10 Ways to Prepare for Retirement

Are you prepared?

Retirement is different things to different people. For those in their 20s, it's a distant dream. For those in their 30s and 40s, it's a minor concern. For those 50 and beyond, it's a reality that must be dealt with. No matter what your age, you should start to prepare for your retirement and the sooner the better. Here are 10 ways you can start preparing right now.

1. Review your finances

If you know where you are, you can prepare for where you are going. If you are deep in debt, chances are you are not prepared for your eventual retirement. If necessary, set up a budget and be sure to include something for your retirement. No matter what your age, you should be putting something back for your retirement. It’s estimated you will need between 70% and 90% of your current income to maintain the same standard of living after retirement.

2. Review your retirement needs or goals

What is your idea of retirement? For some, it’s sitting on the porch and watching the grandkids play. For others it’s traveling. For still others, it’s somewhere in between. What are your retirement needs or goals? Knowing what you plan to do can give you some idea of what you will need in the way of money and health.

3. Develop a healthy lifestyle

When you retire, you no doubt want to be healthy so you can enjoy every minute. Now might be the time to lose the extra fat, start an exercise program, or quit smoking. Frugal saving and living habits to prepare for retirement won’t mean a thing if you don’t feel like getting out of bed once you retire.

4. Talk to your HR representative about your employer’s retirement plan

If your employer provides a pension or other retirement plan, ask for a summary plan description and ask for an explanation of the plan. Find out what you can contribute and if your employer provides matching funds. Also ask about vesting.

5. Talk to your spouse about his/her retirement plan

If you are married, you should discuss your spouse’s retirement plan to find out what benefits you might be entitled to receive. You should thoroughly understand any consent forms or waivers that you might be asked to sign for your spouse’s retirement plan distributions.

6. Review your benefit statement

Your employer should provide an Individual Benefit Statement periodically. This benefit statement shows your total plan benefits along with the amount that is owned by you. You should thoroughly review this statement and if there are areas that you don’t understand or disagree with, you should talk to your benefits administrator immediately.

7. Open an IRA

Almost all Americans can open an IRA if they or their spouse has earned income. An IRA can be either a traditional IRA or a Roth. You bank or other financial institution can tell you whether you are eligible to open an IRA and help you with the process.

8. Review your Social Security Statement

Each year, you should receive a Social Security Statement about three months before your birthday. This is a record of your earnings that have had Social Security taxes paid. It also has an estimate of the benefits you or your family might receive from those earnings. If you find a mistake or disagree with this statement, you should contact the Social Security Administration immediately.

9. Discuss your retirement goals with your spouse and family

This is especially important if you are near retirement age. Your spouse might have different retirement goals and you will need to come to some sort of compromise. Your family should be aware of long range plans that might affect them. This would include moving to another area of the country or selling the home place to buy a motor home. It’s best not to surprise those you love in these situations.

10. Think about how you will spend your time

Nothing is more frustrating than to have time on your hands and nothing to do. Once you retire, you might want to take another job, volunteer, travel, enjoy a hobby, and so on. Take some time to think about what you might want to do before you wake up that first morning and don’t have to go to work.

While these 10 suggestions on how to prepare for retirement won’t guarantee that you will be ready for the big “R”, they will give you some ideas on how you can prepare. By planning for your retirement, you could make this phase of your life one of the best.

Rollover IRA Explained

Once you leave a job for whatever reason, if you have a retirement plan at your company, you need to make a decision as to what to do with this retirement plan. You can either choose to rollover the plan into an IRA or take the lump sum and pay the tax and penalties. Some companies also allow you to leave the retirement plan intact until you reach retirement age.

A rollover means you move the money from a company sponsored retirement plan such as a 401(k) into an IRA. If you receive a payout from your company-sponsored retirement plan, a rollover IRA could be to your advantage. You will continue to receive the tax-deferred status of your retirement savings and will avoid penalties and taxes.

Eligible distributions rolled over from a company sponsored retirement plan can be combined with an existing IRA or put into a separate IRA.

