Considering the high interest rates that apply to many credit cards and other types of consumer loans, is it a good idea to borrow from your 401(k) instead? It often depends on your job security and how you intend to use the money. About 87% of 401(k) participants are in plans that offer loans. But just because you can get a loan doesn’t mean you should. Know the rules. Under IRS rules, loans are limited to the lesser of $50,000 or 50% of the vested account balance. Loans must be repaid within five years (longer terms may be allowed for a home purchase). However, each plan is allowed to set its own interest rates and repayment policies. The good news is that even though the plan is required to charge interest, the interest is paid back to your own account. Understand the risks. Borrowed money isn’t pursuing investment returns, which could result in a retirement income shortfall. Also, if you leave your employer, the loan generally must be repaid within 60 to 90 days. Failing to repay on time means the outstanding balance may be treated as a distribution. Distributions from employer-sponsored retirement plans are subject to ordinary income tax. Early withdrawals taken prior to age 59½ may be subject to a 10% federal income tax penalty. Taking out a 401(k) loan could be a better option than carrying high-interest debt. But as always, you should be careful to avoid borrowing to maintain a lifestyle you cannot afford.

This information is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2017 Broadridge Investor Communication Solutions, Inc.

Social Security and Medicare Update: 2016 Trustees Reports

The fiscal challenges facing Social Security and Medicare have been well publicized, but many Americans may not be aware of the facts behind the headlines. Each year, the Trustees of the Social Security and Medicare trust funds release detailed reports to Congress on the current financial condition and projected financial outlook of these programs. Here is some background on the trust funds and key projections from the most recent reports, which were released on June 22, 2016. What Are the Trust Funds? The Social Security program consists of two parts: the Old-Age and Survivors Insurance (OASI) program, which provides benefits for retired workers, their families, and survivors of workers; and the Disability Insurance (DI) program, which provides benefits for disabled workers and their families. Each program has a trust fund that holds the payroll taxes that are collected to pay benefits, as well as reimbursements from the U.S. Treasury’s General Fund and revenue from income taxes on benefits. Medicare also has two trust funds. The Hospital Insurance (HI) Trust Fund pays for inpatient and hospital care under Medicare Part A. The Supplementary Medical Insurance (SMI) Trust Fund comprises two accounts: one for Medicare Part B physician and outpatient costs, and the other for Medicare Part D prescription drug costs. By law, money that is not needed to pay current benefits and administrative costs is invested in special-issue Treasury securities that earn interest. As a result, the Social Security and Medicare HI trust funds have built up reserves that can be used to cover benefit obligations if payroll tax income is insufficient to pay full benefits. (SMI Trust Fund accounts are automatically balanced through premiums and revenues from the General Fund, which provides about 74% of costs, effectively subsidizing coverage.) Social Security Projections To help assess the Social Security program (OASDI) as a whole, the Trustees provide theoretical projections based on the combined trust funds. In fact, under current law, the trusts are separate, and one program’s taxes and reserves generally cannot be used to fund the other. However, a partial reallocation of payroll taxes from 2016 to 2018 has helped extend the life of the DI Trust Fund. Combined OASDI costs have exceeded non-interest revenue since 2010, but the trust fund reserves will increase through 2019 due to the interest payments. Beginning in 2020, annual costs are projected to exceed total income, and the Treasury will start withdrawing reserves to help pay benefits. If there is no congressional action, the Trustees project that the combined reserves will be depleted in 2034, the same year as projected in the 2015 report. Starting in 2034, payroll tax revenue alone should be sufficient to pay about 79% of scheduled benefits, with the percentage declining gradually to 74% by 2090. The OASI Trust Fund, considered separately, is projected to be depleted in 2035. Payroll tax revenue alone would then be sufficient to pay 77% of scheduled OASI benefits. The DI Trust Fund is expected to be depleted in 2023, seven years later than projected in last year’s report. Once the trust fund is depleted, payroll tax revenue alone would be sufficient to pay 89% of scheduled benefits. Medicare Projections Annual costs for the Medicare program have exceeded tax income since 2008, although the Trustees project slight surpluses in 2016 through 2020 before a return to deficits thereafter. The HI Trust Fund is projected to be depleted in 2028, two years earlier than estimated last year. Once the HI Trust Fund is depleted, tax and premium income would cover 87% of estimated program costs, then decline slowly to 79% in 2040 and gradually increase to 86% by 2090. COLA and Premiums The Social Security cost-of-living adjustment (COLA) and Medicare premiums for 2017 will not be calculated until October. The Trustees reports project a small 0.2% COLA, which would result in a similar Part B premium increase for about 70% of beneficiaries — primarily current beneficiaries who have Medicare premiums deducted from their Social Security benefits. For these beneficiaries, a “holdharmless” provision limits the dollar increase in the Medicare Part B premium to the dollar increase in their Social Security benefit. The remaining 30% — new enrollees, wealthier beneficiaries, and those who choose not to have premiums deducted from their Social Security payments — may see a higher Part B premium increase. The monthly base premium for these beneficiaries could rise from $121.80 in 2016 to $149.00 in 2017. Beneficiaries subject to income-related premiums would also see increases. Call to Action The fiscal challenges facing Social Security and Medicare are a result of the aging U.S. population and increasing health-care costs. Both reports urge Congress to address these challenges in the near future so that any solutions will be less drastic and may be implemented gradually, lessening the impact on the public. Although a variety of potential solutions have been on the table for some time, there has been no political consensus and little effort to take action. As the reports make clear, Social Security and Medicare are not in danger of collapsing entirely, but the clock is ticking on their ability to pay full benefits. It remains to be seen whether the next Congress will address the future of “America’s safety net.”

