Making the Emotional and Financial Transition to Retirement Flashcards
Early Retirement Trend in the US
(1) Early retirement, at least full retirement, is on the decline. (2) Semi-retirement, or continuing to work bridge jobs is he new norm. (3) Many retirees continue to work part-time jobs after being laid off or passed up for promotion by younger employees. (4) Highly compensated employees are the exception, and tend to work longer than their lower paid peers.
Delaying Retirement
(1) Defined contribution plans are replacing defined benefit plans, and defined contribution favors longer careers. (2) Deduction are made to benefits for workers under 65 for excess earnings. (3) The reduction ends on the first day of the month they reach retirement age. (4) The delayed retirement credit has been increased dramatically. (5) FRA has been increased to 67 for younger workers.
Friendlier Markets for Older Workers
(1) Several decades ago, labor markets were generally hostile towards older workers. (2) Mandatory retirement was forced upon many older workers. (3) There were no statutes against age discrimination. (4) Demographic changes have made labor markets tight, despite periodic recessions. (5) Many companies prefer part-time employees. (6) The skills and work habits of the elderly is generally sought and desired. (7) Advances in technology means fewer jobs require physical labor.
Key questions when making the retirement decision
(1) Affordability: Can I afford it? (2) Timing: Is it the right time, (3) Family: How will my spouse/family be affected, (4) Desire: Do I wan to retire?
Affordability: Financial Resources when contemplating retirement
(1) Social security, (2) Company pensions, IRA, and tax-deferred annuities, (3) other income like rental, and (4) personal saving such as investment assets, CDs, or cash value life insurance.
Timing: 2 Time Related factors making early retirement challenging
(1) Fewer working years to accumulate assets, (2) social security credits, and (3) pension benefits and (4) financing more nonworking years.
Pension Benefit Reduction due to Early Retirement
(1) Early retirement reduces the benefit paid by defined benefit pension plans. (2) This is because benefits are a function of final average salary and years or service.
COBRA
(1) COBRA requires most employers to offer continued coverage, (2) through their group plans, (3) to employees and their dependents, (4) without proof of insurability. (5) In case of certain qualifying events like: death, (6) termination, (7) divorce, or (8) legal separation. (9) Generally for 18, but cold go up to 36 months. (10) The former employee must pay full premiums plus 2% administrative cost.
Separation from Service Exemption
(1) Generally, qualified plan distributions to those under 59 1/2 are subject to a 10% penalty . (2) However, tax code provide a special “separation from service” exception for employees 55 or older. (3) There is no exception for the income tax liability.
Substantially Equal Periodic Payments
(1) Refers to a method of taking qualified plan distributions over the participant’s expected lifetime, (2) based on IRS tables. (3) Annual payment = amount of distribution / life expectancy (4) Can be joint life expectancy with a spouse. (5) Can use fixed amortization or fixed annuitization (6) Payments must be for 5 years, or until age 59 1/2, which ever is later. (7) Failing to do so will trigger the 10% penalty on all previous withdrawals.
Financial Benefits of Late Retirement
(1) Fewer years of retirement to finance, (2) more years in which to accumulate savings, (3) more years to accumulate Social Security and Employer-sponsored benefits. (4) The extension of employee benefits not typically available to retirees, like: life and health insurance,
Delaying Retirement impact on Social Security
(1) Those who delay, receive delayed retirement benefits. (2) The delayed credits stop at age 70. (3) DRCs increase old-age and survivor benefits. (4) The amount of DRCs is linked to a schedule based on DOB. (5) The late retiree sees benefit increase while paying FICA taxes through employment.
RMD age
(1) A RMD must be made for the year in which the retiree turns 70.5, (2) The 1st distribution may be delayed until April 1st of the calendar year following the 70 1/2 year. (3) the 2nd and subsequent distributions must be made by December 31st.
Penalties for working while collecting SS
(1) $1 for every $2 above $15,270 before FRA, or $1 for every $3 above $41,880 the year FRA is reached. (2) A person who has attained FRA can work as much as they want.
Term Window Plan
A window plan describes a set of incentives used to reduce corporate headcount through voluntary early retirement
