Our first Social Security workshop was a success, with a group that was surprised to learn a number of the ins and outs of Social Security. One of the biggest surprises?
Taking benefits at early retirement age (62) after a lifetime of work can provide the average person with a benefit of $1,125 per month, or a total of approximately $435,000 over the course of their entire retirement life. However, with one or two smart moves, the benefit can be significantly increased so that the total amount over the course of retirement can exceed $733,500, a more than 160% increase in total benefits. Quite a significant retirement boost.
Learning how this works and doing the math is not “do-it-yourself” project. Social Security is a complex system with decades of political and economic –driven regulations and rules. However, there are ways to be smarter about Social Security benefits.
If you want to know more about Social Security and how to make it part of your retirement plan, we invite you to come to the next workshop - Tuesday, May 22 at 7:00 PM – 8:00 PM at our office in Islandia. We are confident that you will learn at least one thing, and probably several things, that you never knew before about Social Security and retirement income.
Please call me at the office at 631-232-9170 to reserve your space.
*The calculations presented are for illustrative purposes only, as individual situations may vary. Therefore, the information should be relied upon when coordinated with individual professional advice.
The Roth Advantage Part 2: First Time Homebuyer
March 16, 2018
Dan Kresh FPQP™
There are ways for first time homebuyers to access some funds from retirement accounts without "penalty". Though you may be able to avoid an early withdrawal penalty, you will be lowering the amount in your retirement account. You would likely be purchasing your first home many years before you plan to retire, depleting your account when it has the most time to grow. This is a complicated decision. It is important to understand the differences between how you could access funds early from Traditional or Roth IRAs.
A first-time homebuyer can access up to $10,000 from either a Roth or Traditional IRA to contribute towards a down payment[i]. Any funds taken out from a Traditional IRA, for any reason, including a first-time home purchase would be taxed as ordinary income. The tax deferred nature of the Traditional IRA is its biggest advantage, so using funds from a Traditional IRA to help fund a home purchase will forfeit some of that benefit while shrinking your nest egg.
With a Roth IRA, you can take out contributions at any time for any reason without a tax consequence since it's already after-tax dollars[ii]. The Roth IRA owner can also access up to $10,000 of profit for a first-time home purchase, and if you have had the Roth for more than 5 years that would be tax free.[iii] You should NEVER consider a retirement fund an emergency fund, however; the fact remains that there are less barriers and penalties to accessing funds from a Roth IRA early than from a Traditional IRA.
Tapping into your retirement account to buy a home should not be your first choice, but it's nice to know what options could be on the table. You have the best chance of growing your nest egg if you contribute the maximum into your IRA for as long as possible. Taking funds out of your retirement account before retirement age, with or without penalty and or tax, means you will have a smaller principal to hopefully compound over time. Your retirement money will serve you best in retirement and should be invested in a well-diversified portfolio for the long haul. Any investment involves the risk of loss of principal but the more diverse your investments and the longer your time horizon the better your chance is to mitigate that risk.
If your income is at or approaching limits for contributing to a Roth IRA part 3 of this series will discuss a potential way for you to contribute to a Roth IRA using Roth conversions. It's never too early to start thinking about retirement. The earlier you start the more time you have for growth. You work hard for your money, we work hard so your money can work for you.
[ii]Roth IRA Withdrawl
[iii]IRA To Buy A House
A Roth IRA distribution is qualified if you've had the account for at least five years and/or the distribution is made after you've reached age 59½, because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses. Distributions made prior to age 59 1/2 may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings.
You should always consult a tax professional and though this piece contains some tax information it should not be considered tax advice.