Audience: Retirement Wellness Basics

Everything you Need to Know about Icon’s Fees

Posted on May 25, 2018 by -

Overview of Fees

Part of the problem with understanding fees is that there are multiple fees that go to various entities, all of which play a crucial role in your retirement plan. In the case of Icon, we’ve eliminated unnecessary costs and expenses wherever possible.

Let’s start with quickly reviewing the types of fees commonly found in a retirement plan.

Fund Management Fees

These fees can often be the most expensive cost of an account. This is the fee paid to the company that manages the investment funds. This can typically end up being an area where investors get charged large amounts in fees without ever knowing it. High-cost investments and “Dominated Funds” are easily missed by most investors and can lead to large amounts of missed earnings caused by high fees.

Icon’s average fund management fee is 0.08%, while the industry average is 0.79%*. Icon is almost 10 times less expensive.

Plan Administration and Custodial Fees

These fees cover the cost of managing and maintaining your account and include expenses such as recordkeeping, website services, account statements, customer support, etc. All retirement accounts are required to have a custodian that securely holds your savings.

Advisory Fees

This is the cost of receiving advice on how to invest. Advisors can be real people you work with who typically charge you a percentage of your total assets annually. Using a robo-advisor instead of a person can be about half the cost.

Icon does not charge advisory fees.

Icon’s Fees: A Fairer Approach

Most retirement plan providers charge a fee that is based on your total assets. This means that as you make more money, so does your plan provider. This is how fees start to eat away at your savings.

We’ve done something completely different. Icon’s fees are based on a low, flat monthly fee of $4.00.

The comparison chart below shows what you’ll pay in annual fees based on how much money you have in your account. The amounts below don’t include fund management expenses. (We’ll get to that in a minute.)

 

$50,000 $250,000 $500,000

Icon

$4.00 flat monthly

 

 $48 $48 $48

401(k)

1.13%

(Small employer average*)

 $565 $2,825 $5,650

 

Now let’s compare fees once you add in fund management expenses. This is commonly referred to as an “all-in” cost.

The chart below shows what you can expect to pay annually on a savings balance of $100,000.

 

 Average Fund Expense Plan Administration Fees Annual Fees on $100,000

Icon

 0.08% $4.00 per month $128
Typical Robo-Advisor
 0.12% 0.40% $520
Manually managed portfolios

(Traditional advisors**)

 1.13% 0.99% $2,120
State-run IRA
 0.13% 0.87% $1,000
401(k)

(Small employer)

 0.79% 1.41% $2,200

 

Employee Fiduciary Average 401(k) plans of less than $2 million pay all in 2.22%; of that, we assume the average fund fee of 79 basis points and eliminate that from the total.
2016 Price Metrix Study of Retail Wealth Management: https://www.pricemetrix.com/cms/wp-content/uploads/State-of-Retail-Wealth-2016.pdf?t=1527206648**
https://www.businesswire.com/news/home/20180129005124/en/Three-Quarters-Americans-Dark-401-Fees
https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=5696&context=ylj

The Savers Tax Credit – Are you taking advantage of it?

Posted on March 30, 2018 by -

Eligibility

f you qualify for the Saver’s Tax Credit, it can reduce your tax bill and yet, few know about it. 

To be eligible to claim the Saver’s Tax Credit, you must be:

  • 18 years or older
  • Not a full-time student
  • Not a dependent on someone else’s taxes

The amount of the credit you can receive depends on your adjusted gross income (AGI). The credit can be 50%, 20%, or 10% of your retirement plan or IRA, up to $2,000 if filing single or $4,000 if married and filing jointly.

For 2022, the adjusted gross income (AGI) eligibility requirements for the Saver’s Tax Credit are:

Percent of your retirement savings contribution that qualifies for the Savers Credit Married filing jointly AGI Head of Household AGI Single filing AGI

50%

 $39,000 $29,250 $19,500

20%

 $39,001 – $42,500 $29,250 – $31,875 $19,501 – $21,250

10%

 $42,501 – $65,000 $31,876 – $48,750 $21,251 – $32,500

 

How does the tax credit work?

The Saver’s Tax Credit is a credit for contributions made to your Traditional IRA (or other qualified retirement plan or Roth IRA). Rollovers are not eligible for the Saver’s Tax Credit. Lastly, distributions from your retirement plan should also be deducted from the total contributions when calculating your credit. For more information, please visit https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit.

Claiming the credit

To claim the credit, use Form 8880

Reverse mortgages, how do they work?

Posted on March 29, 2018 by -

Reverse mortgages allow older people to access the equity they have built up in their homes. Repayment of the equity is deferred until the person sells the home or passes away.

