A Complete Beginner’s Guide to 401(k) Plans

June 8, 2017

Nest Egg Savings Investments Protecting Money 401k401(k) plans offered in the workplace is an incredibly useful tool for saving money for retirement. Without such savings (and without a pension plan, which is increasingly rare), when you retire, your only income will be from Social Security, which doesn’t offer a whole lot of money to live on and may not even be able to offer the same level of benefits in the future.

For many people, however, 401(k) plans are kind of scary. They involve having money taken right out of your paycheck, which means you’re going to bring home less money, and it’s often unclear where that money is going, plus signing up for the plan can seem complicated. Ideally, you’ll get that money back – and more – when you retire, but that can seem a long way off.

Today, it’s time to take the “scary” out of 401(k) plans. I’m going to cover in simple terms what a 401(k) (and a 403(b)) is, why it is really useful to you, how to sign up, and how you’ll be able to get money out of it when you retire.

What Is a 401(k) in Simple Terms?

In simplest terms, a 401(k) is an account – like a savings account – that you put money into for the purpose of having that money to use when you retire. You put money in now, it grows over time, and then you can take that money out in bits and pieces when you retire. That’s all it is.

So, why do you need a special account for that? Why not just use a savings account?

The reason is that a 401(k) account offers some very nice benefits when it comes to your income taxes. Everyone pays income taxes – it’s part of the reality of living in America. A 401(k) plan helps with taxes by deferring your income until later. The money you put into your 401(k) is not taxed right now. That means if you contribute to a 401(k) this year, you’re going to pay less in income taxes this year.

Let’s look at a specific example. Let’s say you make $40,000 a year and you’re single. This income tax calculator estimates that you’ll pay in $4,594 in federal income taxes this year.

Now, let’s say that you contribute 10% of your income to your 401(k), adding up to $4,000 a year. Now, instead of calculating your taxes based on $40,000 of income, you subtract out the money you contributed to the 401(k). You only pay income taxes on $36,000. Now, according to that same calculator, you’re only going to pay $3,994 in federal income taxes. That’s $600 less you’re spending in taxes, or $600 more that’s staying in your pocket this year!

In other words, when you contribute money to your 401(k), your actual paycheck goes down less than the amount you’re contributing. In the example above, you’re contributing $4,000 over the course of a year, but your take-home pay is only going down $3,400 (the $4,000 you contributed minus the $600 you saved in lower taxes).

A savings account, by comparison, doesn’t work like that. If you earn interest this year, you’re going to pay taxes on that interest this year. There’s no tax help with a savings account.

There is a catch, of course. You will have to pay taxes on that 401(k) money when you take it out in retirement. However, when you’re retired, you’ll very likely have a lower overall income than you have now, so you’ll pay less taxes on it then than you would pay right now (because higher income means higher tax rates).

What’s a 403(b), Then? What About a 457(b)?

For you, there’s basically no difference between the two. The actual difference between the two is the type of employer you have. For-profit companies use a 401(k) plan, while non-profit companies use a 403(b) plan. Governmental agencies use a 457(b) plan, which is again almost identical to the other two. For pretty much all purposes, they function the same for the employee who might be putting money into that plan.

From here on out, I’m going to use the term 401(k) to refer to all of these plans.

Why Are They Called 401(k) or 403(b) or 457(b)? That’s a Weird Name!

That number is actually a reference to the specific laws that govern those plans. The numbers refer to specific subsections in the Internal Revenue Code, which is the collection of tax laws affecting American citizens. You can think of the Internal Revenue Code as a giant book, and the laws describing the 401(k) plan are in Chapter 401 and in section (k) of that chapter.

What Exactly Happens to My Money When I Contribute to a 401(k)?

As I mentioned in the introduction, a 401(k) plan is a lot like a savings account. You put money into that account and you withdraw it at a later date after it’s (hopefully) earned some money for you.

The big difference with a 401(k) plan as compared to a savings account is that once you put in the money, you’re given a bunch of options as to what you want the company that runs your 401(k) plan to do with that money.

With a normal savings account, that’s not really an option. The bank chooses what to do with your money and pays you a pretty small but constant interest rate on the money while it’s there. So, with a savings account, the value will go up constantly, but slowly.

In a 401(k), you actually have a lot of options as to what you want them to do with your money. Do you want them to keep it very safe and earn just a small but steady return, which is a lot like a savings account? Do you want them to invest it in things that have more volatility and risk, like stocks or real estate? Do you want something of a middle ground, which is what bonds are often used for? Or do you want a mix of all of these things?

