Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about.
Americans' retirement readiness has improved, with the percentage of the income they need to retire increasing to 83% from 62% in 2006, according to a survey by Fidelity Investments in this MarketWatch. However, the retirement readiness score dropped for Generation X to 80% from 83% in 2018, the survey found. Gen Xers are struggling to save because “they don’t have as long before they retire” and “they are juggling a lot of financial priorities — housing, saving for college, medical costs,” says an expert with Fidelity.
Although seniors have to develop a claiming strategy that will maximize their Social Security benefits, there are other factors that they need to consider, a Kiplinger contributor writes. For example, they should understand that they could owe taxes on their retirement benefits, he writes. "If all of your income comes from Social Security, your benefits probably won’t be taxed. But if you have income from other sources, such as a part-time job, withdrawals from an IRA or a pension, up to 85% of your benefits could be taxed."
Self-employed clients are advised to consider setting up a solo 401(k) plan, as they can make bigger contributions to this savings vehicle compared with a traditional 401(k), according to this article in Motley Fool. Clients also have the option to make their solo 401(k) tax-deferred or Roth. Self-employed workers should consider a tax-deferred solo 401(k) if they expect to move to a lower tax bracket in retirement, while a Roth solo 401(k) is recommended to those who will move to a higher tax bracket in their post-career life.
Seniors who consider going back to work are advised to weigh their options before dropping Medicare for their employer-based health insurance, according to this article in CNBC. For example, those who are on Medicare cannot contribute to a tax-advantaged health savings account that comes with their employer coverage. They would also have to repay Medicare for all the health services covered by the program if they decide to shift to their employer coverage.
Steady gains made in equity markets last year were "clearly a tailwind,” an expert says.
Retirees who need to generate income from their portfolio are advised to liquidate their mutual funds held in taxable accounts before tapping those in their tax-deferred and tax-exempt accounts, a Forbes contributor writes. "Taxes are very important when it comes to withdrawing from retirement plans," the expert writes. "They can reduce your post-work income and hold down future portfolio growth."
