Tip: Retiring Older.
During the past year, one survey found 13% of workers now plan to retire later than they previously expected.
Source: Employee Benefit Research Institute, 2015
For many people, retirement income may come from a variety of sources. Here’s a quick review of the six main sources:
Social Security is the government-administered retirement income program. Workers become eligible after paying Social Security taxes for 10 years. Benefits are based on each worker’s 35 highest earning years. If there are less than 35 years of earnings, non-earning years are averaged in as zero. In 2015, the average monthly benefit is estimated at $1,328.¹
One survey found that 66% of today’s workers expected that their personal savings and investments outside their IRAs and employer-sponsored retirement plans will be either a major or minor source of retirement funds. The same survey found that only 44% of current retirees report personal savings and investments are a source of funds.²
Traditional IRAs have been around since 1974. Contributions you make to a traditional IRA may be fully or partially deductible, depending on your individual circumstances. Distributions from a traditional IRA are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income-tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
Roth IRAs were created in 1997. Roth IRA contributions cannot be made by taxpayers with high incomes. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as a result of the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
Well over one-third of workers are eligible to participate in a defined–contribution plan such as a 401(k), 403(b), or 457 plan.³ Eligible workers can set aside a portion of their pre-tax income into an account, which then accumulates tax deferred.
Distributions from defined contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income-tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
Defined–benefit plans are “traditional” pensions—employer–sponsored plans under which benefits, rather than contributions, are defined. Benefits are normally based on factors such as salary history and duration of employment. The number of traditional pension plans has dropped dramatically during the past 30 years. (See chart below.)
In a recent survey, 67% of workers stated that they planned to keep working. In contrast, only 25% of retirees reported that continued employment was a major or minor source of retirement income.⁴
What workers anticipate in terms of retirement income sources may differ considerably from what retirees actually experience.
Employee Benefit Research Institute, 2015 Retirement Confidence Survey
1. Social Security Administration, 2015
2. Employee Benefits Research Institute, 2015
3,4. Employee Benefits Research Institute, 2015
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2015 FMG Suite.
There is a growing popularity among individuals to broaden their investment strategy beyond conventional allocations and investment styles. Some see sector investing as a way to seek new opportunities for enhanced portfolio performance.1,2
Sectors are made up of companies grouped by similar businesses that range from natural resources to financial services and from technology to consumer staples. In any given year, one sector may outperform another. For example, in 2014, healthcare rose 27%, while energy fell -11%. 3
Successful sector investing depends on an individual’s ability to consistently and accurately determine when to rotate in and out of the various sectors, which may be a challenge for most investors.
Investors are further cautioned that some sector mutual funds are capitalization weighted, meaning that they can be very concentrated in a few stocks, so you need to do your homework.4
Remember that mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
There are a number of ways to implement sector investing, depending upon your objective.
Portfolio Carve-Out: This approach dedicates a portion of your portfolio to seek opportunities in a specific sector. For example, if you think a rebounding economy may increase consumer spending, potentially a Consumer Discretionary sector would be a consideration.
Risk Management: Because the correlations between different sectors can be lower than those between general categories (e.g., value vs. growth or large vs. small cap), investors may be able to build a portfolio of sectors that potentially may reduce overall investment risk.
Portfolio Completion: This strategy targets sectors that may be underrepresented in a current portfolio. For instance, if precious metals or real estate exposure is lacking, you can use sector investment to gain that exposure.
Successful sector investing may be a challenge for most investors, but it could present an opportunity for those who do their homework.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG, LLC, to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2015 Faulkner Media Group.