If you create a separate IRA for your rollover, you can easily move these funds to another employer sponsored plan in the future. It's a good idea to keep your rollover IRA separate from any other IRA's you might have because once you make contributions to a rollover that are not from a company sponsored plan, you lose the right to move this rollover to a company sponsored plan.

Distributions from a Rollover IRA
The distribution rules for a rollover IRA are the same as the rules for a traditional IRA. Contributions and earnings are taxed when withdrawn after age 59 ½. Withdrawals before the age 59 ½ are taxable and subject to a 10% penalty with certain exceptions.

Withdrawals must begin by the year after you reach 70 ½ to avoid penalties.

If you choose a direct rollover, your employer can directly rollover your retirement plan payout into a Rollover IRA and you will avoid the 20% IRS withholding tax.

If you choose a payout by check from your employer, you can avoid the 20% IRS withholding tax if you deposit the check plus 20% into a rollover IRA within 60 days.

Spousal IRA

If you are employed and have a non-working spouse or one who has little or no income, you might be allowed to set up and contribute to an IRA for that spouse.

You must be legally married at the end of the tax year and file a joint income tax return. You must also be employed and have an earned income of at least the amount you contribute to the IRA. If you plan to open a traditional IRA, he or she must be under the age of 70 ½. If you plan to open a Roth IRA, there are no age limits.

For years 2006 and 2007, you can contribute the lesser of your earnings or $4000 to a spousal IRA.

For 2008, you can contribute the lesser of your earnings or $5000 to a spousal IRA. If your spouse is 50 years old or over, an additional $1000 for years 2006 through 2008.

If you aren't covered by a retirement plan where you work, you will be able to deduct the full amount of your spousal traditional IRA from your income tax return. If you are covered by a retirement plan, your spousal IRA is fully deductible if your AGI is less than $150,000 and partially deductible if between $150,000 and $160,000. For a Roth IRA, your earnings cannot be more than $160,000 to contribute to a spousal IRA.

You can be the beneficiary of the spousal account but it must be established in your spouses name only. Joint accounts are not allowed even though you are making the contribution.

Roth IRA

A Roth IRA is also primarily an individual savings plan. Contributions can be made up to a specified limit but are non-deductible on your tax form. Withdrawals are tax free within certain limitations. Withdrawals can be made without penalty once you reach the age of 59 ½ provided the funds have been in the account for 5 years. You can continue contributing to a Roth IRA even after you reach the age of 70 ½.

A Roth IRA must be set up with an IRS approved institution such as banks, some credit unions, brokerages, and so on. When you set up a Roth IRA, you will receive the IRA statement disclosure statement and the IRA adoption agreement and plan document. A Roth IRA can be established at anytime during the year but contributions for a tax year must be made before the owner’s tax filing deadline.

What are the Advantages of a Roth IRA?

• Contributions can be made after age 70 ½ (unlike the age limitation of a traditional IRA)
• Eligible individuals may contribute up to a specified limit annually
• Contribution eligibility is not restricted by active participation in an employer’s retirement plan
• Withdrawals after age 59 ½ are usually tax-free provided a 5 year wait has occurred
• No minimum withdrawal rules when you reach age 70 ½
• Heirs are not subject to taxes on earnings

What are the Disadvantages of a Roth IRA?

• Premature withdrawals in excess of contributions are fully taxable and are also subject to a 10% penalty
• Contributions are limited each year for each individual
• Tax rules could change
• Money must be left in the account for at least 5 years
• If you die, your heirs will have to follow the same minimum withdrawal rules as for a traditional IRA
  

Distribution Rules
If you have more than one Roth IRA, they are treated as a single account when calculating the tax consequences of distributions from any of them. To be tax-free, a distribution must meet both of the following requirements:

• the distribution must be made after the 5 year holding period
• the distribution must be made on or after the individual reaches age 59 ½, made to the individuals beneficiary or estate, made to the individual who has become disabled, or made for a first time home purchase

Traditional and Roth IRA Contribution Limits
Maximum contributions limits are the lesser of the annual dollar limit of the table below or 100% of earned income less contributions to IRAs.

