Understanding Social Security

Approximately 69 million people today receive some form of Social Security benefits, including retirement, disability, survivor, and family benefits.1 Although most people receiving Social Security are retired, you and your family members may be eligible for benefits at any age, depending on your circumstances.

How does Social Security work?

The Social Security system is based on a simple premise: Throughout your career, you pay a portion of your earnings into a trust fund by paying Social Security or self-employment taxes. Your employer, if any, contributes an equal amount. In return, you receive certain benefits that can provide income to you when you need it most — at retirement or when you become disabled, for instance. Your family members can receive benefits based on your earnings record, too. The amount of benefits that you and your family members receive depends on several factors, including your average lifetime earnings, your date of birth, and the type of benefit that you’re applying for.

Your earnings and the taxes you pay are reported to the Social Security Administration (SSA) by your employer, or if you are self-employed, by the IRS. The SSA uses your Social Security number to track your earnings and your benefits.

You can find out more about future Social Security benefits by signing up for a my Social Security account at the Social Security website, ssa.gov, so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60. You can also use the Retirement Estimator calculator on the Social Security website, as well as other benefit calculators that can help you estimate disability and survivor benefits.

Social Security eligibility

When you work and pay Social Security taxes, you earn credits that enable you to qualify for Social Security benefits. You can earn up to 4 credits per year, depending on the amount of income that you have. Most people must build up 40 credits (10 years of work) to be eligible for Social Security retirement benefits, but need fewer credits to be eligible for disability benefits or for their family members to be eligible for survivor benefits.

Your retirement benefits

Your Social Security retirement benefit is based on your average earnings over your working career. Your age at the time you start receiving Social Security retirement benefits also affects your benefit amount. If you were born between 1943 and 1954, your full retirement age is 66. Full retirement age increases in two-month increments thereafter, until it reaches age 67 for anyone born in 1960 or later.

But you don’t have to wait until full retirement age to begin receiving benefits. No matter what your full retirement age, you can begin receiving early retirement benefits at age 62. Doing so is sometimes advantageous. Although you’ll receive a reduced benefit if you retire early, you’ll receive benefits for a longer period than someone who retires at full retirement age.

You can also choose to delay receiving retirement benefits past full retirement age. If you delay retirement, the Social Security benefit that you eventually receive will be as much as 8 percent higher for each year you wait. That’s because you’ll receive a delayed retirement credit for each month that you delay receiving retirement benefits, up to age 70.

Disability benefits

If you become disabled, you may be eligible for Social Security disability benefits. The SSA defines disability as a physical or mental condition severe enough to prevent a person from performing substantial work of any kind for at least a year. This is a strict definition of disability, so if you’re only temporarily disabled, don’t expect to receive Social Security disability benefits — benefits won’t begin until the sixth full month after the onset of your disability. And because processing your claim may take some time, apply for disability benefits as soon as you realize that your disability will be long term.

Family benefits

If you begin receiving retirement or disability benefits, your family members might also be eligible to receive benefits based on your earnings record. Eligible family members may include:

  • Your spouse age 62 or older, if married at least 1 year
  • Your former spouse age 62 or older, if you were married at least 10 years
  • Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled
  • Your children under age 18, if unmarried
  • Your children under age 19, if full-time students (through grade 12) or disabled
  • Your children older than 18, if severely disabled

Each family member may receive a benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately. Your benefit won’t be affected.

Survivor benefits

When you die, your family members may qualify for survivor benefits based on your earnings record. These family members include:

  • Your widow(er) or ex-spouse age 60 or older (or age 50 or older if disabled)
  • Your widow(er) or ex-spouse at any age, if caring for your child who is under 16 or disabled
  • Your children under 18, if unmarried
  • Your children under age 19, if full-time students (through grade 12) or disabled
  • Your children older than 18, if severely disabled
  • Your parents, if they depended on you for at least half of their support

Your widow(er) or children may also receive a one-time $255 death benefit immediately after you die.

Applying for Social Security benefits

The SSA recommends apply for benefits online at the SSA website, but you can also apply by calling (800) 772-1213 or by making an appointment at your local SSA office. The SSA suggests that you apply for benefits three months before you want your benefits to start. If you’re applying for disability or survivor benefits, apply as soon as you are eligible.

Depending on the type of Social Security benefits that you are applying for, you will be asked to furnish certain records, such as a birth certificate, W-2 forms, and verification of your Social Security number and citizenship. The documents must be original or certified copies. If any of your family members are applying for benefits, they will be expected to submit similar documentation.

The SSA representative will let you know which documents you need and help you get any documents you don’t already have.

1) Fast Facts & Figures About Social Security, 2021


Published with permission from Broadridge Investor Communication Solutions, Inc.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
Securities and insurance products are offered through Cetera Investment Services LLC,member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisors LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: *Not FDIC/NCUSIF insured * May lose Value *Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency.

Social Security Retirement Benefits

Social Security was originally intended to provide older Americans with continuing income after retirement. Today, though the scope of Social Security has been widened to include survivor, disability, and other benefits, retirement benefits are still the cornerstone of the program.

How do you qualify for retirement benefits?

When you work and pay Social Security taxes (FICA on some pay stubs), you earn Social Security credits. You can earn up to 4 credits each year. You generally need 40 credits (10 years of work) to be eligible for retirement benefits.

How much will your retirement benefit be?

Your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily. Your age at the time you start receiving benefits also affects your benefit amount. Although you can retire early at age 62, the longer you wait to retire (up to age 70), the higher your retirement benefit.

You can find out more about future Social Security benefits by signing up for a my Social Security account at the Social Security website, ssa.gov, so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60. You can also use the Retirement Estimator calculator on the Social Security website, as well as other benefit calculators that can help you estimate disability and survivor benefits.

Retiring at full retirement age

Your full retirement age depends on the year in which you were born.

If you were born in: Your full retirement age is:
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67

Tip: If you were born on January 1 of any year, refer to the previous year to determine your full retirement age.

If you retire at full retirement age, you’ll receive an unreduced retirement benefit.

Retiring early will reduce your benefit

You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you retire early, your Social Security benefit will be less than if you wait until your full retirement age to begin receiving benefits. Your retirement benefit will be reduced by 5/9ths of 1 percent for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. For example, if your full retirement age is 67, you’ll receive about 30 percent less if you retire at age 62 than if you wait until age 67 to retire. This reduction is permanent — you won’t be eligible for a benefit increase once you reach full retirement age.

However, even though your monthly benefit will be less, you might receive the same or more total lifetime benefits as you would have had you waited until full retirement age to start collecting benefits. That’s because even though you’ll receive less per month, you might receive benefits over a longer period of time.

