The optimal age to retire in the United States is a complex question with no definitive answer, however the average retirement age in the United States is 62. It hinges on a variety of factors, including financial security, health, and personal preferences. While there’s no one-size-fits-all solution, understanding these factors can help individuals make informed decisions about their retirement timing.
At this age, you have the privilege of deferring taxes on up to $23,000 worth of your 402(k), 403 (b), and Thrift Savings Plan. The same applies to $6,500 of your IRAs as of 2013.
55
During the calendar year that you turn 55 or after, if you quit, retire, or are laid off you have the option of taking 401(5) withdrawals without having to pay a 10% early withdrawal penalty, but only from the account that is associated with the job that you left or lost. For those in a public-safety career, this applies in the year that you turn 50.
59 ½
Although you will still have to pay income taxes on traditional IRA and 401(k) withdrawals, once you turn 59 ½ you will longer face a 10% early withdrawal penalty for retirement account distributions.
62
At the age of 62, you will become eligible to receive Social Security Payments. If you do so, though, you face a permanent 30% reduction in payments. If you decide to work at the same time, all or part of your payments could be temporarily withheld until you are no longer working.
When you turn 65, you will be eligible for Medicare. For a smooth transition, you have the option do sign up three months before your 65th birthday. That way, coverage will begin the same month you turn 65. If you delay in signing up, your Part D and Part B premiums could increase permanently, and you could possibly face being denied supplemental coverage.
66
At this age those born between 1943 and 1954 are able to collect the Social Security they have earned. Those born in 1955 time may do so at age 66 and two months. Those born in 1959 may do so at age 66 and 10 months. Once you reach your designated retirement age, you may work and collect Social Security benefits at the same time with no penalty. Those born in 1960 or after who want to sign up at age 66 will face receiving 6.7% money per payment, permanently, than if they just waited until age 67.
67
If you were born in or after 1960, the Social Security full retirement age for you is 67. Workers that are age 53 or younger must wait until this age to collect full payments in order to avoid an earnings limit.
70
For each year after you turn 67, your payment amount will increase by 8% until you turn 70. After the age of 70, there is no reason and no benefit to postpone receiving Social Security payments any longer.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He brings over 30 years of diverse experience as a financial advisor. Rick takes great pride in giving honest and very experienced advice. Rick can readily converse with business owners and people looking to take control of their retirement accounts.
Planning for something which is stretched out far away in the future is not always a top priority in most people’s lists. This is true in the case of retirement planning too. I have seen too many people taking a casual approach to saving because of the various retirement myths they hold.
6 Retirement Myths You Should Know
It is too early to even think about retirement
Life expectancy of people is on the rise and the retirement phase is only getting longer. For many individuals, they could be retired longer than they worked. Hence young earning individuals need to realize they need to not only “live” today but plan and save money for their retirement needs. Retirement planning should begin from the point in time you start earning your living. The later you begin the more challenging it becomes for you to plan for retirement.
Medicare will help me meet my retirement spending
There is no doubt that healthcare expenses are a major part of the overall retirement expenses and Medicare does help retirees. According to the Kaiser Health Foundation, Medicare traditionally has provided only 48 percent cover for the health costs for a variety of reasons. There are some routine health care costs which Medicare does not cover and these include costs related to eyeglasses, dental treatment or hearing aids. These expenses sometimes run up in thousands of dollars. Medicare also does not reimburse 100 percent of the healthcare expenses and retirees still have to pay the deductibles. In order to meet these expenses, retirees have to opt for an additional insurance policy which is popularly known as Medigap policy.
I can get another job during retirement
When young, you are energetic and healthy, and there is a tendency to get carried away and convince yourself not to think about working after retirement. But as you approach retirement age, things are not the same and you feel differently. You find the daily routine tasks to be exhausting and you would want to be free from these responsibilities. Forcing yourself to work during retirement really takes away from the charm of retired life. When retired, you ideally want to be able to use your time for things you were too busy for before. Also, there is the reality that once you’ve reached retirement age, job openings will be shorter and unappealing.
Expenses will be far less when I retire
One of the most important prerequisites about retirement planning is correctly estimating how much you should have saved. It is true that your everyday work expenses are no longer an issue but most people underestimate living expenses. While some expenses are no longer, other expenses arise which weren’t important before.