How a reverse mortgage works

A reverse mortgage is a form of loan that allows you to turn some of your home’s equity (the value of your home minus the amount you still owe on your mortgage) into cash.  While a reverse mortgage can be a good source of cheap credit, it is important to remember that at the end of the day, it’s a loan like any other. That means you’ll pay interest on the loan and it does, eventually need to be repaid. 

The interest rate can be either fixed (stays the same over time) or variable (it’s subject to change at the lender’s discretion). Borrowers often view reverse mortgages as preferable to other forms of credit as their interest rates tend to be on the low side, although this isn’t always the case.

Unlike a home equity line of credit, a reverse mortgage does not need to be repaid until the borrower moves, is no longer able to meet the requirements of their mortgage, or passes away. A reverse mortgage can be paid out to you in a lump sum, in regular installments, as a line of credit (on an as needed basis), or some combination thereof.

The 3 Types of reverse mortgages

Single-purpose reverse mortgages are offered by local governments and are intended for low-income homeowners.  They must be used for a specific purpose outlined by the lender (i.e. necessary home repairs). 

Federally-insured reverse mortgages, or Home Equity Conversion Mortgages (HECMs), are provided by the federal government. These are the most common type of reverse mortgage, and have no income requirements or strings attached to their use (you can use a HECM for anything you want, like a new car or a child’s wedding). 

Proprietary reverse mortgages are offered by private lenders, and offer higher levels of credit than the other types of equity loans discussed, but also generally carry higher interest rates. These are not recommended for low-income borrowers or those with a modestly valued home, as they have a history of predatory practices towards financially vulnerable clients.

As with any loan, it’s important to consider whether an increase in debt is absolutely necessary. Reverse mortgages may be preferable to more expensive forms of credit, but you should evaluate all of your options before signing up.

The downsides of having a reverse mortgage

Inability to refinance and murky terms. Reverse mortgage documents can be confusing to read so before entering into a loan agreement, make sure you fully understand the terms of the said agreement. Unfavorable terms can include: 

  • Inability to renegotiate terms or refinance, which means borrowers could be stuck paying a high interest rate (which makes the loan hard to pay off). 
  • An adjustable rate that increases quickly that often catches borrowers unaware.

High interest rates and upfront costs. Interest rates on reverse mortgages can be 1.5% higher than regular home loans, and final costs could include lender fees, mortgage insurance premiums, finance charges and closing costs, all of which eat into the total amount available to you.

A strain on heirs. If you plan to leave your property to your heirs, they will have the option of paying the loan in full or 95% of the balance. If they can’t settle this debt with their own funds, the home must be sold in order to repay the lender. Also if you decide to sell the home you will have to repay the balance as soon as your house is sold.

Loss of equity in your home. Over time, the high accrued interest on your reverse mortgages may drain any remaining equity in your home. Moreover, some homeowners have found that lenders fail to keep accurate records, and there were obstacles when attempting to prevent foreclosure—such as slow response times (critical during foreclosure), receiving erroneous information or instructions, and general unresponsiveness. Before entering into an agreement, it would be wise to seek counsel of a trusted third party reverse mortgage professional or financial advisor.

 

Disability insurance, a great safety net

Posted on March 29, 2018 by -

Your ability to make a living is one of your most important assets. What happens if you’re injured and have to stop working for a period of time? Having disability insurance is one of the best ways to help make sure you have financial security.

How disability insurance works

If you suffer from an unexpected injury or illness that prevents you from working for an extended period of time, disability insurance can provide a critical source of income until you recover.

Traditionally, employers offered disability insurance to their employees automatically or as a voluntary benefit. But the employment landscape is changing and many people do not have an employer. What hasn’t changed is the need to have a disability policy in case you can’t work for a period of time, so you don’t have to dip into your savings.

What you need to know

Disability insurance works like any other insurance policy in that you pay regular premiums to guarantee that, when you need it most, you have the financial support you need to cover your expenses.

Premiums are generally equivalent to 1-3% of your annual income, and can pay out up to 60-80% of your income for the period in which you cannot work. The amount of time disability insurance will continue to pay out depends on the policy; most cover at least two years of disability, but more expensive policies can pay out for decades.

 

 

 

Why it’s a good idea to have a will

Posted on March 29, 2018 by -

Having a will is one of the most important financial and legal steps you can do for yourself and your loved ones. Not only will it spell out exactly how you’d like things to be handled once you pass on, it will make the process of your passing easier on your loved ones.

Getting Started

The steps to create a will are simple and include choosing an executor, appointing a guardian if you have dependents, and identifying your assets and property.

Choosing an executor and guardian

This is the person you designate to make sure your wishes are known concerning your property. It will also include naming a guardian for your dependents or your children.

