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May 24, 2019

Understanding Social Security

May 24, 2019
Understanding Social Security

Approximately 67 million people today receive some form of Social Security benefits, including retirement, disability, survivor, and family benefits. (Source: Fast Facts & Figures About Social Security, 2018) Although most people receiving Social Security are retired, you and your family members may be eligible for benefits at any age, depending on your circumstances

How does Social Security work?

The Social Security system is based on a simple premise: Throughout your career, you pay a portion of your earnings into a trust fund by paying Social Security or self-employment taxes. Your employer, if any, contributes an equal amount. In return, you receive certain benefits that can provide income to you when you need it most–at retirement or when you become disabled, for instance. Your family members can receive benefits based on your earnings record, too. The amount of benefits that you and your family members receive depends on several factors, including your average lifetime earnings, your date of birth, and the type of benefit that you’re applying for.

Your earnings and the taxes you pay are reported to the Social Security Administration (SSA) by your employer, or if you are self-employed, by the Internal Revenue Service. The SSA uses your Social Security number to track your earnings and your benefits.

You can find out more about future Social Security benefits by signing up for a my Social Security account at the Social Security website, ssa.gov, so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60. You can also use the Retirement Estimator calculator on the Social Security website, as well as other benefit calculators that can help you estimate disability and survivor benefits.

Social Security eligibility

When you work and pay Social Security taxes, you earn credits that enable you to qualify for Social Security benefits. You can earn up to 4 credits per year, depending on the amount of income that you have. Most people must build up 40 credits (10 years of work) to be eligible for Social Security retirement benefits, but need fewer credits to be eligible for disability benefits or for their family members to be eligible for survivor benefits.

Your retirement benefits

Your Social Security retirement benefit is based on your average earnings over your working career. Your age at the time you start receiving Social Security retirement benefits also affects your benefit amount. If you were born between 1943 and 1954, your full retirement age is 66. Full retirement age increases in two-month increments thereafter, until it reaches age 67 for anyone born in 1960 or later.

But you don’t have to wait until full retirement age to begin receiving benefits. No matter what your full retirement age, you can begin receiving early retirement benefits at age 62. Doing so is sometimes advantageous: Although you’ll receive a reduced benefit if you retire early, you’ll receive benefits for a longer period than someone who retires at full retirement age.

You can also choose to delay receiving retirement benefits past full retirement age. If you delay retirement, the Social Security benefit that you eventually receive will be as much as 8 percent higher. That’s because you’ll receive a delayed retirement credit for each month that you delay receiving retirement benefits, up to age 70. The amount of this credit varies, depending on your year of birth.

Disability benefits

If you become disabled, you may be eligible for Social Security disability benefits. The SSA defines disability as a physical or mental condition severe enough to prevent a person from performing substantial work of any kind for at least a year. This is a strict definition of disability, so if you’re only temporarily disabled, don’t expect to receive Social Security disability benefits–benefits won’t begin until the sixth full month after the onset of your disability. And because processing your claim may take some time, apply for disability benefits as soon as you realize that your disability will be long term.

Family benefits

If you begin receiving retirement or disability benefits, your family members might also be eligible to receive benefits based on your earnings record. Eligible family members may include:

·            Your spouse age 62 or older, if married at least 1 year

·            Your former spouse age 62 or older, if you were married at least 10 years

·            Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled

·            Your children under age 18, if unmarried

·            Your children under age 19, if full-time students (through grade 12) or disabled

·            Your children older than 18, if severely disabled

Each family member may receive a benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately. Your benefit won’t be affected.

Survivor benefits

When you die, your family members may qualify for survivor benefits based on your earnings record. These family members include:

·            Your widow(er) or ex-spouse age 60 or older (or age 50 or older if disabled)

·            Your widow(er) or ex-spouse at any age, if caring for your child who is under 16 or disabled

·            Your children under 18, if unmarried

·            Your children under age 19, if full-time students (through grade 12) or disabled

·            Your children older than 18, if severely disabled

·            Your parents, if they depended on you for at least half of their support

·            Your widow(er) or children may also receive a one-time $255 death benefit immediately after you die.

