Our daily roundup of retirement news your clients may be thinking about.
Clients are advised to avoid making the mistake of filing for Social Security retirement benefits at the wrong retirement age since they will lose substantially on benefits, according to this article on Kiplinger. They also need to coordinate the timing of seeking retirement benefits with their spouse since the filing could have a tremendous effect on the spouse's retirement benefits. Those who regret filing for retirement benefits at an early age have one year to withdraw their application and pay back the benefits they already received. -- Kiplinger
Business owners and self-employed individuals can use a Simplified Employee Pension, or SEP-IRA, to offer tax-advantaged retirement benefits for both themselves and their workers, according to this article on The Motley Fool. The account has generous contribution limits, which can go up to 25% of the employee's compensation or $53,000, whichever is lower for this year. Also, the employer makes contributions, minimizing the employees' burden of contributing to their retirement accounts. The Motley Fool
A 401(k) plan and a Roth IRA offer great opportunities for clients to build their nest egg for retirement, according to this article on Forbes. Clients are advised to invest in a 401(k) if their employer makes a match contribution, if they want a lower taxable income and if they have more than enough money to contribute to a Roth IRA. On the other hand, a Roth IRA is preferable for clients if their employer doesnt match their 401(k) contributions, if they want more investment options and if they want their savings to grow without paying any taxes. -- Forbes
Local governments are required to include their retiree health obligations as liabilities on their balance sheets under the new accounting rules of the Government Accounting Standards Board, write Robert Pozen, a senior lecturer at MIT's Sloan School of Management, and Joshua Rauh, a finance professor at the Stanford Graduate School of Business. Under the rules, local governments will get an incentive for creating a dedicated trust with assets to cover future healthcare benefits, although enabling local governments to have "overly optimistic assumptions, including excessive returns for the trust," is a wrong move, Pozen and Rauh argue. The Wall Street Journal
Given the information from an annual report prepared by the Boards of Trustees of Social Security and Medicare, it appears that the program's financial woes appear to be "a solvable problem" and can be fixed by raising taxes and reducing the benefits, according to this article on CBS Moneywatch. Some of the likely strategies that the government may take are to increase the earnings threshold for calculating taxes and benefits, and to raise the FICA tax rate. Other possible strategies will be to raise the retirement age for future retirees, modify the formula to reduce their monthly benefits for future retirees and to lower the cost-of-living increase for current retirees. CBS Moneywatch
- Long-Term Care: Families Face Steep Costs Even When It's 'Free'
- Is Social Security Really Going Broke: Retirement Scan
- Social Security Benefits You Don't Know About