Worried about your parents’ retirement? There’s a way to help.

One question we hear, especially around Mother’s Day, is “How can I help my parents plan for retirement?” While there are many different paths to do this — and it can be as simple as just listening to their concerns — we have been asked multiple times whether you can contribute directly to your parents’ […]

One question we hear, especially around Mother’s Day, is “How can I help my parents plan for retirement?” While there are many different paths to do this — and it can be as simple as just listening to their concerns — we have been asked multiple times whether you can contribute directly to your parents’ retirement accounts.

While not everyone may be in a position to contribute to their parents’ retirement, for those that are considering it, there are several important considerations.

Will Your Financial Institution Allow It?

While the IRS does allow contributions directly by you to your parents’ IRA, not all financial institutions will allow you to do it. At Kindur, we believe it should be as easy as possible to save for retirement so our platform is built to allow you to contribute to your parents’ IRA account directly from your own bank account.  

How Much Can Be Contributed to Your Parents’ Retirement Account?

Assuming your financial institution allows it (or your parents have a Kindur account), the next question is whether your parents are eligible to make contributions to their individual retirement accounts (“IRAs”). To contribute to an IRA, an individual must have “earned income” (which is just an IRS term for your wages, salary or earnings from self-employment) that is equal to or greater than the contribution amount.

The IRS additionally sets annual limits on how much you can contribute to an IRA. For 2019, the contribution limit for someone over 50 is $7,000. This means that if your parents are over 50, they (or you) could contribute up to $7,000 to each of their IRAs assuming they have earned income equal to that amount.

Another common question is what happens if one parent has enough earned income but the other does not?  Luckily the IRS allows a “spousal IRA” which permits a contribution to the IRA of the non-earning spouse so long as the other spouse’s earnings are equal to the combined contribution amount.

What Type of Account Should I Contribute To?

Next you need to decide whether to contribute to a Traditional IRA or a Roth IRA account. Each account has different tax treatments that you should consider.  

Traditional IRAs – If you contribute to a Traditional IRA, your contributions can be fully tax-deductible for your parents (but not for you). If your parents are still working and participating in employer sponsored retirement plans (for example, a 401k plan) this tax deduction is phased out above certain income levels. Check here for the 2019 limits.

Roth IRA – While there is no upfront tax deductibility and no restriction if your parents are participating in an employer plan, there are income limits that determine Roth IRA eligibility.  For 2019, the limits are $122,000 -$137,000 if a single filer and $193,000 – $203,000 if filing jointly. Check here to see more information on the 2019 limits.

Different Tax Treatment – While Traditional IRA contributions are tax-deductible, withdrawals in retirement are taxed at ordinary income tax rates. Roth IRAs provide no tax break for contributions, but earnings and withdrawals are generally tax-free.

Finally, you should be aware that the IRS will impose a penalty on any excess contributions over the annual limits discussed above. This means that you should find out if your parents already made contributions to an IRA or a Roth IRA this year. While your parents may appreciate your desire to help their retirement, they may not appreciate it if you cause them to owe a tax penalty!

Consider Other Products To Help Their Retirement

In addition to contributions to your parents IRA accounts, you should also consider other financial products designed to secure their retirement. One solution is an annuity which can provide guaranteed lifetime income for your parents throughout their retirement. Despite the fact that annuities can offer protection against running out of money in retirement, some Americans are unwilling to consider adding an annuity to their retirement plan. At Kindur, we understand these concerns and built a new annuity product with a structure that avoids many of the historical problematic practices like commissions. Click here to learn more about how we are rethinking annuities for a modern retirement.

At the end of the day, the fact that you want to support your parents as they approach retirement is the most important thing. And, as you discuss retirement with them, take the time to listen to your parents’ experiences as they planned for retirement. Learn from their successes and their mistakes so you can make sure that you stay on the right track as well.

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How Long will Social Security be Around

Will Fixing Social Security Impact Those Planning for Retirement? As many Americans planning for retirement are well aware, Social Security has been running out of money for decades. Based on the most recent report to Congress by the Trustees of the Social Security program, this problem has only become worse over the last decade. In […]

Will Fixing Social Security Impact Those Planning for Retirement?