The annual dollar limit is:
2006..... $4000
2007..... $4000
2008..... $5000

For those who are age 50 and over before the close of the taxable year, the following annual limit applies:
2006..... $5000
2007..... $5000
2008..... $6000

After 2008, the contribution is to be adjusted for cost-of-living increases.

Traditional IRA

A traditional IRA is primarily an individual savings plan. Contributions are made up to a specified limit with the contribution tax deductible. Money invested and earned in a traditional IRA are subject to income taxes at the time of withdrawal. Withdrawals can be made without penalty once you reach the age of 59 1/2 years of age and you must begin withdrawing from your account when you reach the age of 70 1/2.

A traditional IRA must be set up with an IRS approved institution such as banks, some credit unions, brokerages, and so on. A traditional IRA can be established at anytime during the year but contributions for a tax year must be made before the owner’s tax filing deadline. For more information on setting up a traditional IRA, you should contact your accountant, financial institution, or broker.

What are the Advantages of a Traditional IRA?

• Contributions are tax deferred
• Investment income is not taxed until it is withdrawn

What are the Disadvantages of a Traditional IRA?

• Premature withdrawals in excess of contributions are fully taxable and are subject to a 10% penalty
• Contributions are limited each year for each individual
• Withdrawals must begin when you turn 70 ½ years of age
• Failure to make withdrawals on schedule or not withdrawing enough money will result in penalties
• Contributions cannot be made after reaching age 70 ½
• Heirs will owe taxes on earnings

Distribution Rules
If you have more than one traditional IRA, they are treated as a single account when calculating the tax consequences of distributions from any of them. Early withdrawal of funds is subject to income taxes and a 10% penalty.

IRA Explained

An Individual Retirement Account (IRA) is a plan that allows a person to make contributions each year if they meet the contribution requirements. If you are age 50 or older, you can contribute even more to your IRA.

Anyone can contribute to a traditional IRA if he/she has earned income for the year at least equal to the amount of the contribution and are under the age of 70 ½. There is no age limit for contributing to a Roth IRA provided the earned income condition is met.

Annual Contribution Limits for IRAs per Individual

Tax years 2006 - 2007, $4000 for those under 50 and $5000 for those 50 and over.
Tax year 2008, $5000 for those under 50 and $6000 for those 50 and over.
Married couples can each contribute to an IRA even if only one had an earned income for the year if the working spouse earns enough income to cover the IRA contributions for both.

All accumulated interest, dividends, and capital gains on a traditional IRA are tax-deferred until the money is withdrawn. All accumulated interest, dividends, and capital gains on a Roth IRA are tax-free if you meet certain requirements.

Annuities and the Annuity Contract Owner

An annuity is a contract between the buyer and an insurance company. In general, the insurance company promises to do something with the buyer’s money -- like grow it or pay it out over a number of years. This page should serve as a general overview of annuities. After you understand the concept you can look into the various annuity types.

Annuities can be helpful in some situations. In general, some benefits are:

• Tax-deferred growth and compounding within the annuity contract
• Guaranteed rates of return on your dollars
• Guaranteed lifetime payments if you annuitize (in some cases you don’t even have to annuitize in order to receive this benefit)
• Other features that may be important to you. These are various bells and whistles that do very specific things

Note that the guarantees are only as strong as the insurance company that issued the annuity. In other words, if the insurance company fails, the promise is no good. I recommend mitigating this risk by using only the strongest insurance companies out there.

The contract owner is the person that owns an annuity. Note that a “person” can be an entity in this case.

Contract Owner Activities

The contract owner goes through the process of purchasing an annuity. The contract owner is generally the person who signs all the paperwork and funds an annuity contract. The contract owner agrees to the terms of an annuity contract.

Contract Owner Rights

The contract owner chooses an annuity and makes decisions on all the details – when it starts, how much money goes in, when money comes out, and so on.
The contract owner also chooses the beneficiary and the annuitant in an annuity contract. In many cases, the contract owner may choose himself/herself as the annuitant.
If the annuity offers a variety of investment terms and choices, the contract owner also makes these choices.

