Friday Top Five: Retirement Related News for 9/19/14

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Do you know what you’re doing when it comes to retirement planning? Or are you winging it?  To see how much you really know about preparing for retirement — and pick up some tips that can help you improve your retirement prospects — check out this 10-question quiz.

The federal government has been looking to introduce legislation designed to help workers save for retirement if they aren't covered by an employer-provided pension plan or retirement savings plan. In the meantime, many states are taking up the charge. Karen Friedman, executive v.p. and policy director at the Pension Rights Center, said that many states are already playing an important role in the development of retirement plans. In fact, many states have already introduced bills or signed legislation to fill the void.

As families struggle to pay the skyrocketing costs of higher education, a growing number of parents are concerned that the money they borrow for their child’s tuition will hurt their retirement.
In a recent survey, a majority (54 percent) of the parents said they’re worried that their retirement will be jeopardized by student loan debt. That survey was done for Citizens Financial Group which operates Citizens Bank and Charter One Bank.

Related -  Make the MOST of College Savings

When it comes to retirement savings, the gap between the rich and poor is growing dramatically.

Last year, the typical 55- to 64-year-old household had just $111,000 saved in their 401(k)s and IRAs, which would translate into just $500 a month in retirement income, according to a report from Boston College's Center for Retirement Research that analyzed recent Federal Reserve data.

According to 81 percent of today's retirees, the most important ingredient for a happy retirement is good health, outranking financial security, which rang in at 58 percent. Ranking much lower as sources of retirement happiness are:
  • Having loving family and friends (36 percent)
  • Having purpose (20 percent)
  • Trying new things 5 percent)

Make the MOST of College Savings

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“Grandparents are parents, but with more sleep, fewer rules, and an endless supply of cookies.”
We all know it’s the grandparents’ job to spoil the grandkids. As their next birthdays or the Christmas holiday approaches, why not spoil them with something they will really need—a college education? As the plan sponsor, Missouri State Treasurer Clint Zweifel encourages you to save for qualified higher education expenses with MOST—Missouri’s 529 College Savings Plan. You can begin an account with as little as $25 for a beneficiary as a parent, grandparent, relative, or friend.

“We know that higher education is one of the most powerful economic tools our state has, one that will impact our students and our future,” Treasurer Zweifel said. “I am proud of the work we have done with MOST 529 to promote college savings and make higher education more accessible to thousands of families across Missouri. MOST 529 accounts are easy to set up and you can choose an investment option that is best for you. My wife and I have accounts for both of our daughters and I encourage Missouri families to consider this plan as they think about saving for higher education.”

Contributing to the 529 Account

If you are a state employee, you may even be able to contribute through payroll direct deposit (Talk to your Human Resources office to see if your agency is a participating employer). If not, you can:
  • set up an automatic deduction through your checking or savings account
  • do a one-time electronic bank transfer for special occasions
  • write a check to the plan
  • roll over funds from another 529 account or transfer from an education savings account
  • liquidate and reinvest in a 529 from a Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) account (Note: This may be a taxable event.)

Setting up the Investments

Whether you are a hands-on investor or would rather have the professionals invest your account for you, there are choices available to you.
  1. Pick your risk tolerance: conservative, moderate, or aggressive.
  2. Then, pick your approach. If you would like to have your money automatically invested by Vanguard, choose the age-based strategy. As the child grows and moves closer to college age, the investments will become more conservative over time. If you would rather make your own investment decisions, Vanguard has 15 individual portfolios to pick from that you will monitor.
(Note: Investment returns are not guaranteed, and you could lose money by investing in the Plan. You may want to discuss these investment options with your financial advisor and/or tax professional.)
Related -  Tough Choices: College vs. Retirement

Other Benefits of the MOST Plan

Tax Benefits
  • If you withdraw the money for qualified higher education expenses, such as tuition, fees, or books, you won’t have to pay state or federal taxes. 1
  • If you are the account owner and you live in Missouri, you can deduct up to $8,000 ($16,000 if married filing jointly) of your contributions when you file state taxes. See the state tax deduction calculator. 2
  • Read more information about the tax benefits here.
Ugift®
Ugift is a simple way to contribute towards the 529 plan for special events in the child’s life. After the account owner sends an invitation to family or friends containing a Ugift code, contributions can be made either through check or electronic bank transfer. The account owner will be notified in their account that the gift was made. As a parent, this is a great way to notify the grandparents and other relatives that you have set up the account and encourage contributions as a gift for an upcoming birthday.