U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The information in this newsletter is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independentprofessional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Prepared by Broadridge Advisor Solutions. © 2016 Broadridge Investor Communication Solutions, Inc.

Most people have good intentions about saving for retirement. But few know when they should start and how much they should save.

The rewards of starting to save early for retirement far outweigh the cost of waiting. By contributing even small amounts each month, you may be able to amass a great deal over the long term. One helpful method is to allocate a specific dollar amount or percentage of your salary every month and to pay yourself as though saving for retirement were a required expense.

Here’s a hypothetical example of the cost of waiting. Two friends, Chris and Leslie, want to start saving for retirement. Chris starts saving $275 a month right away and continues to do so for 10 years, after which he stops but lets his funds continue to accumulate. Leslie waits 10 years before starting to save, then starts saving the same amount on a monthly basis. Both their accounts earn a consistent 8% rate of return. After 20 years, each would have contributed a total of $33,000 for retirement. However, Leslie, the procrastinator, would have accumulated a total of $50,646, less than half of what Chris, the early starter, would have accumulated ($112,415).*

Regardless of the method you choose, it’s extremely important to start saving now, rather than later. Even small amounts can help you greatly in the future.

*This hypothetical example of mathematical compounding is used for illustrative purposes only and does not represent the performance of any specific investment. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return involve a higher degree of investment risk. Taxes, inflation, and fees were not considered. Actual results will vary.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Employer-sponsored retirement plans are more valuable than ever. The money in them accumulates tax deferred until it is withdrawn, typically in retirement. Distributions from a tax-deferred retirement plan such as a 401(k) are taxed as ordinary income and may be subject to a 10% federal income tax penalty if withdrawn prior to age 59½. And contributions to a 401(k) plan actually reduce your taxable income.

But figuring out how to manage the assets in your retirement plan can be confusing, particularly in times of financial uncertainty.

Conventional wisdom says if you have several years until retirement, you should put the majority of your holdings in stocks. Stocks have historically outperformed other investments over the long term. That has made stocks attractive for staying ahead of inflation. Of course, past performance does not guarantee future results.

The stock market has the potential to be extremely volatile. The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Is it a safe place for your retirement money? Or should you shift more into a money market fund offering a stable but lower return?

And will the instability in the markets affect the investments that the sponsoring insurance company uses to fund its guaranteed interest contract?

If you’re participating in an employer-sponsored retirement plan, you probably have the option of shifting the money in your plan from one fund to another. You can reallocate your retirement savings to reflect the changes you see in the marketplace. Here are a few guidelines to help you make this important decision.

Consider Keeping a Portion in Stocks

In spite of its volatility, the stock market may still be an appropriate place for your investment dollars — particularly over the long term. And retirement planning is a long-term proposition.

Since most retirement plans are funded by automatic payroll deductions, they achieve a concept known as dollar-cost averaging. Dollar-cost averaging can take some of the sting out of a descending market.

Dollar-cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of the fluctuating prices of such securities. You should consider your financial ability to continue making purchases through periods of low price levels. Dollar cost averaging can be an effective way for investors to accumulate shares to help meet long-term goals.

Diversify

Diversification is a basic principle of investing. Spreading your holdings among several different investments (stocks, bonds, etc.) may lessen your potential loss in any one investment.

Do the same for the assets in your retirement plan.

Keep in mind, however, that diversification does not guarantee a profit or protect against investment loss; it is a method used to help manage investment risk.

Find Out About the Guaranteed Interest Contract

A guaranteed interest contract offers a set rate of return for a specific period of time, and it is typically backed by an insurance company. Generally, these contracts are very safe, but they still depend on the security of the company that issues them.

If you’re worried, take a look at the company’s rating. The four main insurance company rating agencies are A.M. Best, Moody’s, Standard & Poor’s, and Fitch Ratings. A.M. Best ratings are based on financial conditions and operating performance; Fitch Ratings, Moody’s, and Standard & Poor’s ratings are based on claims-paying ability. You should be able to find copies of these guides at your local library.

Periodically Review Your Plan’s Performance

You are likely to have the chance to shift assets from one fund to another. Use these opportunities to review your plan’s performance. The markets change. You may want to adjust your investments based on your particular situation.

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The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Estimating your future Social Security benefits used to be a difficult task, but not any longer. For an estimate of your projected benefits, go to www.ssa.gov/estimator. The retirement estimator gives estimates based on your actual Social Security earnings record.

The website form will ask you for a number of facts, including your name, Social Security number, date and place of birth, your mother’s maiden name, additional information you provide about future earnings, and the age at which you expect to stop working.

Based on this information and your actual earnings history as maintained by the Social Security Administration, the Retirement Estimator generates an estimate of the amount you would receive if you were to retire at age 62 (the earliest date you can receive benefits), the amount if you waited until full retirement age (which currently ranges from 65 to 67, based on year of birth), and the larger benefit you would receive if you continued working until age 70 before claiming retirement benefits.

It’s interesting to note that the 2015 Social Security Trustees Report includes a warning about the serious problems facing Social Security in the future. The trustees indicated that program costs (benefits paid) have been more than non-interest income (Social Security payroll taxes) since 2010, and they expect this situation to continue. Without changes, the Social Security Trust Fund will be exhausted by 2034 and there will be enough money to pay only about 79 cents for each dollar of scheduled benefits at that time, declining to 73 cents by 2089 (based on the current formula).1 This is a reminder that taxpayers are ultimately responsible for funding their own retirements and that their future Social Security benefits may be lower than indicated by the Retirement Estimator.

Source: 1) Social Security Administration, 2015

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The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC