403b Retirement Plan Facts

403 retirement plans are tax deferred retirement plans available to employees of educational institutions and certain non-profit organizations as determined by section 501(c)(3) of the Internal Revenue Code (IRC).

I’ve 10 facts here on 403b which you should know.

Fact 1: The Workings Of 403b Plans

You set aside money for retirement on a pre-tax basis through a salary reduction agreement with your employer. You choose from among the vendors offered by your employer where you want to invest the money. The money grows tax free until you withdraw it at retirement.

Fact 2: Who Can Contribute To A 403b

If you’re an employee of tax-exempt organizations established under section 501(c)(3) of the IRC, you’re eligible to participate and start contributing. Teachers, school administrators, school personnel, nurses, doctors, professors, researchers, librarians and ministers are contributors to the plan.

Fact 3: Why Contribute to a 403b

Your employer provides you with a pension upon your retirement. However, the pension plan may not provide an amount equal to your salary. A 403(b) plan can provide a healthy supplement to your pension.

Fact 4: How Much You Can contribute Annually

You can contribute the smaller of:
• The elective deferral limit of $15,500
• or Up to 100% of including compensation
• or If you’ve employer matches or other employer contributions, limits are $46,000 or 100% of compensation (whichever is lower). You’re still limited to the employee elective deferral limit ($15,500). Hence, your employer can add another $30,500 to your account
• If you’re 50 or older at any time during the year, you can contribute an additional $5,000

Fact 5: Lower Taxes

You make 403b contributions on a pre-tax basis which can greatly reduce your tax bill. The tax savings grow bigger as your contributions increase.

Fact 6: More Tax Savings

All dividends, interests and capital gains earned in a 403b account are on a tax-deferred basis. This means your earnings will grow tax-free until time you withdraw them.

Fact 7: Part Time Employees Eligible To Contribute to 403b Retirement Plans

Your employer must extend the 403b plan to all the employees.
However, certain employees may be excluded, such as:
• Employees who contribute $200 or less annually
• Employees who are participants in an eligible deferred compensation plan (457 or 401k) or participants in another TSA (tax sheltered annuity)
• Non-resident aliens
• Students and employees who work less than 20 hours per week

Fact 8: 403b Plan Does Not Reduce Social Security Benefits
Your contributions to a 403b reduce taxable compensation for federal (and in most instances, state) income tax purposes only. These contributions don’t reduce wages for the purpose of determining Social Security benefits.

Fact 9: Special Tax Credit For Low-Income Savers

Eligible savers will receive a tax credit of up to 50% or up to $2,000 in contributions to an IRA, 403b, 457, SIMPLE, 401k plan and other tax-favored plans. The full credit is available to joint filers whose adjusted gross income (AGI) is less than $53,000, and for singles whose AGI is under $26,500.

Fact 10: A 403b Can Be Rolled Into An IRA

This occurs when you change job; retire; become disabled or die. OK, you might think 403b retirement plans are more or less similar to 401k plans. But there’s a big difference there – your eligibility. If you’re an employee in public schools and certain tax-exempt organizations (as determined by Section 501(c)(3) of the IRC), you’re eligible for 403b. The 401k, on the other hand, covers private-sector employees Due to her strong yearning to retire early in life,

Article by Cecelia Yap

457 Retirement Plan

A 457 retirement plan offers employees of state governments, subdivisions of state governments or certain eligible key employees of non-profit organizations to save for their retirement now and pay taxes later by contributing a portion of their salaries to the plan.

I’m gonna touch on 6 things about the plan which I think is pertinent for you to know if you’re participating in this plan.

1. How Much You Can contribute on a Tax-Deferred Basis

You may contribute the lesser of $15,500 or 100% of compensation. If you’re eligible for catch-up contribution, then you can contribute an additional $5,000 to make a total of $20,500.

2. How Are The Contributions Invested

The money you contribute is invested at your direction in one or more of a variety of investment options offered by the plan. Many 457 plans offer both fixed and variable investment options.

Many 457 plans offer both fixed and variable investment options.

The fixed options which are through bank and insurance company products guarantee principal and interest.

The variable options which are through insurance company products, bank products or mutual funds provide “variable” returns, which are not guaranteed.

Your employer determines the investment options available to you and the options may change from time to time.

3. When You Can Withdraw The Money You Have In Your 457 Retirement Plan

You can withdraw the money upon:

• Your retirement
• Your encountering of emergency
• Reaching the age of 701/2
• Termination of service
• Your death

Withdrawals are subject to ordinary income taxes.

