The recession made quite a dent in the finances of many Americans, and this is of special concern to people who are nearing retirement age. Americans in the 50-plus age group have limited time to recover from the recession and replenish their retirement savings, and the effects are starting to show.

 An AARP Public Policy Institute survey has chronicled the effects of the recession on middle aged and older Americans, and the strain is obvious.

• A large number of survey participants relied on their savings to get them through the recession, and just under 25% completely exhausted their savings.
• As household expenses went up and household income went down, those who participated in the survey reported saving less or not saving at all, and roughly 36% cut back on saving for retirement.
• More than half of those surveyed reported that they feel less confident about their ability to live comfortably throughout retirement.

All the financial pressure has prompted people in this age group to shift their ideas about retirement, and the changes are primarily in two areas. First, one-third of survey participants are planning to delay retirement. Second, almost half are planning to supplement their income by working part-time after they retire.

Where did the recession leave you, financially speaking? If you’re re-thinking your retirement plans, you might want to consider getting the help of an experienced, reputable financial advisor. Americans tend to overlook the benefits of seeking professional assistance when it comes to our finances in general, and retirement in particular. However, the right advisor can help you take a fresh look at your finances and suggest strategies you might not be aware of.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

Have you thought about where you’ll live after you retire? Do you dream of taking the opportunity to live in a different state, or even a different country – or have you always looked forward to staying where you are, surrounded by friends and loved ones? The San Francisco Chronicle recently published an online article that suggests staying put might be the best option.  The author points out a number of concerns retirees should be aware of before relocating, including:

• Replacing Support Services and Trusted Advisors: Making a major move means finding new professionals to advise you and provide support as you age. Knowing who to trust in a new environment can be tricky, and following bad advice can have serious consequences.
• Finding a New Social Network: Relocating involves leaving behind the relationships and sense of community that you’ve built over time. Will you be able to build a new social network and sense of stability in your new home?
• Paying for the New Lifestyle: It can be tempting to retire to a new location in search of a lower cost of living, but cost of living involves more than just real estate prices. You’ll also need to look into state tax rates, property taxes, and insurance costs, among other expenses.
•  Burdening Family Care Givers: As we get older and begin to experience declines in health, the role of family caregivers comes to the forefront. Many seniors rely on their children or other relatives to provide at least a portion of their care. The farther apart you and your family members live, the more difficult care giving arrangements can become.

The article advises a “look before you leap” approach, suggesting that you invest the time to research a new community before deciding to relocate, and that you get feedback from your loved ones about your plans.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

Although traditional 401(k)’s are more prevalent, an increasing number of employers have begun to offer their employees a new retirement savings option: the Roth 401(k). What’s the difference between the two?

Traditional 401(k)

A traditional 401(k) offers tax-deferred retirement savings.  You contribute money to your retirement plan using before-tax dollars, which means that the IRS does not count the money that goes into your 401(k) as taxable income. Many employers offer a matching program, under which the employer makes contributes additional funds to an employee’s retirement plan, based on the employee’s own contributions. When the time comes to take distributions from your traditional 401(k), those distributions are taxed as income.

Roth 401(k)

 A Roth 401(k) offers tax-free retirement savings, and it acts as a hybrid of a traditional 401(k) and a Roth IRA.  Like a traditional 401(k), there’s no income limit when it comes to making contributions.  This is in contrast to a Roth IRA; eligibility to contribute to a Roth IRA is phased out for single taxpayers who earn between $107,000 and $122,000 annually, and for married taxpayers who file jointly and earn between $ 169,000 and $179,000.

Also like a traditional 401(k), a Roth 401(k) carries with it a higher contribution limit. In 2011, you can contribute up to $16,500 to a traditional or Roth 401(k), whereas contributions to a Roth IRA are limited to $5,000 ($6,000 if you’re age 50 or older).

Contributions to a Roth 401(k) are made with after-tax dollars. Although you don’t get a tax deduction for money paid into your Roth 401(k), once you reach age 59 ½, distributions are generally not subject to income tax. If your employer offers a matching program for your Roth 401(k), the funds contributed by your employer are treated like traditional 401(k) funds; they’re made with pre-tax dollars, held in a separate account, and taxed when distributions are taken during retirement.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

Unlike term life insurance, which provides a death benefit to one or more named beneficiaries if the insured dies within the specified term of coverage, whole life insurance provides lifetime coverage and combines a death benefit with an investment feature that allows the policy to build cash value. Here’s how it works:

When you purchase whole life insurance, you’ll pay policy premiums. A portion of your premiums goes toward the actual life insurance component of the policy. So, if your policy if paid up at the time of your death, your beneficiary will receive a predetermined death benefit. The other portion of your premiums is invested by the insurance company, and this is where the cash value of the policy comes from. Once your policy builds cash value, you can borrow against it during your lifetime.

