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Financial Planning Retirement

Your Pension Plan – Inflation Adjustments for 2012

For 2012, there are a few cost of living adjustments for pension plans and other retirement-related items. Check out what to expect in the new year….

  • The contribution limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government’s Thrift Savings Plan, increases to $17,000 in 2012, from $16,500 in prior years.
  • The catch-up contribution limit in those plans for those aged 50 and over remains unchanged, at $5,500.
  • IRA contributions and catch up limits remain unchanged for 2012 at $5,000 and $1,000 respectively.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000-$66,000 in 2011.
  • For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $173,000 and $183,000 in 2012, up from $169,000 and $179,000 in 2011.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to 183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low- and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.
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How to Prepare for a Successful Retirement

As you approach retirement, it’s vital that you pay attention to key financial matters. Here are some of the items that you should check:

Health Insurance.
Are you among the lucky few who will continue to be covered after retirement? If not, then you’ll need to replace your health coverage.

If you will be eligible for Medicare at the time of your retirement, then you may want to start checking into “Medigap” coverage. Medigap insurance is a supplemental health insurance sold to individuals age 65 and older that covers medical expenses not covered or only partially covered by Medicare.

Tip: Before you retire, take care of any non-emergency medical, dental, or optical needs (if your employee plan coverage is broader than Medicare).

Other Types of Insurance.
Once you retire, you may need to replace employer-provided life insurance with extra coverage. You should also consider purchasing long-term health care insurance in case of a lengthy nursing home stay in the future.

Social Security.
Decide whether you want to take early Social Security benefits if you’re retiring before your full retirement age, which is currently 66 years of age for people born between 1943 and 1954. You can get 75% of your benefits at age 62.

Tip: For most people, taking Social Security benefits at their full retirement age makes the most financial sense. If you think you might need to take early benefits, give us a call. We’d be happy to discuss this with you.

Company Plan Payout.
You should plan well in advance how you’ll take the payout from your pension plan or 401(k) plan. For example, will you transfer the funds to an conventional or Roth IRA? How will the funds be invested?

Relocation.
If you’re planning a move to another state, make sure that you fully explore the financial ramifications of living there–before you move. Cost of living rates can vary significantly from one region of the country to another.

We Can Help. Retirement is an exciting time and planning in advance can make it a much smoother transition. Please contact us if you have any questions, need assistance or just want some additional guidance.

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