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How Does My Retirement Age Impact My Social Security Benefits?
Social Security benefits are calculated using the Normal Retirement Age (NRA), which is 67 for people born after 1960. If you take benefits early, your payment will be reduced by as much as 30% if taken at age 62. After NRA, your benefit will be increased by 8% for every year you defer benefits. You cannot defer taking Social Security past age 70. As a rule of thumb, the closer to age 70 you retire, the higher your Social Security benefits will be. Of course, there are some specific guidelines. Everyone has an NRA (Normal Retirement Age), which determines the age at which you can receive your full Social Security benefits. Continue reading...
What is the Best Age to Start Receiving Social Security Benefits?
Generally speaking, the closer you are to age 70, the better. But everyone will need to take all of their options into account and use some planning tools or the assistance of a professional planner to arrive at an ideal cash flow scenario for retirement. All assets should be brought into consideration, as well as the possible social security benefits of both spouses and their spousal benefits. There is no one “best age” to start receiving the Social Security benefits. Everyone has a Normal Retirement Age (NRA), which determines the age at which you can receive your “full” Social Security benefits, but you can defer your benefits past this point to receive an 8% increase for every additional year you deferred your benefit. Note that benefits cannot be deferred past age 70. Continue reading...
Can I Make Early Withdrawals From My 401(k)?
It depends on the 401(k) plan, but in general the answer would be “yes,” if you’re willing to pay the penalty. It is generally a pretty bad idea to withdraw 401(k) money early. If you withdraw the money before age 59½, the money will be subject to a 10% penalty in addition to regular income taxes. There are exemptions from the penalty, but there fewer exemptions in a 401(k) than an IRA. In an IRA the penalty can be waived for first-time homebuyer’s expenses up to $10,000, or even for educational expenses, but in a 401(k) the 10% penalty will still be levied if withdrawals are made for these reasons — and a plan may not even permit such withdrawals. Continue reading...
Does IRS Rule 72(t) Provide a Way to Take Early 401(k) Withdrawals Without Penalty?
Rule 72(t) allows the owner of a 401(k) or IRA account to take “substantially equal periodic payments” from an account without owing the 10% early withdrawal penalty. Taking money out of a401(k) or IRA before age 59½ will generally cause someone to owe a 10% early withdrawal penalty. One of the ways this penalty can be avoided, however, is if the participant uses 72(t) distributions. IRS rule 72(t) is the section of the code that describes early withdrawal penalties, but it also allows “substantially equal periodic payments” to be taken from a 401(k) or IRA without owing the 10% penalty. Continue reading...
What is an Accidental Death Benefit?
Accidental Death Benefits are paid only if the cause of death is deemed to be an accident. Sometimes a regular life insurance or health insurance contract will offer an Accidental Death rider. The rider is appended to the contract for a relatively inexpensive additional premium and will pay a specified death benefit if the insured’s cause of death results from an accident. There are several exclusions to the definition of accident, and usually these are things like dangerous activities (sky diving, cave diving), acts of violence and war, and accidents resulting from driving under the influence or other examples where the insured has willfully put themselves in danger, or committed a crime, will usually not be covered. Continue reading...
Who Offers Defined Benefit Plans?
Any employer can offer a Defined Benefit plan, but not many do anymore. Before the introduction of Defined Contribution Plans, most large corporations such as General Electric, General Motors, etc. offered only Defined Benefit Plans. Over the years, it has put a huge burden on these corporations to guarantee the performance of these plans. If the plan has not performed according to the assumptions, the company would have to contribute the difference, which would have to come from their profits. In order to shift the burden to the employees, most companies now offer Defined Contribution Plans (such as 401(k)s, etc.) instead of Defined Benefit Plans. Continue reading...
How are Social Security Benefits Computed?
Social Security retirement benefits are computed by finding the average monthly income of a worker during the highest-earning 35 years of employment, and then it plugs that amount into a formula for to determine their full benefit at Normal Retirement Age (NRA). A person may then choose to take benefits before or after NRA, with applicable reductions or additions. There are different equations for spousal benefits, survivor’s benefits, and maximum family benefits. Continue reading...
What Kinds of Social Security Benefits Exist?
Social Security benefits are streams of income available for retired workers, their spouses, children and dependents, and survivors. It provides insurance against longevity, disability, and, to some extent, the death of the primary contributor. Social Security benefits are available to a worker and their dependents if the worker has triggered eligibility, which usually calculated as earning over $5,040 for 10 years, but is modified if the worker dies or is disabled at a young age. Benefits can be paid to multiple people within a household (and an ex-spouse) based on one worker’s contributions to the system, up to a Maximum Family Limit, which is somewhere between 150-180% of a worker’s full benefit amount. Continue reading...
What is Publication 15-b on Fringe Benefits?
IRS Link to Publication — Found Here IRS Publication 15-b outlines the different types of fringe benefits available to employees and describes which ones are taxable to the employee and which ones are not. Fringe benefits might include anything from the use of a company car to an employee life insurance policy paid for by the employer. Fringe benefits may be provided to regular employees or independent contractors (1099 employees). Some examples of fringe benefits include tuition reduction, group disability and cafeteria plans, and childcare benefits. Continue reading...
For How Long Will I Receive My Social Security Benefits?