Delaying retirement will increase your benefit

For each month that you delay receiving Social Security retirement benefits past your full retirement age, your benefit will increase by a certain percentage. This percentage varies depending on your year of birth. For example, if you were born in 1943 or later, your benefit will increase 8 percent for each year that you delay receiving benefits, up until age 70. In addition, working past your full retirement age has another benefit: It allows you to add years of earnings to your Social Security record. As a result, you may receive a higher benefit when you do retire, especially if your earnings are higher than in previous years.

Working may affect your retirement benefit

You can work and still receive Social Security retirement benefits, but the income that you earn before you reach full retirement age may affect the amount of benefit that you receive. Here’s how:

  • If you’re under full retirement age: $1 in benefits will be deducted for every $2 in earnings you have above the annual limit
  • In the year you reach full retirement age: $1 in benefits will be deducted for every $3 you earn over the annual limit (a different limit applies here) until the month you reach full retirement age

Once you reach full retirement age, you can work and earn as much income as you want without reducing your Social Security retirement benefit. And keep in mind that if some of your benefits are withheld prior to your full retirement age, you’ll generally receive a higher monthly benefit at full retirement age, because after retirement age the SSA recalculates your benefit every year and gives you credit for those withheld earnings

Retirement benefits for qualified family members

Even if your spouse has never worked outside your home or in a job covered by Social Security, he or she may be eligible for spousal benefits based on your Social Security earnings record. Other members of your family may also be eligible. Retirement benefits are generally paid to family members who relied on your income for financial support. If you’re receiving retirement benefits, the members of your family who may be eligible for family benefits include:

  • Your spouse age 62 or older, if married at least one year
  • Your former spouse age 62 or older, if you were married at least 10 years
  • Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled
  • Your unmarried child under age 18
  • Your unmarried child under age 19 if a full-time student (through grade 12) or over age 18 and disabled if disability began before age 22

Your eligible family members will receive a monthly benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately. Your benefit won’t be affected.

How do you apply for Social Security retirement benefits?

The SSA recommends that you apply three months before you want your benefits to start. To apply, fill out an application on the SSA website, call the SSA at (800) 772-1213, or make an appointment at your local SSA office.


Published with permission from Broadridge Investor Communication Solutions, Inc.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
Securities and insurance products are offered through Cetera Investment Services LLC,member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisors LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: *Not FDIC/NCUSIF insured * May lose Value *Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency.

Rolling Over Funds from an Employer Retirement Savings Plan: What You Need to Know

Why consider a rollover?

When you roll over a distribution from a 401(k), 403(b), or governmental 457(b) plan, you generally don’t pay any taxes until you receive a distribution from the new plan or IRA. If you take a distribution but don’t roll it over, it will be subject to federal (and possibly state) income taxes (except for any after-tax contributions you’ve made); and if you haven’t yet reached age 59½, you may also be subject to a 10% early distribution penalty tax unless you’re eligible for an exception.1 If you take a cash distribution, you’re also foregoing any further tax-advantaged growth; and if you spend the funds, you may not have sufficient assets to last throughout retirement.

Note: Special rules apply to distributions from designated Roth accounts: Qualified distributions are entirely tax-free, and only earnings are taxed if your distribution is nonqualified. A distribution is qualified if you satisfy a five-year holding period and you are age 59½, disabled, or use the funds to purchase your first home ($10,000 lifetime cap). State tax rules may be different.

Note: Not all distributions are eligible to be rolled over. You cannot roll over hardship withdrawals, required minimum distributions, substantially equal periodic payments, corrective distributions, and certain other payments. Nonspousal death benefits can be rolled over only to an inherited IRA, and only in a direct rollover.

Reasons to roll over to an IRA

  • You generally have more investment choices with an IRA than with an employer You typically may freely move your money around among the various investments offered by your IRA trustee, and you may divide your balance among as many of those investments as you want. By contrast, employer plans typically give you a limited menu of investments (usually mutual funds) from which to choose.
  • You can freely move your IRA dollars among different IRA trustees/custodians. Unlike indirect (60-day) rollovers between IRAs, which are generally limited to one in any 12-month period, there is no limit on how many direct, trustee-to-trustee IRA transfers you can do in a year. This gives you flexibility to change trustees often if you are dissatisfied with investment performance or customer service. It can also allow you to have IRA accounts with more than one institution for added diversification. With an employer’s plan, you cannot move the funds to a different trustee unless you leave your job and roll over the funds.
  • An IRA may give you more flexibility with distributions. The distribution options available to you and your beneficiaries in an employer plan are typically more With an IRA, the timing and amount of distributions are generally at your discretion (until you must start taking required minimum distributions, if applicable).
  • If you’ve made Roth contributions to your 401(k) or 403(b) plan, those contributions (plus any investment earnings on them) will be subject to required minimum distribution (RMD) rules after you turn 72 (or after you retire, if later, if you own 5% or less of your employer).2 You can avoid the RMD rules by rolling your Roth contributions over to a Roth IRA (Roth IRAs are not subject to the lifetime RMD rules).
  • You can use an individual retirement annuity to effectively annuitize all or part of your employer plan This can be helpful if your plan doesn’t provide an annuity option.

Note: Before investing in a mutual fund, carefully consider the investment objectives, risks, charges, and expenses of the fund. This information can be found in the prospectus, which can be obtained from the fund. Read it carefully before investing.

Diversification alone cannot guarantee a profit or ensure against the possibility of loss. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any strategy will be successful.

Reasons to leave in, or roll over to, an employer’s retirement plan

  • Many employer-sponsored plans have loan provisions. If you roll over your retirement funds to a new employer’s plan that permits loans, you can generally borrow against your vested balance in the new plan, including the amount rolled over, if you need You cannot borrow from an IRA — you can only access the money in an IRA by taking a distribution, which may be subject to income tax and penalties.
  • A rollover to another employer plan may provide greater creditor protection than a rollover to an Most qualified employer plans [like 401(k) plans] receive virtually unlimited protection from creditors under federal law. Your creditors cannot attach your plan funds to satisfy any of your debts and obligations, regardless of whether you’ve declared bankruptcy. In contrast, traditional and Roth IRAs are generally protected under federal law only if you declare bankruptcy. Any creditor protection your IRA may receive in cases outside of bankruptcy will generally depend on the laws of your particular state. If you are concerned about asset protection, be sure to seek the assistance of a qualified professional. [Special rules apply to individual (solo) 401(k) plans, governmental plans, and certain church plans.]
  • Distributions from your employer plan won’t be subject to the 10% early distribution penalty if you retire during the year you turn 55 or later (age 50 for qualified public safety employees). However, distributions from your IRA before you reach age 59½ will be subject to the penalty tax, unless an exception applies.
  • You may be able to postpone any required minimum These distributions usually must begin no later than April 1 following the year you reach age 72.2 However, if you work past that age, are still participating in your employer’s retirement plan, and own no more than 5% of the company, you can delay your first distribution from that plan until April 1 following the year of your retirement.
  • While IRAs typically provide more investment choices than an employer plan, there may be certain investment opportunities in your particular plan that you cannot replicate with an IRA. Further, you may be satisfied by potentially lower-cost funds available in your particular plan, and therefore may not regard an IRA’s broader array of investments as an important

