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Wells Fargo Study: 37 Percent Of Middle-Class Americans Say They Never Will Retire

10/24/2013

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RETIRE RICH

Many middle-class Americans apparently aren't expecting to live their golden years in leisurely retirement. A hefty 34 percent of them think they will work until at least the age of 80
because they haven't saved enough for retirement, according to a Wells Fargo study survey conducted by Harris Interactive. That's up from 25 percent in 2011 and 30 percent in 2012.

Opinion: Retirees to Be Hit With Social Security Cuts

37 percent say they'll never retire and will work until they are too sick or die.
What's the solution to this?
Building savings and creating a retirement plan can improve the retirements for those now in their working years, says Laurie Nordquist, head of Wells Fargo Institutional Retirement and Trust

Meanwhile, a 59 percent majority of the middle class say paying monthly bills is their chief day-to-day financial concern. That's up from 52 percent last year.
Saving for retirement takes second place, with 13 percent calling it a priority. Overall, 42 percent say saving for retirement and paying bills concurrently is impossible.

Thus 48 percent don't have confidence that they will be able to save enough for a comfortable retirement.
The survey of 1,000 middle-class Americans between the ages of 25 and 75 was conducted July 24 to Aug. 27. "For the past three years, the struggle to pay bills is a growing concern, and the prospect of saving for retirement looks dim, particularly for those in their prime saving years," Nordquist says in a statement.
"Having a plan and saving not only creates more hopefulness, but it produces results that can grow and lead to a solid retirement."

In the survey, 52 percent of the middle class say they are confident they will save enough for retirement. But only 29 percent say they have a written plan.
Among those who have a written plan, 70 percent feel confident about their retirement, while only 44 percent of those who don't have a plan feel confident. Of those who have a plan, 91 percent say they have willpower to save, compared with 75 percent for those who don't have a plan.

In the key 40-to-59 demographic, those who say they have written a plan also say they have saved $63,000 for retirement, while those who say they haven't written a plan say they have saved $20,000.
"This data so clearly shows what a difference a retirement plan makes in that people who have a plan have saved three times what those without a plan have saved," Nordquist explains. "A plan instills confidence and gives people the discipline to stick with their objectives and reach their financial goals."

As for the respondents who don't have a written retirement plan, 45 percent say it's because they have "so few financial assets." One-third of the middle class say Social Security will be their "primary" source of income in retirement.

"People say they don't have a plan because they don't have enough money," Nordquist notes. "The most important message I can impart about retirement is that planning is for everyone. It is the foundation for consistent savings, which can allow people to have the nest egg they will need in retirement and can also help people determine the role Social Security will play in their retirement."

Further, 40 percent say a large unexpected healthcare expense represents their biggest retirement fear, while and 37 percent list the loss or reduction of Social Security as fear No. 1.
As for the stock market, only 24 percent of the middle class view stocks as a good investment for retirement. Meanwhile, 45 percent say "the stock market doesn't benefit people like me."

A majority (52 percent) say they shun stocks because "I am afraid to lose my nest egg in the ups and downs of the market."
Surprisingly enough, fear of the stock market is more intense among those aged 25 to 29, with 56 percent of them afraid they would lose their savings in equities. Asked what they would do with $5,000 given to them for retirement investment, 58 percent of people in this age group say they would allocate it to a saving account or certificate of deposit.

The reluctance for stocks may stem partly from the fact that 51 percent of the middle class say they have little interest in learning about investing.
Nordquist is struck by the fear of stocks. "The middle class just isn't making the link between being invested and the potential growth of their savings, but on top of this fear is apathy. There is no interest in learning more about investing," she states. "Fear and apathy are a bad combination, whereas knowledge about saving and investing is empowering. We've got to move people to this mindset." 
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Reviewing Little-Known IRA Traps

10/11/2013

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RETIRE RICH


By Bob Carlson

IRAs seem to be simple things when we open them and begin annual contributions. Over time, as we move from the accumulation years, trickier rules kick in. This is where many people inadvertently lose portions of their nest eggs to taxes and penalties. Others simply miss opportunities they didn't know were available. Here's a review of some opportunities to consider and traps to avoid.

Establish a Roth for a youngster. A child or grandchild who worked over the summer or part-time during the year could use some encouragement and a bonus. You can contribute to a Roth IRA for the child as a gift. In 2013 you can contribute up to the lower of $5,500 or what the youngster earned from working. (Investment income doesn't count.) This amount will be a gift that qualifies for the annual gift tax exclusion of $14,000.

The Roth IRA, even if you make only one contribution, can compound over the years to provide a nice foundation for retirement. Then, money can be withdrawn tax-free. Or, the youngster can withdraw the contributions tax-free any time, such as to pay for college or use as a down payment for the first home.