Upromise®
If you join Upromise, you can earn additional money for your Missouri MOST account by patronizing participating stores and restaurants. Simply link your 529 account to your Upromise account, and then use the stores’ links listed on the Upromise website to earn cash back. Whether you do your back-to-school shopping through Kohl’s, or buy electronics through Best Buy, you can earn 5% back or more from over 800 online retailers, plus get up to 8% back at participating restaurants. 3

Financial Aid
Since the parent is usually the account owner of the 529 plan, it is considered their asset, rather than the dependent child’s; therefore it should have minimal impact on qualifying for financial aid for college. If a grandparent is the account owner, the account doesn't count as an asset for federal financial aid purposes. (But, a student may have to report distributions received from the account as income.)

Questions to Ask
The U.S. Securities and Exchange Commission (SEC) has a list of question on their website anyone investing in a 529 plan should be asking of the plan and discussing with their financial advisor/tax professional. You should be aware of withdrawal restrictions, such as, “if you withdraw money from a 529 plan and do not use it on an eligible college expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings.” Also know what all of the fees and expenses associated with your investments will be.

Resources


1Earnings on nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.

2Contributions to the plan in a tax year are deductible from Missouri state income tax up to certain limits but may be subject to recapture in subsequent years if you make a nonqualified withdrawal.

3Upromise is an optional service offered by Upromise, Inc., is separate from the MOST 529 Plan, and is not affiliated with the State of Missouri. Terms and conditions apply to the Upromise service. Participating companies, contribution levels, and terms and conditions subject to change at any time without notice. Transfers subject to $25 minimum.

About MOST 529

State Treasurer Clint Zweifel sponsors MOST 529, a tax-advantaged program that enables families to save for a child’s higher education. MOST 529 is an affordable, low-cost, tax-deferred way to save for higher education expenses. Investments in the plan can be used towards qualified higher education expenses, including tuition, certain room and board expenses, books and mandatory fees at most four-year colleges and universities, many two-year institutions and vocational schools, and some schools abroad. In addition, savings in MOST 529 can be used towards associates, bachelors, and advanced degrees. Account owners may deduct up to $8,000 in contributions each year in computing their Missouri state income tax and married couples filing jointly may deduct up to $16,000 annually. Contributions to the Plan in a tax year are deductible from Missouri state income tax up to certain limits, but may be subject to recapture in subsequent years if you make a nonqualified withdrawal.

*The availability of tax or other benefits may be contingent on meeting other requirements

Investment returns are not guaranteed, and you could lose money by investing in the Plan.

Earnings on nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.

For more information about MOST—Missouri’s 529 College Savings Plan, call 888-414-MOST or visit MissouriMost.org to obtain a Program Description, Privacy Policy, and Participation Agreement.

Investment objectives, risks, charges, expenses, and other important information are included in this document; read and consider it carefully before investing. Vanguard Marketing Corporation, Distributor and Underwriter

If you are not a Missouri taxpayer, consider before investing whether your or the designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program.

The Missouri Higher Education Savings Program (the “Program Trust”) is a trust created by the State of Missouri. When you invest in MOST—Missouri’s 529 College Savings Plan (the “Plan”), you are purchasing portfolio units issued by the Program Trust. Portfolio units are municipal securities. The Plan has been implemented and is administered by the Missouri Higher Education Savings Program Board (the “Board”). Ascensus Broker Dealer Services, Inc., and Ascensus Investment Advisors, LLC, serve as the Program Manager and Recordkeeping and Servicing Agent, respectively, with overall responsibility for the day-to-day operations. The Vanguard Group, Inc., serves as Investment Manager for the Plan. Vanguard Marketing Corporation, an affiliate of The Vanguard Group, Inc., markets and distributes the Plan. The Plan’s portfolios, although they invest in mutual funds, are not mutual funds.



Friday Top Five: Retirement Related News for 9/12/14

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From USA Today: Top retirement financial concern: Health care bills

People over 50 say their top retirement financial worry is health care costs, a survey, out Friday, shows.

But only 15% of pre-retirees have tried to figure out how much money they might need for health care and long-term care in retirement, according to the survey of 3,300 people, ages 25 and older, conducted by Merrill Lynch in partnership with Age Wave, a research think-tank on aging issues.

It's no wonder people are worried. Another report estimated that out-of-pocket health care costs in retirement may equal $318,800 if retirement lasts 30 years; $220,600 for 25 years; $146,400 for 20 years; $91,200 for 15 years; $50,900, 10 years. These estimates do not include the cost of long-term care.