Other considerations

Both employer retirement plans and IRAs typically have: (1) investment-related expenses and (2) plan or account fees. Investment-related expenses may include sales loads, commissions, the expenses of any mutual funds in which assets are invested, and investment advisory fees. Plan fees typically include plan administrative fees (e.g., recordkeeping, compliance, trustee fees) and fees for services, such as access to a customer service representative. In some cases, employers pay for some or all of the plan’s administrative expenses. An IRA’s fees may include, for example, administrative, account setup, and custodial fees. Be sure to carefully consider the expenses and fees in each alternative.

Also be sure to consider the different levels of service available under the employer’s plan versus an IRA. Some employer plans, for example, provide access to investment advice, planning tools, telephone help lines, educational materials, and workshops.

Similarly, IRA providers offer different levels of service, which may include full brokerage service, investment advice, distribution planning, and access to securities execution online.

Special considerations for distributions from designated Roth accounts

In order to receive a tax-free qualified distribution of earnings from a Roth IRA or from a designated Roth 401(k), 403(b), or 457(b) account, you must satisfy a five-year holding period. Separate five-year holding periods apply to designated Roth accounts and Roth IRAs. If you receive a nonqualified distribution from a designated Roth account and roll it over to a Roth IRA, the investment earnings rolled over will then be subject to the Roth IRA’s five-year holding period. So, for example, if your money has been in a designated Roth account for four years, and you roll those dollars into your first Roth IRA, they will be subject to a new five-year holding period — the amount of time those dollars spent in the 401(k) plan does not affect your Roth IRA holding period.

On the other hand, if you receive a distribution from your designated Roth account and roll it over into a designated Roth account in a new employer’s 401(k), 403(b), or 457(b) plan, your five-year holding period in the receiving plan, for both the amount rolled over and other funds in the receiving plan, will be the five-year holding period in the distributing plan or the five-year holding period in the receiving plan, whichever ends first (i.e., whichever is more favorable to you).

Required minimum distributions (RMDs) are generally required from Roth 401(k)/403(b) accounts after you turn 72 (or after you retire, if later, unless you’re a 5% owner). However, Roth IRAs are not subject to the lifetime RMD rules. You can avoid the Roth 401(k)/403(b) lifetime RMD rules by rolling your eligible distribution over to a Roth IRA.

1 If your distribution includes employer stock or other securities special tax rules may apply that can make taking a distribution more advantageous than making a rollover. Consult a tax professional.


Published with permission from Broadridge Investor Communication Solutions, Inc.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
Securities and insurance products are offered through Cetera Investment Services LLC,member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisors LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: *Not FDIC/NCUSIF insured * May lose Value *Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency.

Retirement Planning: The Basics

You may have a very idealistic vision of retirement — doing all of the things that you never seem to have time to do now. But how do you pursue that vision? Social Security may be around when you retire, but the benefit that you get from Uncle Sam may not provide enough income for your retirement years. To make matters worse, few employers today offer a traditional company pension plan that guarantees you a specific income at retirement. On top of that, people are living longer and must find ways to fund those additional years of retirement. Such eye-opening facts mean that today, sound retirement planning is critical.

But there’s good news: Retirement planning is easier than it used to be, thanks to the many tools and resources available. Here are some basic steps to get you started.

Determine your retirement income needs

It’s common to discuss desired annual retirement income as a percentage of your current income. Depending on whom you’re talking to, that percentage could be anywhere from 60% to 90%, or even more. The appeal of this approach lies in its simplicity. The problem, however, is that it doesn’t account for your specific situation. To determine your specific needs, you may want to estimate your annual retirement expenses.

Use your current expenses as a starting point, but note that your expenses may change dramatically by the time you retire. If you’re nearing retirement, the gap between your current expenses and your retirement expenses may be small. If retirement is many years away, the gap may be significant, and projecting your future expenses may be more difficult.

Remember to take inflation into account. The average annual rate of inflation over the past 20 years has been approximately 2%.1 And keep in mind that your annual expenses may fluctuate throughout retirement. For instance, if you own a home and are paying a mortgage, your expenses will drop if the mortgage is paid off by the time you retire. Other expenses, such as health-related expenses, may increase in your later retirement years. A realistic estimate of your expenses will tell you about how much yearly income you’ll need to live comfortably.

Calculate the gap

Once you have estimated your retirement income needs, take stock of your estimated future assets and income. These may come from Social Security, a retirement plan at work, a part-time job, and other sources. If estimates show that your future assets and income will fall short of what you need, the rest will have to come from additional personal retirement savings.

Figure out how much you’ll need to save

By the time you retire, you’ll need a nest egg that will provide you with enough income to fill the gap left by your other income sources. But exactly how much is enough? The following questions may help you find the answer:

  • At what age do you plan to retire? The younger you retire, the longer your retirement will be, and the more money you’ll need to carry you through it.
  • What is your life expectancy? The longer you live, the more years of retirement you’ll have to
  • What rate of growth can you expect from your savings now and during retirement? Be conservative when projecting rates of
  • Do you expect to dip into your principal? If so, you may deplete your savings faster than if you just live off investment earnings. Build in a cushion to guard against these risks.

Build your retirement fund: Save, save, save

When you know roughly how much money you’ll need, your next goal is to save that amount. First, you’ll have to map out a savings plan that works for you. Assume a conservative rate of return (e.g., 5% to 6%), and then determine approximately how much you’ll need to save every year between now and your retirement to reach your goal.

The next step is to put your savings plan into action. It’s never too early to get started (ideally, begin saving in your 20s). To the extent possible, you may want to arrange to have certain amounts taken directly from your paycheck and automatically invested in accounts of your choice [e.g., 401(k) plans, payroll deduction savings]. This arrangement reduces the risk of impulsive or unwise spending that will threaten your savings plan — out of sight, out of mind. If possible, save more than you think you’ll need to provide a cushion.

Understand your investment options

You need to understand the types of investments that are available, and decide which ones are right for you. If you don’t have the time, energy, or inclination to do this yourself, hire a financial professional. He or she will explain the options that are available to you, and will assist you in selecting investments that are appropriate for your goals, risk tolerance, and time horizon. Note that many investments may involve the risk of loss of principal.