4. When You Are Required To Withdraw Your Money

You begin to receive benefit payments from your account the later of April 1 of the calendar year following the calendar year in which you:

** Reach the age 701/2, or
• Separate from service with your employer who sponsors your plan

If you fail to begin withdrawing as is required, it would subject you to IRS penalties equal to 50% of the amount that should have been withdrawn but wasn’t.

5. If You Leave Your Current Employer

You may:

• Leave your money invested in the 457 plan until your required distribution date
• Rollover your plan into your new employer’s eligible qualified plan (401k, 403(b), or 457),if your new employer’s plan allows for this rollover
• Withdraw your money, subject to withdrawal charges and/or fees. Also distributions are taxable and penalties may apply
• Under certain circumstances you may roll your vested account balance into an IRA (individual retirement account) subject to withdrawal charges and/or fees.

6. If You Die

Benefits payable upon your death, if any, depend on the allocation of your investment options.

Group fixed and variable deferred annuity

It depends on your age at death and whether or not your annuity payments have started. Usually, at your death, the money invested will be paid to your designated beneficiary according to the death benefit provisions in the annuity contract.

Mutual funds

The account value as of the date of death will be paid to your designated beneficiary. All death benefits will be paid in accordance with the payout method you have selected. If you die before selecting a payout method, your beneficiary will be allowed to select one for the distribution of your remaining account value. Due to her strong yearning to retire early in life,

Article by Cecelia Yap

Post Retirement Planning and Investment Risk

The conventional advice to retirees is that they should invest in low-risk financial instruments during retirement. Alternatively, the advice of some advisors is that “safe” investments would simply expose your retirement fund to other risks. There is merit in both positions, which is why portfolio diversification can be a great strategy at any life stage. Ultimately, retirees must invest so that they can sleep well at night and protect the real value of their investment. Retirees should base their investment decisions on the following:

1) Risk tolerance- Some people are gamblers, while others are ultra-conservative. Your risk tolerance is primarily influenced by your personality. The main point about investing and risk is that you should be comfortable with the level of risk that you’re taking. No one else can tell you what your comfort-level is. You certainly do not want to invest exclusively in growth options that leave you perpetually worried.

2) Depth of reserves- The level of risk that you can withstand would be dependent on the depth of your reserves as well. Someone who invests 40% of his retirement fund in growth options would find that the nominal amount exposed to loss would be significant. 40% of a $200,000 retirement fund is a significantly higher risk than the same percentage of a $2,000,000.00 retirement fund in terms of the actual dollar value.

3) Inflation risk- Although you’re seeking to provide security for your money, you may inadvertently cause a real loss or substantially lower real returns in the long-run. The good news is that you do not have to put your retirement fund at risk to beat inflation. Use the Consumer Price Index as a guide and seek high-yield CDs or bonds that provide rates of return that outstrip the inflation rate.

4) Understand the risk-return trade-off- The higher the risk associated with a financial instrument, the greater the potential return is. This trade-off is a primary reason that diversification should take place. This is because neither situation is optimal for the retiree. Low risk-low return increases inflation risk while high risk-high return increases the risk of loss. Conservative investing does not necessarily imply investing exclusively in low-risk funds. It suggests that the majority of your investment should be split between cash and income options and a relatively lower percentage assigned to growth instruments.

5) Understand averages- In choosing mutual funds; beware of making selections based on averages alone. Apart from investment fees and charges being a significant aspect of most mutual funds, averages can be misleading. One portfolio may have a better average than another. However if the higher-average fund is volatile, reaching extreme highs and lows, this could be riskier than if you have a moderate-return fund that does not tend to either extremities.

Some retirees leave the bulk of their retirement funds in savings accounts, while their higher-order investments are money-market funds. In economies where the inflation rate is medium to high, this is likely to do nothing for the preservation of your savings. This would mean that your fund would dwindle faster, especially if you didn’t optimise your choice. Even if you are making a low-risk investment, it is incumbent on you to choose the best-performing fixed deposit or money-market fund.

The argument that high-risk growth options are not for retirees is a half-truth. The real truth is that the non-working retiree should not invest a significant portion of his savings aggressively. Given that retirees are living longer, they are more exposed to the risk of outliving their savings and inflation risk. Once portfolios are diversified according to risk tolerance, financial reserves and needs, then the retiree would be in a better position.