Applying for Social Security benefits

The SSA recommends apply for benefits online at the SSA website, but you can also apply by calling (800) 772-1213 or by making an appointment at your local SSA office. The SSA suggests that you apply for benefits three months before you want your benefits to start. If you’re applying for disability or survivor benefits, apply as soon as you are eligible.

Depending on the type of Social Security benefits that you are applying for, you will be asked to furnish certain records, such as a birth certificate, W-2 forms, and verification of your Social Security number and citizenship. The documents must be original or certified copies. If any of your family members are applying for benefits, they will be expected to submit similar documentation. The SSA representative will let you know which documents you need and help you get any documents you don’t already have.

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Social Security Retirement Benefits

May 24, 2019

Social Security was originally intended to provide older Americans with continuing income after retirement. Today, though the scope of Social Security has been widened to include survivor, disability, and other benefits, retirement benefits are still the cornerstone of the program.

How do you qualify for retirement benefits?

When you work and pay Social Security taxes (FICA on some pay stubs), you earn Social Security credits. You can earn up to 4 credits each year. If you were born after 1928, you need 40 credits (10 years of work) to be eligible for retirement benefits.

How much will your retirement benefit be?

Your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily. Your age at the time you start receiving benefits also affects your benefit amount. Although you can retire early at age 62, the longer you wait to retire (up to age 70), the higher your retirement benefit.

You can find out more about future Social Security benefits by signing up for a my Social Security account at the Social Security website, ssa.gov, so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60. You can also use the Retirement Estimator calculator on the Social Security website, as well as other benefit calculators that can help you estimate disability and survivor benefits.

Retiring at full retirement age

Your full retirement age depends on the year in which you were born.

If you were born in: Your full retirement age is:

1943-1954              66

1955                       66 and 2 months

1956                       66 and 4 months

1957                       66 and 6 months

1958                       66 and 8 months

1959                       66 and 10 months

1960 and later        67

If you were born on January 1 of any year, refer to the previous year to determine your full retirement age.

If you retire at full retirement age, you’ll receive an unreduced retirement benefit.

Retiring early will reduce your benefit

You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you retire early, your Social Security benefit will be less than if you wait until your full retirement age to begin receiving benefits. Your retirement benefit will be reduced by 5/9ths of 1 percent for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. For example, if your full retirement age is 67, you’ll receive about 30 percent less if you retire at age 62 than if you wait until age 67 to retire. This reduction is permanent — you won’t be eligible for a benefit increase once you reach full retirement age.

However, even though your monthly benefit will be less, you might receive the same or more total lifetime benefits as you would have had you waited until full retirement age to start collecting benefits. That’s because even though you’ll receive less per month, you might receive benefits over a longer period of time.

Delaying retirement will increase your benefit

For each month that you delay receiving Social Security retirement benefits past your full retirement age, your benefit will increase by a certain percentage. This percentage varies depending on your year of birth. For example, if you were born in 1943 or later, your benefit will increase 8 percent for each year that you delay receiving benefits, up until age 70. In addition, working past your full retirement age has another benefit: It allows you to add years of earnings to your Social Security record. As a result, you may receive a higher benefit when you do retire, especially if your earnings are higher than in previous years.

Working may affect your retirement benefit

You can work and still receive Social Security retirement benefits, but the income that you earn before you reach full retirement age may affect the amount of benefit that you receive. Here’s how:

•           If you’re under full retirement age: $1 in benefits will be deducted for every $2 in earnings you have above the annual limit

•           In the year you reach full retirement age: $1 in benefits will be deducted for every $3 you earn over the annual limit (a different limit applies here) until the month you reach full retirement age

Once you reach full retirement age, you can work and earn as much income as you want without reducing your Social Security retirement benefit. And keep in mind that if some of your benefits are withheld prior to your full retirement age, you’ll generally receive a higher monthly benefit at full retirement age, because after retirement age the SSA recalculates your benefit every year and gives you credit for those withheld earnings

Retirement benefits for qualified family members

Even if your spouse has never worked outside your home or in a job covered by Social Security, he or she may be eligible for spousal benefits based on your Social Security earnings record. Other members of your family may also be eligible. Retirement benefits are generally paid to family members who relied on your income for financial support. If you’re receiving retirement benefits, the members of your family who may be eligible for family benefits include:

             Your spouse age 62 or older, if married at least one year

•           Your former spouse age 62 or older, if you were married at least 10 years

•           Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled

•           Your unmarried child under age 18

•           Your unmarried child under age 19 if a full-time student (through grade 12) or over age 18 and disabled if disability began before age 22

Your eligible family members will receive a monthly benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately. Your benefit won’t be affected.