Contract Owner Restrictions

Of course, the contract owner can only choose from what’s available in a given annuity. Each annuity out there has different options and restrictions. Even though the contract owner gets to make choices, the contract owner may have to pay a fee or penalty for certain actions.

Is An Annuity Right for You!

An annuity can be a great retirement vehicle. Annuities have asome of the same retirement benefits as other retirement plans like the employee sponsored 401K and an individual IRA, but an annuity typically doesn't have contribution limits, income limits, or mandatory withdrawals like the 401K and IRA. The retirement earnings grow tax-free even though after-tax dollars are used for contributions.

There are two categories for annuities: FIXED and VARIABLE.

• Fixed Annuity: offers a pre-determined interest rate on earnings which is guaranteed for a certain term
• Variable Annuity: premiums are invested among stocks, bonds, and money market accounts similar to a 401K and IRA

WOULD YOU BENEFIT FROM AN ANNUITY?

You might be one of the many individuals who are uncertain about annuities or have limited knowledge on these savings vehicles. The following is a summary on who might be able to benefit from this products, see if you fit into one of these descriptions.

If you:

• have maxed out your employee sponsored 401K retirement accounts or IRA and still have additional capital to invest
• have already RETIRED and fear you might outlive your money. An annuity would guarantee income for the rest of your life.
• are a LAWYER, DOCTOR, CPA, ARCHITECT, or FINANCIAL PLANNER. Since annuities are credit protected in many states, these products are SAFE from malpractice suits.
• have made an employment switch and still have your 401K invested with your previous employer. Annuities offer higher, guaranteed interest rates and are protected from the market fluctuations that your current IRA may not be. STOP LOSING YOUR MONEY!

In closing, some annuities not only offer higher, guaranteed interest rates, but some companies also offer a 10% BONUS for all deposits made into the account for as long as 10 years!

Which Life Insurance Policy Is Right For Me?

When buying life insurance, you want a policy which fits your needs without it costing too much. First, you should decide on how much you will really need, how much you can afford to pay, and the type of policy you want. Second, find out what various companies charge for that specific kind of policy. MCC Insurance Agency will be willing and able to help you with each of these shopping steps.



One way in deciding on how much life you will need is to figure out how much cash and income your dependents will need if you were to die in the near future. Think of life insurance as a source of cash needed for final exprenses, paying off taxes, mortgages and/or other debts. Life insurance can also provide income for your family's living expenses, educational costs, and other future expenses. Your insurance policy amount should come as close to making up the difference between 1) what your dependents would need if you were to die now, and 2) what they would actually need.

There are three basic and current life insurance policies: term insurance, whole insurance, and endowment insurance. The following is an outline in which the important features are noted.


TERM INSURANCE

• Coverage protection: for a "term" of one or more years, usually 30 years being the maximum
• Death benefits: paid only if the policy owner were to die within that term of years
• Renewable: some are renewable for more additional terms even if the olicy owners' health has changed
• Convertible: before the end of the conversion period, the policy owner may trade the term policy for a whole life or endowment policy even if he/she is not in good health

WHOLE LIFE INSURANCE

• Coverage protection: death protection for as long as the policy owner lives
• Cash values: a benefit the owner does not lose when he/she stops paying the premiums
• Loan: the cash value may also be used as collateral for a loan

ENDOWMENT INSURANCE

• Income benefit: pays a sum or income to the policyholder if he/she lives to a certain age
• Death benefit: if the policy holder were to die before that certain age, the death benefit would be paid to the designated beneficary or beneficiaries

In summary, do not buy life insurance unless you plan to remain faithful to it. A policy can be a smart buy when hels for 20 to 30 years, but it can be very expensive if you decide to quit during the early years of the policy.

At MCC Insurance Agency can aid you in choosing the right amount of life insurance and kind of policy you want and we will provide you with quotes from several companies for the comparison of similar policies.

When you finally receive your new policy, be sure to thoroughly read through it and inquire with the agent on anything that you do not understand. It is also important to review your life insurance policy every few years or so to keep up with income changes and life responsibilities.