Article by Darrell Victor

Planning for Your Retirement

Most of us envision retirement as a time to relax, spend time with loved ones, travel or start a new hobby. But it’s difficult to reap the rewards of our hard-earned years of work without some careful financial and health benefits planning. A new national survey of pre-retirees and retirees reveals that Americans are not spending enough time planning for their retirement.

Plan for Your Health, a public education program from Aetna and the Financial Planning Association, sponsored a survey of more than 1,000 Americans ages 45 to 75 with health insurance to find out about their attitudes and habits regarding retirement planning. You may be able to relate to some of the findings.

• Of pre-retirees surveyed, nearly 20 percent have spent “no time” in the past year actively planning for retirement, and more than 30 percent don’t know what to anticipate for health care needs.

• Sixty-six percent of pre-retirees who have spent time planning for their retirement, spend the same amount or more time on home improvement than on retirement planning. And 60 percent spend the same amount or more time planning for their children’s college education.

• What’s even more amazing, 31 percent of pre-retirees would rather clean their bathroom or pay bills than plan for retirement.

It’s clear that pre-retirees have a lot of other financial priorities; however, it’s important to start thinking about planning for retirement needs now because planning ahead protects your family’s resources from what can be considerable health care costs.

One of the best steps you can take to protect and secure your financial future is to plan for your health and well-being. While both pre-retirees and retirees agree that “good health” is most important to them in retirement, nearly 40 percent have spent less than one hour in the past year planning for health benefits in retirement.

Although most pre-retirees focus on the financial aspects of retirement planning, researching and understanding health benefits options seem to be left out of the equation.

• More than one-third of pre-retirees are most focused on contributing to a 401(k), 403(b) or IRA.

• Although 74 percent of respondents said they factored Social Security and Medicare benefits in their retirement plan, 77 percent are concerned about the financial issues facing these programs.

But, planning for retirement is not just about finances; it involves everything from reevaluating your daily routine and budget, to your health care options — including Health Savings Accounts (HSAs), long term care and life insurance.

• Eighty percent or more of pre-retirees and retirees expect to pay for prescription drugs and doctor’s visits in retirement. Twenty-nine percent even anticipate costs related to alternative medicine and five percent plan for cosmetic surgery, a snapshot of consumers’ health care preferences today.

• However, 52 percent of those surveyed expect to spend less than $300 a month on out-of-pocket costs and health care-related expenses during retirement — less than half of the $640 a month the average retiree actually spends.

It’s obvious that many Americans have a lot to think about when it comes to planning for retirement, which may be why 63 percent say that “people they know” are very or somewhat confused about health benefits. But, it doesn’t have to be this way.

Now is the time to start planning and learning all about your health benefits and financial needs for retirement. Planning now will serve you well in the future. After all, your goal is for a long and happy, healthy retirement — exactly what you’ve always dreamed of.

Article courtesy of ARA Content

Thinking About Early Retirement?

(ARA) – If you’ve delayed planning for retirement because it makes you feel a) old or b) financially inept, think again. With a little foresight, you could be out there enjoying life like other people — maybe even before you reach the so-called “retirement age.”

Like many people in the prime of life, it’s not unusual to think of retirement as such a distant idea that you avoid saving for it until next week, next year, next job. After all, who’s got time to think about the “R” word? In reality, it’s never too late, or too early, to start planning for retirement.

Retirement used to be defined as what a person was no longer doing. More and more, however, retirement has come to mean what a person is can do. Choosing a second career. Traveling to see the world. Volunteering in the community. Taking on a new hobby. Taking care of grandchildren.

If Mondays find you heading for the highway to work, but you’d rather be heading for the golf course to play, it might be time to consider your financial future — even if you’re among the three out of four Americans who hate financial planning.

“You don’t need to be a financial wizard to start thinking about early retirement,” says Randy Schuldt, vice president with IHateFinancialPlanning.com, a Web site devoted to the 75 percent of Americans who hate financial planning. “With some simple steps, you can take control of your financial future before it starts controlling your dreams.”

To help better understand what’s involved in retirement planning, IHateFinancialPlanning.com has developed a 10-minute quiz — an early retirement calculator of sorts — that will help determine your state of readiness. If your score points to a lifetime of enduring the daily grind, a visit to IHateFinancialPlanning.com or a meeting with a financial planner might help perk up your financial future.

