Over half of plan participants admit they don’t have the time, interest or knowledge needed to manage their 401(k) portfolio. But the benefits of getting help goes beyond convenience. Studies like this one, from Charles Schwab, show those plan participants who get help with their investments tend to have portfolios that perform better: The annual performance gap between those who get help and those who do not is 3.32% net of fees. This means a 45-year-old participant could see a 79% boost in wealth by age 65 simply by contacting an advisor. That’s a pretty big difference.

Getting help can be the key to better results across the 401(k) board.

A Charles Schwab study found several positive outcomes common to those using independent professional advice. They include:

• Improved savings rates – 70% of participants who used 401(k) advice increased their contributions.
• Increased diversification – Participants who managed their own portfolios invested in an average of just under four asset classes, while participants in advice-based portfolios invested in a minimum of eight asset classes.
• Increased likelihood of staying the course – Getting advice increased the chances of participants staying true to their investment objectives, making them less reactive during volatile market conditions and more likely to remain in their original 401(k) investments during a downturn. Don’t try to do it alone.

Get help with your Caterpillar 401(k) plan investments. Your nest egg will thank you.

In-Service Withdrawals

Generally speaking, you can withdraw amounts from your account while still employed with Caterpillar under the circumstances described below.

It’s important to know that certain withdrawals are subject to regular federal income tax and, if you’re under age 59½, you may also be subject to an additional 10% penalty tax. You can determine if you’re eligible for a withdrawal, and request one, online or by calling the Caterpillar Benefits Center.

Rolling Over Your 401(k)

As long as the plan participant is younger than age 72, an in-service distribution can be rolled over to an IRA. A direct rollover would avoid the 10% early withdrawal penalty as well as the mandatory 20% tax withholding. Your Caterpillar plan summary outlines more information and possible restrictions on rollovers and withdrawals.

Because a withdrawal permanently reduces your retirement savings and is subject to tax, you should always consider taking a loan from the plan instead of a withdrawal to meet your financial needs. Unlike withdrawals, loans must be repaid, and are not taxable (unless you fail to repay them). In some cases, as with hardship withdrawals, you are not allowed to make a withdrawal unless you have also taken out the maximum loan available within the Caterpillar plan.

You should also know that the Caterpillar plan administrator reserves the right to modify the rules regarding withdrawals at any time, and may further restrict or limit the availability of withdrawals for administrative or other reasons. All plan participants will be advised of any such restrictions, and they apply equally to all Caterpillar employees.

Net Unrealized Appreciation (NUA)

When you qualify for a distribution you have three options:

• Roll-over your qualified plan to an IRA and continue deferring taxes.
• Take a distribution and pay ordinary income tax on the full amount.
• Take advantage of NUA and reap the benefits of a more favorable tax structure on gains.

How does Net Unrealized Appreciation work?

First an employee must be eligible for a distribution from their qualified Caterpillar-sponsored plan. Generally at retirement or age 59 1⁄2, the employee takes a 'lump-sum' distribution from the plan, distributing all assets from the plan during a 1 year period. The portion of the plan that is made up of mutual funds and other investments can be rolled into an IRA for further tax deferral. The highly appreciated company stock is then transferred to a non-retirement account.

The tax benefit comes when you transfer the company stock from a tax-deferred account to a taxable account. At this time you apply NUA and you incur an ordinary income tax liability on only the cost basis of your stock. The appreciated value of the stock above its basis is not taxed at the higher ordinary income tax but at the lower long-term capital gains rate, currently 15%. This could mean a potential savings of over 30%.

As a Caterpillar employee, you may be interested in understanding NUA from a financial advisor.

IRA Withdrawal

Your retirement assets may consist of several retirement accounts: IRAs, 401(k)s, taxable accounts, and others.

So, what is the most efficient way to take your retirement income after leaving Caterpillar?

You may want to consider meeting your income needs in retirement by first drawing down taxable accounts rather than tax-deferred accounts.

This may help your retirement assets with Caterpillar last longer as they continue to potentially grow tax deferred.

You will also need to plan to take the required minimum distributions (RMDs) from any Caterpillar-sponsored retirement plans and traditional or rollover IRA accounts.

That is due to IRS requirements for 2020 to begin taking distributions from these types of accounts when you reach age 72. If you do not, the IRS may assess a 50% penalty on the amount you should have taken.

There is new legislation that allows individuals who didn’t turn 70½ by the end of 2019 to take RMDs on April 1 of the year they turn 72.

Two flexible distribution options for your IRA

When you need to draw on your IRA for income or take your RMDs, you have a few choices. Regardless of what you choose, IRA distributions are subject to income taxes and may be subject to penalties and other conditions if you’re under 59½.

Partial withdrawals: Withdraw any amount from your IRA at any time. If you’re 72 or over, you’ll have to take at least enough from one or more IRAs to meet your annual RMD.

Systematic withdrawal plans: Structure regular, automatic withdrawals from your IRA by choosing the amount and frequency to meet your income needs after retiring from Caterpillar. If you’re under 59½, you may be subject to a 10% early withdrawal penalty (unless your withdrawal plan meets Code Section 72(t) rules).