As many Americans planning for retirement are well aware, Social Security has been running out of money for decades. Based on the most recent report to Congress by the Trustees of the Social Security program, this problem has only become worse over the last decade. In fact, it is estimated that next year the costs of providing Social Security will be more than the money coming into the program. Based on these figures, the question for many planning for retirement is “will Social Security be there for me?”

The first step in answering this question is to check out your Social Security statement and understand what you are projected to receive when you elect your benefits. You can easily download your statement directly from the Social Security Administration by signing up for an online account.

Outside of understanding your personal benefit, it’s also good to understand what’s happening with Social Security funding generally.

Social Security is Not Bankrupt

Let’s be clear from the outset, while the latest report does raise issues of real concern that should be addressed, Social Security is not going bankrupt any time soon. In fact, Social Security trust funds are at an all-time high. However, there are weaknesses in the system that are important to understand. At the heart of the challenges facing Social Security is how the program is funded in the first place.

Social Security has Two Primary Sources of Funds

First are payroll taxes paid by employees and employers on wages. Basically, those who are currently working pay a tax to support the benefits of those who are retired. In 2017, 88% of total Social Security funding came from payroll taxes.

The next largest source for Social Security funding is interest that is earned on the Social Security Trust. This means that the surplus funds that currently exist are invested. The returns on those investments account for 9% of the Social Security funding in 2017.

These two sources of funds alone account for 97% of the total funding for the program… and is the cause of the program’s current weakness.

The Root of the Problem

First, the Social Security program is based on current workers funding those claiming Social Security. However, as the baby boomer generation moves into retirement, the number of current workers paying into the fund is going down while the number of former workers in retirement is going up. This means fewer workers must support more retirees. The problem only gets worse if the government starts dipping into the Social Security Trust to cover the shortfall next year. With less money invested, the second major source of funding – interest on investments – will also begin to shrink which results in further shortfalls.

This problem has, of course, been known for some time now. However, this year’s projections show that Social Security faces a large and growing funding gap that will require Congress to act at some point. Notably, Social Security program’s costs will exceed its income in 2020, forcing the program to dip into its trust fund to cover benefits. Additionally, this year’s report projects that the Social Security trust fund supporting retirement benefits will run out of money in 2034.

What are potential fixes?

Given these figures, it is clear that some action will need to be taken in most of our lifetime to shore up Social Security. However, for those thinking about retirement, there are many different proposed fixes with different potential impacts on your retirement. For example, some of the most discussed proposals include:

  • Raising the full retirement age to 68 – if full retirement age was increased by two months each year starting in 2023 until it reached 68 in 2028, this would fill 16 percent of the funding gap.
  • Increasing the Payroll Tax Cap – if the Social Security payroll tax, which currently applies only earnings up to $118,500, was applied to earnings above $118,500, additional revenue to support benefits would be generated.
  • Reducing benefits for higher lifetime earners – by using a sliding scale to reduce the benefits most for higher earners, make smaller changes for middle earners and make no benefit changes for lower earners, Socials Security could fill a portion of the funding gap.

While these are just some of the solutions that have been discussed, what is crucial is that Americans understand exactly what the impact of any proposed changes be on their retirement plan.

To understand the impact, it’s important to understand your Social Security benefits

Despite the fact that retired Americans lean heavily on Social Security, many Americans don’t know how much they will receive in benefits or how their benefits are calculated which makes it difficult to understand which changes, if any, would impact you.

The good news is that it’s not hard to find out what your estimated monthly benefits will be when you retire — all you need to do is sign up for an online account at the official Social Security Administration website. Creating a “my Social Security” account will give you access to your personal earnings history, your estimated monthly benefits, and other valuable info you need to know.

Additionally, taking a look at this information before you retire could help you make some crucial financial decisions and better understand the impact of any potential changes to the program.

