The Complete Guide To Retirement Planning For 40-Somethings: Checking Your Status
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  1. The Complete Guide To Retirement Planning For 40-Somethings: Introduction
  2. The Complete Guide To Retirement Planning For 40-Somethings: Checking Your Status
  3. The Complete Guide To Retirement Planning For 40-Somethings: Managing Your Investments
  4. The Complete Guide To Retirement Planning For 40-Somethings: Life Insurance
  5. The Complete Guide To Retirement Planning For 40-Somethings: Paying For College
  6. The Complete Guide To Retirement Planning For 40-Somethings: Life Cycle Changes
  7. The Complete Guide To Retirement Planning For 40-Somethings: Mortgages and Debt
  8. The Complete Guide To Retirement Planning For 40-Somethings: Work With Competent Professionals
  9. The Complete Guide To Retirement Planning For 40-Somethings: Retirement Resources
  10. The Complete Guide To Retirement Planning For 40-Somethings: Conclusion
The Complete Guide To Retirement Planning For 40-Somethings: Checking Your Status

The Complete Guide To Retirement Planning For 40-Somethings: Checking Your Status

In some cases, individuals add as much as they can to their retirement nest egg and hope that it will be sufficient to meet their retirement needs. However, while such a strategy may work for some, the success of such a plan is usually merely coincidental. In order to measure the success of your plans for retirement, you must establish a set of goals and objectives so that you can determine whether you are on track to achieve your desired results.
Performing a retirement planning analysis with the help of qualified financial planning professionals is imperative. A retirement planning analysis can help you to determine if you are saving enough, determine how much should be added to your savings in order to meet your retirement savings goal, and help you identify any areas from which you can redirect income to your retirement nest egg if necessary.

When checking the status of your retirement planning strategy, there are several factors that must be considered. These include the following:

Your Planned Retirement Lifestyle
The manner in which you plan to live when you retire will have a big impact on how much you will need to cover your retirement expenses. Factors that are considered include where you plan to live, the types and frequency of travelling you plan to do, the type of home in which you plan to live, and your general planned retirement activities.

Consideration should also be given to whether you will be responsible for taking care of others, which might be the case if you have children who are minors during your retirement or if you are responsible for caring for elderly parents.

Your Planned Retirement Age
Your planned retirement age will help your retirement planning advisor to determine if you have sufficient time to save the amount that you need to finance your planned retirement lifestyle. Naturally, the amount that you have already saved is also factored into the equation.

Your Current and Projected Income From Employment
This will help to determine how much you can afford to save from your current income, and the amounts that you will need to contribute from your projected income, in order to retire by your planned retirement age and maintain your planned retirement lifestyle. The projected return on your investments, your current and projected income, and sources of your retirement income are also taken into consideration.

If You Are on Schedule
If your retirement planning analysis shows that you are on track, your primary retirement planning objective should be to ensure that you continue to do so. As such, you should continue to meet regularly with your retirement planning advisor, who should be able to help you keep on track, and even look for any opportunities to help you retire earlier than planned. Equally as important, continue to practice the good habits that allowed you to get to this stage.

Solutions if You Are Not on Track
If your retirement planning analysis shows that you are behind in your retirement planning, there are several things that you can do to help to address the issue. Bear in mind that these are suggestions and may not be suitable for everyone. You should give careful consideration to any suggestion, with the help of your retirement planning advisor, to help ensure that you choose only the ones that are suitable for your retirement planning profile.

Get a Second Job
An additional source of income can help to increase your disposable income, and the amount you have available to add to your retirement nest egg. Consider that an extra $200 per week for 20 years can add an extra $230,271 to your retirement nest egg, assuming a conservative rate of return of only 1%.

If your primary objective for getting a second job is to add more money to your retirement nest egg, you could contribute up to $17,000 of your entire earnings from that job to a retirement savings account on a tax-deferred basis, if you work for an employer that offers a retirement plan with a salary deferral feature. Salary deferral contributions that you make on a pre-tax basis are excluded from your income, and earnings grow tax-deferred until the amount is withdrawn from your retirement account. If you do not work for an employer that offers a retirement plan with a salary deferral feature, you may add up to $5,000 to an IRA, or you can do both if your income is sufficient.

Maximize Contributions to Retirement Accounts
If you have sufficient income, you can contribute up to $5,000 for the year to IRAs. This can be contributed to your traditional IRA or your Roth IRA if you are eligible for a Roth IRA contribution. If you prefer, you can split the amount between your traditional IRA and your Roth IRA.

Caution:You are not eligible to contribute to a Roth IRA if your modified adjusted gross income (MAGI) exceeds certain amounts. In addition, your contribution amount for which you are eligible is reduced in your MAGI falls within a certain range. The MAGI range for Roth IRA contributions for 2012 is as follows:

Roth IRA Contribution Limit for 2012
Tax Filing Status
Modified Adjusted Gross Income (MAGI)
Contribution Amount Allowed
Single
$110,000 or less

You can contribute the full amount
$110,000 - $125,000

Your contribution is reduced
$125,000 or more

You cannot contribute to a Roth IRA

Married Filing Jointly
$173,000 or less

You can contribute the full amount
$173,000 -$183,000

Your contribution is reduced
$183,000 or more

You cannot contribute to a Roth IRA

Married Filing Separately
Less than $10,000
Your contribution is reduced
$10,000 or more
You cannot contribute to a Roth IRA


If you are covered under an employer-sponsored retirement plan for the year, such as a defined benefit pension plan, defined contribution plan, 403(b) plan, SIMPLE IRA or SEP IRA, your eligibility to claim a deduction for contributions to your traditional IRA depends on your tax filing status and your MAGI. Your employer should let you know if you are considered "covered" by a retirement plan for the year. If you are covered, the following MAGI limits apply when determining if you are eligible to claim a tax deduction for your contribution.