How do you apply for Social Security retirement benefits?

The SSA recommends that you apply three months before you want your benefits to start. To apply, fill out an application on the SSA website, call the SSA at (800) 772-1213, or make an appointment at your local SSA office.

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Income Tax Planning and 529 Plans

May 24, 2019

The income tax benefits offered by 529 plans make these plans attractive to parents (and others) who are saving for college or K-12 tuition. Qualified withdrawals from a 529 plan are tax free at the federal level, and some states also offer tax breaks to their residents. It’s important to evaluate the federal and state tax consequences of plan withdrawals and contributions before you invest in a 529 plan.

Federal income tax treatment of qualified withdrawals
There are two types of 529 plans — savings plans and prepaid tuition plans. The federal income tax treatment of these plans is identical. Your contributions accumulate tax deferred, which means that you don’t pay income taxes on the earnings each year. Then, if you withdraw funds to pay the beneficiary’s qualified education expenses, the earnings portion of your withdrawal is free from federal income tax. This feature presents a significant opportunity to help you accumulate funds for college.

Qualified education expenses for 529 savings plans include the full cost of tuition, fees, room and board, books, equipment, and computers for college and graduate school, plus K-12 tuition expenses for enrollment at an elementary or secondary public, private, or religious school up to $10,000 per year.

Qualified education expenses for 529 prepaid tuition plans generally include tuition and fees for college only (not graduate school) at the colleges that participate in the plan.

State income tax treatment of qualified withdrawals
States differ in the 529 plan tax benefits they offer to their residents. For example, some states may offer no tax benefits, while others may exempt earnings on qualified withdrawals from state income tax and/or offer a deduction for contributions. However, keep in mind that states may limit their tax benefits to individuals who participate in the in-state 529 plan.

You should look to your own state’s laws to determine the income tax treatment of contributions and withdrawals. In general, you won’t be required to pay income taxes to another state simply because you opened a 529 account in that state. But you’ll probably be taxed in your state of residency on the earnings distributed by your 529 plan (whatever state sponsored it) if the withdrawal in not used to pay the beneficiary’s qualified educations expenses.

529 account owners who are interested in making K-12 contributions or withdrawals should understand their state’s rules regarding how K-12 funds will be treated for tax purposes. States may not follow the federal tax treatment.

Income tax treatment of nonqualified withdrawals (federal and state)
If you make a nonqualified withdrawal (i.e., one not used for qualified education expenses), the earnings portion of the distribution will usually be taxable on your federal (and probably state) income tax return in the year of the distribution. The earnings are usually taxed at the rate of the person who receives the distribution (known as the distributee). In most cases, the account owner will be the distributee. Some plans specify who the distributee is, while others may allow you (as the account owner) to determine the recipient of a nonqualified withdrawal.

You’ll also pay a federal 10% penalty on the earnings portion of the nonqualified withdrawal. There are a couple of exceptions, though. The penalty is generally waived if you terminate the 529 account because the beneficiary has died or become disabled, or if you withdraw funds not needed for college because the beneficiary has received a scholarship. A state penalty may also apply.

Deducting your contributions to a 529 plan
Unfortunately, you can’t claim a federal income tax deduction for your contributions to a 529 plan. Depending on where you live, though, you may qualify for a deduction on your state income tax return. A number of states offer a state income tax deduction for contributions to a 529 plan. Again, keep in mind that most states let you claim an income tax deduction on your state tax return only if you contribute to your own state’s 529 plan.

Many states that offer a deduction for contributions impose a deduction cap, or limitation, on the amount of the deduction. For example, if you contribute $10,000 to your child’s 529 plan this year, your state might allow you to deduct only $4,000 on your state income tax return. Check the details of your 529 plan and the tax laws of your state to learn whether your state imposes a deduction cap.

