Make your retirement savings last

You’ve worked hard and saved for the future — now you need to make sure your savings last the rest of your life. By understanding the risks you face, you can make smart choices about how much to withdraw and how to handle unexpected financial challenges.

The financial implications of a long life

According to the National Center for Health Statistics, people today can expect to live more than 30 years longer than they did a century ago. Individuals who reached age 65 in 1950 could expect to live an average of 14 years more, to age 79; now a 65-year-old might expect to live for roughly an additional 19 years.1

A long life can be a wonderful thing. But it does add a challenge to retirement planning prompting you to ask yourself: how long will my savings last? 

Here are some strategies to consider that may help your savings last longer for you.

Ways to save for retirement

Determine a sustainable retirement withdrawal rate

A smart, conservative withdrawal plan can help. Working with a financial advisor to decide how much to withdraw, which accounts to take the money from, and when to do so can help secure a comfortable retirement for you and your spouse or partner, and help ensure your retirement income lasts as long as possible.

How much can you afford to withdraw from your savings each year will depend on your individual needs. Many retirees have an unrealistic idea of the amounts they can withdraw annually without running out of money. Aggressive withdrawals are generally unsustainable — especially when the markets are down.

Plan for health care expenses in retirement

The cost of health care in America is rising astronomically. Combined with longer lives and less insurance coverage, this presents a potentially huge expense for retirees. What can you do?

A good approach is to factor health care costs into your retirement expenses. The average couple age 65 with median prescription drug expenses needs to save $265,000 to have a 90% chance of having enough for health care expenses in retirement, according to the Employee Benefit Research Institute.2

By accounting for these expenses in your retirement plan, understanding your options for Medicare or other health care solutions, and/or securing long-term care insurance, you may be able to avoid tapping your other savings.

Prepare for the unexpected

While no one can predict the future, you can prepare by taking a few simple steps. For example, always keep enough cash to last six months easily accessible. With this cash reserve available, you may not have to deplete your main savings in the event of an emergency, or be required to liquidate longer-term investments.

Your Ameriprise financial advisor can help you develop a plan for making your savings last as long as possible, protecting your assets from health care expenses and preparing you for unexpected events with easily accessible savings accounts. To learn more, find an Ameriprise financial advisor in your area.

Disclosures

1 National Center for Health Statistics, Health Status and Determinants, Mortality, 2015.
2 Source: Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $350,000, published by EBRI, January 31, 2017, Vol. 38, No. 1.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

3 strategies to help reduce investment risk

History shows that when people invest and stay invested, they’re more likely to earn positive returns in the long run. When markets start to fluctuate, it may be tempting to make financial decisions in reaction to changes to your portfolio. But people who base their financial decisions on emotion often end up buying when the market is high and selling when prices are low. These investors ultimately have a harder time reaching their long-term financial goals.

How can you avoid making these common investing mistakes? Consider these investment strategies, which can help you reduce the risks associated with investing and potentially earn more consistent returns over time.

Strategy 1: Asset allocation

Appropriate asset allocation refers to the way you weight the investments in your portfolio to try to meet a specific objective — and it may be the single most important factor in the success of your portfolio. 

For instance, if your goal is to pursue growth, and you’re willing to take on market risk to reach that goal, you may decide to place as much as 80% of your assets in stocks and as little as 20% in bonds. Before you decide how you’ll divide the asset classes in your portfolio, make sure you know your investment timeframe and the possible risks and rewards of each asset class.

Risks and rewards of major asset classes

Stocks

  • Can carry a high level of market risk over the short term due to fluctuating markets
  • Historically earn higher long-term returns than other asset classes
  • Generally outpace inflation better than most other investments over the long term

Bonds

  • Generally have less severe short-term price fluctuations than stocks and therefore offer lower market risk
  • Can preserve principal and tend to provide lower long-term returns and have higher inflation risks over time
  • Bond prices are likely to fall when interest rates rise (if you sell a bond before it matures, you may get a higher or lower price than you paid, depending on the direction of interest rates)

Money market instruments

  • Among the most stable of all asset classes in terms of returns, money market instruments carry low market risk (managers of these securities try to keep the per-share price at $1 and distribute returns as dividends)
  • Generally don’t have the potential to outpace inflation by a large margin
  • Not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency (there’s no guarantee that any fund will maintain a stable $1 share price)

Different asset classes offer varying levels of potential return and market risk. For example, unlike stocks and corporate bonds, government T-bills offer guaranteed principal and interest — although money market funds that invest in them do not. As with any security, past performance doesn’t necessarily indicate future results. And asset allocation does not guarantee a profit.

Strategy 2: Portfolio diversification

Asset allocation and portfolio diversification go hand in hand. 

Portfolio diversification is the process of selecting a variety of investments within each asset class to help reduce investment risk. Diversification across asset classes may also help lessen the impact of major market swings on your portfolio.

How portfolio diversification works

If you were to invest in the stock of just one company, you’d be taking on greater risk by relying solely on the performance of that company to grow your investment. This is known as “single-security risk” — the risk that your investment will fluctuate widely in value with the price of one holding. 