Many whole life policies are advertised as methods of investing for retirement; however, before you choose such a policy, you’ll want to do some careful research.  First, you’ll want to make sure that the investment, or “forced savings,” feature of the policy actually makes sense when compared to other retirement savings options.  Second, you’ll want to make sure you understand each fee and commission that comes with the policy.

Whether whole life insurance is the right choice for you depends on a number of factors, including your age, the purpose for which you’re purchasing the policy, and the specific terms of the policy you’re considering.

If you have questions about life insurance and its role in the retirement and estate planning process, a qualified estate planning attorney can help you.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

The age at which you start receiving Social Security retirement benefits can have quite an effect on the amount of benefits you receive each month.  You’re allowed to start drawing benefits when you reach age 72, but making this decision means your monthly Social Security check will be permanently reduced. Waiting until “full retirement age” (between ages 65 and 67, depending on your year of birth) leads to an increased monthly benefit amount, and you can maximize your monthly benefit if you wait until age 70 to begin drawing Social Security.

According to a study published by Boston College’s Center for Retirement Research, most married men decide to start drawing benefits early, at age 62 or 63.  If a married woman has earned less than her husband,  her benefits are tied to her husband’s work  records, so the decision to take early Social Security reduces both the  husband’s and the  wife’s monthly  Social Security check. The full impact of this decision, however, is often felt by the wives rather than by the husbands themselves.

Why is this?  On average, wives tend to be younger than their husbands. Couple this with the fact that women have a longer life expectancy than men, and the result is wives who typically outlive their husbands for a number of years.  When a wife’s Social Security survivor’s benefit is  based on her husband’s work history,  the permanent reduction in the monthly benefit amount can have a huge impact on her income.

If you’re a married man, this is one more reason to think carefully before you decide to take early Social Security benefits.  By drawing benefits before it’s necessary, you could unintentionally be shortchanging your wife.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

One of the advantages to having a Roth IRA is that the rules for taking withdrawals are more relaxed than for other types of retirement accounts. Most of the time, Roth withdrawals are tax-free, and this is sometimes even the case if you take money out of your account before you turn 59 ½.

Over Age 59 ½

If you’re over age 59 ½, and you’ve had your Roth IRA for five years or more, then all your withdrawals are completely tax-free. This includes the amount you’ve actually contributed to the Roth, and all the account earnings, too.

What if you’re over 59 ½, but you haven’t had the account for at least five years? Then any amount you withdraw that’s over and above what you’ve actually contributed to the account would be subject to income taxes.

Under Age 59 ½

If you’re under age 59 ½, a couple of different scenarios are possible:

• If the amount you’re withdrawing is equal to or less than the amount you’ve contributed to the account, then your withdrawal is tax-free, no matter how long you’ve had the account.
• If you’re withdrawing earnings along with your contribution amount, then you’ll pay a penalty of 10%.
• If you’ve had the account for less than five years and you’re withdrawing earnings along with your contribution amount, then you’ll not only pay a 10% penalty, you’ll also pay income tax on the amount of earnings you’re withdrawing.

Keep in mind that these rules only apply to funds that have been in your Roth IRA since it was established. There are different rules for funds in your Roth that were converted from a traditional IRA.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

Once you’ve decided whether a traditional or a Roth IRA is more appropriate for you, it’s time to actually open your account.

Step One: Decide Where To Invest

The hardest part of starting an IRA is deciding where to invest, and you’ll want to spend time researching your options before you open an account. When it comes to opening an account, you have three main choices: investing with your local bank, a brokerage firm, or a mutual fund. Where you choose to invest your money will depend on how much you’re planning to contribute to your IRA and how many investment options you want.

