Month: August 2017

Americans without access to 401(k) plans can still save for retirement, thanks to many other vehicles (which can also be used by individuals with 401(k) plans who want to supplement their savings). Two types of individual retirement accounts (IRAs) are available: traditional IRAs and Roth IRAs. Traditional IRAs are tax-deductible in the year you make the contribution (thus lowering your taxable income), and withdrawals are taxed at income tax rates. With Roth IRAs, contributions are made with after-tax dollars, but future withdrawals are tax-free. Whichever you choose may depend on how much you expect to earn in retirement – if more, consider a Roth; if less, a traditional IRA.

More options:

• A myRA account is a Roth retirement savings account developed by the U.S. Department of the Treasury for people without access to another plan. There’s no charge to open a myRA.
• To contribute to a Health Savings Account (HSA), you’ll need a high-deductible health insurance plan. If you have one, though, the benefits are much like those of traditional IRAs. Contributions are tax-deductible in the year you make them, the money grows tax-deferred, and withdrawals made are tax-free as long as they are used for medical expenses.
• With a fixed annuity, you give an insurance company a lump sum now, or payments over time, and when you retire, the company provides a stream of income that can last a specified period of time or for your lifetime.

Note: This material has been prepared for informational purposes only and is not intended to provide financial advice.

Americans’ debt is growing. Should this be a concern to you, particularly as you near retirement?

Total household debt rose to $12.73 trillion in the first quarter of 2017, according to the Federal Reserve Bank of New York. That is $149 billion higher than it was at the end of 2016. In fact, today’s debt level is so high, it tops what it was in 2008 – the midst of the financial crisis.

Maybe, but…

Conventional wisdom holds that you should seek to lower your debt. That’s true, especially as you near retirement, when you will want to live modestly.

Not necessarily

But from a macroeconomic perspective, higher debt levels can be positive because they indicate that banks are comfortable lending, leading to increased consumer spending, which drives economic growth.

It’s also interesting to note that today’s debt is different from the debt we experienced during the financial crisis. Mortgage balances still make up the bulk of household debt, but these are declining, as are credit card balances. And a larger percentage of today’s debt is held by more creditworthy borrowers than in 2008, according to the New York Fed. So it’s unlikely that we are in the midst of another lending bubble.

That said, if you are in debt, you may want to look into ways to pay it down. High-interest-rate debt, such as on credit cards, usually should be paid off first, while low-interest-rate debt, like mortgages, is generally paid off last (especially if the interest is tax-deductible, as mortgage interest often is).

Many people struggle with whether to pay off debt or save for retirement. There is no one-size-fits-all answer, but conventional wisdom says that one should pay off debt first only if the interest rate on it is higher than the income you can earn by saving and investing.

Confused? Your adviser can help by discussing your options with you.