Use the right savings tools

The following are among the most common retirement savings tools, but others are also available.

Employer-sponsored retirement plans that allow employee deferrals [like 401(k), 403(b), SIMPLE, and 457(b) plans] are powerful savings tools. Your contributions come out of your salary as pre-tax contributions (reducing your current taxable income) and any investment earnings are tax deferred until withdrawn. These plans often include employer-matching contributions and should be your first choice when it comes to saving for retirement. 401(k), 403(b) and 457(b) plans can also allow after-tax Roth contributions. While Roth contributions don’t offer an immediate tax benefit, qualified distributions from your Roth account are free of federal, and possibly state, income tax.

IRAs, like employer-sponsored retirement plans, feature tax deferral of earnings. If you are eligible, traditional IRAs may enable you to lower your current taxable income through deductible contributions. Withdrawals, however, are taxable as ordinary income (unless you’ve made nondeductible contributions, in which case a portion of the withdrawals will not be taxable).

Roth IRAs don’t permit tax-deductible contributions but allow you to make completely tax-free withdrawals under certain conditions. With both types, you can typically choose from a wide range of investments to fund your IRA.

Annuities are contracts issued by insurance companies. Annuities are generally funded with after-tax dollars, but their earnings are tax deferred (you pay tax on the portion of distributions that represents earnings). There is generally no annual limit on contributions to an annuity. A typical annuity provides income payments beginning at some future time, usually retirement. The payments may last for your life, for the joint life of you and a beneficiary, or for a specified number of years (guarantees are subject to the claims-paying ability of the issuing insurance company). Annuities may be subject to certain charges and expenses, including mortality charges, surrender charges, administrative fees, and other charges.

Note: In addition to any income taxes owed, a 10% premature distribution penalty tax may apply to taxable distributions made from employer-sponsored retirement plans, IRAs, and annuities prior to age 59½, unless an exception applies.

1 Calculated form Consumer Price Index (CPI-U) data published by the Bureau of Labor Statistics, January 2021


Published with permission from Broadridge Investor Communication Solutions, Inc.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
Securities and insurance products are offered through Cetera Investment Services LLC,member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisors LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: *Not FDIC/NCUSIF insured * May lose Value *Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency.

Health Insurance in Retirement

At any age, health care is a priority. When you retire, however, you will probably focus more on health care than ever before. Staying healthy is your goal, and this can mean more visits to the doctor for preventive tests and routine checkups. There’s also a chance that your health will decline as you grow older, increasing your need for costly prescription drugs or medical treatments. That’s why having health insurance is extremely important.

Retirement — your changing health insurance needs

If you are 65 or older when you retire, your worries may lessen when it comes to paying for health care — you are most likely eligible for certain health benefits from Medicare, a federal health insurance program, upon your 65th birthday. But if you retire before age 65, you’ll need some way to pay for your health care until Medicare kicks in. Generous employers may offer extensive health insurance coverage to their retiring employees, but this is the exception rather than the rule. If your employer doesn’t extend health benefits to you, you may need to buy a private health insurance policy (which may be costly), extend your employer-sponsored coverage through COBRA, or purchase an individual health insurance policy through either a state-based or federal health insurance Exchange Marketplace.

But remember, Medicare won’t pay for long-term care if you ever need it. You’ll need to pay for that out of pocket or rely on benefits from long-term care insurance (LTCI) or, if your assets and/or income are low enough to allow you to qualify, Medicaid.

More about Medicare

As mentioned, most Americans automatically become entitled to Medicare when they turn 65. In fact, if you’re already receiving Social Security benefits, you won’t even have to apply — you’ll be automatically enrolled in Medicare. However, you will have to decide whether you need only Part A coverage (which is premium-free for most retirees) or if you want to also purchase Part B coverage. Part A, commonly referred to as the hospital insurance portion of Medicare, can help pay for your home health care, hospice care, and inpatient hospital care. Part B helps cover other medical care such as physician care, laboratory tests, and physical therapy. You may also choose to enroll in a managed care plan or private fee-for-service plan under Medicare Part C (Medicare Advantage) if you want to pay fewer out-of-pocket health-care costs. If you don’t already have adequate prescription drug coverage, you should also consider joining a Medicare prescription drug plan offered in your area by a private company or insurer that has been approved by Medicare.

Unfortunately, Medicare won’t cover all of your health-care expenses. For some types of care, you’ll have to satisfy a deductible and make co-payments. That’s why many retirees purchase a Medigap policy.

However, it’s illegal for an insurance company to sell you a Medigap policy that substantially duplicates any existing coverage you have, including Medicare coverage. You don’t need and can’t buy a Medigap policy if you’re enrolled in a Medicare Advantage (Part C) plan, and you may not need it if you’re covered by an employer-sponsored health plan after you retire or have coverage through your spouse.

What is Medigap?

Unless you can afford to pay for the things that Original Medicare (Parts A and B) doesn’t cover, including the annual co-payments and deductibles that apply to certain types of care, you may want to buy some type of Medigap policy when you sign up for Medicare Part B. There are 8 standardized plans available to individuals new to Medicare (except in Massachusetts, Minnesota, and Wisconsin, which have their own standardized plans). Each of these policies offers certain basic core benefits, and all but the most basic policy (Plan A) offer various combinations of additional benefits designed to cover what Medicare does not. Although not all Medigap plans are available in every state, you should be able to find a plan that best meets your needs and your budget.

When you first enroll in Medicare Part B at age 65 or older, you have a six-month Medigap open enrollment period. During that time, you have a right to buy the Medigap policy of your choice from a private insurance company, regardless of any health problems you may have. The company cannot refuse you a policy or charge you more than other open enrollment applicants.

Thinking about the future — long-term care insurance and Medicaid

The possibility of a prolonged stay in a nursing home weighs heavily on the minds of many older Americans and their families. That’s hardly surprising, especially considering the high cost of long-term care.

Many people in their 50s and 60s look into purchasing LTCI. A good LTCI policy can cover the cost of care in a nursing home, an assisted-living facility, or even your own home. But if you’re interested, don’t wait too long to buy it — you’ll need to be in good health. In addition, the older you are, the higher the premium you’ll pay.

You may also be able to rely on Medicaid to pay for long-term care if your assets and/or income are low enough to allow you to qualify. But check first with a financial professional or an attorney experienced in Medicaid planning. The rules surrounding this issue are numerous and complicated and can affect you, your spouse, and your beneficiaries and/or heirs.