Early Retirement Readiness Questionaire

1. I dream about my retirement
a. All of the time
b. Only when work drives me nuts
c. None of the time

2. I know exactly what I want to do when I retire
a. Yes — in fact I’ve identified the date
b. Too many choices to decide
c. No — I’ll be too old anyway

3. IRA stands for
a. Individual Retirement Account
b. Irish Republican Army
c. IRA — you mean my cousin Ira?

4. I regularly contribute to my 401(k) at work
a. At the maximum amount of money allowed
b. As much as I can afford
c. Never

5. I expect my health insurance costs to decrease as I get older
a. False
b. I’m not planning on getting older
c. True

6. If I pay off my mortgage before I retire I will be able to
a. Pocket up to $250,000 in tax-free profit on the sale of my home
b. Barely scrape by on my other bills
c. Guffaw loudly because only rich people can afford to do that

7. I can phase into retirement if I
a. Plan ahead for big ticket items that might tempt me to draw on investments too soon
b. Take a one month leave from my current job to test the waters
c. Just up and quit

8. The cost of inflation
a. Is expected to rise from 2 to 4 percent per year
b. Is always changing
c. Will have no effect on retirement plans

9. The nation’s Social Security program
a. Will eventually run out of money
b. Will cover only some of my retirement costs
c. Will always be there for me, just like it was for my parents

10. Disability income insurance is
a. A good idea, since there’s a 42 percent chance I’ll become disabled between the ages of 30 and 50
b. Something you should buy if you have a disability
c. Only for old people

11. A fixed-rate annuity is
a. A contract with a life insurance company designed to provide for a regular stream of payments at a later date b. Too complicated for me to worry about
c. Considered to be a risky investment

12. The key to early retirement is
a. Having a retirement goal
b. Having a job with a good retirement plan
c. Winning the lottery

SCORING:
Give yourself 3 points for every “A” answer; 2 points for every “B” answer; 1 point for every “C” answer.

36 points: Kiss work goodbye? You may be headed straight for the beach. We’d tell you to pack suntan lotion for when you leave, but then, you’ve probably already planned that, too.

25 to 35 or more points: So near, yet so far. While you may have a good understanding of what a retirement plan needs to include, it’s time to put your ideas into action. Check out IHateFinancialPlanning.com for some easy to understand, non-intimidating ways to fill the gaps of your plan.

16 to 24 points: Minimum effort may not get you where you want to go. Your plans could still use some fleshing out. You may want to consider talking with a professional to help solidify your dreams. Keep your retirement goals in mind and get a financial plan that will keep you headed in the right direction.

12 to 15 points: Early retirement, or any kind of retirement, might not be in your future. Get thee to a financial professional! If the mere thought of it makes you queasy,

Article courtesy ARA Content

Accurate Results with a Retirement Calculator

Most of us look forward to the day that we can retire. For many of us, we may consider it to be a time when we will finally be able to relax from all of the years of hard work. It is an unfortunate reality, however, that without the proper planning, it can be difficult getting the most out of your retirement years. One thing that you should do to make sure that you can retire comfortably, is to use a retirement calculator.

Very simply, a retirement calculator is an easy way for you to be able to determine how much you need to earn between now and the date that you retire so you can live comfortably for the rest of your life. There are some basic variables that need to input into almost every calculator, and some specific variables depending on which calculator you use. It is important that you accurately provide this information in order to get the most accurate results.

Generally the first information that a retirement calculator requires is your current age and the age that you plan to retire. Try to be as accurate as possible about this information since even a difference of a year or two can make a large difference in the final results. You may want to run the numbers using several possible retirement ages so you can see the impact it will have on the results.

Something else that needs to be considered is whether your current income will remain fairly stable until retirement or if it is expected to change. Although this may be difficult to know for certain, most of us have a rough idea of how stable our income is. If you are far away from retirement, you might want to give this some consideration since your ability to invest for retirement over the long term can make a big difference on how much you’re going to be able to put aside.

Some of other variables that are often required are the percentage of your income that you plan on putting aside as well as whether you’re going to include Social Security and other benefits in your calculations. If the results don’t meet your expectations, you can run the numbers through the retirement calculator again with a some adjustment of the variables. You will see that small differences in each of these variables can make a large difference over time. It can be a very useful planning tool that allows you to see how comfortable you will be after you retire.

