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Labor Department to Facilitate State-Based Retirement Plans

Tuesday, August 25th, 2015

The U.S. Department of Labor is taking steps to help workers save for retirement.Littman Krooks Retirement Planning

Job-based 401(k) plans are one of the best ways for employees to build their retirement nest egg by putting aside pre-tax funds, especially if those funds are matched by their employers. However, about one-third of American workers do not have access to a job-based 401(k). While IRAs are available to workers on their own, only a small fraction of people take advantage of them. The Obama administration has proposed legislation that would make enrollment in an IRA automatic for workers who do not have access to a 401(k) plan at work, but that legislation stalled in Congress.

Now, the administration has directed the Labor Department to issue a rule supporting state-based plans that encourage retirement savings. This includes laws in some states that require employers to automatically enroll new employees into IRAs if a 401(k) is not offered, and other state laws that encourage employers to provide 401(k)s.

Until now, state initiatives have been hindered by a concern that their efforts may be preempted or nullified by federal law. According to the Labor Department, the new law will safeguard retirement savings for workers and help states adopt laws on retirement savings that are consistent with federal law.

 

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Consider Carefully in Choosing Between a Lump Sum and an Annuity

Wednesday, May 27th, 2015

If your retirement plan includes a pension, consider carefully in choosing between a lump sum and an annuity

A number of large employers offer the option to cash out pensions to retirees and former employees, providing a lump sum payment rather than an annuity.

This option can be beneficial for some people, and tempting for many others. Individuals should carefully consider their options before opting for a lump sum payment. Choosing a lump sum payment is a permanent decision that cannot be reversed, and it is not appropriate for everyone. Littman Krooks retirement planning

A lump sum payment may be beneficial for if an individual is in poor health and does not expect to live long enough to benefit from the guaranteed income provided by the pension. The lump sum payment can assist with their increased medical and living expenses. A lump sum payment can also be beneficial for those who have not saved enough for their retirement and therefore needs access to funds for basic living expenses.

For most, though, having a guaranteed income from the pension is the best option. When retirees take the lump sum, they become responsible for investing the proceeds and making sure it lasts throughout retirement. Opting to receive a pension places the responsibility to invest retirement funds on the financial company. In addition, the lump sum payout is calculated based on average life expectancy — those who live longer will lose out if they take a lump sum payment. Further, leaving the pension in place may have certain advantages in long term care planning in the event the retiree needs nursing care.

Taking the lump sum can also be detrimental from a tax perspective. Unless the lump sum is directly rolled into an IRA, it is counted as income for the year, which could push the individual into a higher tax bracket. To determine if a lump sum payout is the best option for you, meet with your accountant, financial advisor, and experienced elder law attorney at Littman Krooks LLP.

 

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In Retirement Planning, Timing of Withdrawals is Everything

Monday, May 18th, 2015

Planning for retirement can be complicated. Many retirees rely on a combination of Social Security retirement benefits and retirement savings accounts such as IRAs. Knowing when it is in one’s best interest to start taking benefits or withdrawals is crucial: not too early and not too late.  Littman Krooks Elder Law

When it is “too early” to take benefits or withdrawals may be a matter of opinion. After all, if a retiree needs the funds at a certain time, he or she may be have no choice. However, in planning your retirement, it is important to know when taking money too early will carry penalties. With regard to savings in IRAs, if you withdraw funds before age 59 1/2, you will face a 30 percent mandatory withholding: 20 percent prepayment of income tax and a 10 percent penalty for early withdrawal. When it comes to Social Security benefits, keep in mind that taking early retirement benefits at age 62 means that you will receive a fraction of the benefits you would get if you waited until full retirement age or even longer. It’s also important to know that if you take early retirement benefits while still working, the money you earn over a certain amount each year may reduce your benefits, until you reach full retirement age.

At the other end of the scale, withdrawing money “too late” means failing to take your required minimum distributions from an IRA once you reach age 70 1/2. If retirees with pretax retirement accounts wait too long to withdraw retirement income, they can face a 50 percent tax. So whether you need the cash flow or not, be sure to take those required minimum distributions, even if it is only to reinvest the funds.

 

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Home Sharing May Be A Viable Option for Seniors

Wednesday, April 15th, 2015

By Bernard A. Krooks, Certified Elder Law Attorney®

As baby boomers enter retirement, a trend is emerging: more and more single seniors are choosing to live with roommates.

This living arrangement may be especially attractive to widows or widowers in retirement who own a home that is too large or expensive for one person. Other options such as selling the home to move into a smaller one, moving into a retirement community, or living with an adult child, may not be as appealing as staying put and welcoming a roommate.Littman Krooks Elder Law

People in retirement find home sharing to be a viable option because it allows a certain lifestyle to be maintained, preserves one’s independence and adds the positive element of companionship. Loneliness and isolation are significant problems for many single people in retirement, and home sharing can be a solution. Many people living in a home sharing situation cite the sense of community as a positive factor. Simply having someone to ask how one’s day is going or help out with little things can make a huge difference in one’s outlook.

Saving money is a big motivator as well. A shared household is more efficient, and single individuals whose adult children are grown may find that paying all of the expenses of a household on their own is not feasible. Roommates can share in all household expenses. This reduction in costs makes it possible for single seniors to stay in a larger home and can be an important way to preserve their financial advantages.

Of course, living with roommates often requires accommodation. Seniors may not have lived with a roommate since their college years and adapting to different personalities and lifestyles may take adjustment. Some seniors in a group housing arrangements have found it useful to hold house meetings and set house rules.

Setting up a household with another single friend may be the most common set-up, but cooperative households have been formed by seniors who did not know each other previously. Home sharing is being organized through websites, workshops and meetings for potential housemates to get to know each other. In considering potential roommates, it is important to talk beforehand about expectations and potential differences in lifestyle to determine whether compatibility exists.

Although it may be common for one roommate to move into a home owned by another and pay rent, other groups of seniors have invested in a home together. Joint ownership of a home and joint checking accounts for roommates may not be the norm, but they have worked in some instances for close friends committed to living cooperatively.

Overall, home sharing can be a practical and enjoyable option for seniors. “The Golden Girls” may have had the right idea after all.

 

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