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7 Retirement Terms You Need to Know

Don’t let retirement jargon intimidate you! Whether you’re speaking to an adviser, watching the news, reading or listening to the radio, it’s important to understand and comprehend the information you’re hearing. Compass Retirement Solutions has defined 7 terms that you need to know for retirement planning.

retirement

  1. Required Minimum Distribution (RMD) – This is the minimum amount you are required to withdraw from your account each year. Retirement plans generally require you to start taking withdrawals from your account when you reach 70½.
  2. Individual Retirement Account (IRA) – With a traditional IRA, you are allowed contribute a certain amount each year (usually $5,500 or $6,500) and deduct your contributions from income taxes. You pay taxes in the year you withdraw the money.
  3. Roth IRA – Similar to the traditional IRA. However, money invested within the Roth IRA grows tax free and there is no RMD.
  4. 401K – This is a retirement savings plan that allows workers save and invest a portion of their paycheck before taxes are taken out. It is employer dependent. Taxes aren’t paid until the money is withdrawn from the account.
  5. Fixed Index Annuity (FIA) – A fixed index annuity offers guaranteed lifetime income. While providing a principal guarantee, you earn a baseline fixed interest rate over a fixed term and are protected from stock market losses.
  6. Social Security – to provide a degree of economic security for the public, this is a program that uses public funds to supply income for retired individuals.
  7. Mutual Fund – A mix of stock, bond and other security investments kept by investors. Investors share the losses and earnings from shares in mutual funds.

Let us know if there are other terms that you would like to know more about or have added to the dictionary!

If you would like to book an appointment to speak with Marvin Mitchell, CEO of Compass Retirement Solutions, please call 314-373-1598 or email admin@compassretirementsolutions.com.

Four Dangerous Retirement Assumptions

Planning for retirement is important but it isn’t easy, and making the wrong assumption about what’s best or how a particular strategy will pan out can be extremely risky.  

Why?—because assumptions lead to decisions, and some decisions are simply irreversible. So before making any assumptions about retirement, be sure to evaluate all the potential variables in detail and with an industry expert.   

 

#1 – In the end, a Roth IRA will cost less than a traditional IRA.

Don’t just fall-in-line with conventional wisdom because it pays to do the math.

For young people with their highest earning years ahead of them, a Roth IRA will always make more sense than a traditional IRA. But that conventional wisdom has some murky language. Who are “young people”? Where does that demographic start and where does it end? Honestly, that term should only encompass those in their late teens through late 20s—beyond that (the highest earning years), the tax breaks that come with a Traditional IRA are too important to simply brush aside. Having said that, there are always some cases where it will make sense for a person in their highest earning years to take the immediate tax hit and go with a Roth IRA.

Bottom line?—don’t assume one IRA is automatically better than the other, try to make accurate earning projections, get some good advice, and then choose.  

 

#2 – Delaying social security will yield the most income over time.

This is a fatal assumption to make because every situation is different. For some people, waiting is the undeniably wrong thing to do. For others drawing on social security too early is incredibly dangerous.  Factors like dependency, asset accumulation, and physical health can all influence when and where Social Security should be drawn.

Bottom line?—don’t assume a delay in Social Security is a smart investment, get advice from a trusted financial counselor before making a decision.

 

#3 – The more money in bonds, the safer the portfolio

Now this is one assumption that is 100% TRUE…if the year is 2001.

Unfortunately, it’s not.

The year is 2016 and in 2016, this is not a safe and easy assumption.  Right now, interest rates are lower than ever, which means returns on many new bond purchases are only safe as long as interest rates remain historically low. The moment interest rates start inching upwards, bond holders will bleed money and eat a loss. So is putting money in bonds right now really a safe play?—it’s not so simple to say.

Bottom line?—before sinking significant sums of money into bonds, have any portfolio thoroughly evaluated by a professional with established market knowledge to determine the optimal “safe strategy.”    

 

#4 – Whether it’s the lotto or a retirement package—always take the lump sum.

Not so. When presented with a choice between a lump sum payment or a steady, measured pension, it is extremely important to carefully evaluate the pros and cons of both options. 

Yes, the lump sum traditionally affords retirees with more freedom and flexibility because it’s readily dispensable cash, cash for travel, cash to remodel the house, cash to give to the grandkids…cash for whatever.

Having said that, pension payments are safe, stable, and effortless. A check will arrive at pre-determined, fixed intervals with virtual certainty. For those not interested in having to actively think about the best, most-responsible use of their money, going with a pension is a fantastic fit.

Bottom line?—lump sum payments are only right for the right people, so don’t get pushed into blind acceptance.

 

Consult with a professional, consult with Compass Retirement Solutions

Compass Retirement Solutions enables investors to weigh different potential options and openly see the pros and cons of every possible decision. Compass helps people walk through the market and clearly determine what’s right for their retirement.  

From identifying the optimal time to start drawing those social security checks, to defining the healthy amount of risk within a given portfolio, Compass helps clients cover all the bases in order to facilitate a safe, secure, and happy retirement.

Compass Retirement Solutions also places tremendous emphasis on the mitigation of investment fees, and the strategic avoidance of unnecessary federal, state, and municipal taxes. Long-term strategic planning is the name of the game for Compass, and the income plans they design for clients are specifically built to endure the ill-effects of inflation, failing health, or general economic turmoil for up to forty years of retirement.

Each Compass retirement plan appropriately accounts for posterity, and helps parents put money aside for both their kids and grandkids.

Remember—the key to a healthy and happy retirement is proper preparation and planning. Is professional retirement planning mandatory?—no. But in the event of an economic crash, it’s a retiree’s only seatbelt.

If you’ve never reached out to a financial advisor for retirement planning—or if you are currently dissatisfied with the professional guidance you’re receiving—the time to contact Compass Retirement Solutions is now.

Compass offers free, comprehensive financial portfolio review for anyone with at least $200,000 in accumulated retirement savings.

To schedule your consultation, contact Marvin Mitchell at 314.373.1598 to determine what makes more financial sense for you.