Here’s why you should create an account as soon as possible:

  1. It will help you keep track of potential benefit changes – The more you know about your benefits and when they are available, the more you’ll understand how future Social Security rule changes could impact them.
  2. You can view your personal estimated monthly benefits amount – If you view your potential benefits before you retire, it can get you thinking about how much you need to be saving in your other retirement accounts and how much more you’ll receive if you wait until your full retirement age, as opposed to taking your benefits early.
  3. You can verify your earnings history – the government calculates your monthly Social Security benefit amount by averaging salaries from your 35 highest-earning years. If for some reason the government has reported your earnings incorrectly during some of those years, then your monthly benefits could end up lower than they should be.

To retrieve your estimated monthly benefits from the Social Security Administration, visit ssa.gov.

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Annuities: the good, the bad and the ugly

How the SECURE Act Could Affect You

Annuities: the good, the bad and the ugly.

So, you think annuities are confusing and prone to abuse? You might be right. One of the biggest challenges to a successful retirement is making sure you don’t run out of money once you begin living off your nest egg. Multiple studies show that Americans’ number one retirement fear is running out of money. In […]

So, you think annuities are confusing and prone to abuse? You might be right.

One of the biggest challenges to a successful retirement is making sure you don’t run out of money once you begin living off your nest egg. Multiple studies show that Americans’ number one retirement fear is running out of money. In fact, some studies show that almost 60% fear running out of money more than death!

Yet, despite this widespread fear, many Americans are unwilling to consider annuities, which could provide lifetime income options and alleviate the fear of outliving retirement savings. Annuities are useful financial tools that have been around for decades, but many consumers view annuities as confusing and the annuity industry as full of abuses targeting retirees. As a business that offers annuities, you might expect us to disagree. Perhaps shockingly, we think these are valid points.

It may be helpful to begin with breaking down what an annuity actually is and how they can be helpful conceptually, then take a look at how annuities have gotten the reputation they have.

What is an Annuity?

At the most basic level, an annuity is a contract between an individual and an insurance company. In exchange for paying a set amount of money, usually a lump sum up front, the insurance company agrees to pay out monthly income to that person for a set period of time. There are two broad categories of annuities that are important to understand:

  • Immediate vs. Deferred – this difference is actually somewhat self-evident. With an immediate annuity, you usually start taking the monthly income payments immediately after purchasing the contract. By contrast, deferred annuities allow you to wait until some future time to begin taking the income.
  • Variable vs. Fixed Annuities – With a variable annuity, your return is based on the ups and downs of the market and there is always a risk that the value of your contract could go down. This is different than a fixed annuity, which provides a guaranteed interest rate or return, regardless of what may happen in the market.

For those planning for retirement, annuities can provide an interesting benefit that cannot be found in many other financial products: guaranteed lifetime income.

Annuity contracts with this feature offer the certainty that the customer will receive the same payout no matter how long he or she lives. This lifetime benefit provides protection against what is known as “longevity risk” which is really just a fancy name for the risk of outliving your money.

However, as with many financial products, layers of options and complexity have been added to annuities which can make it difficult to understand what you need, what you are getting and, most importantly, what you will pay for it. For example, annuities often have different features that you can add-on (called “riders”) which offer different benefits with different costs to the consumer. While the ability to customize an annuity to your particular situation can have advantages, it also introduces the possibility that you could be sold products and features you do not need by unscrupulous insurance agents.

Annuity Industry Abuses

Anyone who performs a simple web search for “annuities” will find a host of articles and websites highlighting potential issues and abuses in the annuity industry. There are also numerous examples of state and federal regulators that have taken action against insurance companies, broker dealers and insurance agents for what the regulators view as unfair sales practices. Some of the most common of these complaints involve allegations that consumers are being sold products that are either not right for them or that they do not need by agents looking to push annuity products to generate high commissions which are paid by the insurance companies.

In addition to the sales practices, many view some elements of the annuity contract itself as inherently unfair. For example, one common concern about these products is what happens if you die early. In many cases, the annuity contract may allow the insurance company to pocket the amount you paid to buy the annuity without paying out anything to your next of kin or beneficiaries. If you do want to pass on the value of your annuity, the insurance company may let you, but they will charge you extra for that right.