Check your IRA custodial agreement. Your IRA is supposed to be protected from creditors under the bankruptcy law. But the protection doesn't apply if you committed a prohibited transaction. Many people are inadvertently committing prohibited transactions with their IRAs that void the bankruptcy protection, according to a recent court decision.

Here's how a technicality can cause trouble for an IRA. The IRA owner opened an IRA with a major brokerage firm. He had no other accounts at the broker and didn't intend to use margin lending in any account, but he didn't check the box on the application to decline margin lending that was standard with that custodian. The agreement also provided for cross-collateralization, meaning that if he took out a margin loan and couldn't pay it from other assets, the IRA could be used to pay the loan. This, according to the court, amounted to pledging the IRA to back a loan, which is a prohibited transaction.

He eventually won on an appeal, where the court ruled there isn't a prohibited transaction unless a loan actually takes place. But it was a long, expensive process, and there's no guarantee other courts will rule the same way. To be safe, you should avoid any IRA agreements that provide for cross-collateralization of loans. Many IRA custodians are in the process of removing such language from their documents.

The IRS is monitoring contributions and distributions. A congressional research report found that many IRA owners are violating either the contribution limits or required minimum distribution rules. The IRS could generate a lot of money in taxes and penalties by more closely enforcing the rules. So, you have to be sure you don't contribute too much to IRAs during the year and that you withdraw the right amounts.

Of special interest to my readers are the required minimum distributions rules after age 70½. The investigation found that a lot of people don't take the required minimum each year. The penalty for that is 50% of the amount you should have withdrawn but didn't. For a refresher on how to calculate your RMD and the deadlines, see back issues of Retirement Watch or IRS Publication 590.

Inherited IRAs. Be sure your heirs have good information about how to handle an inherited IRA, because the rules can become very tricky.

For example, when an heir decides to move an inherited IRA to a different custodian, the rollover must be directly from one trustee to another. With other IRAs, you can receive a check from the IRA custodian and take up to 60 days to deposit the same amount with the new custodian. But the 60-day rule doesn't apply to inherited IRAs. If it's not a trustee-to-trustee transfer, the entire amount is treated as a distribution even if you deposit it in a new IRA within 60 days.

Also, September 30 of the year after the original owner's passing is an important date. By then, the IRA custodian needs to be notified who the beneficiaries are and who is the "designated beneficiary,” whose age is used to determine required distributions. Also, if a non-individual, such as a charity, a trust, or the estate, was named as a co-beneficiary, the entire IRA must be emptied within five years. But if that beneficiary is paid its full share by the Sept. 30 deadline, it no longer will be a beneficiary. Required distributions then are scheduled over the life expectancy of the oldest beneficiary.

There are a host of other things heirs need to know about inherited IRAs. Do your research and get the facts before your next move turns out to be a surprise.
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The Dollar Is Winning the Race to the Bottom

10/8/2013

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RETIRE RICH

Between the actions of the Fed and the patsies in politics, there should be no surprise as to the conditions of our country's economy and our currency. Just prepare yourself for the after effects of the US dollar no longer being a reserve currency. For a common-sense approach toward surviving these inflationary times click here.

Ever since the world's central banks joined together to print money out of thin air, analysts have debated which currency would devalue the fastest. Would it be the yen, the euro, or the dollar? With the race well under way, these currencies are sprinting down the track and the dollar has a comfortable lead. In the past five months, the dollar has fallen 5%. Meanwhile, the euro has gained 3%, and the yen is up more than 5%.   And based on the following chart of the dollar index, the dollar has even further to fall.
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When we last looked at the buck back in May, the dollar index was trading at its highest level in three years. We argued the greenback was poised for a quick decline, and that's exactly what happened. The buck dropped 5% in just a couple of weeks. Today, the greenback is trading near its lowest price of the year but it still looks like it has lower to go. Look at the bottom graph of the chart, which shows the MACD momentum indicator.

The MACD indicator helps determine the strength of a trend, and it often provides an early warning sign for reversals. For example, if the chart is in a downtrend – making lower highs and lower lows – but the MACD indicator is moving higher, then it indicates the downtrend is weakening, and the chart may be ready to reverse and move higher. However, if the chart is making lower lows and the MACD is also trending lower, then the downtrend is strong and likely to continue.

The chart of the dollar index doesn't show any positive divergence. So the downtrend is intact, and the buck has further to fall.   The next obvious target for the dollar is at the support line connecting the November and February lows at 79. But if that doesn't hold, things could get ugly. Take a look at this longer-term chart...  
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A break below 79 will bring the support line at 76 into play. Either way, it looks bad for the dollar. Only an immediate move back above the previous support line near 81 could help turn the picture slightly bullish. Otherwise, look for the dollar to maintain its lead in the currency race to the bottom.  
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