But if you instead buy stocks in 15 or 20 companies in several different industries, you can reduce the potential for a substantial loss. If the return on one investment is falling, the return on another may be rising, which may help offset the poor performer.

Keep in mind, this doesn’t eliminate risk, and there is no guarantee against investment loss.

Strategy 3: Dollar-cost averaging

Dollar-cost averaging is a disciplined investment strategy that can help smooth out the effects of market fluctuations in your portfolio.

With this approach, you apply a specific dollar amount toward the purchase of stocks, bonds and/or mutual funds on a regular basis. As a result, you purchase more shares when prices are low and fewer shares when prices are high. Over time, the average cost of your shares will usually be lower than the average price of those shares. And because this strategy is systematic, it can help you avoid making emotional investment decisions.

How dollar-cost averaging might work in rising and declining markets

In the illustration below, the cost of the investment ranges between $10 and $25 from January through April. A fixed monthly investment of $100 buys as many as 10 shares when the price is lowest but only four shares when the price is highest. In this example, dollar-cost averaging results in a lower average share price during the period, while the market average price — for someone who bought an equal number of shares each month — is higher.

Dollar-cost averaging at $100 per month

Rising market
 
 
Month
When the price is
You buy
January
$10
10.00 shares
February
$15
6.67 shares
March
$20
5.00 shares
April
$25
4.00 shares

Declining market
 
 
Month
When the price is
You buy
January
$25
4.00 shares
February
$20
5.00 shares
March
$10
10.00 shares
April
$5
20.00 shares

Your Ameriprise financial advisor can help you feel more confident about your financial future, so discuss these strategies with your advisor to see if they may be right for you.

Disclosures

Asset allocation, diversification and dollar-cost averaging do not assure a profit or protect against loss.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
There are risks associated with fixed income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities.
Stock investments have an element of risk. High-quality stocks may be appropriate for some investments strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with stocks before investing, as they can lose value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

5 types of investment fraud to watch out for

Seniors lose $36.4 billion each year to financial abuse — $16.8 billion of which comes from deceptive investing tactics designed specifically to take advantage of older Americans.¹ Also known as “financial exploitation,” this type of investment fraud is defined by the use of misleading language to obtain account information and permission to access the victim’s money.

According to the National Council on Aging, investment fraud targeting seniors has become so widespread that it’s now considered “the crime of the 21st century.”² While financial scams often go unreported, they can be devastating to older Americans who have less time to make up for losses. 

Retirees are particularly vulnerable to investing scams because they often have large amounts of money saved, and “get rich quick” schemes can be appealing to those on a fixed income.

The first step to protecting yourself — or a parent — from investing scams is knowing which red flags to look for.

Here are the five most common types of fraud:

Pyramid scheme

Also known as a Ponzi scheme, this involves using money from new investors to provide a return — often much higher than typical market gains — to existing investors rather than using legitimate investment returns. Ponzi schemes fall apart when the money owed to the initial investors becomes greater than the amount that can be raised from new investors. Pyramid scheme operators may reach out via phone, email or word of mouth.

What to watch for: If investment returns seem too good to be true, they probably are. If in doubt, request documentation such as a fund prospectus or the most recent annual report. These may help provide more context for investors — or raise suspicions if they aren’t readily available for review. If you’re not sure, talk to your advisor before making any moves. 

Pump and dump scheme

This involves a group of people buying a stock then recommending it to thousands of investors. The result? A rapid spike in stock price followed by an equally fast downfall. The perpetrators who bought the stock sell off their shares at a huge profit when the price peaks. Pump and dump schemes often circulate on internet investing blogs, or you may receive a promotional email.

What to watch for: Smaller, lesser-known companies are more likely to be used in this scheme because it’s easier to manipulate a stock when there’s little or no information available about the company.

Targeting seniors has become so widespread that it’s now considered “the crime of the 21st century.”– National Council on Aging

Off-shore investing fraud

The internet has eroded barriers that once made it difficult for overseas fraudsters to prey on U.S. residents. Conflicting time zones, the cost of international telephone calls and differing currencies are no longer an obstacle — and international wire transfers can occur instantaneously. Phone calls are a common method of communication for the perpetrators, enabling real-time wire transfers to be made before victims have time to do any research.

What to watch for: Investment opportunities originating in a country that is outside the jurisdiction of local U.S. law enforcement agencies. Ask for legal documentation stating where the funds are registered.

Prime bank scams

Used in an official capacity, this term describes the top 50 or so banks in the world. Real prime banks often trade high-quality, low-risk investments such as bonds. Fraudsters often claim investors’ funds will be used to purchase “prime bank” investments that they claim will generate significant gains. Because these investments usually don’t exist, investors are unlikely to see their money again.

What to watch for: The term “prime bank” is often used by perpetrators looking to lend legitimacy to their scheme, whereas real prime banks that are easily located through a Google search are able to rely on name recognition alone.