Article by M. Paulson

Building Retirement Fund Just the Begining

You’ve worked. You’ve saved. You’ve invested. You now have accumulated a significant retirement nest egg. It appears you have a “lock” on a secure financial future. Still, for many either nearing or in retirement, you can’t help but wonder, “Is it really enough?”

This nagging question reveals one unavoidable fact: Building a significant retirement fund is no longer the “end game” of financial security; it is a beginning point.

Five challenges make it imperative that those in their 50s, 60s and 70s carefully manage their retirement dollars:

• Due to increased life expectancies, many boomers will have retirements lasting 20 years or more. In fact, the National Center for Health Statistics reports that the median life expectancy for someone age 65 is 18.6 years. This means about half the population will live longer in retirement. With increased longevity comes increased risk of potentially outliving one’s retirement assets.

• Retirees need to account for inflation. Inflation is the sustained increase in the general level or prices for goods and services over time. As inflation rises, every dollar owned buys a smaller percentage of a good or service. As prices go up over time due to inflation, the value of investments can erode. This is particularly true over a long time period, like 20 or 30 years.

* Responsibility for funding retirement is shifting from the employer to the employee. Many traditional company pensions (defined benefit plans) are being phased out or frozen, even by financially healthy companies, and are being replaced with defined contribution plans (like 401(k) and 403(b) plans). This means the burden of managing one’s retirement income is increasingly falling on individuals.

* Unplanned personal “life events” will happen. No one can know what lies ahead in their retirement journey. While everyone hopes for good health and the ability to determine “when” to retire, life holds no guarantees. Planning for one’s retirement years must include consideration of life events that have the potential to complicate their retirement years.

* Investment markets will continue to fluctuate (up and down). Typically, investments generating the potential for greater returns also have greater potential for loss.

“Funding your retirement years is a financial balancing act among playing it safe, taking risks and spending wisely,” says Ann Koplin, director of Retirement Marketing for Thrivent Financial for Lutherans. “If any of those areas gets out of whack, troubles may result.”

Koplin says products offering a guaranteed income – like annuities and certificates of deposit – may help retirees establish an income floor they cannot outlive. Ideally, individuals can add to this income base over time as they experience investment gains and convert a percentage of their assets from equities (and growth) to income. This is also dependent on the retiree’s personal circumstances and spending.

Koplin also notes that certain protection products – like life insurance and long-term care insurance- are also needed during one’s retirement to protect against the potentially devastating impact of unexpected life events like death and chronic illness. She likens this protection to that of safety net for a tightrope walker.

“While you may retire, the fact is your money never should,” says Koplin. “Having a financial strategy that is flexible enough to adapt to a person’s changing needs and circumstances is a must. Retirement can truly be great, but that means carefully managing your money throughout your golden years.”

Best Ways to Protect and Invest Your Money

Retirement can be comforting yet a challenging event in many peoples lives. You want to be able to live comfortably during this time with out worrying about how to make ends meet. To do this requires that you have a solid strategy in place that can generate consistent income, protect you against inflation and be able to live the comfortable lifestyle that you have become accustomed to. In this article we will examine what you can do to have an enjoyable retirement without the stress and challenges that so many retirees face today.

Ways that Erode Retirement Assets

There are many ways that can reduce your retirement assets. Any one of them can create a situation where you might not have enough money to live on once you retire. In this case knowledge is power in that if you know how and in what ways they can reduce your income or assets you can take steps to ensure that this doesn’t happen to you.

Inflation: It doesn’t take a rocket scientist to understand how inflation can effect your everyday life. However, it can also have an effect on your retirement in that it increases your cost of living every single year. Over the past 50 years inflation has averaged four percent a year. This means that something that cost you $100 dollars today will cost you $180 dollars 15 years from now. This can be huge when you are living off a fixed, consistent amount yearly. To be able to continue to live a comfortable lifestyle in retirement you must be able to consistently keep up and stay ahead of inflation.

Living Longer: People are living longer now more than at any other time. The average man who retires at 65 can expect to live until 82. While the average woman who retires at the same age can expect to live until 85. This can pose an enormous potential challenge for you in that the longer you live the more the odds increase that you will not have enough money to live on when you are retired. To be able to live a comfortable retirement we must be able to structure our income and investments so that they can continue to provide for us long after we have passed the average age of life expectancy.