Identifying your assets & property

Generally, most people leave the bulk of their assets and property to their spouses and children. If this is the case, it isn’t necessary to create a detailed list of all of your possessions. Of course, if you have special items you want to go to specific people, be sure and list them out.

Updating your will

Many people will put off drafting a will because they feel their financial situation may change before their passing. However, you can update your will as your circumstances change, so it’s really never too early to reach out to an estate attorney that can assist you with drafting one.

What if you pass without a will

If it’s unclear what you intended to do with your assets and property, the government may hold onto them for an extended period of time, which can result in litigation and stressful bureaucracy. By drafting a concise and comprehensive will in consultation with an estate attorney, you can dramatically ease this process.

 

 

 

 

Using your home equity–Things to consider

Posted on March 29, 2018 by -

The equity you have in your home can be one of the most important pieces of your retirement savings. Since it’s such a critical asset, borrowing against it should be considered carefully.

Taking out a home equity line of credit or a home equity loan can be a good way to access cheap credit or consolidate other debts, but it’s important to fully understand the associated costs and benefits. Both types of loans allow you to turn some of your home’s “equity” (the value of your home minus the amount you still owe on your mortgage) into cash. The less money you still owe the bank for your mortgage, the more equity you can turn into borrowable cash.

Many people take out home equity loans because the interest rates tend to be lower than for other forms of debt. However, home equity lines of credit and home equity loans differ sharply when it comes to interest rates and availability of credit.

Home equity line of credit (HELOC)

A home equity line of credit, or HELOC, functions like a credit card; meaning you can borrow when you want to, up to a defined limit. A HELOC also resembles a credit card in that the interest rate is “variable,” a term that should set off alarm bells when you’re considering a loan because it means your interest rate is subject to fluctuations and can suddenly increase.

A “variable” interest rate is one that fluctuates over time, unlike a “fixed” interest rate, which doesn’t fluctuate during the period of the loan. HELOC interest rates are considered to be variable and are usually determined by national financial “indicators” that have nothing to do with your financial history. 

The most commonly used indicator is the “U.S. Prime Rate,” which is adjusted over time. The prime rate is used by lenders to assess how much they should charge borrowers and is not related to your credit history. Lenders will also generally add their own rate on top of this. The unpredictability of these interest rates can make it harder for you to establish a consistent repayment plan, especially if you’re on a fixed income because you can’t simply set aside the same portion of your income every month.

A situation when a HELOC might make sense is for a home renovation. That way, you only draw the money when you need it to pay for materials or labor and aren’t paying interest on the total amount of the renovation for the entire duration of the project.

Home equity loan

A home equity loan is a one-time, lump-sum loan of a specific amount of cash that is to be paid back over a set amount of time. Home equity loans generally carry a fixed interest rate, so you can expect to pay the same amount every month. Home equity loan interest rates depend on a combination of your credit score and the housing market in which you live.

Another important factor when considering a home equity loan is how it will affect your credit score. Credit agencies treat HELOCs like credit cards, so a high balance can negatively affect your score. Home equity loans, however, are treated as “installment loans” (the same type of debt as mortgages or student loans) and do not affect your score.

Before you enter into a loan agreement for either type of credit, consider how they will affect your broader financial picture. 

A close look at Social Security

Posted on March 29, 2018 by -

Social Security is a critical source of income for many Americans in retirement. However, it’s not likely to cover all of your expenses. To make sure you have enough to live on, it’s a good idea to have other sources of retirement savings.

Understanding Social Security

Social Security was created as a mandatory, government-administered retirement and disability insurance fund for all Americans. Prior to its founding, retirees and the disabled relied exclusively on their own savings or the assistance of their families, exposing less-fortunate Americans to financial hardship. 

Social Security is funded through a tax on income that allocates money into the budget of the Social Security Administration, where it is then immediately paid out to citizens currently eligible for Social Security benefits. When the money produced by these taxes exceeds the amount needed to pay beneficiaries, the remainder goes into the “Social Security Trust Fund,” where it is invested to provide a fallback for years when participant revenues are not as high.

Who qualifies to receive Social Security benefits

The most common type of benefit received from Social Security is the retirement benefit. Individuals qualify for retirement benefits by earning “credits.” It normally takes 10 years working full-time to accumulate enough credits to qualify for this benefit; however, only those over 62 are eligible to receive it.

The amount an individual receives depends on when s/he chooses to start receiving benefits; payments will be higher the longer the individual waits to access them. Most Americans begin taking their benefits as soon as they turn 62. In fact, only 1.4% of men and 2.5% of women wait until they turn 70 to start taking benefits[1]. If a married person passes, the living spouse is eligible to receive the benefits of his/her partner in addition to his/her own. This is referred to as “survivor’s benefits.”