This is the part of signing up for a 401(k) that can feel overwhelming. There are usually a lot of options available. You don’t fully understand some of the options. You’re also really unsure about risk and the thought of losing a lot of the money you’ve saved seems scary… but at the same time, the lower risk options don’t earn very much.

The Stock Market Is Like a Beach

Here’s the thing – there’s already a pretty good answer for this problem. The further you are away from retirement, the more risk you can handle because you have time to recover from the big drops.

Imagine a riskier investment like the stock market as being like waves on the beach during a fast-rising tide. Each wave is getting higher and higher on the beach, but between waves, the water retreats. That’s actually much like the ups and downs of the stock market. The stock market goes upward at a pretty nice rate most of the time – that’s like a big wave hitting the beach. But sometimes it retreats from its high-water point – that’s like the water retreating after a wave, but since the tide is rising really fast, it doesn’t retreat all that far.

Now, if you’re just in the water for a little bit and you run out, the water might actually be lower than when you went in if you jumped in in the middle of a wave and then ran out when the water retreated, right? Or it might not be much higher if you ran in between waves, let a wave hit you, and then ran out. That’s why a short-term investment in the stock market is a bad idea. A “wave” in the stock market takes about eight years or so.

On the other hand, let’s say you stand in the water for two or three waves. No matter when you get in or when you get out, the water is going to be much higher than when you started, even if you jumped in when there was a wave and ran out when the water was retreating from a much higher wave. That’s what a long-term investment in stocks is like. The water is going to go up no matter what if you stay in for a while – and it’s going to go up quite a lot.

So, if you have a long time to wait until retirement – three or four big waves, in other words – you should heavily invest in stocks. As time goes on, your investment should slide more toward lower risk things (because there are fewer “waves” between then and retirement).

So, how do you do that?

Target Retirement Funds

The easiest way I know of doing this is through target-date retirement funds. Most 401(k) plans offer these as an investment option.

Here’s how they work. Target-date retirement funds are actually just a mix of a whole lot of investments. They contain some stocks, some bonds, some real estate, and even some cash (earning money much like an ordinary savings account). Some funds include other things as well – international stocks, precious metals, and so on.

When you’re far away from retirement, a target retirement fund contains mostly stocks. However, as you slowly get closer and closer to retirement over time, the contents of that fund shift to a gradually less-risky mix of assets. It slowly begins to contain more bonds, more real estate, and, eventually, more cash.

By the time you retire, that fund is going to mostly contain safe and secure investments so that you’re not as affected by the ups and downs of the stock market.

If you’re not sure what investment option to select in your 401(k) plan, I highly recommend choosing a target-date retirement fund. Such funds are offered with different target “years,” such as Target Retirement Fund 2046 or Target Retirement Fund 2051. You’ll want to choose the one with a year that’s closest to your retirement year. To be safe, I’d suggest choosing the fund with a year closest to when you’ll turn 70.

So, let’s say you’re going to turn 40 in 2017. That means you’ll turn 70 in 2047, so you should choose a Target Retirement 2046 fund (because that will probably be the closest one to 2047).

Contribute all of your retirement savings into that fund for now. Remember, if you decide later on to make changes, you can switch the money around within your 401(k) without much trouble at all. There are no real tax implications for you in doing this, since all of the taxes are being deferred until your retirement.

What Is a Roth 401(k)?

Some of you may have an option in your workplace to sign up for a Roth 401(k) plan. In most respects, it works exactly like a normal 401(k) plan – you put money in, you choose an investment, you withdraw money at retirement, just like a normal 401(k).

There’s one big difference, though. Instead of contributing money that you don’t have to pay taxes on right now, as described above, you contribute money that you do pay taxes on. In other words, if you contribute $4,000 a year as I described in the example above, your pay will actually go down by $4,000, not $3,400.

So, why would you do that? The reason is that when you’re retired and you want to take money out of your Roth 401(k), you won’t owe any taxes on what you withdraw. All of it is tax free. With a normal 401(k), you’ll have to pay taxes when you take money out when you retire.

Which one is better? It’s really hard to say because it depends on what happens with tax laws over the next 30 years and, honestly, no one knows that. My feeling is that, with a glut of boomers retiring, tax rates will probably go up at least a little in the next couple of decades, so a Roth 401(k) is a good deal in that respect. However, at the same time, many people are earning less in retirement than they earn during their professional years, so the Roth 401(k) is worse in that respect.