From The Washington Post: More seniors are carrying student loan debt into retirement

Student loan debt doesn’t only hurt the young. More seniors are carrying their college debt into retirement.

The total outstanding debt load held by seniors grew to $18.2 billion in 2013, up from $2.8 billion in 2005, according to a report released by the Government Accountability Office on Wednesday. The share of households headed by people between the ages of 65 and 74 who have student loan debt also grew, reaching 4 percent in 2010 from 1 percent in 2004.

From MarketWatch: In retirement savings, the poor get poorer

When it comes to Americans’ retirement account balances, happy days are here again—but only for some. Average retirement-account balances have actually shrunk for people at the higher and lower ends of the income scale, while the percentage of Americans who have retirement accounts continued a recent decline.

According to a new report from the Federal Reserve, the average balance in Americans’ retirement accounts—a category that includes Individual Retirement Accounts (IRAs) as well as 401(k)s, 403(b)s and Keogh plans—rose 10% over the past three years, from $183,400 in 2010 to $201,300 in 2013. The median balance, meanwhile, was up 25%, from $47,200 to $59,000. The report looked at families whose “head is between ages 35 and 64”—a group whose members are generally “established in their careers” but are “too young for full retirement.”

From CBS Money Watch: Not too late for Gen Xers to save for retirement

Gen X workers are on a collision course with retirement, but they still have time to take action to get back on track. That's the conclusion of a recent report released by the nonprofit Transamerica Center for Retirement Studies (TCRS), which defines Gen X as those born between 1965 and 1978, making them currently about age 36 to 49.
The study found that 85 percent of Gen X workers think their generation will have a harder time than their parents achieving retirement security. Gen X got hit hard by the recession. According to the survey, 12 percent were laid off, 25 percent had their wages or hours reduced, and 4 percent lost their homes.

From Fiscal Times: 6 Ways to Make Your Retirement Savings Really Count

Saving for retirement doesn’t happen in one fell swoop. It usually starts with baby steps: First you have to enroll in a 401(k) or set up an IRA. Next it’s time to take advantage of any employer match available to you. And then you should be vigilant about increasing your contributions periodically.

If you’ve already taken some of these steps, congratulations—you’re ahead of the curve! According to a recent Bankrate survey, nearly 40% of Americans haven’t even started saving for retirement. And the numbers don’t get much more encouraging with age: More than a quarter of those ages 50 to 64 admit to the fact that they don’t have a nest egg.

Investments Market Summary

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By Seth Kelly, Managing Director - Beta Balanced Strategies

Seth Kelly
The fiscal year ending June 30, 2014 could best be summarized by the market’s ability to defy logical explanation. The defining moment of the year became the Federal Reserve ending its quantitative easing program.  While there is limited historical data associated with such a strategy, common logic would suggest that ending stimulus would cause bond yields to increase and stocks to decline; however, the opposite occurred.  Stocks continued to climb higher for the rest of the year and bond yields reversed course and started to decline.  As such, history will recognize FY2014 for the strong risk markets and confusing interest rate markets it produced.

The first quarter saw the financial markets dealing with multiple risks.  First was Detroit’s bankruptcy, which entered the record books as the largest municipal bankruptcy on record.  Following that, the conflict in Syria intensified and the risk of military action became real.  However, it took the eminent risk of a US government shutdown to make markets behave poorly.  All said, by the end of the first quarter, risk markets and interest rates moved higher.

The start of the second quarter coincided with the US government shutdown – an event that caused negative risk markets and declining interest rates. However, the shutdown ended by the middle of October and risk assets, along with interest rates, began to ascend.  The market’s ability to absorb this significant event indicated strong economic momentum and, as a result, the Fed began reducing stimulus late in the second quarter.  Risk assets generally finished positive for the quarter and interest rates increased.

The third quarter began with the official appointment of Janet Yellen as Federal Reserve Chair and talk of another Washington showdown over the debt limit.  The idea of a “debt showdown” caused concern; however, any potential crisis was averted when Congress raised the debt ceiling.  Even in the face of the debt limit debate and the Fed reducing monetary accommodation, risk assets finished the quarter higher, while interest rates started trending down.

The fourth quarter kicked off with Russia’s military engagement in the Crimea region of the Ukraine.  The risk of war was enough to cause risk assets to pause; only to continue their climb after the situation was resolved without global military intervention.   The geo-political environment was complicated further by rebel advances in Iraq.  Even with increased geo-political risks, the fourth quarter showed signs that the economy was gaining traction.  Counter-intuitively, though, interest rates continued their progression down against the backdrop of higher economic growth.