Bulletin boards and newsletter money scams

Investment boards have gone the way of online blogs, where nearly anyone can offer an opinion no matter how qualified they are — or aren’t. While there may be some valid posts by financial experts, perpetrators often use boards to plant fake “insider” tips meant to drive stock prices up or down. Know that company employees can also use blogs to spread promotional information, and it’s not illegal for companies to use employees to write online newsletters to promote their stock.

What to watch for: Federal laws require that disclosures with legally-required details about their offerings are located at the bottom of documents on company-generated information. Fraudulent newsletters are unlikely to provide such language.

Talk to us first to protect yourself from fraud

Not sure an investment you’re interested in is the real thing? It’s wise not to make any sudden moves. Your advisor can help determine whether it’s legitimate or explore alternative investments with you.

Disclosures

¹True Link Financial, “The True Link Report on Elder Financial Abuse 2015”: http://documents.truelinkfinancial.com/True-Link-Report-On-Elder-Financial-Abuse-012815.pdf
²National Council on Aging, “Top 10 Financial Scams Targeting Seniors”: https://www.ncoa.org/economic-security/money-management/scams-security/top-10-scams-targeting-seniors/
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

When should you start collecting Social Security?

Social Security is often associated with a retirement program, but you can use your benefits for other reasons. If you become disabled, you may use Social Security, or if you lose a family member, you may be eligible for survivor benefits. 

Learn more about Social Security benefits for you and your family







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Should I roll over to an IRA?

Rollover evaluator

If you have multiple retirement savings accounts held in more than one place as a result of job changes or other personal circumstances, the rollover evaluator will help you understand the pros and cons of keeping your retirement savings in an employer-sponsored plan such as a 401(k) or 403(b) versus rolling it over into an IRA.

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Medicare facts and coverage gaps

Planning ahead for health care expenses is essential. Determining how much you’ll need, however, depends on a variety of factors. Your costs will vary based on your income, age, health, location, your Medicare or supplemental plans and life expectancy.

Review the information below to learn how you and your family can prepare for the future.

Evaluating retirement health care costs

The financial impact of dealing with a serious illness can be devastating, and even everyday medical expenses such as prescription drug costs and routine medical services can add up over time. Planning now can help ensure you have enough money to pay for healthcare throughout retirement.

The amount of savings needed for health expenses for people eligible for Medicare, according to the Employee Benefit Research Institute (EBRI)1:

  • Medicare beneficiaries pay a share of their health expenses out-of-pocket because of program deductibles and other cost-sharing. In 2015, Medicare covered 60 percent of the cost of healthcare services for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounted for 12 percent, and private insurance covered 15 percent.
  • In 2018, a 65-year-old man with median prescription drug expenses needs $75,000 in savings and a 65-year-old woman needs $99,000 if each has a goal of having a 50 percent chance of having enough money saved to cover health care expenses in retirement. If either instead wants a 90 percent chance of having enough savings, $148,000 is needed for a man and $161,000 is needed for a woman. This analysis does not factor in the savings needed to cover long-term care expenses.
  • Savings targets increased between 2 percent and 13 percent since 2017. For a married couple both with drug expenses at the 90th percentile throughout retirement who want a 90 percent chance of having enough money saved for health care expenses in retirement by age 65, targeted savings would be $399,000 in 2018.

According to the EBRI, this information is based on dollars needed for Medigap premiums, Medicare Part B premiums, Medicare Part D premiums and out-of-pocket drug expenses for retirement at age 65 in 2017. 

 

Introduction to Medicare

Medicare is a federal health insurance program that provides coverage for people age 65 and older, and for some disabled people under age 65. The program consists of four parts, each of which covers different health-related expenses.

The different parts of Medicare

Medicare Part A
Medicare Part B
Medicare Part C
Medicare Part D
Hospital Insurance
Medical Insurance
Medicare Advantage
Prescription Drug Plan
Helps pay for in-patient care in a hospital, skilled nursing facility (following a hospital stay), some home health care and hospice care
Helps cover services like lab tests, surgeries, and doctor visits in addition to supplies like wheelchairs and walkers that are considered medically necessary to treat a disease or condition.
Allows you to participate in PPO-, PFFS, and HMO-type managed care plans
Helps pay for medications prescribed by doctors
No premium if you and your spouse paid Medicare taxes during 40 or more quarters
Optional coverage
If you are enrolled in Medicare Part A and Part B, you are eligible to switch to Part C
Pays outpatient drug care costs
 
Requires a monthly premium payment for all participants2
 
Requires a monthly premium payment for all participants3
 
 
 
Deductible and cost-sharing limits may apply. In the coverage gap stage, there are different cost sharing percentages for brand name vs. generic drugs

Several types of Part C plans are available, including:

  • Preferred Provider Organization (PPO). This plan allows you to see any doctor or specialist; however, visiting doctors outside your PPO network will involve extra costs.
  • Health Maintenance Organization (HMO). You have access to doctors in the HMO network only.
  • Private Fee-for-Service (PFFS). You can see any doctor who is willing to accept the fees and terms of the PFFS.
  • Special Needs. These plans are intended for people with certain chronic diseases or special health care needs.
  • Medical Savings Account (MSA). This plan includes a high-deductible health insurance plan and a savings account in which Medicare deposits money for you to use for health care costs.