Also, if you’re planning to claim a state income tax deduction for your contributions, you should learn whether your state applies income recapture rules to 529 plans. Income recapture means that deductions allowed in one year may be required to be reported as taxable income if you make a nonqualified withdrawal from the 529 plan in a later year. Again, check the laws of your state for details.

Coordination with Coverdell account and education tax credits
You can fund a Coverdell education savings account and a 529 account in the same year for the same beneficiary without triggering a penalty.

You can also claim an education tax credit (American Opportunity credit or Lifetime Learning credit) in the same year you withdraw funds from a 529 plan to pay for qualified education expenses. But your 529 plan withdrawal will not be completely tax free on your federal income tax return if it’s used to cover the same education expenses that you are using to qualify for an education credit. (When calculating the amount of your qualified education expenses for purposes of your 529 withdrawal, you’ll have to reduce your qualified expenses figure by any expenses used to compute the education tax credit.)

Note: Before investing in a 529 plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses – which contain this and other information about the investment options, underlying investments, and investment company – can be obtained by contacting your financial professional. You should read these materials carefully before investing. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. Investment earnings accumulate on a tax-deferred basis, and withdrawals are tax-free as long as they are used for qualified higher-education expenses. For withdrawals not used for qualified higher-education expenses, earnings may be subject to taxation as ordinary income and possibly a 10% federal income tax penalty. The tax implications of a 529 plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also be aware that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers. These other state benefits may include financial aid, scholarship funds, and protection from creditors.

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Housing Options for Older Individuals

May 23, 2019

As you grow older, your housing needs may change. Maybe you’ll get tired of doing yardwork. You might want to retire in sunny Florida or live close to your grandchildren in Illinois. Perhaps you’ll need to live in a nursing home or an assisted-living facility. Or, after considering your options, you may even decide to stay where you are. When the time comes to evaluate your housing situation, you’ll have numerous options available to you.

There’s no place like home


Are you able to take care of your home by yourself? If your answer is no, that doesn’t necessarily mean it’s time to move. Maybe a family member can help you with chores and shopping. Or perhaps you can hire someone to clean your house, mow your lawn, and help you with personal care. You may want to stay in your home because you have memories of raising your family there. On the other hand, change may be just what you need to get a new perspective on life. To evaluate whether you can continue living in your home or if it’s time for you to move, consider the following questions:

• How willing are you to let someone else help you?

• Can you afford to hire help, or will you need to rely on friends, relatives, or volunteers?                                                                          

• How far do you live from family and/or friends?

• How close do you live to public transportation?

• How easily can you renovate your home to address your physical needs?

• How easily do you adjust to change?

• How easily do you make friends?

• How does your family feel about you moving or about you staying in your own home?

• How does your spouse feel about moving?

Hey kids, Mom and Dad are moving in!

 

If you are moving in with your child, will you have adequate privacy? Will you be able to move around in your child’s home easily? If not, you might ask him or her to install devices that will make your life easier, such as tub or shower grab bars and easy-to-open handles on doors.

You’ll also want to consider the emotional consequences of moving in with your child. If you move closer to your child, will you expect him or her to take you shopping or to include you in every social event? Will you feel in the way? Will your child expect you to help with cooking, cleaning, and baby-sitting? Or, will he or she expect you to do little or nothing? How will other members of the family feel? Get these questions out in the open before you consider moving in.

Talk about important financial issues with your child before you agree to move in. This may help avoid conflicts or hurt feelings later. Here are some suggestions to get the conversation flowing:

• Will he or she expect you to contribute money toward household expenses?

• Will you feel guilty if you don’t contribute money toward household expenses?

• Will you feel the need to critique his or her spending habits, or are you afraid that he or she will critique yours?

• Can your child afford to remodel his or her home to fit your needs?

• Do you have enough money to support yourself during retirement?

• How do you feel about your child supporting you financially?

Assisted-living options

 

Assisted-living facilities typically offer rental rooms or apartments, housekeeping services, meals, social activities, and transportation. The primary focus of an assisted-living facility is social, not medical, but some facilities do provide limited medical care. Assisted-living facilities can be state-licensed or unlicensed, and they primarily serve senior citizens who need more help than those who live in independent living communities.