The market sent mixed signals throughout the fiscal year.  The message coming from risk markets was to anticipate higher growth, while the bond market hinted at average inflation levels and lower yields. These events can certainly be viewed as odd bed fellows; higher economic growth is assumed to create inflation, causing an increase in the yield. The market’s ability to price incompatible outcomes is a situation that can exist for short periods of time, but is not sustainable in the long term. For this dichotomy to continue, the market will have to become accepting of higher yields and/or higher expected inflation. The transition from intolerance to acceptance of tighter money or higher inflation should provide a challenge to the markets. While one transition path is acceptable for risk assets, there are a handful of paths that will challenge risk asset’s ability to provide adequate return.

Disability and Early Retirement

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Is it possible for an employee with a disability (MS) to retire early (3 years until eligible) with full retirement benefits? thanks
In order to retire (through either normal or early eligibility), a member must meet service and age requirements. Retirement eligibility for each plan is detailed on the Which Plan am I in page on MOSERS’ website. If you have an illness or disability that may prevent you from meeting these requirements, there may be other options if you are eligible for long-term disability benefits from MOSERS*.
MOSERS has partnered with our disability insurer, The Standard, to provide assistance to members who have a medical condition that could lead to a disability. The program provides a Workplace Possibilities Program coordinator who determines if members meet the criteria for eligibility, i.e. they are being treated for a medical condition that limits their ability to perform essential job functions. The coordinator will then ask a Workplace Possibilities consultant, a professional case manager, to offer direct services to help employees who may be in pain, taking sick leave or having difficulties at work that could be related to a disability. Examples could include ergonomic evaluation for specialized seating, sit/stand work station (for those who need to change positions frequently throughout the work day), lifting devices, specialized shoes, etc.

Your payroll/personnel representative at your agency can provide you with a handout explaining the Workplace Possibilities program, and the related forms. Your payroll/personnel representative will also provide the Workplace Possibilities consultant with your contact information, so that an initial contact can be made to answer any additional questions and provide assistance in completing the forms, if necessary.

Long-term disability (LTD) insurance protects your earning ability by providing partial income replacement in the event you become disabled; this bridges the gap from your date of disability to your recovery or retirement, whichever comes first. LTD coverage is provided to eligible, active employees of the state of Missouri at no cost to you. Benefits include 60% replacement of your pre-disability earnings less any deductible income  and continuation of creditable service toward retirement benefits for each month you receive disability benefits.

For more on LTD benefits, see the LTD Handbook on MOSERS’ website or contact a MOSERS benefit counselor.

*Note: Conservation and college & university employees (except Lincoln University and State Technical College of Missouri) – Some of your benefits (such as long-term disability) are provided by your employer rather than by MOSERS. Contact your employer for details of your plan.

70 and Out Debunked

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In 1999 0r 2000 did mosers provide a 70 and out full retirement
There has never been a “70 and Out” retirement option. Eligible members of the MSEP and MSEP 2000 can retire under the Rule of 80 (“80 and Out”) when their age and service equals 80 or more and eligible members of MSEP 2011 can retire under the Rule of 90 (“90 and Out”) when their age and service equals 90 or more. We receive many questions about the Rule of 80 changing, so we encourage you to subscribe to Rumor Central emails by logging into MOSERS secure site and search our Rumor Central archive for frequently asked questions.

BackDROP's Combination Cash and Rollover Option

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CAN MY BACKDROP BE SPLIT, SOME INTO MY STOCK MARKET ACCOUNT AND SOME PAID OUT IN CASH TO ME?
If you wish to put some of your BackDROP into a stock market account which is not part of a tax-deferred arrangement, you would have to take that as cash and pay taxes on it.

Alternatively, one of the BackDROP payment method options is a Combination Cash and Rollover Option.  If you elect this option, you may specify the amount of a tax-deferred distribution to be paid directly to your State of Missouri Deferred Compensation Plan (which offers a self-directed brokerage account, custom target date funds, an actively managed asset allocation fund, and a stable income option), a traditional IRA, or another eligible employer plan. The remaining balance will be paid to you in cash (less the 20% income tax MOSERS is required by the IRS to withhold).

For a detailed explanation of the payment methods and tax consequences, please review our Special Tax Notice, which is available on our website (www.mosers.org). More information on the BackDROP is also available in the BackDROP for General State Employees Brochure on MOSERS’ website. We recommend you contact a tax consultant or financial advisor before electing a payment method.