This history of abuse, combined with a product that is getting ever more complicated, has led many Americans to avoid annuities altogether despite the potential benefits they may provide as part of a balanced retirement portfolio.

Our Approach

Create an Annuity Designed for Modern Retirement

At Kindur, we decided, rather than trying to convince consumers that existing annuities are “good” or that the potential for abuse in the industry doesn’t exist, we would build a new annuity product with a structure that avoids the problematic practices which have caused many Americans to avoid annuities altogether. To accomplish this, we searched for a partner that shared our vision and found a leading insurance company to build a deferred fixed annuity designed specifically for those approaching retirement.  

First and foremost, we wanted to make sure our annuity was available for purchase online. This means you can purchase our annuity from the comfort of your home when you are ready and when you feel you have the information you need to sufficiently understand the product. You won’t need to deal with an insurance agent and, if you decide an annuity isn’t right for you, there are no uncomfortable conversations or pushy sales pitches. Simply close your browser. We won’t be offended!

Second, to address the perception that the industry is full of abuse and unfair practices, we wanted to challenge the idea of a commission-based product to ensure the incentive to sell the annuity is aligned with the customer’s best interests. In many cases, it is not clear how much an agent will actually receive for selling you an annuity or if they are better compensated for selling you additional features. So we eliminated the commission from the insurance company. Instead, we have simple, straightforward pricing that you pay us as your investment advisor. We are completely transparent about our fees and prominently disclose them on our website (kindur.com/annuity). More importantly, as your investment advisor, we have a mandatory fiduciary duty to act only in your best interests.

Finally, we wanted to get back to a simple annuity product that’s easy to understand and that can meet the needs of modern retirees. The annuity we offer does not contain costly optional riders and you won’t be asked to pay extra for features. Instead, we took only the features that we believe should be part of a product designed for retirement and built them in. For example, guaranteed lifetime income isn’t an optional rider for a Kindur annuity; it’s standard.

Similarly, we don’t believe that you should have to pay extra to leave your money to loved ones if you pass away. The annuity we created provides a standard death benefit that allows you to pass on the contract value of the annuity to your beneficiaries and even permits your spouse to receive lifetime income depending on the payout option you choose.

While annuities are not right for every person or every situation, when used as part of a holistic retirement plan and a balanced portfolio, they can be a helpful tool for getting through retirement without running out of money. At Kindur, we believe in providing our customers with the tools and knowledge to understand their options, decide what their particular retirement should like, and retire fearlessly.

Important information & disclosures about Kindur’s Resource Center

Interested in learning more about how Kindur is helping rethink annuities? Click here.

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How the SECURE Act Could Affect You

5 Essential Steps in Planning for Retirement

How the SECURE Act Could Affect You

Retirement Reform: 4 Ways the SECURE Act May Impact YouBy: Alastair Wood, General Counsel at KindurToday’s retirees are likely to live ten years longer than their parents, on average, which means retirees should be planning a retirement that could span 20 to 30 years or more. While living longer means more time to enjoy loved […]

Retirement Reform: 4 Ways the SECURE Act May Impact You
By: Alastair Wood, General Counsel at Kindur

Today’s retirees are likely to live ten years longer than their parents, on average, which means retirees should be planning a retirement that could span 20 to 30 years or more. While living longer means more time to enjoy loved ones and pursue passions, it also means preparing for retirement with strategies that are designed for longevity. Fortunately, Congress is catching up on these issues with proposed legislation that would make it easier to prepare for a long retirement and remove limitations that originated from shorter life expectancies.

In what industry experts are calling the most significant potential changes to the U.S. retirement system in the last decade, the “Setting Every Community up for Retirement Enhancement,” or SECURE Act, was sent to the full House of Representatives for consideration on Tuesday.