Your tax advisor can help you understand distribution options, determine RMD requirements, calculate RMDs, and set up a systematic withdrawal plan.

Company Benefits Annual Enrollment

Annual enrollment for your Caterpillar benefits usually occurs each fall.

Before it begins, you will be mailed enrollment materials and an upfront confirmation statement reflecting your benefit coverage to the address on file. You’ll find enrollment instructions and information about your benefit options from Caterpillar and contribution amounts. You will have the option to keep the benefit coverage shown on your upfront confirmation statement or select benefit options offered by Caterpillar that better support your needs. You may be able to choose to enroll in eBenefits and receive this information via email instead.

Next Steps:

• Watch for your annual enrollment information in the September/November time frame.
• Review your benefits information and utilize the tools and resources available on Caterpillar's Benefits Center website.
• Enroll in eBenefits.

Things to keep in mind :

• 47% of Americans cite healthcare as their greatest economic concern.
• Medical bills are the No. 1 cause of bankruptcy in the United States.
• For older Americans, healthcare costs represent the second-largest expense, behind housing.

Short-Term & Long-Term Disability

Short-Term: Depending on your plan, you may have access to short-term disability (STD) benefits through Caterpillar.

Long-Term: Your plan's long-term disability (LTD) benefits are designed to provide you with income if you are absent from Caterpillar for six consecutive months or longer due to an eligible illness or injury.

What Happens If Your Employment with Caterpillar Ends

Your life insurance coverage and any optional coverage you purchase for your spouse/domestic partner and/or children ends on the date your employment with Caterpillar ends, unless your employment ends due to disability. If you die within 31 days of your termination date from Caterpillar, benefits are paid to your beneficiary for your basic life insurance, as well as any additional life insurance coverage you elected.

Note:

• You may have the option to convert your life insurance to an individual policy or elect portability on any optional coverage.
• If you stop paying supplementary contributions, your coverage will end.
• If you are at least 65 and you pay for supplemental life insurance, you should receive information in the mail from the insurance company that explains your options.
• Make sure to update your beneficiaries. See Caterpillar's SPD for more details.

Beneficiary Designations
As part of your Caterpillar retirement planning and estate planning, it’s important to name someone to receive the proceeds of your benefit programs in the event of your death. That’s how Caterpillar will know whom to send your final compensation and benefits. This can include life insurance payouts and any pension or savings balances you may have.

Next Step:

• When you retire from Caterpillar, make sure that you update your beneficiaries. Caterpillar should have an Online Beneficiary Designation form for life events such as death, marriage, divorce, child birth, adoptions, etc.

If you are unsure about Caterpillar's benefits, schedule a call to speak with one of our retirement-focused advisors

Schedule a Call

For many retirees, understanding and claiming Social Security can be difficult but identifying optimal ways to claim Social Security is essential to your retirement income planning. Social Security benefits are not designed to be the sole source of your retirement income, but a part of your overall withdrawal strategy.

Knowing the foundation of Social Security, and using this knowledge to your advantage, can help you claim your maximum benefit.

It’s your responsibility to enroll in Medicare parts A and B when you first become eligible — and you must stay enrolled to have coverage for Medicare-eligible expenses. This applies to your Medicare eligible dependents as well.

You should know how your retiree medical plan choices or Medicare eligibility impacts your plan options. Before you retire from Caterpillar, contact the U.S. Social Security Administration directly at 800-772-1213, call your local Social Security Office or visit ssa.gov .

They can help determine your eligibility, get you and/or your eligible dependents enrolled in Medicare or provide you with other government program information. For more in-depth information on Social Security, please call us.

Check the status of your Social Security benefits before you retire from Caterpillar. Contact the U.S. Social Security Administration, your local Social Security office, or visit ssa.gov.

Are you eligible for Medicare or will be soon?

If you or your dependents are eligible after you leave your telecom industry company, Medicare generally becomes the primary coverage for you or any of your dependents as soon as they are eligible for Medicare. This will affect Caterpillar-provided medical benefits.

You and your Medicare-eligible dependents must enroll in Medicare Parts A and B when you first become eligible. Medical and MH/SA benefits payable under the Caterpillar-sponsored plan will be reduced by the amounts Medicare Parts A and B would have paid whether you actually enroll in them or not.

For details on coordination of benefits, refer to Caterpillar's summary plan description.

If you or your eligible dependent don’t enroll in Medicare Parts A and B, your provider can bill you for the amounts that are not paid by Medicare or your Caterpillar-specific medical plan … making your out-of-pocket expenses significantly higher.

According to the Employee Benefit Research Institute (EBRI), Medicare will only cover about 60% of an individual’s medical expenses. This means a 65-year-old couple, with average prescription-drug expenses for their age, will need $259,000 in savings to have a 90% chance of covering their healthcare expenses. A single male will need $124,000 and a single female, thanks to her longer life expectancy, will need $140,000.

The ideas of happily ever after and until death do us part won’t happen for 28% of couples over the age of 53. Most couples saved together for decades, assuming they would retire together. After a divorce, they face the expenses of a pre-or post-retirement life, but with half their savings.