Lack of Diversification: Many people don’t balance out their portfolios to protect themselves against a bad investment. They usually end up placing a substantial amount of their investments in one particular area or asset class and that’s it. Far to often they think that XYZ is a good area or company and that as long as they stick with their current strategy they will retire with more than enough income and assets. Such was the case with many individuals who invested in Enron stock that were near retirement or at retirement. When the energy trading company collapsed many employees had invested the majority of their assets in the company’s stock were virtually wiped out. Along with that went their retirement savings that they had accumulated for years. The basic idea here is don’t put all of your eggs in one basket.

Medical Expenses: Another area that can effect on your retirement income and assets are medical expenses. As you become older the needs for medication and health care will only increase. Combine this with the fact that health care costs have been rising consistently over the past several years. According to Fidelity Investments the cost for health care has risen a total of 34% since 2002. It estimated that with in the next 10 to 15 years many retirees will spend half of their income from Social Security on health care costs. To be able to have a worry free retirement you must use tactics that can be able to keep up with these costs so they don’t reduce our income or assets.

Ways to Protect Assets and Create Income

There are many ways you can protect your assets against some of the above risks and be able to create additional income. Diversification is the key to allowing you to maintain stability, growth and income. Below are several tips and tactics that you can use to protect yourself against the potential challenges that you will face in retirement.

Equities / Dividend Stocks: To be able to combat the forces of inflation requires that your assets and income grow at rate faster than inflation. One way to do this is through the use of equities (stocks) or dividend paying stocks. Over the past 50 years stocks have averaged 6.6% compared with the average inflation rate of 4.0%. While the average dividend rate of the S&P 500 is 5.3%. What this shows is that investing in stocks and dividend paying stocks can keep your assets and income growing at faster rate than inflation by giving you long term growth and strong consistent dividends. When you put the two elements together the overall return is much greater than inflation. The important key is to use a conservative approach that can provide you with consistent long term growth and dependable, rising dividends.

Bonds: Another way that can provide income and stability during retirement is through the use of bonds. Over the past 50 years bonds have averaged 5.5%. Generally bonds are considered to be a conservative investment. When you purchase a bond you become a creditor to the company or government that issued the bond. During the life of the bond ( 5 years, 10 years, 30 years) you will make a consistent interest rate that is stated at the time of purchase. These interest payments will continue until the bond matures on the date in the future. U.S. Government Bonds are the safest followed by municipal bonds and corporate bonds. These types of assets will provide you with a consistent income on a regular basis. In retirement they can compliment your overall strategy by bringing a conservative income, orientated side to your portfolio that will provide you with stability.

Mutual Funds / Bond Funds: If you are uncomfortable investing in stocks or bonds another way to go is through the use of mutual funds and bond funds. A mutual fund is a company that raises money from investors (shareholders) and invests that money in a portfolio of stocks, bonds or both. The idea is that they will provide you with diversification and balance so that you don’t have to worry about what stocks to buy or sell. A bond fund invests in bonds with the purpose of providing income and stability. The way that these two areas can benefit you is by providing your portfolio with balance and income without having to become involved in what stocks or bonds are the best areas for you.

Fixed Annuities: An alternative way to protect your assets and create income is through the use of fixed annuities. A fixed annuity is a written contract between you and the insurance company that is designed to provide you with regular payments at specific times (usually monthly, quarterly or annually) and can be for a certain number of years or your lifetime. These types of annuities are not tied to the stock and will pay you a stated guaranteed amount at a worst case scenario. These can be used to supplement your retirement income and can provide you with diversification as well.

Conclusion

By utilizing a diversified strategy that can provide you with stability, income and growth retirement doesn’t to have the stress and challenges that so many face today. This diversification can be achieved using a variety of tools such as stocks, strong dividend paying stocks, bonds, mutual funds, bond funds and fixed annuities. However, like all strategies it is important to first evaluate your own situation to determine what amount of income and diversification will be needed to ensure that your assets are protected so that your income will be at a satisfactory level for your lifestyle. This will help you to have the worry free retirement that you always envisioned.

Article by Chris Seabury 

Little Known Veterans Pension Benefit

If you haven’t heard of it, you are not alone. Currently there is a ground swell effort to inform veterans about this benefit. The Governor of Illinois felt it was such a serious situation that he created a non-profit corporation to work with other corporations, service groups and individuals like us, to get the word out and to educate Veterans and the families on this benefit. There are about 22 million veterans in the United States and about two billion dollars of benefits that go untouched every year. And a lot of it has to do with the fact that people just don’t know that the benefits are available. They don’t know that they qualify and they don’t know how to apply.