Enrolling in Medicare

If you are already receiving Social Security, you are automatically enrolled in Medicare at age 65. If you want to enroll in Medicare but are not taking (or not eligible for) Social Security, you can enroll three months before the month of your 65th birthday and the three months after. For example, if your birthday is March 15, you can apply anytime from November through the end of June.

Medigap and Medicaid

Medicare is only one of the sources of health care coverage available to retirees. You may also be eligible for Medigap or Medicaid.

Medigap
Medicaid
Individuals enrolled in Medicare Parts A and B are also eligible to purchase Medigap coverage from insurance companies.
Individuals with limited income and resources who meet certain requirements may also be eligible to receive Medicaid.
Coverage and costs vary by state.
Medicaid is an insurance program sponsored jointly by states and the federal government.
Generally helps pay costs not covered by Medicare like deductibles, co-payments and co-insurance. 
Covers some hospital care, prescriptions, personal care services, and nursing home costs
Enroll through private insurance agencies.
Contact your state Medicaid program for additional details.

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

COBRA makes group health coverage available at group rates for employees and their dependents who would otherwise lose health benefits when they retire, leave their job or have certain other qualifying events.

Generally, employers with 20 or more employees are subject to COBRA. Coverage applies to employees, former employees and certain dependents who are or were covered under a group health plan. Benefits include medical, dental, vision, healthcare reimbursement and employee assistance programs.

Long-term care insurance and planning for long-term care

The average duration of long-term care for a retiree is estimated to be about three years. While long-term care (LTC) costs vary widely by region and type of facility, the national median cost of one month in an assisted living care facility was $4,000 in 2018 – or $48,000 per year. A private room in a nursing home costs about $8,365 a month, or a whopping $100,375 per year4. That adds up to $301,125 for three years of care — a significant expense which is expected to rise in the future. Medicare and Medigap policies offer limited, if any, coverage for LTC.

One way to plan for these costs is to purchase LTC benefit insurance. Premiums for this coverage vary by company but are generally based on your age, health status and the level of benefit you are purchasing. Make sure that the benefit on your LTC insurance policy will be enough to cover the average cost of care in your region in the future.

High-Deductible Health Plans (HDHP) and Health Savings Accounts (HSA)

A High-Deductible Health Plan (HDHP) may offer a practical way for retirees under age 65 (and therefore not yet eligible for Medicare) to deal with their medical costs. HDHP differs from other health insurance plans because its high deductible allows the policy to be offered at relatively low cost.

If an HDHP meets certain requirements, the policyholder may also open a Health Savings Account (HSA) to pay for HDHP deductibles and other qualified out-of-pocket costs. Money withdrawn from the HSA to pay for qualified expenses is tax-free as long as the expenses were incurred after the HSA was established and funded.

For 2018, the maximum annual contribution rates to an HSA are $3,450 for an individual and $6,900 for family coverage. Those who have reached age 55 but are not yet age 65 may contribute an additional $1,000 for 2018.

You can use an HSA account to pay for medical expenses as they occur, or you can accumulate funds in the account to pay for future health care expenses. Note that any distributions taken prior to age 65 that are not used for eligible medical expenses are subject to income tax and a 20 percent penalty.

Insurance Marketplaces

Beginning in 2014, public and private insurance marketplaces became available to purchase coverage for individuals and small businesses.

The marketplaces in each state are designed to allow you to compare coverage and cost among the policies offered by area health insurance companies. Some states run their own marketplaces, others have opted to have the federal government run them. Either way, you purchase insurance through your state marketplace.

An Ameriprise financial advisor can work with you to help build a confident retirement that anticipates health care costs and other major expenses in retirement.

Find answers to your retirement questions

 

Disclosures

1 Source: Employee Benefits Research Institute (ebri.org) October 8, 2018, No.460. Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could need as Much as $400,000, Up From $370,000 in 2017.
2 Medicaid pays the premium for those who are eligible for Medicaid benefits.
Individuals with limited income and resources may not have to pay a premium or deductible. Contact Social Security at 800.772.1213 or visit ssa.gov for more information.
4 Genworth 2018 Cost of Care Survey, conducted by CareScout®, June 2018
Before you purchase, be sure to ask your sales representative about the insurance policy’s features, benefits and fees, and whether the insurance is appropriate for you, based upon your financial situation and objectives.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consult your tax adviser or attorney regarding your specific situation.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Rethinking your 401(k)

For most Americans, an employer-based 401(k) is the primary vehicle used for retirement savings. While the pervasive wisdom is to put your savings on autopilot, doing so indefinitely could mean missing valuable opportunities to boost your retirement income. Check out these 5 retirement investment tips to help you maximize your 401(k).