After the payments begin, you'll receive Social Security benefits for the rest of your life. People worry that the Social Security system will run out of money, but as long as there are some workers paying into the system, it will be able to pay at least a reduced benefit to retirees. The system can be tweaked easily enough for full benefits to continue to all those to whom it is owed, barring some reductions for taxation on benefits and possible reductions based on income from other sources. After the payments begin, you’ll receive Social Security benefits for the rest of your life. It works like a pension. Continue reading...
Can I Take a Loan From My Pension Plan?
Generally this won’t be an option that your plan allows, but the IRS has approved it if the employer wants to. Generally speaking, you cannot. Hypothetically, if allowed in the plan document, and if the pension fund had enough of a surplus to handle such withdrawals, the IRS might find it permissible. The laws concerning such loans are the same for all qualified accounts, such as 401(k)s. An enrolled actuary would need to help you define when a loan might be allowable in particular deferred benefit plan. A Pension’s main goal is to pay out in retirement for the duration of the obligation, which may be your life and possibly the life of your spouse. Because of the massive liability they shoulder, pensions are inherently rigid and uncompromising when it comes to loans and withdrawals. Continue reading...
How are My Retirement Benefits Computed?
Each Defined Benefit Plan has its own formula and therefore its own calculations. These formulas need to be arranged by an enrolled actuary to insure that they’ll work over time and will hold up to IRS scrutiny. In general, however, the calculations are strongly based on factors such as your age, your salary, and the number of years you have spent working for the company. For every bit of salary you collect, or length of time you add to your tenure, you add incremental amounts to the set benefit waiting for you in retirement. Continue reading...
What’s the Difference between a Defined Benefit Plan and a Defined Contribution Plan?
Defined Benefit plans and Defined Contribution plans can sometimes look similar, but the main difference is what is certain and defined. In a Defined Benefit Plan, your employer guarantees you a certain fixed monthly payment for the rest of your life, so the benefit is said to be defined. A Defined Contribution Plan’s only certainty is the amount that went into the employee account, so the contributions are defined. Continue reading...
When Can I Start Receiving My Social Security Benefits?
You cannot claim your own social security benefit until you have reached age 62, and you have to start taking them by the time you reach age 70. You can actually start receiving benefits while you are still working, but your benefits will be reduced if you are younger than Normal Retirement Age. Currently, you have to be 62 years or older to start receiving Social Security benefits, and this includes spouses who wish to claim spousal benefits. You must start to receive benefits at age 70. Keep in mind that the longer you defer your benefits, the greater your Social Security payments will be (until age 70 of course). Continue reading...
Can I Take Loans Against My 401(k)?
401(k) plans typically allow loans to be taken, so that investors don’t have to pay taxes or an early-withdrawal penalty on the money. Many 401(k) plans allow loans to be taken out on the account balance, up to certain limits, and on a strict repayment schedule. Most plans require loans to be repaid in under two years, but they can give participants up to 5 years to repay a loan. Taking money out as a loan allows participants to avoid early withdrawal penalties and taxes. If the loan is not repaid on-time, it can be treated as a distribution, however, which might cause the investor to incur taxes. Investors usually don’t fully realize the damage that loans (and early withdrawals) can do to the long-term account balance. Continue reading...
Will My Spouse and Children Receive Social Security Benefits if I Die?
Spouses and children can and do receive social security benefits upon the death of a person who paid into the system. A spouse who is older than 60 will always be able to receive either a majority of the benefit that was (or would have been) paid to you, using their own age against the full benefit amount that was part of your benefit equation. Children, including dependent grandchildren, can receive a payment equal to 75% of your full benefit amount until they are about 18. Continue reading...
How are Pension Benefits Computed?
Enrolled actuaries must be used to establish the benefit formula.The amount of money you will receive (monthly) from your employer during retirement is calculated by a formula which incorporates your age, your salary, the number of years you worked for your employer, and other possible factors. The IRS stipulates that an enrolled actuary must be contracted to perform the calculations, with input from the employer, to determine how the benefit will be calculated and to make sure that the plan assets will be sufficient to pay the benefits when the employees reach retirement. Continue reading...
Can Something Happen to My Defined Benefit Plan?
The Pension Benefit Guaranty Corporation will insure benefits up to a point, but it may not replace the full value of a pension if a plan goes belly-up. While the Pension Benefit Guaranty Corporation (PBGC) insures thousands of Pensions across the country, the entire benefit of your Defined Benefit Plan is in no way guaranteed. Some corporations can “freeze” your pension, meaning they stop the counter on the number of years you’ve worked, and use that as the number to calculate your monthly payments. Many pensions today are struggling after the long period of low interest rates on fixed instruments like government bonds. Continue reading...
Am I Eligible for Social Security Benefits?
Social Security will pay benefits to those who have paid into the system, their beneficiaries in many cases, and also to some disabled individuals who have not paid into the system. In general, Social Security Benefits will only be paid in cases where individuals paid into the system. The exception is Supplemental Security Income (SSI), which is actually paid from the general tax revenue of the government, and not the actual Social Security trust funds, though it is administered by the Social Security Administration. Continue reading...
Can I Withdraw Money From My Defined Benefit Plan?
Most pensions will not allow in-service withdrawals but some will allow loans. While you are working for your employer, you typically may not withdraw money from your Defined Benefit Plan. The IRS permits plan loans if the plan administrator permits it. In-service withdrawals are possible after age 62, meaning money can get taken out before separation from service. If you leave your employer before retirement, the funds are usually kept in a Trust until you reach retirement age (or until a specified age at which you can start to receive the benefits). Continue reading...