Individuals who have a physical ailment that is included on Social Security’s list of disabilities, who are at least 18 years of age, and have earned the required credits (around $52,000 in previous earned income), are eligible for Social Security disability benefits until they are able to return to work[2].

How you receive and pay taxes on Social Security payments

  • Social Security payments can be received through a direct deposit to your bank account or via a check sent to your home.
  • Distributions from your IRA don’t affect your Social Security disbursements. However, they can affect the amount of income taxes paid, which means that you may need to pay taxes on Social Security Benefit disbursements.
  • As of 2021, single filers with a combined income of less than $25,000 will not pay taxes on Social Security benefits. Those with a combined income between $25,000 and $34,000 will pay taxes on up to 50% of their benefits, and those making more than $34,000 will pay taxes on up to 85% of their benefits.
  • It works a bit differently for married couples who are filing jointly. If filing jointly, the couple must add together both incomes even if one isn’t receiving Social Security benefits. Couples with a combined income of less than $32,000 will not pay taxes on Social Security benefits. Those with a combined income between $32,000 and $44,000 will pay taxes on up to 50% of their benefits, and those making more than $44,000 will pay taxes on up to 85% of their benefits.

The future of Social Security

In theory, the Social Security program can fund itself indefinitely because the working generation is constantly producing enough money to support retirees and the disabled. However, as the retired population continues to grow exponentially relative to the size of the workforce, serious doubts about the program’s sustainability have emerged. While there are competing opinions on the extent of this problem, there is a consensus that future Social Security payments will not be enough to support coming generations of retirees unless there is significant reform.

Because retirement can create a vulnerable financial situation, investing in your retirement future is incredibly important. Social Security can be a helpful contribution to your retirement income, but it may not be enough to sustain your desired quality of life. You may want to view Social Security as an additional benefit and not a requirement when developing a retirement plan.

 

[1] https://www.fool.com/retirement/general/2015/02/22/the-average-american-takes-social-security-at-this.aspx
[2] https://www.ssa.gov/planners/disability/dqualify.html

Student loans feel like a weight

Posted on March 29, 2018 by -

Managing student loan debt can be challenging, but developing a repayment strategy based on your specific situation will ensure you build a secure financial future.

You are not alone!

Current estimates of American student loan debt put the total at over $1.3 trillion [1]. Doesn’t that sound like a lot of debt? That’s because it is. However, financing an education through student loans can also be an extremely valuable investment that qualifies people for high-paying, prestigious jobs that would otherwise be unattainable.

If you are feeling overwhelmed by student loan debt, here are some tactics to help you stay on top of your payments:

Things you can do: Actions you can take?

  • Make sure you understand your loan balances, terms and interest rates. 
  • Consider consolidating your loans if you have multiple or high interest loans.
  • Explore loan forgiveness. Some employment opportunities like teaching or public service offer the added incentive of loan forgiveness.
  • Make a budget and stick to it. Decrease your expenses wherever possible so you can both repay your loan and maybe even save a little money along the way.
  • If you can, pay extra on your student loans, as it will help pay down the debt faster.

Student loans are a unique form of debt that allow you to carry high debt levels with low minimum payments for a long period of time. However, just because you can stretch out the time frame for repayment doesn’t mean you should. The faster you can pay down your debt, the less interest on your loan will “compound,” and the less you will pay overall.

Use your IRA to pay off a loan

To be eligible to use an IRA distribution for higher education and get the 10% early withdrawal waived, expenses must be for yourself, your spouse, your child, or your grandchild. These funds can pay for books, tuition, and other qualifying higher education expenses, and students must be enrolled more than half-time at an eligible institution as defined by the Department of Education.

 

[1] https://www.forbes.com/sites/zackfriedman/2017/02/21/student-loan-debt-statistics-2017/#2c4774485dab

When can I use my retirement savings?

Posted on March 27, 2018 by -

The legal requirements. You can start taking money out of your Icon IRA at age 59 1/2 without paying the 10% penalty.

But at age 70 1/2, the IRS requires you to start taking minimum distributions (RMDs) from your IRA each year. This rule does not apply to a Roth IRA. You will also have to pay income taxes on the withdrawn amount since contributions to your IRA were made pre-tax. 

Calculating RMD’s. The RMD for each year is calculated by dividing the IRA account balance as of December 31 of the prior year, by the applicable distribution period or life expectancy. You can find more details on RMD’s by going to the IRS website: https://www.irs.gov/publications/p590b#en_US_2017_publink1000230736

A note about social security. The longer you can wait to take social security, the larger your monthly amount will be. Some experts recommend waiting until you’re 70 to help maximize your benefit.

To make changes to your Icon retirement plan go to click here.