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By Linda Descano, Managing Director and Head, Content & Social, North America, Citi February 18, 2014 11:46 AMWhile 69% of American consumers are optimistic that their personal financial situation will improve over the coming year, many remain concerned about their current level of saving for retirement, according to the results of a recent Citi national survey conducted by Hart Research. In fact, next to health care, retirement ranked #2 of financial issues keeping Americans awake at night.
Saving enough for a comfortable retirement can seem utterly daunting. But there are ways to supercharge your retirement savings. Here are 5 ideas to consider:
By Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management June 14, 2013 07:51 PMAccording to a 2013 survey by the Employee Benefit Research Institute, 57% of workers ages 45 to 54 had less than $50,000 in total savings and investments. Meanwhile, among workers age 55 and older, 52% fell into that camp.
Even if your nest egg is above these levels, you may not have nearly enough set aside for retirement--and it may be time to play catch-up. Those age 50 and above can do just that, thanks to the catch-up contributions they can make to Individual Retirement Accounts and to 401(k) and similar employer-sponsored retirement plans.
Those 50 and older can put as much as $23,000 into a 401(k) in 2013, versus a $17,500 maximum for folks who are younger. The 50-plus crowd can also invest as much as $6,500 in an IRA, compared to $5,500 for those under age 50.
By Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management May 17, 2013 12:00 PM
Some people are reluctant to fund Individual Retirement Accounts and 401(k) plans, fearing they are setting themselves up for big tax bills in retirement. After all, retirement-account withdrawals are typically taxed as ordinary income, which can mean paying a federal rate as high as 39.6% in 2013. By contrast, in a taxable account, any qualifying dividends and long-term capital gains are taxed at a maximum federal rate of 20%.
What to do? If you're eligible, you can always fund a Roth IRA or Roth 401(k) instead. Roth accounts don't offer an initial tax deduction, but withdrawals can be federal and state tax-free if you follow the rules.
But even if the Roth isn't an option, a tax-deductible IRA or 401(k) remains a fine choice. That's because the initial tax deduction often pays for the eventual tax bill.
By Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management April 09, 2013 07:00 PM
Is it possible to have too much money in tax-deferred retirement accounts? That might seem like an odd question given the oft-repeated advice to shovel as much as you can into 401(k) plans, traditional Individual Retirement Accounts and Roth IRAs.
And, indeed, if your employer offers a 401(k), 403(b) or similar plan, you should contribute at least enough to qualify for the company's full matching contribution. That match represents extra money that it would be foolish to pass up. Even without an employer match, your contributions to a 401(k) or traditional IRA may be tax-deductible. If you do the math, you may find the investment growth on these initial tax savings can end up paying for the taxes due when you make withdrawals. And, of course, tax-free growth is the big appeal of both Roth IRAs and Roth 401(k) plans.
The downside: It's difficult to tap these various retirement accounts before age 59½ without getting hit with early withdrawal penalties.
To be sure, there are exceptions. For instance, you may be able to borrow from your 401(k). But borrowing can be risky. In fact, 401(k) loans have to be repaid right away if you lose or leave your job. If you can't come up with the money to repay the loan, you could get hit with taxes and penalties.
By Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management March 27, 2013 02:15 PM"How much can I safely pull out of my retirement savings each year?" As we try to figure out if we have enough to retire, this is a crucial question--and folks are frequently disappointed with the answer.
Financial professionals often suggest relatively modest annual withdrawals, maybe equal to just 4% of a portfolio's value, as a precaution against weak market performance or high inflation. But there's another reason for this caution: longevity risk. At issue here is the risk that retirees might outlive their savings. And, yes, it's a very real risk.
When today's 65-year-olds were born in 1948, the life expectancy for men was around age 73, while for women it was 79, according to figures from the Social Security Administration. But such averages can be a bad guide for today's retirees because they are dragged down by those who die before they reach retirement age.
By Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management March 20, 2013 12:40 PMYou might have both regular taxable accounts and also retirement accounts, such as a 401(k) plans and Individual Retirement Accounts. But which investments should you hold in which?
Everybody's financial situation is different, of course. Still, you might look to hold tax-inefficient investments in your retirement accounts, where any earnings can grow tax-deferred or, in the case of a Roth IRA or Roth 401(k), potentially tax-free. Meanwhile, for your taxable account, you might steer clear of investments that generate ordinary income, which can be taxed at a maximum 39.6% federal rate in 2013, and instead favor investments that could deliver qualified dividends and long-term capital gains, both of which are taxed at a maximum 20%.
For instance, actively managed stock funds often do a fair amount of trading that leads to large taxable distributions, including short-term gains that are subject to ordinary income-tax rates. But if these funds are in a retirement account, you don't have to worry about portfolio turnover leading to big tax bills. Other candidates for your retirement account include taxable bonds, which generate a lot of immediately taxable income, and real-estate investment trusts, which pay dividends that are taxed as ordinary income.
By Rohit Gupta, Director & Country Risk Manager, Consumer Banking, Citibank Turkey February 08, 2013 12:00 PM
Increased life expectancy and the move away from a traditional company "defined benefits plan" make retirement planning amongst the most important and long lasting decisions for individuals and families.
As a rule of thumb, financial planners recommend withdrawing no more than 4% - 5% of retirement savings every year. That means a lot of savings for an average family (to get a income of $3,500 in retirement would mean savings of just over 1 million).
How does one save enough over 30 years of working life for 30 years in retirement? The answer is simple - the magic of Compound Interest. Importantly, savings is different from investing (and speculation from Investing). A few percentage points in interest rates can mean a huge difference in your future wealth. Along with safety, one needs to ensure a good return on investments - even after retirement.
By Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management January 28, 2013 01:00 PM
Federal taxes are climbing for many folks in 2013. But thanks to inflation adjustments, so too are some key tax thresholds. You can now save more for retirement, make larger gifts without worrying about the gift tax and even pay a little less tax on your children's investment gains. Here are some key changes:
- You can contribute up to $17,500 to your 401(k) in 2013, a $500 increase over 2012. The catch-up contribution available to those age 50 and up remains unchanged at $5,500. Still, the 50-plus crowd can now make a maximum 401(k) contribution of $23,000--and, on top of that, they could receive a matching employer contribution.
By Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management January 07, 2013 12:00 PM
If you want to get the New Year off to a good financial start, consider funding your Individual Retirement Account for the 2012 tax year--and also socking away money for 2013. While the maximum IRA contribution for 2012 is $5,000, it rises to $5,500 in 2013. For both years, you can contribute an additional $1,000 if you're age 50 or older. You have until the April 15 tax-filing deadline to make your 2012 contribution.
Contributions to traditional IRAs can be tax-deductible. But if you're covered by a retirement plan at work, your tax deduction may be reduced or even phased out completely, depending on your income.
By Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management December 17, 2012 09:00 AM
How much will life's major financial goals cost you--and which ones should you make a priority? Here's how they might line up:
- Retirement. This may be one of life's later goals, but it should probably be your first priority, because it will likely take many years to save enough. How big a nest egg might you need? How does $750,000 sound? That's how much would be required to generate 60% of 2011's median household income, which was $50,000 according to the U.S. Census Bureau. This assumes that, once you're s retired, you use a 4% portfolio withdrawal rate. You might need less than $750,000 for a comfortable retirement if you have a traditional pension plan. On the other hand, if your Social Security benefit will be modest or if your current salary is substantially above $50,000 and thus you're used to a move lavish lifestyle, you could need significantly more.
- Homeownership. Planning to buy a home? According to the Census Bureau and the Department of Housing and Urban Development, the average price of a new home was almost $280,000 in October. One piece of good news: Historically low mortgage rates should make your monthly loan payments more affordable.