• Banks: If you only have a small amount to invest, opening an IRA through a bank can be a good option. Some banks will allow you to open an account for just a couple hundred dollars. If you’re considering this option, you’ll want to keep an eye on the fees and check to make sure your bank offers the investment options you want.
• Brokerage Firm: On the other end of the spectrum, there’s the brokerage firm. If you have a more substantial amount of money to invest, and want a wide variety of investment options – including the chance to choose your own mix of individual securities – then this might be the right option for you.
• Mutual Funds: If you have more than the bare minimum to invest, but still prefer to keep things simple, a mutual fund might be an attractive option. There’s no need to select individual securities in order to strike the right balance of high yield and low risk investments, so you don’t have to be an experienced investor. But, there are likely enough options available that you can find a fund that suits your needs.

As you explore your options, you’ll want to think about the following questions:

• What is the minimum initial investment?
• Does the institution require a minimum monthly contribution?
• Once you start an account, what exactly are your investment options?
• What fees are associated with the account?

Step Two: Open and Fund the Account

Once you’ve decided where to invest, the actual process of opening an account is relatively simple. Each financial institution has its own paperwork for you to fill out, and you’ll of course need to provide identification. Once the account is open, you’ll fund it with your initial investment and proceed from there.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

The first step in figuring out if you’ll be able to retire when you want to is to sit down and take a look at all of the benefits that you’ll have available when the time comes. And, who knows…you may be surprised at the resources you’ll have.

Here are some things to consider:

1. Social Security: This might be the most obvious. Sit down with your most recent social security benefits statement, and take a look at how much you can expect to receive in retirement benefits. You should also review the statement to make sure it accurately reflects your earnings history. If there are mistakes, contact the Social Security Administration. If you’re worried about not having enough retirement income, you may want to consider delaying your retirement. A visit to www.ssa.gov can show you how much your benefits could increase if you waited just a few years to retire.
2. Pension: If you’re eligible for a pension, make sure you know how much your monthly benefit will be. It’s also a good idea to check with your employer to find out what the procedure is for applying for your pension – you don’t want your benefits to be delayed.
3. Retirement Savings: Do you know the balance of your 401(k), IRA, or other retirement savings plans? Now is the time to check on balances and re-allocate your investments, if necessary. And, if you’re younger than 59 ½, avoid taking early distributions – you don’t want to pay penalties. Plus, the less you withdraw now, the more you’ll have available later.
4. Health Benefits: You know about applying for Medicare, but have you checked with your employer to see if you have supplemental health insurance available to you? What about discounted long-term care insurance? And, if you’re planning to retire early, don’t forget to look into COBRA benefits.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

Under normal IRA rules, you’re only allowed to contribute as much money to your IRA as you’ve earned in any given year, up to a maximum contribution limit for 2010 of $5,000 ($6,000, if you’re 50 or older). Unearned income, such as interest or dividends, doesn’t count. So, if you’re under age 50 and you only had earnings of $3,500 this year, then, under normal circumstances, that’s all you’re allowed to contribute to your IRA.

But, there’s a special rule for spouses who file a joint tax return, when one spouse stays at home or otherwise does not have earnings. In this situation, the stay-at-home spouse can still make a contribution to his or her IRA, up to the normal contribution limits, as long as the working spouse earns enough to cover the contribution.

Keep in mind that the regular phase-out rules still apply. So, if you’re a stay-at-home mom or dad, and your spouse’s modified adjusted gross income is $177,000 or more, then contributions to a traditional IRA are not tax deductible. And, if you’re in this income range, you can’t contribute to a Roth IRA at all.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.

If you’re nearing retirement age, and you’ll be drawing a pension in addition to social security, you can count yourself as one of the lucky few. Pensions are becoming less and less common these days.

You may be wondering whether your pension benefits will have any effect on how much social security you can expect to receive. The good news is that, with few exceptions, your pension should not reduce your social security benefits. For example, if you’ve always worked for a private employer, then you’ll receive your full pension, plus your full social security benefit.

However, if part of you working years were spent with the civil service or a state or federal government agency where social security taxes weren’t deducted from your paycheck, then you may end up with reduced social security benefits.

It’s called the Windfall Elimination Provision, and it took effect in 1983, in an effort to make payment of social security benefits more fair. The aim of the provision is to keep workers who received wages during their working years without paying into the social security system, from receiving too large a share of benefits during retirement.

There are some safeguards built into the system. For instance, the provision doesn’t apply to wages earned before 1957. Also, there’s a threshold built into the provision, so that social security benefits can’t be reduced below a certain amount.

For detailed information about the Windfall Elimination Provision, you can log on www.ssa.gov.

The Law Offices of James A. Miller is a member of the American Academy of Estate Planning Attorneys.