In the end, I feel a Roth 401(k) is a better deal if you feel that your salary is relatively low right now, and a normal 401(k) is better if you feel that your salary is relatively high. Neither one is a bad choice, however.

What If a 401(k) Isn’t Available To Me?

In that case, you can set up a similar program on your own with the investment firm of your choice by opening an individual retirement account (IRA). It works in much the same way as a 401(k) does – you put money into the account, it grows, you withdraw it in retirement.

However, instead of the money coming out of your paycheck, it comes out of your checking account. If you don’t have a retirement plan at work (or even if you do and your income is reasonably low), you can deduct all of your contributions when you file your income taxes. This can make it very similar to a 401(k) for people who already have deductions, like a family paying down a home mortgage. However, as with a normal 401(k), you’ll pay taxes on the money that you withdraw from the account in retirement.

IRAs are available in both traditional and Roth forms. If you opt for the Roth IRA, your contributions aren’t tax deductible at all, but the money you take out is tax free.

What About Matching Funds?

Some employers offer matching funds for employees who contribute to the company’s 401(k) plan. If your employer does this, you need to get on board right away because you’re essentially leaving part of your salary on the table if you don’t.

Let’s say your employer matches 100% of your contributions up to 10% of your income, which is a fairly typical match. That means if you put 10% of your salary into your 401(k), your employer will also put 10% of your salary into your 401(k) above and beyond your normal income.

For example, let’s say you’re making $40,000 a year and you decide to contribute 10% of your salary to get that match. You start contributing $4,000 to your 401(k) plan. That means, as described earlier, your pay only goes down by $3,400.

However, your employer also drops another $4,000 a year into your plan. Yes, you’d be getting a $4,000 bonus that goes into your retirement fund. You’re putting $8,000 a year into your retirement savings and it’s only costing you $3,400 in terms of your paycheck.

You will never get a deal like that in almost any other avenue in life. If your employer offers matching funds for your retirement plan, you need to sign up as soon as possible and contribute enough to get every dime of that free money.

If you don’t do that, you’re flat out saying “no, you keep it” to your employer regarding part of your salary. That’s what it means to not take part in retirement matching.

How Will I Withdraw Money When I Retire?

When you retire (typically in your 60s or 70s), you can begin withdrawing money from your 401(k) plan. Usually, you can arrange things with the company that manages your 401(k) to receive your withdrawals much like a paycheck – you’ll just get a check in the mail or a direct deposit every other week or every month, depending on your wishes. They’ll often handle taxes for you as well, so it will be much like a normal paycheck.

Most of the time, people note the value of their 401(k) on the day of their retirement and then withdraw around 4% of that value each year. So, if you had $100,000 in there, you’d be able to withdraw $4,000 a year. If you had $1 million in there, you’d be able to withdraw $40,000 a year. (Remember, this money is in addition to any income you get from Social Security.)

Why 4%? The assumption is that your investments will continue to grow while you’re retired. A 4% withdrawal rate means that your money should last you for at least 30 years, according to most studies. If you want it to last even longer, you can go for a lower withdrawal rate. At 3%, for example, you could live a good 50 years and still have money in the account.

In other words, when you retire, your 401(k) plan will essentially start issuing you paychecks if you so choose. (You can also choose to make a lump withdrawal if you’d like or a combination of the two.)

What If I Need That Money Before I Retire?

This is a truly horrible idea. You should only touch your retirement money as an absolute last resort, when you’ve exhausted every other possible route, because once you’ve drained your 401(k), you’ve reduced your options for the last 30 years of your life. There’s also a rather large 10% additional tax penalty against all early withdrawals.

There are some limited situations where you can borrow against a 401(k), but you’re required to pay it back and it can get very difficult if you lose that job. It’s generally a poor idea to even borrow against that money, though it is possible.

In the end, you’re far better off looking at the money in your 401(k) as untouchable until you retire. That’s the purpose of that money – to provide a good retirement for you. Tapping it early just takes away from that retirement and is often fraught with penalties on top of that.

Final Thoughts

A 401(k) plan offers a very simple opportunity to save for your retirement. When you’re retired, the money from your 401(k) serves as “income” on top of your Social Security check. It can easily turn a threadbare existence into a very rich and enjoyable one.

If your employer offers a 401(k) – especially if your employer offers matching funds within that 401(k) – you should be taking advantage of that opportunity. Every dollar helps and if you follow the simple investment advice outlined above, it’s pretty hard to make a bad choice when signing up.

Sign up today. You won’t regret it.

