Estate Planning Attorney with Hook Law Center Shows How Retirement Investing is Evolving to Meet Challenges
Virginia Beach, VA (Law Firm Newswire) February 19, 2014 – Projections show that within 20 years, typical retirees will rely mostly on 401(k)s and other private retirement accounts to meet financial needs.
“That may be alarming to some, but the industry is evolving to help meet that challenge,” says Virginia estate planning attorney Andrew Hook. “A number of trends are increasing the effectiveness of 401(k)s and workers' utilization of them.”
Hook identified the following six trends in the retirement investing industry.
Increased use of Roth 401(k)s: Like Roth IRAs, Roth 401(k)s are funded with after-tax contributions. Workers pay income taxes on money as they earn it, but earnings on contributions are not taxed. This option is popular with young workers, who often have lower salaries and lower tax liabilities than older workers.
Greater availability of self-directed plans: About 40 percent of employers now use plans that allow workers to invest in the wide market of stocks, bonds and mutual funds (as opposed to the narrow selection available in traditional plans). This option is attractive to those with investment experience and larger amounts of money to manage.
Automatic enrollment: Increasingly, companies are adopting “opt-out” policies, enrolling employees in 401(k) plans by default. At these companies, an average of 84 percent of workers enroll (compared to about 50 percent at companies with “opt-in” policies).
High-deductible health plans and health savings accounts (HSAs): More employers are offering health insurance plans with limited coverage and high deductibles. Young, healthy workers are eager to sign up for these plans and to combine them with health savings accounts. This route offers a triple tax advantage: contributions are made with pre-tax dollars, earnings are not taxed and withdrawals for qualified expenditures are not taxed.
Increased use of target-date funds: Target-date funds allocate investments across asset classes according to workers' projected retirement dates, and, by extension, presumed risk tolerances. Funds geared to those far from retirement are heavily invested in stocks, whereas funds for those nearing retirement favor less volatile bonds. Over the years, each fund gradually adjusts its risk profile as its target date nears.
Better information for comparison and planning: Increasingly, employers are requiring performance benchmarking from investment companies and making that information available to workers. They are also providing workers with tools to extrapolate post-retirement income streams from current contributions.
“Ask your employer for this information if it is not already provided to you,” advises Hook. “And speak with an estate planning attorney for retirement planning advice.”
Hook Law Center
295 Bendix Road, Suite 170
Virginia Beach, Virginia 23452-1294
5806 Harbour View Blvd.
Suffolk VA 23435
- Home Upgrades to Help Aging in Place
Many individuals want to stay in their home through old age. Frequently, our clients are concerned that their home is a poor place to age in place because it is two-story, split-level, or simply old. Also, many are unwilling to move to a new home in order to accommodate decreased mobility due to their connection […]
- Address these essential elements of retirement planning
During your retirement years, you may expect to receive Social Security payments. A few people may also receive payments from public or private pension plans. However, it is best not to rely on such sources to provide a sufficient amount of income to ensure that you retire comfortably. Although you may receive income from both […]
- Department of Defense Rolls Out a New Retirement Plan
The Department of Defense has unveiled a new retirement plan that will go into effect on January 1, 2018. The new “blended” plan will not impact a majority of the currently enlisted members, but will present a complex financial decision for mid-career service members with less than 12 years of service. The new plan is […]
- The Effect of Divorce on Your Estate Plan
An unfortunate, but common, scenario: You and your spouse get divorced. You remarry, but die shortly thereafter. Your loved ones discover that amidst all the excitement of your divorce and remarriage, you forgot to update your estate plan. Your will and beneficiary designations all leave everything you own to your first spouse. What happens now? […]
- How net investment income can affect tax planning
There are two ways in which the 3.8 percent net investment income tax (NIIT) can have an impact on your estate plan. It can raise your tax on capital gains, taxable interest and other investment income, thereby lowering the amount of wealth that is accessible to your family. The tax is also especially severe toward […]