If you’re divorced or in the process of divorcing, your former spouse(s) may have an interest in a portion of your retirement benefits from Caterpillar. Before you can start your pension — and for each former spouse who may have an interest — you’ll need to provide Caterpillar with the following documentation:

• A copy of the court-filed Judgment of Dissolution or Judgment of Divorce along with any Marital Settlement Agreement (MSA)
• A copy of the court-filed Qualified Domestic Relations Order (QDRO)

Provide Caterpillar with any requested documentation to avoid having your pension benefit delayed or suspended. To find out more information on strategies if divorce is affecting your Caterpillar retirement benefits, please give us a call.

You’ll need to submit this documentation to Caterpillar’s online pension center regardless of how old the divorce or how short the marriage. *Source: The Retirement Group, “Retirement Plans - Benefits and Savings,” U.S. Department of Labor, 2019; “Generating Income That Will Last Throughout Retirement,” Fidelity, 2019

Unlike with a married couple, your ex-spouse doesn’t have to have filed for Social Security

before you can apply for your divorced spouse’s benefit.

Divorce doesn’t disqualify you from survivor benefits. You can claim a divorced spouse’s survivor benefit if the following are true:

• Your ex-spouse is deceased.
• You are at least 60 years of age.
• You were married for at least 10 years prior to the divorce.
• You are single (or you remarried after age 60).

In the process of divorcing?

If your divorce isn’t final before your retirement date from Caterpillar, you’re still considered married. You have two options:

• Retire from Caterpillar before your divorce is final and elect a joint pension of at least 50% with your spouse — or get your spouse’s signed, notarized consent to a different election or lump sum.
• Delay your retirement from Caterpillar until after your divorce is final and you can provide the required divorce documentation.*

Source: The Retirement Group, “Retirement Plans - Benefits and Savings,” U.S. Department of Labor, 2019; “Generating Income That Will Last Throughout Retirement,” Fidelity, 2019

What your survivor needs to do:

• Report your death. Your spouse, a family member or even a friend should call Caterpillar’s benefits service center as soon as possible to report your death.

• Collect life insurance benefits. Your spouse, or other named beneficiary, will need to call Caterpillar’s benefits service center to collect life insurance benefits.

If you have a joint pension:

• Start the joint pension payments. The joint pension is not automatic. Your joint pensioner will need to complete and return the paperwork from Caterpillar's pension center to start receiving joint pension payments.

• Be prepared financially to cover living expenses. Your spouse will need to be prepared with enough savings to bridge at least one month between the end of your pension payments from Caterpillar and the beginning of his or her own pension payments.

If your survivor has medical coverage through Caterpillar:

• Decide whether to keep medical coverage.

• If your survivor is enrolled as a dependent in your Caterpillar-sponsored retiree medical coverage when you die, he or she needs to decide whether to keep it. Survivors have to pay the full monthly premium.

Financial benefits of working

Make up for decreased value of savings or investments. Low interest rates make it great for lump sums but harder for generating portfolio income. Some people continue to work to make up for poor performance of their savings and investments.

Maybe you took an offer from Caterpillar and left earlier than you wanted with less retirement savings than you needed. Instead of drawing down savings, you may decide to work a little longer to pay for extras you’ve always denied yourself in the past.

Meet financial requirements of day-to-day living. Expenses can increase during your retirement from Caterpillar and working can be a logical and effective solution. You might choose to continue working in order to keep your insurance or other benefits — many employers offer free to low cost health insurance for part-time workers.

Emotional benefits of working

You might find yourself with very tempting job opportunities at a time when you thought you’d be withdrawing from the workforce.

Staying active and involved. Retaining employment after Caterpillar, even if it’s just part-time, can be a great way to use the skills you’ve worked so hard to build over the years and keep up with friends and colleagues.

Enjoying yourself at work. Just because the government has set a retirement age with its Social Security program doesn’t mean you have to schedule your own life that way. Many people genuinely enjoy their employment and continue working because their jobs enrich their lives.

Caterpillar employees interested in planning their retirement may be interested in live webinars hosted by experienced financial advisors. Click here to register for our upcoming webinars for Caterpillar employees.

• “National Compensation Survey: Employee Benefits in the United States, March 2019,' Bureau of Labor Statistics, U.S. Department of Labor.
• “Generating Income That Will Last throughout Retirement.” Fidelity, 22 Jan. 2019, www.fidelity.com/viewpoints/retirement/income-that-can-last-lifetime .
• “Retirement Plans-Benefits & Savings.” U.S. Department of Labor, 2019, www.dol.gov/general/topic/retirement .
• AT&T Summary Plan Description, 2019
• Chevron Summary Plan Description, 2019
• Shell Summary Plan Description, 2019
• ExxonMobil Summary Plan Description, 2019
• https://seekingalpha.com/article/4268237-order-withdrawals-retirement-assets
• https://www.aon.com/empowerresults/ensuring-retirees-get-health-care-need/
• 8 Tenets when picking a Mutual Fund e-book
• Determining Cash Flow Need in Retirement e-book
• Early Retirement Offers e-book
• Lump Sum vs. Annuity e-book
• Social Security e-book