Argent Investments & Retirement >> 

 

Source: The Simple Dollar

4 Ways Your Credit Union is Changing for the Better

June 5, 2017

Hand of stock investment using smartphone for checking worldwide stock exchanges interface on screen with graphic icons, soft focusMost of us understand the advantages offered by banking with credit unions, including better interest rates and customer service compared to their major bank peers. But even the savviest among us can learn new tricks, and to that end, CO-OP’s 2017 THINK Conference highlighted some of the critical ways in which the credit union industry is changing — for the better. We also caught up with financial experts like Jean Chatzky and Bobbi Rebell at the conference, where they shared some key insights into the types of transformations you might be seeing soon at your local credit union.

  1. It’s instituting mobile apps

You might’ve already noticed your local credit union instituting new technologies, such as mobile apps enabling remote deposits and mobile payments. This is part of an industrywide push to provide more customer-centric solutions utilizing the latest in mobile technologies. Expect more additions to mobile offerings in a bid to make your experience more efficient.

  1. It’s going digital to be more agile

Financial expert, author, and TV host Bobbi Rebell noted that, in addition to instituting mobile apps, credit unions are taking additional steps to create a digital-first platform for customers. But unlike big banks, which have a history of older, legacy customer platforms, credit unions are smaller and more agile, enabling them to build customer-focused digital experiences from the ground up.

“Digital transformation isn’t just about implementing digital experiences here and there,” says Rebell, “It’s really about rethinking the entire customer experience so that digital technologies improve their overall experience.”

  1. It’s promoting more women

Samantha Paxson, executive vice president and chief marketing officer of Co-Op Financial Services, notes that this lean, agile mentality not only enables credit unions to provide better customer service, but it also allows more women into leadership ranks.

“Credit unions are one of the few areas of the financial industry where women are represented in significant percentages in leadership. That’s because key elements of female leadership — such as empathy and strong communication skills — are essential to the success of credit unions in the community.”

  1. It’s staying true to your community

One of the personal finance world’s biggest luminaries, Jean Chatzky of Today Show fame, was on hand to help host the THINK Conference, noting the importance of credit unions to the lives of so many people in communities across the country. And perhaps that’s one of the biggest take-aways here: mobile apps, new digital platforms, and other innovations you can expect from your credit union are all designed to get closer to your needs. Credit unions aren’t losing their local focus, nor will their digital innovations present a less human experience for their customers. Unlike other segments of the financial industry, credit unions are trying hard to stay true to their roots: you.

 

Source: WiseBread

4 Tips for Planning for Financial Emergencies

May 19, 2017

Group of professionals leaving office after layoff or being firedWe don’t always know when the unexpected will happen. That doesn’t mean we can’t plan for it though.

In fact, one of the best things you can do for your finances is to look ahead and prepare for the inevitable emergency. Here are four tips you can use for your plan:

  1. Start with Your Rainy Day Fund

It’s old news, but the reality is that many Americans still don’t have the resources to handle a $500 emergency. That means you probably need to beef up your rainy day fund.

Get started even if you feel like you can’t set aside a ton. Every little bit helps. Set aside money each week that can be used for a rainy day.

This also includes paying attention to what’s happening with your expenses. While things do happen unexpectedly, the truth is that we often get clues that something is about to break down. The washing machine behaves erratically, or you notice something about the fridge. Once those signs appear, start setting money aside.

  1. Plan for Routine Costs

You know that the oil needs to be changed in your car every so often. There are plenty of other maintenance milestones that come with owning a car too. You need to plan for these items. From home maintenance to the fact that your kids need to get clothes for school every year, there are routine costs in your life.

Make a plan to save a little bit each month for these routine costs. You can use a system that helps you prepare to meet these challenges when they arrive, preferably a system where savings are automated. That way, you won’t have to rely as heavily on your emergency fund or (worse) your credit cards.

  1. Perform an Insurance Audit

When was the last time you checked your insurance coverage? Do you have the right amount? Will it cover your situation? Double-check your coverage.

Make sure your home is covered. What if you’ve recently bought some expensive items? Are they covered against loss? Look at your health insurance coverage. Will it be enough if you end up in the hospital? Is the deductible affordable? On the other hand, are you paying for too much coverage and not freeing enough money to save?

The right insurance coverage can go a long way toward helping you out when you’re in a pinch. And don’t forget the life insurance to cover your family, just in case you pass on.

  1. Know What You Can Cut

Finally, make sure you know what you can cut from your budget in an emergency. Which items are the first to go? Which items, when cut, could result in immediate savings? This exercise can help you spring into action once a financial emergency strikes. It’s a good way to stay on top of things.

