the terms in your will. However, if you don’t have a will or if the benefits can’t be distributed under its terms, they will be distributed under your state’s intestate succession laws. For example, a typical intestate succession law might give one-half or one-third to your spouse with the balance divided equally among your children.

Estate taxes are another consideration – both for you and your beneficiaries. Several features of estate taxes are noteworthy:

  • Retirement plan benefits: After you pass away, your retirement plan benefits will generally be included in your overall estate for federal estate-tax purposes.
  • Marital and charitable deductions: There is an unlimited marital deduction for property you leave to your surviving spouse and an unlimited charitable deduction for property you leave to charity.
  • Avoiding estate taxes: For 2017, the estate and gift tax exemption is $5.49 million per individual, which is up from $5.45 million in 2016 – so that means you can leave $5.49 million to beneficiaries without paying federal estate or gift tax. In addition, a married couple can give almost $11 million ($10.98 million) without being subjected to federal estate and gift taxes. Furthermore, you can give a gift tax-free as long as it’s worth less than $14,000. Also, note that the federal estate and gift tax exemptions rise with inflation – so the longer you live, the greater the exemption.1
  • Complications with couples: It’s also important to be aware that estate tax rules for couples can be complex, particularly when it comes to what to do if your spouse passes without giving away their individual maximum amount and leaves the remainder to you. The surviving spouse must note this on the deceased spouse’s estate tax return (even if no other tax is due), which is a move called “portability.” If the surviving spouse doesn’t note portability on their deceased spouse’s estate tax return, he or she could be hit with an unexpected federal estate tax bill.1

Income taxes can also come into play for your beneficiaries. Here are some key facts to be aware of:

  • Retirement plan distributions: After you pass away, your beneficiaries will generally be required to take distributions from your retirement plans over their life expectancies. The taxes on these distributions may be more favorable if your surviving spouse is the beneficiary of your retirement plan, as a surviving spouse is the only person allowed to roll over the retirement account into his or her IRA.
  • Property: Generally, property that is included in your overall estate value is readjusted to be taxed at fair market value at the time you pass away. When an asset is passed on to a beneficiary, its value is typically more than what it was when the original owner acquired it. The asset receives a step-up in basis so that the beneficiary’s capital gains tax is minimized.
  • Income taxes: In general, when your beneficiaries file income taxes each year, they’ll have to include any distributions from your retirement plan in their total income, but they can take an income tax deduction for them.

Estate planning can be complicated and sometimes seems even more complex when you think about how retirement plans factor into the process. By taking the time to research your options, however, you can better understand what will happen once you pass away – which ultimately can help bring you and your loved ones some peace of mind.

 

1 Ebeling, A. (25 Oct. 2016). IRS Announces 2017 Estate And Gift Tax Limits: The $11 Million Tax Break. Forbes. Retrieved March 10, 2017, from https://www.forbes.com/sites/ashleaebeling/2016/10/25/irs-announces-2017-estate-and-gift-tax-limits-the-11-million-tax-break/

Disclosure:

Some information sourced from Broadridge Investor Communication Solutions, Inc.

©2017 Financial Engines, Inc. All rights reserved. Financial Engines® is a registered trademark of Financial Engines, Inc. All advisory services are provided by Financial Engines Advisors L.L.C. or its affiliates. Financial Engines does not guarantee results and past performance is no guarantee of future results.

The information provided is general in nature, is for informational purposes only, and should not be construed as legal or tax advice. Financial Engines does not provide legal or tax advice. Financial Engines cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Financial Engines makes no warranties with regard to such information or results obtained by its use. Financial Engines disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

CPY18476

Beyond the Basics: Teaching Kids About Personal Finance

Parents are responsible for teaching their kids a lot and financial literacy has a place on that long list. But financial topics can be tough to explain, even to adult children.

However, there are plenty of learning opportunities peppered throughout your child’s formative years to teach good financial habits.

The basics, like soliciting their help to stay within budget at the grocery store, are a great starting point, but how do you cover more complicated concepts like interest rates, debt and saving for retirement? It may actually be easier than you think.

Give them a loan.

