HOW TO PREPARE FOR THE UNCERTAIN FUTURE OF SOCIAL SECURITYPresented by Dominic Marinucci, Financial Advisor with uFinancial Group, a MassMutual Agency; courtesy of Massachusetts Mutual Life Insurance Company (MassMutual)
CONCERNS OVER THE FUTURE of Social Security have been in the air for years. What is going to happen to Social Security? For now, that’s anyone’s guess. While Congress continues to debate the issue, you may want to take steps to help prepare financially in light of the uncertainty.
If you increase the retirement income you’ll receive from personal assets and other sources, you can lessen your dependency on Social Security benefits. This may help reduce your vulnerability to whatever changes, if any, take place in the Social Security system.
To help increase your potential retirement income, consider these approaches:
- Increase retirement contributions. Each dollar you add helps fuel the growth potential of your retirement program. The larger it grows, the more income it may potentially produce.
- Invest more aggressively, provided you can tolerate the risk.Higher rates of return may help your money potentially compound and grow more quickly. Just make sure you consider the risk of added volatility on the assets you’ve already accumulated.
- Take greater advantage of annuities. Many annuities offer the option of receiving retirement income payments guaranteed to last your lifetime — no matter how long you live. Few alternatives offer this type of long-lasting security. Contributing more to annuities may help you take greater advantage of this feature. (An annuity’s guaranteed lifetime income feature is contingent on the claims-paying ability of the issuing insurer.)
Consult your financial professional to discuss these and other strategies to help enhance the potential income of your retirement program.
What’s the best pecking order for retirement withdrawals?
During your working years, you may accumulate retirement assets in a variety of taxable and tax-advantaged accounts. When you retire, your strategy for taking withdrawals may make a big difference in the amount of after-tax retirement income your assets provide.
One way to help extend your portfolio’s potential life span is to strategically decide which resources to withdraw from first. No single solution is right for everyone, and your financial professional can help you tailor a strategy to your specific situation. However, in general, you may want to withdraw from your least tax-advantaged resources first, tapping assets in this order:
- Taxable investments such as mutual funds
- Tax-deferred accounts such as employer-sponsored retirement savings accounts, traditional IRAs and annuities1
- Tax-free sources such as Roth IRAs2
This ordering allows you to extend the time your tax-advantaged assets can compound — which, in turn, can boost the income they can potentially generate over time. Keep in mind, this is a general rule of thumb. Various circumstances may impact your decision. For example, there is a limit to how long you may delay withdrawals from some tax-advantaged accounts: You must begin required minimum distributions (which are subject to ordinary income taxes) from traditional IRAs by April 1 of the year after you reach age 70 , and from most employer-sponsored retirement plans by that date or when you retire, whichever is later. You also may need a different withdrawal strategy for any of a number of other reasons, such as a tax rate increase or wealth transfer goals that include highly appreciated taxable investments. You should always consult with your tax advisor to help you determine what might be your most tax-efficient withdrawal strategy.
- Withdrawals from traditional IRAs, qualified retirement plans and annuities generally are subject to ordinary income taxes. Withdrawals from traditional IRAs, Roth IRAs, qualified retirement plans and annuities prior to age 59 may be subject to a 10 percent federal tax penalty. Certain exceptions apply. Most insurers assess a surrender charge if you withdraw annuity funds within the first few years of the contract, as specified in the annuity contract.
- Roth IRA withdrawals may be subject to state and local income taxes. Roth IRA withdrawals before five years of participation may be subject to federal income taxes.
© 2010 Massachusetts Mutual Life Insurance Company, Springfield, MA. CRN201402-157169
Dominic Marinucci is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC * 100 Corporate Center Drive, Suite 201 Camp Hill, P A 17011 * 717-763-7365