Plus, looking at your spending with a critical eye can help you now. If you take the time to review your spending and identify areas of waste, you can plug those leaks now. Divert the money toward other goals, like building a rainy day fund or preparing to buy a new appliance.

As you get into making these plans, you are far more likely to see good results and boost your ability to handle almost anything that can come up. How prepare are you? Would a $500 emergency cripple your finances? Or is it more like a small bump on the road?

 

Source: MoneyNing

6 Important Credit Card Lessons Your Parents Didn’t Teach You

Shot of a mother using a credit card to buy something for her daughter onlineOur parents taught us many of life’s important lessons, but did they adequately prepare us for smart credit card use? Maybe not. Here are six credit card lessons your parents might not have taught you.

  1. Credit cards offer more fraud protection than debit cards

Credit cards offer a much greater level of protection against fraud than debit cards. Many credit companies come with $0 fraud liability, meaning you aren’t responsible for any reported fraudulent spending. In most of these cases, the creditor will credit your account immediately. However, with debit card purchases, it can take the bank up to two weeks to refund your money, and even then you might still be held responsible for a certain percentage of the charges.

  1. You must be proactive to build your credit

A common myth is that an open credit card account is all you need to build your credit. Credit scores reflect an individual’s relationship with debt management. Lenders and creditors want to see how you interact with finances, especially if you are going to take on more debt. This doesn’t mean you need to be in debt to have a good credit score. Instead, a credit score is established through paying your bills on time, whether that be your credit card bill or your mortgage.

One of the biggest factors in determining your credit score is your credit utilization ratio. Lenders want to see how much debt you have versus how much credit you have access to.

Build your credit by using and paying off your credit card, making payments on time, and asking for credit line increases.

  1. Keep your credit utilization ratio as low as possible

Generally, it is important to have a credit utilization ratio of 30 percent or less. For example, someone with $500 of debt on a $1,000 total credit line will look worse to creditors than someone who has $5,000 debt with a total credit line of $30,000.

Calculate your credit utilization ratio by dividing your debt total by your credit line total. For example, $500 of debt divided by a $1,000 credit line would equal a 50 percent credit utilization ratio, whereas $5,000 of debt divided by a $30,000 credit line is just over 16 percent. Remember, your credit line total is the combination of all lines of credit you have open.

  1. Interest payments can make debt hard to pay off

A few thousand dollars of debt can feel like an impossible hurdle if you try to pay it off in minimum payments only. You will feel like you are making zero progress on your debt when you have to pay interest. Interest makes anything you purchased with a credit card more expensive. Did you really mean to pay double for that clearance shirt?

  1. Differences in interest rates do matter

Perhaps your parents didn’t make a big deal about the difference between an A and A-, but when it comes to interest rates, the difference is noticeable. Even a half of a percent can make a big difference when it comes to your monthly payments on a loan. Getting a $20,000 car loan for three years at 4 percent doesn’t seem much different from the same car loan at 3.25 percent, but it is. The difference is $6 a month, or $216 in the lifetime of the loan. Wouldn’t you rather that money go to something necessary or fun instead of an interest payment? The same is true of paying interest on a credit card.

  1. Rewards don’t negate debt

We know your mom always told you to look at the bright side of things, but credit card rewards are not the bright side. If you are constantly running up credit card debt to benefit from rewards points, then you will be sorely disappointed by their rate of return. There is no credit card on the market with a reward program that makes going into debt worth it.

Pay off your monthly credit card bill to ensure you benefit from the rewards, but aren’t being burned by the interest rate.

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Source: WiseBread

9 Expensive Mistakes of the Newly Retired

Home finances. Senior couple counting a monthly bills at home.Transitioning to retired life on a fixed income will undoubtedly have a few bumps in the road. This is a brand-new chapter of life for you, and it’s reasonable to expect some challenges ahead. The last thing you want to do, however, is compromise your nest egg with costly, easily avoidable mistakes. After all, you need that money to get you through the rest of your life.

As such, consider these costly mistakes of the newly retired so you don’t follow suit.

  1. Not balancing your portfolio

Retiring doesn’t mean you have to stop investing. You can still dabble in the stock market, but perhaps not as aggressively as you once did. Risky bets could cost you your life savings, which means that you’ll either have to go back to work past age 65, or put your hat out on a street corner. Neither of those options sound great in the golden years of life, so it’s important to ensure your retirement portfolio is balanced.