Before entering an assisted-living facility, you should carefully read the contract and tour the facility. Some facilities are large, caring for over a thousand people. Others are small, caring for fewer than five people. Consider whether the facility meets your needs:

• Do you have enough privacy?

• How much personal care is provided?

• What happens if you get sick?

• Can you be asked to leave the facility if your physical or mental health deteriorates?

• Is the facility licensed or unlicensed?

• Who is in charge of health and safety?

Reading the fine print on the contract may save you a lot of time and money later if any conflict over services or care arises. If you find the terms of the contract confusing, ask a family member for help or consult an attorney. Check the financial strength of the company, especially if you’re making a long-term commitment.

As for the cost, a wide range of care is available at a wide range of prices. For example, continuing care retirement communities are significantly more expensive than other assisted-living options and usually require an entrance fee above $50,000, in addition to a monthly rental fee. Keep in mind that Medicare probably will not cover your expenses at these facilities, unless those expenses are health-care related and the facility is licensed to provide medical care.

Nursing homes

 

Nursing homes are licensed facilities that offer 24-hour access to medical care. They provide care at three levels: skilled nursing care, intermediate care, and custodial care. Individuals in nursing homes generally cannot live by themselves or without a great deal of assistance.

It is important to note that privacy in a nursing home may be very limited. Although private rooms may be available, rooms more commonly are shared. Depending on the facility selected, a nursing home may be similar to a hospital environment or may have a more residential feel. Some on-site services may include:

• Physical therapy

• Occupational therapy

• Orthopedic rehabilitation

• Speech therapy

• Dialysis treatment

• Respiratory therapy

When you choose a nursing home, pay close attention to the quality of the facility. Visit several facilities in your area, and talk to your family about your needs and wishes regarding nursing home care. In addition, remember that most people don’t remain in a nursing home indefinitely. If your physical or mental condition improves, you may be able to return home or move to a different type of facility. Contact your state department of elder services for guidelines on how to evaluate nursing homes.

Nursing homes are expensive. If you need nursing home care in the future, do you know how you will pay for it? Will you use private savings, or will you rely on Medicaid to pay for your care? If you have time to plan, consider purchasing long-term care insurance to pay for your nursing home care.

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If Long-Term Care Insurance Isn’t for You: Other Options

May 20, 2019

Long-term care insurance (LTCI) isn’t for everyone. Not only is it expensive and sometimes hard to qualify for, but there’s no guarantee you’ll ever use the benefits. But if you decide not to buy LTCI, what are your alternatives?

You saved for a rainy day–it’s here

Should the need arise, you could use your personal savings
to pay for long-term care (self-insurance). If you choose this option, you’ll
have to estimate how much money you might need to cover long-term care expenses
and start an appropriate savings plan. And though there’s a good chance that
the amount you’ll have to put aside each month to cover future medical expenses
will equal (or exceed) what you’d pay in LTCI premiums, buying LTCI is not an
option in some cases (e.g., if a pre-existing condition prevents you from
qualifying for coverage). Keep in mind, however, that if you do choose to
self-insure, there’s always the chance that your savings won’t be enough to
cover your actual long-term care expenses.

Did you hear? Medicaid pays for long-term care

Medicaid is a government-sponsored program that pays for
medical treatment. People with low incomes who are elderly, disabled, or blind
may be eligible if they meet the financial and medical requirements. These
eligibility decisions are primarily based on:

·            Income

·            Net worth

·            Need for nursing or custodial care

In most states, Medicaid subsidizes care in nursing
facilities and at home (for those who meet Medicaid guidelines). Unfortunately,
meeting Medicaid’s financial requirements is difficult. Many people are forced
to exhaust their life savings to qualify for Medicaid. A comprehensive LTCI
policy may prevent this from happening.

Life insurance–it’s not just for estate planning anymore

If you have a cash value life insurance policy,
familiarize yourself with the rules on policy loans and cash withdrawals. Most policies
allow you to access your cash value in one of these ways, but the amounts may
be limited, and there may be interest and tax consequences. Also, find out if
your policy allows you to use part of the death benefit for medical expenses or
long-term care while you are alive. (Policies with an accelerated benefits
rider typically allow this.) Should you become terminally ill, you may also
have the option to sell your life insurance policy to a viatical settlement
funding company and use the money to pay for your care. You will typically get
40 to 85 percent of the policy’s face value from a viatical settlement.