You’ll notice that it says “Aid & Attendance and Housebound”. The power of this benefit is that it provides extra income when you need it most, when you health changes and you need care. How many of you have helped care for a loved one? How many of you know someone who has lost just about everything because of the cost of care?

You know when this benefit was introduced in 1952; long-term care wasn’t such a big issue. Families stayed close. Not so many children went away to college, and then farther away for their careers. Things were pretty simple.

Now families are busy, busy. Children are scheduled in soccer, gymnastics, ballet, t-ball, so many events that they eat supper on the road, order meals by numbers “I’ll have a #2 meal super-sized” and it’s a different world.

So now, long-term care cost is a fact of life. We can’t rely on family. And most of us, being really honest would rather NOT have a family member help us with those really personal care needs. So would extra money help your family when you need care? Sure! Most of us are not going to turn it down, especially when you’ve already earned it. That’s why the Improved Pension Benefit is so important.

Qualifications for Veterans & Widows

So people ask, “What are the qualifications for this benefit?” The first qualification is a discharge from military service that is anything BUT dishonorable.

The veteran must have served at least 90 days of active duty with at least ONE day served during a declared state of war. Now you did not actually have to be in combat. As an example, you could have been a clerk in San Diego harbor, and never left US shores. As long as you had 90 days active service, you did not have a dishonorable discharge and one day was during wartime, you qualify onthose points.

Finally, you have to be totally disabled, OR age 65 and older. This benefit has been on the books since 1952 and one of the reasons Veterans didn’t take advantage of it was that they thought you had to be disabled. Let’s take a look at this benefit. It is a pension. At what age do we generally qualify for a pension? The age we start receiving a pension is when we hit retirement and that is usually at age ….??? Right, 65! So it makes sense that if you are 65 or older, then you qualify for the pension, because of your age. It doesn’t matter that you are not disabled.

 Declared States of War

The next thing people want to know is, “What are the Declared States of War?” How many of you were in the Korean War? You will remember that during the Korean War, it was called a Police Action, an advisory thing, right? Vietnam was that way, too. However, for benefits related to Periods of War, these are the dates and events recognized by the Department of Veterans Affairs. These are the wars that count for this benefit.

Mexican Border Period 1916-1917
WWI 1917 – 1921
WWII 1941 – 1946
Korean War 1950 – 1955
Vietnam War 1962 – 1975
Gulf War 1990 – . . .

DVA Improved Pension 2008

So people want to know, “How much money are we talking?” Here are the pension amounts for this year. Now there are different amounts if you are Housebound, and there are amounts if you are simply low income. For now, let’s look at the numbers for Aid & Attendance. When you need Aid & Attendance, you are typically in a facility. Your costs of care are the greatest. Your need for extra money is the greatest. AND the pension benefit is the greatest.

If you are a couple, Veteran and Spouse, and one of you is receiving care in a facility, you could receive up to $22,113 per year, TAX FREE. So how would an extra $1842/month help with you care costs? Would you want the money that your service earned? Sure you would.

For a single veteran, it could be up to $18,654/year, or over $1554/month, TAX FREE.

For the surviving spouse of a veteran, it’s up to $11,985/year, or /$998/month, TAX FREE.

This benefit is available every year you continue to receive Aid & Attendance in a facility. There is a Cost of Living adjustment every year that reflects the increase in Social Security. It’s normally, about 3%, this year it was 2.3%.

It is a Means Testing program, which means they look at both your Income and your Assets. Now at this point, people will look at each other and say, “Oh we have too much income and assets to qualify.” But there are two important things to know, that can make all the difference.

First, your out-of-pocket medical expenses are deducted from your income. When your health and lifestyle change and you need care and assistance, there can be substantial expenses, and these are deducted from you income.

Second, the VA counts your assets as of the date of the application. So, you can create an estate plan and reposition your assets before the application.

Income Testing

Let me share with you my favorite couple Roy and Dale. You remember them. They had a dog named, Bullet, a horse named Trigger, a friend named Pat who had a Jeep named….Does any know the name of Pat’s Jeep? It was Nelly belle. How about Dale’s horse, do you know her horse’s name? It was Buttermilk. They were my favorite couple when I was growing up. I used to watch their program all the time and knew that Roy, in his white hat, would always get the bad guys in their black hats.