Whether it’s learning to manage debt or the revelation of how interest works, having a small, manageable loan from the bank of mom or dad can be a great learning tool. Your child can experience interest on a small scale – before it becomes the average 16.45%1 credit card interest rate on a big balance. Talk with them upfront about charging a reasonable interest rate and then show them on paper how much they’ll owe if they make minimum payments versus paying off the loan more quickly. You can talk through the pros and cons of taking the loan to make a purchase now versus spending more time saving. This eye-opening experience has the potential to positively influence future financial decisions.

Match their investments.

In Beth Kobliner’s book, Make Your Kid a Money Genius (Even If You’re Not),2 she outlines setting up a matching program to teach children about the importance of investing in a 401(k) and capitalizing on the employer match – something many adults are not doing. If your child has a savings account or even a piggy bank, consider pitching in 25-50 cents for every dollar they contribute. (But make sure it’s financially manageable for you!) Familiarizing your child with the advantages of the “parent match” will mean that when they land their first job with a benefits package, the employer match won’t be a foreign concept. Kobliner also notes that the match incentive encourages saving.

Show the value of long-term saving.

Retirement can feel far away, which makes it easy to focus on competing priorities. For children (and many adults), the temptation of immediate gratification can be hard to fight, but you can help instill good financial habits by helping your child identify a financial goal then save for it. For example, if they want to go on a trip with friends over the summer, you can work with them to set up a budget outlining the trip’s cost and develop a savings plan at the start of the school year. This will help them conceptualize budgeting, estimate future costs and needs (just like they’ll need to do when planning for retirement), and experience the delayed gratification of saving for a long-term goal.

Importantly, children learn from you, so leading by example is another good practice. Need to improve your financial habits before broaching the topic with children? Set up a meeting with a financial advisor in your area.

 

1 Current Credit Card Interest Rates. Bankrate.com Retrieved February 24, 2017, from http://www.bankrate.com/finance/credit-cards/current-interest-rates.aspx.

2 Make Your Kid a Money Genius (Even If You’re Not), Kobliner, Beth. Simon & Schuster, New York, 2017.

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March 2017 Mailbag | Straight Talk from Financial Engines

Should you be doing anything different with your investments in light of the market’s recent record-breaking streak? Is a potential correction on the way? What might happen if the White House gets involved in rules and regulations that could affect personal finance? Which states offer the best tax deals for retirees?

Such questions get right to the heart of what’s on the minds of many of our clients. At Financial Engines, we’ll give it to you straight – read our latest Mailbag for the clear, objective information you want and need.

Download Mailbox now! >>

Have a question of your own? Click here to ask us >>

©2017 Financial Engines, Inc. All rights reserved. Financial Engines® is a registered trademark of Financial Engines, Inc. All advisory services are provided by Financial Engines Advisors L.L.C. or its affiliates. Financial Engines does not guarantee results and past performance is no guarantee of future results. CPY18430

Four Reasons to Re-Evaluate Your Life Insurance Every Year

Life insurance is often viewed as a “set it and forget it” element of personal finance – but thinking of it this way is an unfortunate mistake.

Life is too volatile to assume that the life insurance policy you previously invested in fits your current needs.

Instead, take the time each year to closely review your term life insurance policy to help ensure that it’s right for you. Ask yourself these four key questions as you work through the process.

1. Has your job status changed?

Job status changes can include anything from a promotion or demotion to a raise in compensation or a pay cut. Generally speaking, you can calculate the amount of life insurance you need by multiplying your annual income by five to 10.1

2. Has your health improved?

It may be no surprise that life insurance policy rates are directly tethered to personal health. If you have recently lost weight, stopped smoking, reduced your cholesterol or otherwise improved your physical health, visit your doctor for a life insurance medical exam. The results could help reduce the money you pay for life insurance.

3. Has there been a change to your mortgage?

If your mortgage has been factored into your life insurance policy (and it should be), any changes to it should coincide with your policy’s coverage. For example, if you recently paid off your home, your plan no longer needs to cover this resolved financial obligation. On the opposite side of the coin, a new home, condo or permanent vacation getaway should be factored into your re-evaluated policy.

4. When was the last time you shopped for a better rate?

Just as you shop around for car insurance, you should explore various life insurance policies because insurers will often offer similar or equal coverage for less than their competitors. In addition, your independent life insurance agent should be in contact with you and proactively help you re-evaluate your plan on a regular basis. If you’re not working with someone like this, that’s all the more reason to shop around for different options to make sure you are getting the best deal for your dollars.