Published with permission from Broadridge Investor Communication Solutions, Inc.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
Securities and insurance products are offered through Cetera Investment Services LLC,member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisors LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: *Not FDIC/NCUSIF insured * May lose Value *Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency.

Estimating Your Retirement Income Needs

You know how important it is to plan for your retirement, but where do you begin? One of your first steps should be to estimate how much income you’ll need to fund your retirement. That’s not as easy as it sounds, because retirement planning is not an exact science. Your specific needs depend on your goals and many other factors.

Use your current income as a starting point

It’s common to discuss desired annual retirement income as a percentage of your current income. Depending on whom you’re talking to, that percentage could be anywhere from 60% to 90%, or even more. The appeal of this approach lies in its simplicity, and the fact that there’s a fairly common-sense analysis underlying it: Your current income sustains your present lifestyle, so taking that income and reducing it by a specific percentage to reflect the fact that there will be certain expenses you’ll no longer be liable for (e.g., payroll taxes) will, theoretically, allow you to sustain your current lifestyle.

The problem with this approach is that it doesn’t account for your specific situation. If you intend to travel extensively in retirement, for example, you might easily need 100% (or more) of your current income to get by. It’s fine to use a percentage of your current income as a benchmark, but it’s worth going through all of your current expenses in detail, and really thinking about how those expenses will change over time as you transition into retirement.

Project your retirement expenses

Your annual income during retirement should be enough (or more than enough) to meet your retirement expenses. That’s why estimating those expenses is a big piece of the retirement planning puzzle. But you may have a hard time identifying all of your expenses and projecting how much you’ll be spending in each area, especially if retirement is still far off. To help you get started, here are some common retirement expenses:

  • Food and clothing
  • Housing: Rent or mortgage payments, property taxes, homeowners insurance, property upkeep and repairs
  • Utilities: Gas, electric, water, telephone, cable TV
  • Transportation: Car payments, auto insurance, gas, maintenance and repairs, public transportation
  • Insurance: Medical, dental, life, disability, long-term care
  • Health-care costs not covered by insurance: Deductibles, co-payments, prescription drugs
  • Taxes: Federal and state income tax, capital gains tax
  • Debts: Personal loans, business loans, credit card payments
  • Education: Children’s or grandchildren’s college expenses
  • Gifts: Charitable and personal
  • Savings and investments: Contributions to IRAs, annuities, and other investment accounts
  • Recreation: Travel, dining out, hobbies, leisure activities
  • Care for yourself, your parents, or others: Costs for a nursing home, home health aide, or other type of assisted living
  • Miscellaneous: Personal grooming, pets, club memberships

Don’t forget that the cost of living will go up over time. The average annual rate of inflation over the past 20 years has been approximately 2%.1 And keep in mind that your retirement expenses may change from year to year. For example, you may pay off your home mortgage or your children’s education early in retirement. Other expenses, such as health care and insurance, may increase as you age. To protect against these variables, build a comfortable cushion into your estimates (it’s always best to be conservative). Finally, have a financial professional help you with your estimates to make sure they’re as accurate and realistic as possible.

Decide when you’ll retire

To determine your total retirement needs, you can’t just estimate how much annual income you need. You also have to estimate how long you’ll be retired. Why? The longer your retirement, the more years of income you’ll need to fund it. The length of your retirement will depend partly on when you plan to retire. This important decision typically revolves around your personal goals and financial situation. For example, you may see yourself retiring at 50 to get the most out of your retirement. Maybe a booming stock market or a generous early retirement package will make that possible. Although it’s great to have the flexibility to choose when you’ll retire, it’s important to remember that retiring at 50 will end up costing you a lot more than retiring at 65.

Estimate your life expectancy

The age at which you retire isn’t the only factor that determines how long you’ll be retired. The other important factor is your lifespan. We all hope to live to an old age, but a longer life means that you’ll have even more years of retirement to fund. You may even run the risk of outliving your savings and other income sources. To guard against that risk, you’ll need to estimate your life expectancy. You can use government statistics, life insurance tables, or a life expectancy calculator to get a reasonable estimate of how long you’ll live. Experts base these estimates on your age, gender, race, health, lifestyle, occupation, and family history.

But remember, these are just estimates. There’s no way to predict how long you’ll actually live, but with life expectancies on the rise, it’s probably best to assume you’ll live longer than you expect.

Identify your sources of retirement income

Once you have an idea of your retirement income needs, your next step is to assess how prepared you are to meet those needs. In other words, what sources of retirement income will be available to you? Your employer may offer a traditional pension that will pay you monthly benefits. In addition, you can likely count on Social Security to provide a portion of your retirement income. To get an estimate of your Social Security benefits, visit the Social Security Administration website (www.ssa.gov). Additional sources of retirement income may include a 401(k) or other retirement plan, IRAs, annuities, and other investments. The amount of income you receive from those sources will depend on the amount you invest, the rate of investment return, and other factors. Finally, if you plan to work during retirement, your job earnings will be another source of income.

Make up any income shortfall

If you’re lucky, your expected income sources will be more than enough to fund even a lengthy retirement. But what if it looks like you’ll come up short? Don’t panic — there are probably steps that you can take to bridge the gap. A financial professional can help you figure out the best ways to do that, but here are a few suggestions:

  • Try to cut current expenses so you’ll have more money to save for retirement
  • Shift your assets to investments that have the potential to substantially outpace inflation (but keep in mind that investments that offer higher potential returns may involve greater risk of loss)
  • Lower your expectations for retirement so you won’t need as much money (no beach house on the Riviera, for example)
  • Work part-time during retirement for extra income
  • Consider delaying your retirement for a few years (or longer)

1 Calculated form Consumer Price Index (CPI-U) data published by the Bureau of Labor Statistics, January 2021


Published with permission from Broadridge Investor Communication Solutions, Inc.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
Securities and insurance products are offered through Cetera Investment Services LLC,member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisors LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: *Not FDIC/NCUSIF insured * May lose Value *Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency.

401(k) Plans: The Basics

Retirement plans established under Section 401(k) of the Internal Revenue Code, commonly referred to as “401(k) plans,” have become one of the most popular types of employer-sponsored retirement plans.

What is a 401(k) plan?

A 401(k) plan is an employer-sponsored retirement savings plan that offers significant tax benefits while helping you plan for the future. You contribute to the plan via payroll deduction, which can make it easier for you to save for retirement. One important feature of a 401(k) plan is your ability to make pre-tax contributions to the plan. Pre-tax means that your contributions are deducted from your pay and transferred to the 401(k) plan before federal (and most state) income taxes are calculated. This reduces your current taxable income — you don’t pay income taxes on the amount you contribute, or any investment gains on your contributions, until you receive payments from the plan.