1. Increase your retirement savings

Even if you choose to max out your pre-tax 401(k) contributions for the year, you could boost your savings by making after-tax contributions to your 401(k). While after-tax contributions do not decrease your taxable income, the investment earnings generated inside the 401(k) do compound on a tax-deferred basis.

2. Scrutinize your retirement investment options

Spend time understanding not only your 401(k) investment options, but how you want to allocate those funds. While some people prefer to use an age-appropriate mix of stocks and bonds in their retirement account, that may not be appropriate for others.

Some employer 401(k) plans also allow investing through a brokerage window, with more investment choices like individual stocks or exchange-traded funds. This may be a good option if you’re not satisfied with the fund choices based on your individual situation.

With all investment options, take a close look at the fees, as they can significantly affect investment growth over time.

3. Strategize future taxes

Those who earn too much to open a Roth IRA and anticipate an even higher income in retirement may want to consider a Roth 401(k) option to lower your future tax burden. As with a Roth IRA, you’ll be investing post-tax money, and you won’t be taxed when you withdraw funds at retirement as long as the withdrawal is a qualified distribution.

Be sure to consult with a tax accountant as well as your financial advisor for a holistic approach to your tax strategy.

4. Contribute side earnings

If you’re covered by an employer’s retirement plan and earn income on the side through your own venture, you can put additional tax-advantaged retirement money aside through an Individual 401(k). Your total “employee” contribution must be coordinated with the amount you put into your company plan, but you can still contribute 20-25% of pre-tax business earnings as the “employer’s” portion to your Individual 401(k) account.

5. Diversify your holdings

Sophisticated investment strategies can help you reduce taxes and enhance your returns. One example to consider, if your employer plan allows, is rolling your 401(k) into an IRA before your retirement.

Possible advantages of doing so can include greater diversification, different beneficiary options, more secure access to your account and different distribution options. There can also be potential adverse considerations such as loss of certain credit protections, possible freeze in employer matches and higher fees. Make sure you speak with both your financial and tax advisor before choosing a course of action.

Not sure which options are right for you? A financial advisor can help you understand the pros and cons and take your whole financial picture into consideration.

Disclosures

Do not use this information as the sole basis for investment decisions; it is not intended as advice designed to meet the particular needs of an individual investor.
Be sure you understand the potential benefits and risks of an IRA rollover before implementing. As with any decision that has tax implications, you should consult with your tax adviser prior to implementing an IRA rollover.
Diversification does not assure a profit or protect against loss.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Managing your taxes in retirement

Your tax situation can change rapidly throughout retirement. Applying appropriate tax strategies can help you learn how to reduce the taxes you owe so you keep more of the money you’ve earned and invested.

Knowing what is and isn’t taxable

Understanding which sources of retirement income are taxable and which are non-taxable can be tricky. These guidelines can help you get started by looking at some typical retirement income sources. When evaluating your options, be sure to consider all sources of income, and work with your advisor and tax professional to determine what makes sense for your unique situation.

Taxable
Non-taxable
Social Security – up to 85% of your Social Security benefits may be taxable depending on the amount of additional income you have from other sources
Social Security – if your combined income is below certain limits

Withdrawals of earnings and pre-tax contributions from IRAs, 401(k)s*, and other retirement plans

*Special rules apply to appreciated employer securities in qualified retirement plans. 

Withdrawals of after-tax contributions from 401(k)s, IRAs and other retirement savings plans (whether withdrawals are considered to be from after-tax or pre-tax contributions are based on the law and will depend on ordering rules applicable to the account)
Pension payments
Qualifying withdrawals from Roth 401(k)s, Roth IRAs, and Roth 403(b)s

To help you determine what, if any, part of your Social Security is taxable, the IRS has created a series of worksheets found in IRS Publication 915 (Social Security and Equivalent Railroad Retirement Benefits). The calculation is part of filling out your 1040 and is found in the Form 1040 instructions.

Minimizing taxes when possible

Work with your tax advisor to help reduce the amount of taxes you may pay during retirement by considering the following:

  • Possible advantages of deductions available to you.
  • If you itemize, use charitable gifts to potentially lower your taxable income.
  • Realize long-term capital gains if your income falls below the threshold for your filing status, so that they will be taxed at 0%.
  • If you’re in a higher tax bracket, consider selling stock at a loss to offset current gains and up to $3,000 of ordinary income. Unused capital losses can be carried forward.
  • You may be able to lower your lifetime taxes by spreading withdrawals from your IRA or 401(k) over your lifetime (even before age 70-1/2).
  • The sale of your home. You may be able to exclude capital gain on the sale of your primary personal residence up to $250,000 if you are single and $500,000 if you are married (and filing a joint return).
  • Investments in municipal bonds to generate tax-free income if you are in a higher tax bracket.1
  • Whether bunching itemized deductions in any given year may be beneficial compared to the standard deduction. Be sure to consider the increased standard deduction as a result of the tax reform legislation passed in 2017.

