Much of the attention went to cuts in entitlement programs like Social Security, which are meant to make up for tax cuts and increased defense spending. Yet what many missed in the Trump budget were proposals that would affect the retirement benefits of federal workers. First, the budget requires federal employees who are part of the Federal Employees Retirement System to make larger employee contributions toward their defined-benefit program than they currently do. That leaves the federal government to contribute up to 13% in order to provide enough funding to make future pension payments. The budget seeks to equalize the amounts that workers and the government pay toward federal pensions. The method the budget uses is to increase the federal worker contribution percentage by a single percentage point each year, gradually phasing in the increase until contributions are split about 50-50 between the federal government and employees. For retirees in the Federal Employees Retirement System, the budget would eliminate cost-of-living adjustments entirely. Only a small percentage of private-sector workers get pension coverage at all, and more employers have been freezing or eliminating private pensions in favor of 401(k) plans and other defined-contribution retirement arrangements. Younger workers who are hired without such benefits have plenty of time to develop their own retirement savings plans, but when changes are made to the benefits of those who are late in their careers or already retired, there's little they can do to adjust their financial planning. The $16,122 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings.
Grab A Retirement Saver’s Tax Credit
Investing in the market without taking losses — is it too good to be true? Not according to the University of Michigan’s head coach Jim Harbaugh. In August, University of Michigan helped Harbaugh become the top-paid college football coach in the nation, according to USA Today figures, by creating a deferred compensation package utilizing cash value life insurance called Indexed Universal Life Insurance (IUL).
Just like in Harbaugh’s case, IULs appeal to many executives and business owners because of the advantages they provide. IULs allow cash value within the policy to grow tax-free over time. IULs are funded with post-tax dollars which allow clients to withdraw money tax-free at any age, and provide financial security in the form of a death benefit for the family after the client passes.
One of the main advantages of IULs is that the cash value is protected from drops in the market. An IUL is a cash value policy that has both a death benefit and a savings portion. In an IUL the investments are not placed directly in the market where they would be subject to a loss. Rather, they are put into a strategy that mirrors an index such as the S&P 500, which allows the participant to realize all or most of the gains in the market. These gains are then locked in to protect against potential losses.
In addition, when compared to an IRA or a 401(k), IULs provide more flexibility. Unlike IRAs and 401(k)s, there is no limit on how much money can be added annually, as long as the added cash does not create a Modified Endowment Contract (MEC), which is taxable. An MEC is where the funding has exceeded the IRS limitations known as the “7-pay test,” which limits the amount of excess cash that can be put into a policy in any seven-year period before it loses its tax advantages. IULs allow for a high…