“Annuitizing a significant portion of one’s retirement income can complement a portfolio of stocks and bonds,” says Jim Poolman, executive director of the Indexed Annuity Leadership Council. “Fixed indexed annuities (FIAs) can serve as part of a balanced financial plan because they do not directly participate in any stock or equity investments and [they] protect your principal from fluctuations in the market.”

  1. Not changing your lifestyle after retirement

Your spending habits as a retiree will need to change if you’re going to make it for the long haul. This is especially true if you’re not receiving any kind of monthly payments, like Social Security or disability, to help with bills. You can live off what you have in the bank (hopefully; otherwise you shouldn’t be retiring yet), but you may have to downsize and rethink your spending strategy.

This means you need to start learning how to save money on everyday expenses, and re-evaluate your budget to find places for cuts. Don’t expect yourself to suddenly drop 30 percent or more of your spending. Work your way to it by making small cuts at a time before you retire.

  1. Not evaluating risk

When you start saving for retirement, you may have a certain monetary goal in mind — either based on what financial sources have told you, or what you’ve calculated you’ll need based on your lifestyle. But you may not be accounting for the ups and downs of Wall Street and inevitable inflation.

“Revisit your retirement plan to make sure your savings reflect your new needs, and adjust for market conditions,” Poolman advises.

  1. Spending too much money too soon

When you retire, what you have is what you have. Unless you still have income coming in somehow, you have to mind your money and avoid the temptation to spend it on splurges, especially if you find yourself bored in the first year of your forever vacation.

“Before finalizing your retirement, you must take into consideration that you will only be living on a fixed amount of money,” Andrew Fiebert, co-founder of Listen Money Matters, says. “Oftentimes the amount of retirement savings looks pretty large, but retirees must keep in mind that money will have to last a very long time — hopefully a very, very long time.”

The enticement to spend your money can be almost irresistible, but discipline is vital. Depleting your money beyond the interest that it earns will hurt the principal and leave you with nothing after just a few years.

  1. Loaning money to adult children

According to a 2015 Pew Research Center poll, a whopping 61 percent of parents in the U.S. admitted to helping their adult children financially. That may be well and good if you have that kind of disposable income lying around (though it only fortifies your children’s reliance on you; learn to say NO!). However, if you already need to cut back because you didn’t save enough to live an easy, breezy retirement — which applies to most Americans — providing handouts, the payback of which you may never see, could put you in a financial pickle.

Don’t be afraid to cut your grown children off. If you don’t have the extra money, neither do they.

  1. Taking Social Security benefits too early

The overriding argument against claiming Social Security benefits too early is that you won’t receive your full benefit potential. That could come back to bite you later in life.

If you decide to claim Social Security benefits before you reach your full retirement age, you’ll receive a smaller monthly payout — up to 30 percent less. If you absolutely need that money before your benefits fully mature, then by all means do what you have to do to survive. You’ll be better off, however, the longer you wait.

  1. Not taking required minimum distributions after age 70-½

Starting at age 70-½, you must take required minimum distributions (RMDs) from your traditional, SEP, or SIMPLE IRA each year to satisfy rules set forth by the IRS. If you don’t, you’ll pay penalties.

You can calculate your required RMD by dividing your IRA account balance as of Dec. 31 of the prior year by the applicable distribution or life expectancy. Qualified charitable distributions can satisfy your RMD, by the way, which you would report on Form 1099-R on the calendar year in which the distribution is made. Do good and save yourself the penalties while you’re at it.

  1. Falling victim to money scams

Scammers love retirees and the elderly. Why? Because they’ve usually got money to burn, and they’re much easier to fool than the average working-age person. Sad, but true.

There are plenty of scams out there, too, and they’re getting more intricate all the time — like one where the scammer poses as the victim’s grandchild and begs the grandparent to send money. To prevent yourself from being scammed, remember these two major rules: Never provide personal information over the phone or via email, and never wire any money unless you’ve spoken directly to your family member or friend who is requesting the transfer. (See also: What to Do When You Suspect a Scam)

  1. Failing to account for the unexpected

The reality of retirement is that while you’ll certainly have more time to kick back and relax, life isn’t necessarily going to get easier — and you have to prepare for that. Everyone will die eventually, and it’s smart to plan ahead not only for end-of-life accommodations, but also long-term medical care.

You may live a long and healthy life, but eventually you’ll need someone to care for you — whether that’s in a family member’s home or a professional facility — and that will cost money. Hedge your bets by looking ahead and putting those funds aside now.

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Source: WiseBread