Sometimes it makes sense to pay taxes now to lessen your future tax liability, especially if you expect to be in a higher tax bracket in the future. If you might be in this situation, consider converting part, or all, of your traditional IRAs to Roth IRAs. 

It is important to note that significant changes were made to the tax code as a result of the tax reform legislation passed in 2017. Given these changes now is a great time to review your circumstances with your tax advisor. Additionally, many of the changes impacting individuals are set to expire after 2025 unless Congress acts. As tax laws and you situation change, it is important to remember to discuss with your tax advisor.

The benefits of working with a financial advisor and tax professional

Your advisor can help you balance your financial priorities with tax implications by helping you create a lifetime plan that meets both your personal and financial goals. Because your Ameriprise financial advisor understands your finances, he or she may also be able to recommend a tax professional for you. Working together, your Ameriprise financial advisor and your tax professional can help structure your investments and retirement distributions for tax efficiency.

Disclosures

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
1Interest income from municipal bonds is federally tax-free, though the alternative minimum tax may apply.  Interest income from municipal bonds is also generally state tax-free to residents of the state in which the municipal bond is issued, and generally taxable to residents of other states, depending on individual state rules.  Sales of municipal bonds can result in federal and state capital gains or losses.
There are risks associated with fixed income investments, including credit risk, market risk, interest rate risk and prepayment and extension risk. In general, bond prices fall when interest rates rise and vice versa. This effect is more pronounced for longer-term securities.
Withdrawals from traditional IRAs, 401(k) accounts, and other pre-tax investments prior to age 59½ are generally subject to a 10% IRS penalty on taxable earnings, though exceptions may apply.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

SECURE Act: How could it impact your retirement planning?

The Setting Every Community Up for Retirement Enhancement — the SECURE Act — was signed into law Dec. 20, 2019. Many provisions took effect Jan. 1, 2020. The SECURE Act retirement planning changes that are most relevant in the near term include: 

  • A later age for required minimum distributions (RMDs): age 72 from 70 ½ previously. 
  • A change to the IRA stretch strategy for non-spouse beneficiaries who inherit retirement accounts. 
  • Elimination of the 70 ½ age limit for workers who contribute to a traditional IRA. 

Required minimum distributions 

The SECURE Act increases the RMD age to 72 from 70 ½ and applies to anyone who turns 70 ½ in 2020 or later. 

If you don’t need income from your retirement plan or IRA accounts, the SECURE Act enables you to defer taxes from those accounts. If you want to work longer, the later RMD age provides more time for retirement-income planning.

Additional details: 

  • You turned 70 ½ in 2019: The SECURE Act does not change your RMD timing. You must take your first RMD by April 1, 2020. 
  • You will turn 70 ½ in 2020 or later: Under the SECURE Act, you must take your first RMD by April 1 after the year you reach age 72.  

First half 2020 birthday example: Turn 70 in spring 2020 and 70½ in December 2020

New rule – SECURE Act 
Former rule 
Under the SECURE Act, this person must take their first RMD by April 1, 2023 — the April 1 following their 72nd birthday in 2022. They receive two extra years because of the bill.
Under the former rules, this person would have had to take their first RMD by April 1, 2021 — the April 1 of the year following their 70 ½ birthday in 2020.

Second half 2020 birthday example: Turn 70 in fall 2020 and 70 ½ in spring 2021

New rule – SECURE Act 
Former rule 
Under the SECURE Act, this person must take their first RMD by April 1, 2023 — the April 1 following their 72nd birthday in 2022. They receive one extra year because of the bill.
Under the former rules, this person would have had to take their first RMD by April 1, 2022 — the April 1 of the year following their 70 ½ birthday.

IRA stretch strategy in estate plans  

Prior to the Secure Act, beneficiaries who inherited retirement accounts (such as a traditional or Roth IRA) could take the RMDs over their lifetime. The SECURE Act changes that financial strategy for most non-spouse beneficiaries who inherit their retirement account on or after Jan. 1, 2020. As a result: 

  • Most non-spouse beneficiaries must take the account proceeds (and pay the corresponding taxes) within 10 years of inheriting the account. This can be done with any number of distributions.  
  • Spouse beneficiaries, non-spouse beneficiaries who are no more than 10 years younger than the IRA owner and non-spouse beneficiaries who are disabled or chronically ill will continue to be able to stretch their IRAs over their lifetime.
  • If a minor child inherits the IRA, the 10-year period begins when the beneficiary reaches the age of majority (the age at which a minor child legally becomes an adult, generally between 18 – 21 years old).
  • A beneficiary who inherits an individual retirement account before the end of 2019 can still draw down the account over their lifetime. However, if a beneficiary inherits an IRA before the end of 2019 and dies Jan. 1, 2020, or later, that beneficiary’s beneficiary will be subject to the 10-year rule. For example:  
    • Allen’s son, Joe, inherits Allen’s IRA on Nov. 12, 2015. Joe takes RMDs over Joe’s life expectancy. 
    • On Feb. 12, 2020, Joe dies. Joe’s spouse, Fran, inherits the remainder of the IRA Joe inherited from Allen. Fran must take out the remainder of the IRA within 10 years. 