There are additional questions to ask yourself as you re-evaluate your life insurance policy, of course, but these four are a good place to start. If you’re not sure of what other questions to ask or metrics to use, your life insurance agent should be able to help you – and if not, then question four is especially important for you to ask yourself. After all, your life insurance policy is too important to ignore or expect to remain appropriate over time.

 

1 Murray, S. How much life insurance should I have? Investopedia. Retrieved March 6, 2017, from http://www.investopedia.com/ask/answers/09/how-much-life-insurance.asp

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The Tax Benefits of IRA Contributions

Almost 64% of all individual retirement account (IRA) investors are using traditional IRAs1 – and for good reason. Traditional IRAs offer a lot of advantages, especially when it comes to tax savings.

So in the spirit of tax season, let’s take a look at how IRAs work and why they can be advantageous.

With a traditional IRA, you can contribute up to 100% of your earned annual income – which is what you generally report as wages on your W-2 form2 – up to the annual IRS limit. Plus, your money grows tax-deferred until you withdraw it. That means no income taxes until you decide to take money out of your account.3

You must be under age 70 ½ to make contributions to a traditional IRA, and you’ll avoid additional taxes and penalties when you withdraw your money as long as you’re age 59 ½ or older. In addition, you can invest in both a workplace retirement plan and a traditional IRA at the same time (although there are some limitations on how much you can invest in both simultaneously).

Those are just the highlights, though. Let’s take a more detailed look at some of the tax advantages you can get with a traditional IRA.

Deductions may be available.

Depending on your income, tax-filing status and other factors, you may be able to deduct all or some of your contributions. Even if you don’t qualify for a deduction, though, you can continue to contribute to your traditional IRA.3

You can avoid savings interruptions.

Did we mention that you won’t pay taxes when you invest in a traditional IRA – at least not until you withdraw your money? And then all you’ll pay will be regular income tax. That’s a substantial advantage, especially when you consider that your investment earnings themselves will also earn interest over time – this is known as compound growth. When an investment grows over time without interruption (like paying capital gains or dividend income tax), your savings really can add up.4

You can save coming and going.

Depending upon the amount of your savings, you may be in a lower tax bracket when you retire. If that’s the case, you’ll be able to withdraw your traditional IRA savings and pay less in taxes than if you had taken the same money out when you were working.  Just make sure you’re age 59 ½ or over when you withdraw it so you aren’t hit with early withdrawal penalties.

You have flexibility.

When you contribute to a traditional IRA, you’re not subject to the same restrictions you may have with other investments. In fact, you can deposit your contributions into your traditional IRA for the previous year as late as the tax filing deadline – and you can even file your tax return before you make your contributions. If you owe taxes on your return, consider making a contribution to your IRA to offset the balance you owe. If you do that, be sure to make your contribution on time and make sure it will cover the balance you owe.

You may qualify for a tax credit.

In addition to the tax deduction you may get for your IRA contribution, you also may be eligible for a non-refundable tax credit, depending upon your income and your tax-filing status. In some cases, that tax credit can amount to 50% of your traditional IRA contribution.4

A traditional IRA can be a great source of your retirement income but it’s a good idea to learn as much as you can about how it works before you invest – and while you’re at it, be sure to consider fees as well. Doing your research now about how you can take advantage of the benefits a traditional IRA has to offer – including tax deductions, credits and tax-free contributions – can pay off down the road.

 

1 Copeland, C. (2015, May 01). Individual Retirement Account Balances, Contributions, and Rollovers, 2013; With Longitudinal Results 2010–2013: The EBRI IRA Database. EBRI. Retrieved February 22, 2017, from https://www.ebri.org/pdf/briefspdf/EBRI_IB_414.May15.IRAs.pdf

2 Perez, W. (2016, March 22). How Much Can You Deduct by Contributing to a Traditional IRA? TheBalance.com. Retrieved February 24, 2017, from https://www.thebalance.com/traditional-ira-deduction-limitations-3193023

3 Staff, I. (2016, February 08). Traditional IRA. Investopedia.com. Retrieved February 24, 2017, from http://www.investopedia.com/terms/t/traditionalira.asp

4 Appleby, D. (2013, July 11). IRA Contributions: Deductions and Tax Credits. Investopedia.com. Retrieved February 24, 2017, from http://www.investopedia.com/articles/retirement/05/022105.asp

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