For example, Melissa earns $50,000 annually. She contributes $5,000 of her pay to her employer’s 401(k) plan on a pre-tax basis. As a result, Melissa’s taxable income is now $45,000. She isn’t taxed on her contributions ($5,000), or any investment earnings, until she receives a distribution from the plan.

You may also be able to make Roth contributions to your 401(k) plan. Roth 401(k) contributions are made on an after-tax basis, just like Roth IRA contributions. Unlike pre-tax contributions to a 401(k) plan, there’s no up-front tax benefit — your contributions are deducted from your pay and transferred to the plan after taxes are calculated. But a distribution from your Roth 401(k) account is entirely free from federal income tax if the distribution is qualified. (See the section below on income tax consequences for more detail.)

When can I contribute?

While a 401(k) plan can make you wait up to a year to participate, many plans let you to begin contributing with your first paycheck. Some plans also provide for automatic enrollment. If you’ve been automatically enrolled, make sure to check that your default contribution rate and investments are appropriate for your circumstances.Can I also contribute to an IRA?

Yes. Your participation in a 401(k) plan has no impact on your ability to contribute to an IRA (Roth or traditional). You can contribute up to $6,000 to an IRA in 2022 ($7,000 if you’re age 50 or older) if you have at least that much in earned income. Your ability to make deductible contributions to a traditional IRA may be limited if you participate in a 401(k) plan, depending on your salary level.

What are the income tax consequences of contributing to a 401(k) plan?

When you make pre-tax 401(k) contributions, you don’t pay current income taxes on those dollars. But your contributions and investment earnings are fully taxable when you receive a distribution from the plan. In contrast, Roth 401(k) contributions are subject to income taxes up front, but qualified distributions of your contributions and earnings are entirely free from federal income tax. A distribution is qualified if it meets the following requirements:

  • It is made after the end of a five-year waiting period
  • It is made after you turn 59½, become disabled, or die

The five-year waiting period for qualified distributions starts on January 1 of the year you make your first Roth contribution to the 401(k) plan. For example, if you make your first Roth contribution to your employer’s 401(k) plan in December 2022, your five-year waiting period begins January 1, 2022, and ends on December 31, 2026.

Withdrawals from pre-tax accounts prior to age 59½ and non-qualified withdrawals from Roth accounts will be subject to regular income taxes and a 10% penalty tax, unless an exception applies.

What about employer contributions?

Employers don’t have to contribute to 401(k) plans, but many will match all or part of your contributions. Your employer can match your Roth contributions, your pre-tax contributions, or both. But your employer’s contributions are always made on a pre-tax basis, even if they match your Roth contributions. That is, your employer’s contributions, and investment earnings on those contributions, are always taxable to you when you receive a distribution from the plan.

Try to contribute as much as necessary to get the maximum matching contribution from your employer. This is essentially free money that can help you pursue your retirement goals.

Should I make pre-tax or Roth contributions (if allowed)?

If you think you’ll be in a higher tax bracket when you retire, Roth 401(k) contributions may be more appealing, since future withdrawals, assuming they’re qualified, will generally be tax free. However, if you think you’ll be in a lower tax bracket when you retire, pre-tax 401(k) contributions may be more appropriate because your contributions reduce your taxable income now. Your investment horizon and projected investment results are also important factors.

What happens when I terminate employment?

When you terminate employment, you generally forfeit all contributions that haven’t vested. (Vesting means that you own the contributions.) Your contributions and the earnings on them are always 100% vested. But your 401(k) plan may require up to six years of service before you fully vest in employer matching contributions and associated earnings (although some plans have a much faster vesting schedule).

When you terminate employment, you can generally leave your money in your 401(k) plan, although some plans require that you withdraw your funds once you reach the plan’s normal retirement age (typically age 65). Your plan may also “cash you out” if your vested balance is $5,000 or less, but if your payment is more than $1,000, the plan generally must roll your funds into an IRA established on your behalf, unless you elect to receive your payment in cash. [This $1,000 limit is determined separately for your Roth 401(k) account and the rest of your funds in the 401(k) plan.]

You can also roll all or part of your Roth 401(k) dollars over to a Roth IRA, and your non-Roth dollars to a traditional IRA. You may also be able to convert your non-Roth dollars to a Roth IRA, but income taxes will apply to any tax-deferred amounts in the year of conversion. You may also be able to roll your funds into another employer’s plans that accepts rollovers.

Finally, you may also be able to take a cash distribution of your contributions and earnings, as well as any vested employer amounts. However, keep in mind that any tax-deferred funds will be subject to income taxes and a possible 10% penalty tax if you’re under age 59½, unless an exception applies.

Note: When considering a rollover, to either an IRA or to another employer’s retirement plan, you should consider carefully the investment options, fees and expenses, services, ability to make penalty-free withdrawals, degree of creditor protection, and distribution requirements associated with each option.

What else do I need to know?

  • If your plan allows loans, you may be eligible to borrow up to one half of your vested 401(k) account (to a maximum of $50,000) if you need the money.
  • You may also be able to make a hardship withdrawal if you have an immediate and heavy financial But this should be a last resort — hardship distributions are generally taxable to you.
  • Distributions from your plan before you turn 59½ (55 in some cases) may be subject to a 10% early distribution penalty unless an exception applies.
  • You may be eligible for an income tax credit of up to $1,000 for amounts you contribute, depending on your income.
  • Your assets are generally fully protected in the event of your, or your employer’s bankruptcy.
  • Most 401(k) plans let you direct the investment of your Your employer provides a menu of investment options (for example, a family of mutual funds). But it’s your responsibility to choose the investments most suitable for your retirement objectives.

Published with permission from Broadridge Investor Communication Solutions, Inc.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
Securities and insurance products are offered through Cetera Investment Services LLC,member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisors LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: *Not FDIC/NCUSIF insured * May lose Value *Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency.

Wills: The Cornerstone of Your Estate Plan

If you care about what happens to your money, home, and other property after you die, you need to do some estate planning. There are many tools you can use to achieve your estate planning goals, but a will is probably the most vital. Even if you’re young or your estate is modest, you should always have a legally valid and up-to-date will. This is especially important if you have minor children because, in many states, your will is the only legal way you can name a guardian for them. Although a will doesn’t have to be drafted by an attorney to be valid, seeking an attorney’s help can ensure that your will accomplishes what you intend.

Wills avoid intestacy

Probably the greatest advantage of a will is that it allows you to avoid intestacy. That is, with a will you get to choose who will get your property, rather than leave it up to state law. State intestate succession laws, in effect, provide a will for you if you die without one. This “intestate’s will” distributes your property, in general terms, to your closest blood relatives in proportions dictated by law. However, the state’s distribution may not be what you would have wanted. Intestacy also has other disadvantages, which include the possibility that your estate will owe more taxes than it would if you had created a valid will.