Traditional IRAs

The SECURE Act eliminates the 70 ½ age limit for contributions to a traditional IRA.

  • There is no change for Roth IRAs, which do not have an age limit. 
  • As always, you must have earned income to contribute to a traditional or Roth IRA. The SECURE Act does not change that requirement.  
  • Special rules apply to ensure individuals who make contributions after age 70 ½ cannot also receive a qualified charitable distribution (QCD) exclusion for those amounts. 

We are here to help you 

How could the changes impact you? An Ameriprise advisor can help you understand what the SECURE Act means for you and provide personalized advice to adjust your retirement income plans.

Disclosures

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Rolling over 401k while still employed

Most people only think about rolling over their 401(k) savings into an IRA when they change jobs. For many people, that is an ideal time to shift funds because they can consolidate several retirement accounts from previous employers in one place and take advantage of more investment options. Though there could be reasons not to do so as well.

When leaving an employer, there are typically four 401(k) options:

  1. Leave the money in your former employer’s plan, if permitted
  2. Roll over the assets to the new employer’s plan if one exists and rollovers are permitted
  3. Roll over to an IRA
  4. Cash out the account value

But, leaving an employer isn’t the only time you can move your 401(k) savings. Sometimes it makes sense to roll over your 401(k) assets while you continue to work and make further contributions to your company plan. These rollovers may help you more effectively manage your retirement savings and diversify your investments. It is important to really weigh the pros and cons when considering this. But first, do some checking to see if you’re eligible. Not every 401(k) plan allows you to roll over your 401(k) while you are still working.

Reasons you may want to roll over now

  • Diversification. Investment options in your 401(k) can be limited and are selected by the plan sponsor. Rolling your funds over into an IRA can often broaden your choice of investments. More choices can mean more diversification in your retirement portfolio and the opportunity to invest in a wider range of asset classes including individual stocks and bonds, managed accounts, REITs and annuities.
  • Beneficiary flexibility. With some IRAs, you may be able to name multiple and contingent beneficiaries or name a trust as the beneficiary. Other IRAs may allow you to impose restrictions on beneficiaries. These options aren’t usually available with 401(k)s. But, keep in mind, not all IRA custodians have the same rules about beneficiaries so be sure to check carefully.
  • Ownership control. You are the owner and have access rights with an IRA. The assets in your IRA are also not subject to blackout periods. With a 401(k) plan, the qualified plan trustee owns the assets and assets may be subject to blackout periods in which account access is limited.
  • Distribution options. If your IRA is set up as a Roth IRA, there is not a set age when the owner is required to take minimum distributions. With 401(k) plans and traditional IRAs, the owner will have to take required minimum distributions by April 1 of the year after they turn age 70 ½.

Reasons you may want to wait

  • Temporary ban on contributions. Some plan sponsors impose a temporary ban on further 401(k) contributions for employees who withdraw funds before leaving the company. You’ll want to determine if the gap in contributions will significantly impact your retirement savings.
  • Early retirement. Most 401(k)s allow penalty-free withdrawals after age 55 for early retirees. With an IRA, you must wait until 59 ½ to avoid paying a 10% penalty.
  • Increased fees. IRA investors may pay more fees than they would in employer-sponsored plans. One reason: The range of more sophisticated investment options you may choose can be more expensive than 401(k) investments. Your advisor can help identify what extra cost a rollover may incur and if the benefits of the rollover justify those additional costs.
  • Can take loans out. Your 401(k) may permit you to take out a loan from the account, but this is typically only for active employees. And you may have to pay in full any outstanding loan balances when you leave the company. You cannot take loans from IRAs.

Next steps

Your advisor can help you determine if an early 401(k) rollover fits in with your retirement savings plan. They can also help determine what investments are best for you if you do decide to roll over your funds.

Disclosures

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value
Be sure you understand the potential benefits and risks of an IRA rollover before implementing. As with any decision that has tax implications, you should consult with your tax adviser prior to implementing an IRA rollover.  
Diversification can help protect against certain investment risks, but does not assure a profit or protect against loss.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Retirement checklist

Knowing where your accounts are, how to access them and what those accounts contain is crucial to smart financial management. When you keep your financial information in one place and up to date, you can help ease stress on yourself, your family or other beneficiaries.

Get organized, for yourself and your loved ones

Maintaining important documents and sharing key information will provide peace of mind should anything unexpected occur. Be sure to periodically walk a spouse, partner, adult child or trusted friend through legal and financial records, PIN numbers, passwords and other personal information.

Complete the retirement checklist tasks below to get started.

FILE AND PROTECT IMPORTANT DOCUMENTS

 

✔  Designate a binder to hold all bills and paper statements.
✔  Keep legal documents, tax information, and permanent records in a fire-safe box in your home, or in a safety deposit box.

Go paperless

✔   Register for online account access.
✔   Create a consolidated source of information.

