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
- Learn what government benefits are available to help pay for long-term care
There are a few government programs, including Medicare and Medicaid, that can help pay for long-term care services. Each program has certain regulations concerning which services are covered, your eligibility for benefits, the length of time you can receive benefits, and your out-of-pocket costs. In order to prepare for your long-term care needs, you should […]
- How and why seniors should stay socially engaged
Experts believe that in addition to engaging in regular exercise and eating well, social networking can contribute to the health of seniors. As you become advanced in age, changes that occur in the brain can make it challenging for you to absorb new information or recall things. In people who are afflicted with dementia, the […]
- Learn the facts about passive index funds
When making investment decisions, people often consider whether they should use an active or passive strategy. Passive investing attempts to duplicate the returns of the market as a whole. This strategy does not involve the selection of securities by a portfolio manager. Without a portfolio manager to track the way an index performs, the cost […]
- What you should know if you inherit your parent’s home
Many people will inherit the house in which their parents lived. Deciding what steps to take with respect to the house can cause you to confront some financial and emotional concerns, and matters can become even more complicated if you have siblings. You have the option to sell the house, move into the house or […]
- How working after retirement affects Social Security
There are people who wish to work when they have reached their 60s, 70s and beyond, but are concerned that their income will adversely affect their Social Security benefits. However, there is no cause for concern because according to the Social Security Administration (SSA), you do not run the risk of losing any Social Security […]