A lot of retirees put off traveling until they are in their “golden” years. Traveling costs never go down, only up. Medication not needed before can become an expensive issue. Also more and more grown children seek “assistance” from their retired parents.
At Self Directed Retirement Plans LLC, we establish true checkbook controlled self-directed plans. With these plans, our clients can take advantage of many alternative investments to help them reach their retirement goal. We also educate our clients how Roth can work to their advantage. Retiring with a tax free income stream is very possible if started early and correctly.
My pension plan is enough for me to retire on
The fact is without advance planning, it is not possible to accurately predict if your pension combined with your social security benefits will keep you covered in case of emergencies and allow you to enjoy the same lifestyle post-retirement. If you work for an employer that offers a retirement saving plan, then your retirement income will be the monthly income stream generated from that employment based on the number of years you have served the employer. But since most people don’t stick to the same employer throughout, they may or may not have accumulated enough in earned benefits. This is why retirement planning is very important to ensure you have accumulated enough for the golden years of your life.
My social security will suffice me
While social security accounts for roughly 38% of an average retiree’s income, the government may become less generous than it has been all this while. Also, as the government continues to increase the age that you need to reach in order to receive full social security benefits, retirement planning is becoming ever more important. Building a retirement reserve in addition to the social security benefits is essential because social security will only supplement your retirement income and so it should not be treated as a major part of your retirement reserve.
So, don’t let these retirement myths mess with your retirement planning and turn the golden years of your life into the lead. If you still haven’t started planning for your retirement, you may not be able to fund the lifestyle decisions you make post-retirement. So, if you don’t want to miss the boat, start as early as possible and save as much as you can. Call us at (866)639-0066 and we will help you invest wisely with our win-win retirement planning strategies.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning company based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last ten years has turned his focus to self-directed ira accounts and alternative investments. If you need help and guidance with traditional or alternative investments, call him today (866) 639-0066.
While a Self-Directed IRA gives you enormous freedom in managing your retirement portfolio, make sure you do not get carried away. There are certain transactions and investments that are prohibited in a Self-Directed IRA. If you inadvertently create a PT, it could be very costly. What most people don’t understand is this: a minor prohibited transaction can cause the entire self-directed IRA to be distributed. For example, a $10,000 PT could cause a $100,000 IRA distribution. On top the income tax owed, there could also be fines and/or penalties.
Transactions that are prohibited in a Self-Directed IRA
Certain transactions are prohibited under a Self-Directed IRA. The IRS prohibits a self-directed IRA to enter into a transaction with a disqualified person. A disqualified person cannot receive any immediate benefit nor extend any immediate credit to the self-directed plan.
Disqualified persons are generally related parties and include fiduciaries, IRA holder, and spouse of the IRA holder, ancestors and lineal descendants. An entity in which the IRA holder has equity or management interest is also a disqualified person.
Some transactions, which may qualify as prohibited, include:
The IRA holder, or his family member or an entity that is actively controlled by the IRA holder either buys, sells or even lease a property to / from the IRA.
A self directed IRA cannot avail paid services from the IRA holder, his relatives or an entity wherein the IRA holder has significant majority equity interest.
An IRA cannot lend or borrow money from the IRA holder or any other disqualified person for that purpose.
A disqualified person personally guarantee a loan benefiting the IRA.
The IRA account holder or any other disqualified person stays at a vacation rental home owned by the IRA. Such a stay whether paid for by the IRA holder at prevailing rates or made for free is a prohibited transaction.
If the IRA account holder pledges the IRA account as a security against a loan, then the extent of the IRA funds pledged could be considered a distribution and attract the appropriate tax and/or penalties.
If the IRA holder is a licensed real estate agent, any commissions paid for IRA real estate purchases, cannot be paid to any disqualified person. Even if the commission is considered fair and reasonable, such payment would be a PT.
Separate from prohibited transactions are certain investments not allowed using a self-directed IRA. The range of investment options available using a self directed IRA are extremely varied but the IRS has explicitly identified prohibited investments.