Now Roy and Dale are very comfortable, 2500 dollars in income each month. Everything’s paid for. Life was good. But then Roy falls off Trigger and breaks his hip. He goes to Happy Trails Care Facility. His expenses for facility care, medications, health insurance premiums total $3200/mo. Now life is not so good. They are spending $700 more each month than they have coming in. Where do you suppose that extra money is coming from? Right, their savings! Their income is upside down and they are burning through their assets quickly.

So here is an example of a couple going from having plenty of income, to losing money because of a simple fall, change in health and need for Aid & Attendance. Roy was a veteran and his service has earned him the Improved Pension Benefit, they would qualify for $1801.25 per month. Would that make a difference in their lives? Could it save the drain on their estate? Absolutely!

Asset Testing

Now, it is also means tested for Assets. Whatever you have titled in your name will be counted with the exception of your house and car as long as one of you is residing in the house. This is the opportunity to put in place the estate planning that you’ve been putting off. You can put things in place so your assets are controlled by family; and you know that things will still go the way you want, without losing them. With the VA, there is no look back period. It is very important to have everything properly titled and positioned before you make application for the benefits, so be sure to consult with a professional.

Documents Needed

Sometimes people have misplaced their discharge papers. Some people call it their military jacket, others refer to it as the DD214, and still others call them separation papers. It may be that you don’t know where these papers are. Don’t worry, you can apply for duplicates and it takes about 4 weeks for them to arrive. Other forms needed are the Marriage Certificate and a Death Certificate if the veteran is deceased. These just take some time to get from the county or state departments. They do need to be certified copies and that can be done at the courthouse in most places.

If you need to do some estate planning for you assets, that takes a little time. So by the time the documents arrive, you’ll have things in place and be ready for the application process. When you send in the completed application, the first thing the DVA does is time stamp it, enter it into their system and assign a case number. That’s important, because the time stamp is the date counted for your first benefit payment. It may take up to six months for the application to be processed. But when it’s processed and approved, the DVA will go back to the time stamp on the application, and send a check retroactive back to the date the application was entered into the system.

Lance D. Fisher

What is a Pension Annuity?

When the investment in your personal pension plan reaches maturity when you retire, you will need to transfer its accumulated value into a regular income for the remainder of your retirement. This is achieved through the purchase of a pension annuity – a seemingly simple and straight forward transaction that exchanges the final value of the pension fund into which you have been paying into a regular income.

Whilst the principle of a pension annuity is seemingly very straight forward, however, things are rarely quite as simple as they seem.

The first and probably most critical aspect of buying a pension annuity is that it is a long-term, one-off commitment. You have just one shot at it, since there is no going back and asking for a refund of all of the capital simply because, after the event, you have found a better deal elsewhere. In other words, it is very important that you make the right choice.

Making the right choice is made no easier by the fact that a host of different annuities all offer a host of different annuity rates – i.e. will offer a different level of income for the same amount of pension investment.

The difficulty is further compounded by the sheer number of different types of annuity available these days.

Standard annuity – the most conventional form of annuity is one that pays you a fixed income throughout the remainder of your life. The income is known in advance, so you have the security and peace of mind in knowing just how much that will be;

With profits annuity – as the name suggests, this relates the income you receive to an element of your initially invested sum that is in turn invested again in equities, bonds and gilts. In this way, your annuity reflects some of the risks inherent in such investments;

Unit-linked annuity – this is probably the choice for those prepared to take the greatest risk on an annuity that is entirely subject to the fluctuations of the investments made;

Immediate (“temporary” or “purchased life”) annuity – this form of annuity needs to be purchased either from the cash element of your matured pension fund or some other cash resource. The advantage of this kind of annuity is that part of the annuity is treated as a return of your initial capital and, therefore, is not taxed, whereas the whole of your pension annuity would be subject to income tax;

Impaired life annuity – this is a type of annuity designed for those whose actuarial life expectancy is lower than someone of the same age in the general population. Different annuities will operate different definitions of what amounts to “impairment” of life, but it is generally a question of an existing serious illness or lifestyle factors such as smoking, obesity or past occupation.

Summary

The seemingly simple and straight forward question of converting the final value of a pension fund into a regular, income-paying annuity actually requires the kind of advice you can best receive from an independent financial adviser, since:

• Your pension annuity decision is of a one-off type that you need to get right the first time;
• There is considerable variation in the level of income paid by any one annuity – naturally, you would want the highest paying;
• There is a wide range of different types of annuity – some higher, some lower, risk – an independent financial adviser will be able to help you choose the one you want.

Article by Steve Wright 

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