Congressman Richard Neal, Chairman of the House Ways & Means Committee, explained the pressing need for this reform, stating that:

“Unfortunately, Americans currently face a retirement income crisis, with too many people in danger of not having enough in retirement to maintain their standard of living and avoid sliding into poverty. Social Security benefits are modest, employer-sponsored pensions are disappearing, and too many Americans find it difficult to save for retirement.”

The SECURE Act contains many popular proposals designed to help Americans prepare for retirement. We’ve highlighted a few of the most impactful changes and how they could impact your retirement.

How it could impact you: This change could give you up to two extra years to allow your money to grow tax deferred in qualified accounts such as IRAs and 401(k) plans. That means more time to work if you want to, or just let your money stay invested in qualified accounts until you are ready to begin taking distributions.

How it could impact you: Many people are working beyond age 70, either by choice or out of necessity. With the restriction on contributions to traditional IRAs lifted, people working into their 70s would have the opportunity to continue taking advantage of the benefits of saving in tax-deferred accounts until they are ready to retire or even in retirement. That’s more time to build the nest egg to support an increasingly longer life in retirement.

How it could impact you: It is common for retirement to be a slow transition rather than a switch you flip, with many people moving from full-time work to part-time work before fully retiring. This change would give those transitioning to retirement with part-time work, and those who’ve always had part-time work, greater access to 401(k) plans to bolster their retirement nest egg. This is especially important for women, who are more likely to work part-time.

How it could impact you: If you work at a small business and previously haven’t had access to retirement plans like a 401(k), this change may allow you to participate in the benefits of saving in this type of tax-deferred fund.

What’s next for this legislation?

This legislation was introduced by a bipartisan group and was sent to the full House with unanimous support. Similar legislation has been introduced, also with bipartisan support, in the Senate. Many are viewing the similarity between the House and Senate proposals and their bipartisan support as a positive sign that Congress may enact meaningful retirement reforms in this session.

At Kindur, we are incredibly encouraged by this news and support Congress’ efforts to work together and advance critical reform to help all Americans take on the challenges of modern retirement and help people prepare for a long retirement with the savings they need.

To learn how Kindur can help navigate the complex decisions facing modern retirees, contact us at support@kindur.com or call (800) 961-3572.

5 Essential Steps in Planning for Retirement

It’s time to rebuild the American retirement. We’re living longer — up to 10 years longer than…

It’s time to rebuild the American retirement.

Why? Because the landscape has changed. We’re living longer — up to 10 years longer than previous generations on average — and the “typical” retirement is extending up to 20 years and more. That’s double what it was just a few decades ago. This means that today’s retirement will cost you more and you’ll need that money to last you longer than ever before.

But that doesn’t mean it’s impossible.

Retiring fearlessly today requires some more planning than it may have in the past. Consider the following five steps as a guide to help prepare for your own retirement.

1. Make sense of your retirement savings

In a post-pension world, many people will likely be depending on savings to fund their retirement, rather than a pension provided by their employer. This means that having a complete picture of your financial assets is critical and should serve as a jumping off point.

If you are like most Baby Boomers you probably have six or more different retirement and savings accounts at various institutions (the average is more than 10 for married couples). Step one before retirement should be consolidating and rolling over these accounts. A consolidated picture of your retirement finances will help you understand not only how much you have saved, but also what you are paying in fees. It will also provide you a clear picture of what you have actually invested in and in what proportions (for example, what your stock / bond mix is). It’s simply easier to manage when it is all in one place.

And fees can add up — the average American is paying fees of 1.48% on their investment accounts and could lower their costs dramatically simply by rolling over their old retirement accounts into lower fee options.

The next step, if you haven’t retired yet, should be catch up contributions. If you are over the age of 50, the IRS allows you to “catch up” and add to both your IRA ($1,000) and 401(k) ($6,000) above the standard contribution limits. Top off those accounts now if you can. And don’t forget your home. For most Boomers, their home is both a personal residence as well as their largest financial asset. You might decide to downsize or extract home equity to help finance your retirement.