Wills distribute property according to your wishes

Wills allow you to leave bequests (gifts) to anyone you want. You can leave your property to a surviving spouse, a child, other relatives, friends, a trust, a charity, or anyone you choose. There are some limits, however, on how you can distribute property using a will. For instance, your spouse may have certain rights with respect to your property, regardless of the provisions of your will.

Gifts through your will take the form of specific bequests (e.g., an heirloom, jewelry, furniture, or cash), general bequests (e.g., a percentage of your property), or a residuary bequest of what’s left after your other gifts.

Wills allow you to nominate a guardian for your minor children

In many states, a will is your only means of stating who you want to act as legal guardian for your minor children if you die. You can name a personal guardian, who takes personal custody of the children, and a property guardian, who manages the children’s assets. This can be the same person or different people. The probate court has final approval, but courts will usually approve your choice of guardian unless there are compelling reasons not to.

Wills allow you to nominate an executor

A will allows you to designate a person as your executor to act as your legal representative after your death. An executor carries out many estate settlement tasks, including locating your will, collecting your assets, paying legitimate creditor claims, paying any taxes owed by your estate, and distributing any remaining assets to your beneficiaries. Like naming a guardian, the probate court has final approval but will usually approve whomever you nominate.

Wills specify how to pay estate taxes and other expenses

The way in which estate taxes and other expenses are divided among your heirs is generally determined by state law unless you direct otherwise in your will. To ensure that the specific bequests you make to your beneficiaries are not reduced by taxes and other expenses, you can provide in your will that these costs be paid from your residuary estate. Or, you can specify which assets should be used or sold to pay these costs.

Wills can create a testamentary trust

You can create a trust in your will, known as a testamentary trust, that comes into being when your will is probated. Your will sets out the terms of the trust, such as who the trustee is, who the beneficiaries are, how the trust is funded, how the distributions should be made, and when the trust terminates. This can be especially important if you have a spouse or minor children who are unable to manage assets or property themselves.

Wills can fund a living trust

A living trust is a trust that you create during your lifetime. If you have a living trust, your will can transfer any assets that were not transferred to the trust while you were alive. This is known as a pourover will because the will “pours over” your estate to your living trust.

Wills can help minimize taxes

Your will gives you the chance to minimize taxes and other costs. For instance, if you draft a will that leaves your entire estate to your U.S. citizen spouse, none of your property will be taxable when you die (if your spouse survives you) because it is fully deductible under the unlimited marital deduction. However, if your estate is distributed according to intestacy rules, a portion of the property may be subject to estate taxes if it is distributed to heirs other than your U.S. citizen spouse.

Assets disposed of through a will are subject to probate

Probate is the court-supervised process of administering and proving a will. Probate can be expensive and time consuming, and probate records are available to the public. Several factors can affect the length of probate, including the size and complexity of the estate, challenges to the will or its provisions, creditor claims against the estate, state probate laws, the state court system, and tax issues. Owning property in more than one state can result in multiple probate proceedings. This is known as ancillary probate. Generally, real estate is probated in the state in which it is located, and personal property is probated in the state in which you are domiciled (i.e., reside) at the time of your death.

Will provisions can be challenged in court

Although it doesn’t happen often, the validity of your will can be challenged, usually by an unhappy beneficiary or a disinherited heir. Some common claims include:

  • You lacked testamentary capacity when you signed the will
  • You were unduly influenced by another individual when you drew up the will
  • The will was forged or was otherwise improperly executed
  • The will was revoked

Published with permission from Broadridge Investor Communication Solutions, Inc.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
Securities and insurance products are offered through Cetera Investment Services LLC,member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisors LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: *Not FDIC/NCUSIF insured * May lose Value *Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency.

Estate Planning: An Introduction

By definition, estate planning is a process designed to help you manage and preserve your assets while you are alive and to conserve and control their distribution after your death, according to your goals and objectives. But what estate planning means to you specifically depends on who you are. Your age, health, wealth, lifestyle, life stage, goals, and many other factors determine your particular estate planning needs. For example, you may have a small estate and may be concerned only that certain people receive particular things. A simple will is probably all you’ll need. Or, you may have a large estate, and minimizing any potential estate tax impact is your foremost goal. Here, you’ll need to use more sophisticated techniques in your estate plan, such as a trust.

To help you understand what estate planning means to you, the following sections address some estate planning needs that are common among some very broad groups of individuals. Think of these suggestions as simply a point in the right direction, and then seek professional advice to implement the right plan for you.

Over 18

Since incapacity can strike anyone at anytime, all adults over 18 should consider having:

  • A durable power of attorney: This document lets you name someone to manage your property for you in case you become incapacitated and cannot do so.
  • An advance medical directive: The three main types of advance medical directives are (1) a living will, (2) a durable power of attorney for health care (also known as a health-care proxy), and (3) a Do Not Resuscitate order. Be aware that not all states allow each kind of medical directive, so make sure you execute one that will be effective for you.

Young and single

If you’re young and single, you may not need much estate planning. But if you have some material possessions, you should at least write a will. If you don’t, the wealth you leave behind if you die will likely go to your parents, and that might not be what you would want. A will lets you leave your possessions to anyone you choose (e.g., your significant other, siblings, other relatives, or favorite charity).

Unmarried couples

You’ve committed to a life partner but aren’t legally married. For you, a will is essential if you want your property to pass to your partner at your death. Without a will, state law directs that only your closest relatives will inherit your property, and your partner may get nothing. If you share certain property, such as a house or car, you may consider owning the property as joint tenants with rights of survivorship. That way, when one of you dies, the jointly held property will pass to the surviving partner automatically.

Married couples

For many years, married couples had to do careful estate planning, such as the creation of a credit shelter trust, in order to take advantage of their combined federal estate tax exclusions. For decedents dying in 2011 and later years, the executor of a deceased spouse’s estate can transfer any unused estate tax exclusion amount to the surviving spouse without such planning.

You may be inclined to rely on these portability rules for estate tax avoidance, using outright bequests to your spouse instead of traditional trust planning. However, portability should not be relied upon solely for utilization of the first to die’s estate tax exclusion, and a credit shelter trust created at the first spouse’s death may still be advantageous for several reasons:

  • Portability may be lost if the surviving spouse remarries and is later widowed again.
  • The trust can protect any appreciation of assets from estate tax at the second spouse’s death.
  • The trust can provide protection of assets from the reach of the surviving spouse’s creditors.
  • Portability does not apply to the generation-skipping transfer (GST) tax, so the trust may be needed to fully leverage the GST exemptions of both spouses.