Get paid to live in your home

If you own your home outright or have a lot of equity in
your home, you could consider a reverse mortgage. Basically, a reverse mortgage
gives the lender a lien (or mortgage) on your home, and you receive either a
lump sum or prearranged monthly payments. You typically don’t have to repay the
loan as long as you live in the home. However, if you move or if the house is
sold, the loan must be repaid out of the proceeds of the sale. A reverse
mortgage can be an easy source of cash, but it could also complicate matters if
you plan on leaving your home to your heirs.

 

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What to Do after You’ve Been Automatically Enrolled in Your Company’s Retirement Plan

May 20, 2019

Theonly way you could join your company’s 401(k) plan, 403(b) plan, or 457(b) plan was to put pen to paper and sign yourself up by filling out the appropriate
forms. Now, though, in an effort to help participants increase their retirement
savings, some employers have begun enrolling their employees automatically. With automatic enrollment, you don’t fill out a form to opt into your company’s
retirement plan; you only fill out a form to opt out of it.

At first glance

Automatic enrollment sounds like a no-brainer–without doing anything, you’re
on your way to saving for retirement. But don’t just assume that the investment
decisions your employer has made on your behalf are right for you. Instead, take
charge of your own retirement savings right now by following these four steps.

Step 1: Get the facts

If you work for a company that offers
automatic enrollment, your employer will typically enroll you once you meet the
retirement plan’s eligibility requirements, and will begin to direct a certain
percentage of your paycheck (your contribution rate) into the investment fund
the company has chosen as its default.

Don’t make the mistake of thinking you
have to stick with the default elections your employer has chosen for you. Once
you’ve been automatically enrolled, you can increase (or decrease) your
contribution rate, move money from one investment option to another, or even
opt out of the plan altogether. You may even have the right in some cases to
request a refund of amounts automatically withheld from your pay.

Your employer is required to send you
information about the plan provisions and your investment options, along with
specific instructions on how to opt out if you choose not to participate in the
plan. Read the documents you receive (including your plan statements), and ask
questions about anything you don’t understand before making any investment
decisions.

Step 2: Consider your contribution rate

Like many people, you may be tempted to
stick with the contribution rate your employer has chosen for you. But this
contribution rate (typically 3 percent) may be less than you need to contribute
to target your retirement savings goal. Find out, too, if your company offers
matching funds (employers who offer matching funds to traditionally-enrolled
plan participants must offer the same match to automatically-enrolled
participants). If so, try to contribute at least enough to receive the full
match. (401(k) plans with qualified automatic contribution arrangements (QACAs)
are required to make a contribution on your behalf.)

Step 3: Review your investment options

When you’re automatically enrolled,
your contributions are invested in the plan’s default investment option
(typically a fund that includes a balanced mix of investments). But investing
in the default option may not be the best choice for you. Depending on how much
you need to save for retirement, how far away you are from retirement, and your
tolerance for risk, you may want to redirect some of your contributions into
more aggressive options that, although more volatile, offer greater potential
for long-term growth.

Note: Before investing in any mutual fund, carefully consider its investment objectives, risks, fees, and expenses, which can be found in the prospectus available from the fund. Read the prospectus carefully before investing. There is no guarantee that any
investment strategy will be successful; all investing involves risk, including
the possible loss of principal. Investments seeking to achieve higher returns
also involve a higher degree of risk.

Step 4: Check up on your plan at least once a year

Even if you’ve decided to stick with
your company’s default options for now, review your investment options at least
once a year, keeping in mind the following questions:

·         ·Are you saving enough?

·         ·Can you afford to contribute more?

·         ·Are the investments you’ve chosen still appropriate for your age
and risk tolerance?

·         ·Do you need to redirect all or some of your contributions to
better target your retirement savings goal?

As you make decisions, think about your
overall retirement plan, including where your retirement money will come (e.g.,
Social Security, 401(k) plan, pension plan), the major expenses you might have
(e.g., housing, medical care), and the lifestyle you hope to lead (e.g.,
traveling frequently, owning a second home).

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