Traditional IRA Deductibility Limit for 2012
Tax Filing Status
If you are covered under an employer-sponsored retirement plan
Modified Adjusted Gross Income (MAGI)
Deduction Allowed
Single or Head of Household
No
No limit
You can deduct your entire contribution

Yes
$58,000 or less

You can deduct your entire contribution
$58,000- $68,000

You can a portion of your contribution
$68,000 or more
You cannot deduct any of your contribution

Married Filing Jointly
No. Neither is your spouse
No limit
You can deduct your entire contribution
Yes
$92,000 or less
You can deduct your entire contribution
$92,000- $112,000
You can a portion of your contribution
$112,000 or more
You cannot deduct any of your contribution

Married Filing Jointly
No. But your spouse is
No limit
You can deduct your entire contribution
Yes
$173,000 or less

You can deduct your entire contribution
$173,000 - $183,000
You can a portion of your contribution
$183,000 or more
You cannot deduct any of your contribution

Married Filing Separately
No
Less than $10,000
You can a portion of your contribution
$10,000 or more
You cannot deduct any of your contribution

If you work for an employer that offers a retirement plan with a salary deferral feature, you can make salary deferral contributions of up to $17,000 for the year if the plan is a 401(k), 403(b) or governmental 457(b) plan. If the plan is a Savings Incentive Match Plan for Employees (SIMPLE) IRA, your salary deferral contribution is limited to $11,500.

Contributions to your IRAs do not affect how much you can contribute through salary deferrals and vice versa. Also, salary deferral contributions to governmental 457(b) plans do not affect how much you can contribute as salary deferrals to 401(k), 403(b), government 457(b) and SIMPLE IRA plans.

Caution: If you make salary deferral contributions to more than one employer's retirement plan, you must ensure that your contributions do not exceed the statutory limit in effect for the year. The limit for 2012 is $17,000 for someone in their forties. Your employer may be able to prevent you from exceeding this limit (by stopping your contributions when you reach the limit of $17,000) if all of your contributions are made to their qualified plan or 403(b) account. However, it is likely that they will not be able to implement any such control if you make contributions to other plans. As such, you would need to take steps to ensure that your contributions do not exceed the statutory limits.

Contributions in excess of the statutory limits can result in penalties, double taxation and excise taxes being owed to the IRS.

If you have the option to contribute to both Roth and a traditional retirement account, consult with your financial advisor to determine which of the two would be more suitable for you. The decision will largely be based on your current and projected income tax rate, and your estate planning needs. One of the primary objectives of choosing one account over the other is to minimize the amount of income tax that you would pay on your retirement savings. With Roth accounts, the contributions are made with funds that have already been taxes, but distributions of earnings can be tax-free if certain requirements are satisfied. Traditional retirement accounts are usually funded with pre-tax amounts, and distributions are taxable as ordinary income. In some cases, traditional accounts are funded with amounts that have already been taxed; the earnings on these amounts also grows tax-deferred and are taxed as ordinary income when distributed. In some cases, it may be practical to split your contributions between both accounts. However, if the choice comes down to funding the account with after-tax amounts, the better solution is to add the amounts to a Roth account, where the earrings could be tax-free, as opposed to a traditional savings account where the earnings would be taxable when distributed.

Financial Planning Tip: While it may be tempting to maximize contributions to your retirement account, doing so could negatively impact your finances if you contribute more than you can afford. For more on this, see How Much Should You Add To Your Retirement Nest Egg?

This is by no means an exhaustive list, and your retirement planning team should be consulted to help you identify gaps and opportunities for improving the strategy and results for your retirement planning solution.

The Complete Guide To Retirement Planning For 40-Somethings: Managing Your Investments

  1. The Complete Guide To Retirement Planning For 40-Somethings: Introduction
  2. The Complete Guide To Retirement Planning For 40-Somethings: Checking Your Status
  3. The Complete Guide To Retirement Planning For 40-Somethings: Managing Your Investments
  4. The Complete Guide To Retirement Planning For 40-Somethings: Life Insurance
  5. The Complete Guide To Retirement Planning For 40-Somethings: Paying For College
  6. The Complete Guide To Retirement Planning For 40-Somethings: Life Cycle Changes
  7. The Complete Guide To Retirement Planning For 40-Somethings: Mortgages and Debt
  8. The Complete Guide To Retirement Planning For 40-Somethings: Work With Competent Professionals
  9. The Complete Guide To Retirement Planning For 40-Somethings: Retirement Resources
  10. The Complete Guide To Retirement Planning For 40-Somethings: Conclusion
The Complete Guide To Retirement Planning For 40-Somethings: Checking Your Status
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