If the IRA invests money in prohibited investments, the extent of money invested in such options is considered distributed. The list of prohibited investment options includes collectibles, which include artworks, stamps, certain coins, metals and antiques. An IRA is also not allowed to hold shares in an S-corporation or purchase life insurance contracts. An IRA is also not allowed to hold a derivative position that carries unlimited risk.
At Self Directed Retirement Plans LLC, we take the time to explain the benefits a self-directed IRA offers. We also explain prohibited transactions and disqualified persons. The rules are not hard to adhere to. Our clients call us whenever they are not sure and we go over their concerns.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He brings over 30 years of diverse experience as a financial advisor. Rick takes great pride in giving honest and very experienced advice. Rick can readily converse with business owners and people looking to take control of their retirement accounts.
Self-Directed IRAs and Self-Directed 401k’s are allowed to use leverage (loans) for real estate investments. The loans are called non-recourse. What this means is the lender, either private or commercial cannot ask the owner of the self-directed account to personally guarantee the loan. The loan is being made to the self-directed account, not the person and the collateral is the real estate itself. Most lenders in the U.S. are merely loan originators and they bundle their loans and sell them on the secondary market. Therefore, most banks will not entertain non recourse loans.
However, there are a few banks that actually lend their own money. This is called portfolio lending. These types of banks will look at the particular investment and decide to make the loans or not. Normally, the real estate investment has to make sense, have a positive cash flow and sufficient reserves in case of vacancies. The normal loan to value (LTV) depends upon which state you are investing in but normally runs between 50 to 60%.
The minimum loan amount is generally $50,000. Surprisingly, the banks that understand and underwrite non recourse loans, offer attractive rates and terms. When you think about it, if they are only loaning 50 to 60%, it is a pretty safe loan for them.
A private non-recourse loan can have any LTV – it would be a negotiated loan.
What are The Upsides of Non Recources Loans for Self-Directed Accounts
Leveraging the self-directed funds through such non recourse loans enables borrowers to make more investments in real estate (for example) than they could otherwise make. If the borrowers are smart investors making quality investments, leveraging their funds through non-recourse loans can definitely multiply the returns in their retirement account.
Another benefit of leveraging is the ability to enjoy better diversification. Instead of investing in a single property by using the entire savings, borrowers can invest in multiple properties at the same time and with the same amount of money.
Another important but indirect benefit is, the chances of ending up on the losing side are limited to the amount invested in the new property. Since the collateral clause is only limited to the property, if the borrower decides to walk away and stop repaying the loan, the lender can only repossess the property, without asking for reimbursing the additional damage costs, hurting the borrower’s credit, or taking any other probable action against the investor.
What are The Downsides of Non-recource loans for Self-Directed Accounts
There is a tax called UBIT (Unrelated Business Income Tax). It applies to profits made within self directed accounts. It can apply if a self directed account runs a business inside the account. Operating a business is allowed, but to keep the playing field fair, the self directed account will have to pay income taxes on the net profit
UBIT can also apply to profits made using leverage in real estate investments. UBIT treats self directed IRA’s differently than Self Directed 401 k’s. In the case of a self directed IRA, the portion of the net rents or net profits that resulted from a non recourse loan will be taxed at corporate tax rate – even if using a self directed Roth IRA. However, this tax does not apply using leverage inside a self directed 401k. This can make a huge difference in the growth of your retirement account.
At Self Directed Retirement Plans LLC, a lot of our first time incoming calls or emails are looking for information about using a Self Directed IRA to invest in real estate. When we dig down a little, we find a lot of these clients can qualify for a self directed 401 k instead of the vanilla self directed IRA. When we explain UBIT, they are very happy to graduate to a self directed 401 k.
Final Verdict
Non-recourse loans provide an incredible opportunity for the self-directed account holders to leverage their retirement funds, make additional investments, and increase their returns at a relatively lower risk. They are not difficult to obtain if you work with a bank that understands them. Through the years we have helped many clients obtain non recourse loans and most are pleasantly surprised at the rate and terms.
My goal is to assist clients/investors in their quest for financial freedom and creating generational wealth through one on one consultation and an abundance of online tools to educate. For the past 5 years I have been a private pension plan consultant with Self Directed Retirement Plans working directly with my partner Rick Pendykoski (owner) or you can .
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