Married couples where one spouse is not a U.S. citizen have special planning concerns. The marital deduction is not allowed if the recipient spouse is a non-citizen spouse (but a $164,000 annual exclusion, for 2022 ($159,000 for 2021), is allowed). If certain requirements are met, however, a transfer to a qualified domestic trust (QDOT) will qualify for the marital deduction.

Married with children

If you’re married and have children, you and your spouse should each have your own will. For you, wills are vital because you can name a guardian for your minor children in case both of you die simultaneously. If you fail to name a guardian in your will, a court may appoint someone you might not have chosen. Furthermore, if you do not have a will, some states dictate that at your death some of your property goes to your children and not to your spouse. If minor children inherit directly, the surviving parent will need court permission to manage the money for them.

You may also want to consult an attorney about establishing a trust to manage your children’s assets in the event that both you and your spouse die at the same time.

You may also need life insurance. Your surviving spouse may not be able to support the family on their own and may need to replace your earnings to maintain the family.

Comfortable and looking forward to retirement

If you’re in your 30s, you may be feeling comfortable. You’ve accumulated some wealth and you’re thinking about retirement. Here’s where estate planning overlaps with retirement planning. It’s just as important to plan to care for yourself during your retirement as it is to plan to provide for your beneficiaries after your death. You should keep in mind that even though Social Security may be around when you retire, those benefits alone may not provide enough income for your retirement years. Consider saving some of your accumulated wealth using other retirement and deferred vehicles, such as an individual retirement account (IRA).

Wealthy and worried

Depending on the size of your estate, you may need to be concerned about estate taxes.

For 2022, $12,060,000 ($11,700,000 for 2021) is effectively excluded from the federal gift and estate tax. Estates over that amount may be subject to the tax at a top rate of 40 percent.

Similarly, there is another tax, called the generation-skipping transfer (GST) tax, that is imposed on transfers of wealth made to grandchildren (and lower generations). For 2022, the GST tax exemption is also $12,060,000 ($11,700,000 for 2021), and the top tax rate is 40 percent.

Note: The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax basic exclusion amount and the GST tax exemption to $11,180,000 in 2018. After 2025, they are scheduled to revert to their pre-2018 levels and cut by about one-half.

Whether your estate will be subject to state death taxes depends on the size of your estate and the tax laws in effect in the state in which you are domiciled.

Elderly or ill

If you’re elderly or ill, you’ll want to write a will or update your existing one, consider a revocable living trust, and make sure you have a durable power of attorney and a health-care directive. Talk with your family about your wishes, and make sure they have copies of your important papers or know where to locate them.


Published with permission from Broadridge Investor Communication Solutions, Inc.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
Securities and insurance products are offered through Cetera Investment Services LLC,member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisors LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: *Not FDIC/NCUSIF insured * May lose Value *Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency.

Gift and Estate Taxes

If you give away money or property during your life, those transfers may be subject to federal gift and estate tax and perhaps state gift tax. The money and property you own when you die (i.e., your estate) may also be subject to federal gift and estate tax and some form of state death tax. These property transfers may also be subject to generation-skipping transfer taxes. You should understand all of these taxes, especially since the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (the 2001 Tax Act), the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Act), the American Taxpayer Relief Act of 2012 (the 2012 Tax Act), and the Tax Cuts and Jobs Act. The recent Tax Acts contain several changes that make estate planning much easier.

Federal gift and estate tax — background

Under pre-2001 Tax Act law, no federal gift and estate tax was imposed on the first $675,000 of combined transfers (those made during life and those made at death). The tax rate tables were unified into one — that is, the same rates applied to gifts made and property owned by persons who died in 2001. Like income tax rates, gift and estate tax rates were graduated. Under this unified system, the recipient of a lifetime gift received a carryover basis in the property received, while the recipient of a bequest, or gift made at death, got a step-up in basis (usually fair market value on the date of death of the person who made the bequest or gift).

The 2001 Tax Act, the 2010 Tax Act, the 2012 Tax Act, and the Tax Cuts and Jobs Act substantially changed this tax regime.

Federal gift and estate tax — current

The 2001 Tax Act increased the applicable exclusion amount for gift tax purposes to $1 million through 2010. The applicable exclusion amount for estate tax purposes gradually increased over the years until it reached $3.5 million in 2009. The 2010 Tax Act repealed the estate tax for 2010 (and taxpayers received a carryover income tax basis in the property transferred at death), or taxpayers could elect to pay the estate tax (and get the step-up in basis). The 2010 Tax Act also re-unified the gift and estate tax and increased the applicable exclusion amount to $5,120,000 in 2012. The top gift and estate tax rate was 35 percent in 2012.

The 2012 Tax Act increased the applicable exclusion amount to $5,490,000 (in 2017) and the top gift and estate tax rate to 40 percent (in 2013 and later years). The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax exclusion amount and the GST tax exemption (see below) to $11,180,000 in 2018. The amount is $12,060,000 in 2022 ($11,700,000 in 2021). After 2025, they are scheduled to revert to their pre-2018 levels and cut by about one-half.

However, many transfers can still be made tax free, including:

  • Gifts to your U.S. citizen spouse; you may give up to $164,000 in 2022 ($159,000 in 2021) tax free to your noncitizen spouse
  • Gifts to qualified charities
  • Gifts totaling up to $16,000 (in 2022, $15,000 in 2021) to any one person or entity during the tax year, or $32,000 (in 2022, $30,000 in 2021) if the gift is made by both you and your spouse (and you are both U.S. citizens)
  • Amounts paid on behalf of any individual as tuition to an educational organization or to any person who provides medical care for an individual

Federal generation-skipping transfer tax

The federal generation-skipping transfer (GST) tax imposes tax on transfers of property you make, either during life or at death, to someone who is two or more generations below you, such as a grandchild. The GST tax is imposed in addition to, not instead of, federal gift and estate tax. You need to be aware of the GST tax if you make cumulative generation-skipping transfers in excess of the GST tax exemption ($12,060,000 in 2022, $11,700,000 in 2021). A flat tax equal to the highest estate tax bracket in effect in the year you make the transfer (40 percent in 2021 and 2022) is imposed on every transfer you make after your exemption has been exhausted.

State transfer taxes

Currently, a few states impose a gift tax, and a few states impose a generation-skipping transfer tax. Some states also impose a death tax, which could be in the form of estate tax, inheritance tax, or credit estate tax (also known as a sponge or pickup tax). Contact an attorney or your state’s department of revenue or taxation to find out more information.


Published with permission from Broadridge Investor Communication Solutions, Inc.
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The information provided is not intended to be a substitute for specific individualized tax planning or legal advice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
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