If your retirement funds are substantial you would probably also be wise to work with an estate planner in conjunction with your account and attorney.
Obviously as you get closer to retirement your investment strategies should change. By the same case once you are retired, where you have your funds and how you generate income and where you get money for every day expenses should change substantially. Unfortunately we regularly hear how unscrupulous con-men (and women) have separated seniors from their hard earned savings. Using online tax software like TurboTax to keep track of your finances will help, but it is important to stay on top of this.
We have also heard that if it sounds too good to be true it usually is a bad investment, but far too few seniors take this advice to heart.
Here is an excellent U.S. Government site: investor.gov/seniors-care-package/
You can navigate this site to find information to make it easy for seniors to learn about savings and investing wisely. Information includes:
- Investing wisely (for seniors and caretakers)
- How to pick a financial professional
- Evaluating your retirement options
- Questions you should ask about your investments
- Questions you should ask people who sell investments or provide investment advice
- Variable annuities: What you should know
Early withdrawal generally should be a last resort
The federal tax penalty for taking money out of a 401(k) or IRA before age 59 ½ is 10% of the amount of the distribution. That penalty goes on top of any tax owed on the amount withdrawn. State taxes and penalties may also apply. For example if you were to take $1000 from your retirement account in additional to your federal tax you would have a federal penalty of $100 plus possible state taxes and penalties. Be aware there are certain exceptions that would allow you to avoid the penalty but not the tax. It is important to talk with a CPA or accounting professional if you plan to make an early withdrawal.
If you are considering purchasing an annuitiy it is important that you carefully read your annuity contract and examine illustrations before investing. Purchasers of annuities should not just accept what a financial adviser tells you.
Before you purchase any annuity you must understand what type an annuity is right for you as there are many different kinds. Deferred annuities allow you to invest for retirement without paying federal income taxes until you withdraw your funds or decide to “annuitize” and receive periodic payments for life. There are also income, immediate or payout annuities where you invest a lump sum and receive periodic payments usually for life. In either of these types of annuities, you can select a fixed or variable annuity. A fixed annuity allows your investment to earn a set rate of interest determined by the insurance company marketing the annuity. This interest is paid for a specific period. A variable annuity allows you choose from a selection of investments--often mutual funds.
Most annuities come with surrender fees. If you decide to withdraw your investment within a specified period you will pay a penalty. Also, if you opt for an immediate annuity, the insurance company offering the annuities will keep any remaining balance unless you have made prior arrangements
Areas to check:
Check the term. Contracts run for a specific number of years If you purchase the annuity at 60 the term could be until your become 95. Check to make sure that the initial guaranteed rate will last for the entire contract.
Check rates as sometimes your initial rate is excellent but once your initial guarantee period ends your rate can drop.
Check the guaranteed interest crediting rate after initial guarantee period. You want to know your rate over the life of the contract. Since there may be substantial inflation you need to be confident that the minimum interest rate does not suffer by comparison.,
Check surrender charges paid if you decide to cash out the annuity early. There are often substantial fees if you cash out immediately should you need the moneys for some unexpected emergency. These fees usually decline over the life of the annuity to a point where there are no charges at all.
Check if there are riders and what they say.
Check to see if the interest rate is guaranteed and how it is calculated.
Check to make sure you can’t lose principal.
Check to see if you can take a partial amount of your investment out of your contract without paying a surrender charges. There may be a circumstance where you need monies and you should know ahead of time what it will cost you to get it
Check to see if there are any other fees. Most annuities have charges or commissions related to the cost of selling or servicing the annuity.
Check to see if there are any contract or transaction fees.
Lastly check to see if these kinds of fees or state premium taxes on your premium can be subtracted directly from your contract value.