2. Estimate your spending

Spending in retirement can feel complex. You’ve spent your entire career saving for this next chapter — are you ready to flip the switch and start spending that money? For many of us our spending needs change over the course of our retirement. Want to go for a cruise around the world? Your spending might increase early in retirement but then drop off after that. Or maybe you’re just more frugal than you thought. You might not end up spending anywhere near what you did while you were working.

Those are all unknowns. But in reality the two biggest drivers of retirement spending are lifestyle and healthcare costs. To better understand how you can live the life you want in retirement, break out your essential spending (food, transport, housing) from discretionary spending (travel, lifestyle).

3. Understand Social Security

Social Security is one of the most valuable retirement assets Americans have. It’s income for life, with inflation protection, for you and your spouse. Deciding when to take social security can be a very sensitive and complicated topic because it often is strongly connected to your own thoughts around longevity.

Many Americans “default” to electing Social Security at the earliest age possible (62), but that often ends up leaving thousands of dollars on the table. If you qualify for Social Security, you can take it at any time between the ages of 62 and 70. And the longer you wait, the more you’ll get. In fact, the annual benefit at 70 is +76% higher than it is at 62 years old.

Knowing that modern retirees are living 10+ years longer, that difference could be critical but every situation is different. It is important to understand how electing earlier or later could impact your personal retirement goals.

4. Plan for Medicare/Healthcare costs

Healthcare costs are quite simply one of the biggest uncertainties in retirement. A couple that is 65 years old today should expect to pay about $280,000 in healthcare costs during their retirement, and that’s excluding the cost of long-term care if needed.

When planning for healthcare spending, you need to think about the knowns (general health care expenses) and the unknowns (long-term care, large medical events). While no one can predict the future, there is some basic math that will help with planning.

  • Medicare: Most retirees depend on Medicare for retirement, and that option kicks in at age 65. In addition to understanding your costs and options for the various parts of Medicare (Part A, Part B, Part C, Part D), it’s important to understand all of the deadlines and the specifics of each plan. Every year you will have certain Medicare elections you can make, but when it comes to supplemental plans your first year’s choice is critical. During your first year on Medicare none of the plans are medically underwritten, but that changes after year one.
  • Long-term care: The simple fact is that, someone turning 65 today has an almost 70% chance of needing some type of long-term care services, whether it’s in-home care, regular nurse visits, or even a full-time facility. These costs can add up quickly. One-third of today’s 65-year-olds may never need long-term care, but 20% will need it for longer than 5 years.

5. Create your paycheck

Once you know your consolidated retirement picture, Social Security benefits and expected spending in retirement, it’s time to create your paycheck. It is important to build a “retirement paycheck” so you can budget appropriately and make your money last in retirement. This should start with Social Security — it’s income for life, for you and your spouse. From there, you can top up your paycheck with personal funds.

One option that many Americans consider is purchasing an annuity. Annuities come in lots of different shapes and forms. The simplest are fixed annuities, which can offer guaranteed income for retirement, above and beyond what Social Security provides. Depending on its terms, a fixed annuity can give you a stable income in retirement and also can provide longevity insurance if the income is guaranteed to continue whether you live to 80, 90 or 100. Many retirees find it helpful to use Social Security and annuities to cover their essential spending, and use their investment portfolio for their discretionary spending. When picking an annuity, there are many important things you should consider, including the credit rating of the insurance company and the fees charged by the agent.  

Planning for two? The best retirement plans are shared — both of your lifestyle goals and the numbers should line up. While it’s common for one partner to take the lead on the numbers, it’s now time to get both of you involved. Surviving spouses live on average five years longer and often have higher health care costs.

One of the best gifts you can give your spouse or loved one is a shared understanding of your retirement.

Getting Started:

If you are ready now, you also can begin your own planning by creating your retirement roadmap with Kindur.

Kindur is designed to help you navigate these big decisions by helping you understand your social security, spending, financial goals and healthcare costs all in one place. With a roadmap, it is easier to have a clear picture of the actions you will want to take to reach your retirement goals. Most importantly, Kindur can help you turn your hard-earned savings into a retirement paycheck designed to make your money last longer.

Important information & disclosures about Kindur’s Resource Center