Automate when possible

✔   Sign up for automatic deposits, including paychecks, Social Security and tax refunds.

Catalog accounts and key documents

✔  Keep track of what’s in your safety deposit box, and share it with trusted family members and friends.
✔  Include a list of account numbers, descriptions, passwords and PINs in your safety deposit box.

Plan ahead

✔   Designate a power of attorney and consider a living will or health care directive.
✔   Write down contact information for your attorney, financial advisor and accountant and share this information with your heirs.
✔   Provide your most trusted loved ones with the combination to your home safe or access to a safety deposit box.
✔   Discuss your legal documents in detail with your advisor as it is important for your advisor to understand your needs and goals.

Download printable checklist

Identify all open accounts

If you haven’t been keeping track of your retirement and other financial accounts, it may seem daunting to get organized. But a few simple steps can make it manageable:

  • Register for online access to your accounts. It’s a good idea to do this for all of your financial accounts so that you can easily retrieve the information you need.
  • Make a list of former employers. If you think you may have a forgotten account, get the phone number from your former employer’s website and call the HR or Benefits department. They should have records to help you locate the account.
  • Gather your tax paperwork from previous years. You may have evidence of an account you rolled over or a contribution you deducted.
  • Confirm accounts for your household. If you are married or have a partner, this is an ideal time for you to get organized together.

Once you have gathered the information you need, list the accounts, their location, current value and access information. Share the list with your spouse or partner, and then store it in a safety deposit box or home safe.

To simplify the ongoing management of these assets, you should also consider consolidating your accounts. Your financial advisor can help you review your accounts and take an overall look at your finances.

Update your beneficiaries

Each of your retirement accounts will pass to the beneficiary(ies) listed (or according to your plan’s default beneficiary if you do not list a beneficiary), regardless of what you stated in your will or trust. So it’s critical to review your beneficiaries regularly, especially after a marriage, divorce, birth or death of a loved one.

As you review your beneficiaries, keep these tips in mind:

  • Designate a contingent (or secondary) beneficiary in case something happens to your primary beneficiary.
  • Name a new beneficiary if a primary beneficiary (such as a parent) dies.
  • Remember to remove an ex-spouse after a divorce or new marriage.
  • Update your beneficiaries after the birth or adoption of a child.
  • Get guidance from an estate planning attorney before naming an estate as your beneficiary.
  • Complete a separate beneficiary form for each plan.

This is also a good time to update other documents, such as:

  • Wills
  • Trusts
  • Financial and medical powers of attorney
  • Real estate titles
  • Business ownership agreements

Keeping your beneficiary designations and legal documents up to date can help ensure a smooth transition of your assets to your heirs.

Decide what to keep and what to destroy

While it’s smart to keep permanent documents in a fire-proof and water-proof safe or safety deposit box, there are certain items that you can get rid of over time. Be sure to shred all discarded documents first, to keep them out of the hands of identity thieves. For those records you keep, make sure you tell your family and other beneficiaries how to access your safe or safety deposit box if they ever need to.

How long should you keep tax returns and other important financial documents?

Keep indefinitely
Keep for 7 years
Keep for 1 year
Keep for a month or less
Legal and permanent records
Tax-related records, such as W2s
Paycheck stubs
ATM and bank deposit slips (for transactions that can be confirmed online or through a consolidated statement)
Will or trust document
Receipts for tax-deductible purchases
Credit card statements
Receipts for non-deductible purchases, unless you are holding them for possible returns or warranty-related repairs
Birth and marriage certificates
Canceled checks
Bills such as rent, cable and electricity
 
Insurance policies
Retirement account contributions
Account statements
 
Deeds
Charitable donations
 
 
 
Large out-of-pocket medical expenses
 
 
 
Mortgage payments
 
 

For additional assistance organizing and consolidating your finances, contact an Ameriprise financial advisor.

Disclosures

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Determining your retirement age

Being aware of key retirement ages can help you prepare for the future.

Catch-up contribution age. You can make catch-up contributions to many retirement plans beginning in the year you turn 50.

 

403(b) and 401(k) withdrawal age. You can start taking penalty-free withdrawals from qualified retirement plans such as 401(k)s, 403(b)s and profit sharing plans after you left your employer in the year you turned 55 or later.

IRA withdrawal age. You can begin taking withdrawals without penalty from IRAs and qualified retirement plans.

 

Social Security benefits age. You can start taking reduced Social Security benefits.

 

Medicare sign up age. You should sign up for Medicare hospital insurance (Part A) 3 months before your 65th birthday, whether or not you want to begin receiving retirement benefits.

 

Social Security benefits age. You can start taking full Social Security benefits depending on your birth year. Any delay in applying for Social Security benefits, up to age 70, can qualify you for increased retirement benefits.

RMD age. You must begin taking Required Minimum Distributions (RMDs) from most retirement accounts.

 

Disclosures

Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser.
The initial consultation provides an overview of financial planning concepts. You will not receive written analysis and/or recommendations.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.