Stop worrying about retirement

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From the Merrill Edge Minute e-newsletter.

Key points

  • Planning can make a big difference to your retirement
  • Four steps — envisioning your future, determining its cost, bridging the gap between what you have and what you'll need, and monitoring your progress — can help you pursue the retirement you want
A sluggish economy and slowly recovering personal portfolios have some investors wondering when they'll retire. As the economy improves, however, the number of respondents who anticipate delaying retirement is falling, albeit slowly. According to the 2016 Employee Benefit Research Institute report 13% percent of respondents intend to retire later than anticipated, remaining the same compared to 2015.
"The best way to deal with the uncertainty is to put a process in place," says Debra Greenberg, director, IRA product management, Merrill Lynch. She suggests adopting a four-step strategy to help you pursue a secure retirement.
Planning can make a big difference to your retirement. Four steps — envisioning your future, determining its cost, bridging the gap between what you have and what you'll need, and monitoring your progress — can help you pursue the retirement you want.
These four steps can help you chart a steady course that helps put the worst of your retirement fears to rest.

Step 1: Envision your lifestyle

Not every detail of your retirement needs to be nailed down, but the answers to a few key lifestyle questions are vital:
  • When will you retire?
  • Do you expect to work part time?
  • Will you live in your current house or move to something smaller?
  • Will you travel?
"Your vision should include buy-in from your spouse or partner," Greenberg says.

Step 2: Estimate retirement cost & income

Your present budget can help you project future expenses, though you'll need to factor in higher health care costs and the cost of long-term care. With greater longevity and rising health care costs, retirement is growing more expensive. You will likely need to fund Medicare and supplemental plan premiums, in addition to co-pays and deductibles. This is in addition to paying for services not covered by traditional Medicare, such as vision, dental and long-term needs. The Merrill Edge® Retirement Evaluator can help you get a clearer picture of your retirement income sources, including 401(k)s, IRAs, pensions, Social Security, part-time employment and annuities.

Step 3: Reconcile the difference

If there's a gap between what you have and what you'll need, either bump up your contributions and investments or consider adjusting your future plans. To start, maximize tax-advantaged retirement accounts such as IRAs or employer sponsored 401(k)s, contributing at least enough to capture any company match. Investors who will turn age 50 or older during the calendar year can also make additional "catch up" contributions to 401(k)s and to traditional/Roth IRAs as noted in the chart below:
Traditional Or Roth IRAs*
  Maximum contributions for 2016 and 2017
All Contributors $5,500
Contributors Age 50+**:
(includes $1,000 catch-up contribution)
$6,500
401(k)
  Maximum employee pre-tax contributions for 2016 and 2017
All Contributors $18,000
Contributors Age 50+**:
(includes $6,500 (2016 and 2017) catch-up contributions)
$24,000

* Contributions to Traditional IRA accounts may be tax deductible. If you participate in an employer retirement plan, your contributions are generally fully deductible if your modified adjusted gross income (MAGI) is lower than the 2016 threshold of $61,000, and 2017 threshold of $62,000, for head of household or single filer. For married couples who participate in an employer retirement plan, it's $98,000 for 2016 and $99,000 for 2017. Other deduction limits for different circumstances may apply.

Generally, married couples filing separately are not entitled to a deduction for contributions to traditional IRAs. However, if you are married and file separately but do not live with your spouse at any time during the year, your maximum deduction is determined as if you were a single filer.

If neither you nor your spouse is covered by an employer retirement plan, the maximum deduction is either $5,500 or $6,500, depending on whether you will turn age 50 or over during the calendar year.

IRA contributions for 2016 can be made through 4/18/2017. IRA contributions for 2017 can be made through 4/17/2018. You generally have until April 15 of each year to make your contribution for the previous year. If April 15th falls on a weekend or holiday, the deadline typically is the next business day.

** You are treated as being age 50 or older if you will turn age 50 or older at any point during the calendar year.

Next, scrutinize your budget for costs you could eliminate without significantly affecting your lifestyle. For example, order coffee instead of a latte; drive to your next vacation destination rather than fly; or ask service providers for better deals by consolidating your phone, cable and internet services. If you're willing to take bigger steps, consider moving to a smaller home or to a state with lower taxes, Greenberg advises. Finally, build an income plan that includes both accessible cash for short-term expenses and a long-term diversified portfolio invested for growth potential to beat inflation. This can help you gradually replace your short-term reserves without being forced to sell securities when the market is down.

Step 4: Track your progress

It's tough to manage money you can't easily see. Consider simplifying your financial picture by rolling over any 401(k) accounts from previous employers or IRAs to one place. "You might have a plan that's completely out of balance as the result of market movements," Greenberg says. "Put it front and center so it gets the attention it deserves." Consider all of your choices for your 401(k) and learn if an IRA may be right for you. Footnote 1
As you move into the home stretch, aim to conduct a thorough review at least every six months to assess your progress. Your plan should be adaptable so you can adjust it as needed. For example, if you dream of cruising the Mediterranean and traveling the country in an RV but aren't sure you can afford those things, consider postponing retirement for several years. That way, you may be better able to afford to live the way you want once you retire. "You can still drive toward these goals or dreams," Greenberg says. "You just might have to adjust the timing."
Next steps
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Footnote 1 You have choices for what to do with your employer sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to rollover to an IRA or convert to a Roth IRA, rollover an employer sponsored plan from a prior employer to an employer sponsored plan at your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care. Visit merrilledge.com/rollover or call a Merrill Edge® rollover specialist at 888.637.3343 for additional information about your choices.

Did you know that there are two ways to move assets from one IRA to another? The most common is a transfer. This is when you transfer assets from an IRA held at one financial institution to an IRA at another. You may directly transfer assets between investment firms as frequently as you wish. The second, less common approach is called a rollover. Rollovers occur when you withdraw assets from an IRA and then "roll" those assets back into the same IRA or into another one within 60 days. Tax code rules limit you to one rollover per IRA owner per twelve month period. If you have questions or want to learn more call 1.888.637.3343 or consult a tax advisor.


Investment involves risk. Diversification does not ensure a profit or guarantee against loss.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Annuities are long-term investments designed to help meet retirement needs. In essence, an annuity is a contractual agreement in which payment(s) are made to an insurance company, which agrees to pay out an income or a lump sum amount at a later date. Annuity contracts have exclusions and limitations. Early withdrawals may be subject to surrender charges, and, if taken before age 59½, a 10% additional federal income tax may apply. This content should not be construed as investment advice.

Opinions are subject to change due to market conditions and fluctuations. Any investments or strategies presented do not take into account the investment objectives or financial needs of particular investors. It is important that you consider this information in the context of your personal risk tolerance, time horizon and investment goals. Always consult with personal professionals before making any investment decisions.

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