Section 1: 2024-2025 Tax Changes & Inflation

Section 2: Planning Your Retirement

Section 3: Your Pension Plan

Section 4: Your 401(k) Plan

Section 5: Your Benefits

Section 6: Divorce

Section 7: Survivor Checklist

Section 8: Life After Your Career

Section 9: Sources

 

Retirement planning is a verb that requires persistent action regardless of age, whether you're 20 or 60. 

The truth is that most Americans have no idea how much to save or how much income they will require.

Regardless of where you are in the planning process or your present age, we hope this guide gives you a clear overview of the steps to take and resources to help you streamline your transition from your workplace to retirement and get the most out of your benefits.

You understand the importance of saving and investing, especially since time is on your side the sooner you start, but you lack the time and experience to determine whether you are creating retirement funds that will persist when you leave your employer.

'A separate study by Russell Investments, a large money management firm, came  to a similar conclusion .  Russell estimates a  good  financial advisor can  increase investor returns by 3.75 percent.'

 

When you invest in your company's retirement plan, you can potentially increase your wealth by 79% at age 65 over the course of 20 years.

*Source: Bridging the Gap Between 401(k) Sponsors and Participants, T.Rowe Price, 2020

As the decades pass, you'll most likely be well into your career at your employer, and your salary will reflect that. However, the obstacles of saving for retirement begin with big competing expenses such as a mortgage, raising children, and saving for college.

One of the most common planning dilemmas is deciding whether to save for retirement or college. Most financial advisors will advise you that retirement from your employer should be your main priority because your child can usually receive financial assistance, however you will be on your own to fund your retirement.

 

We always base our retirement investment recommendations on your specific financial circumstances and aspirations. Consider investing at least 10% of your earnings for retirement in your 30s and 40s.

As you enter your 50s and 60s, you should be at the pinnacle of your earning potential, with some of your major expenses, such as a mortgage or childrearing, behind you or soon to be behind you. This is an excellent moment to think about whether you can increase your retirement savings goal to 20% or more of your income. For many people, this could be their only chance to save money.

Workers over the age of 50 can invest up to $23,000 in their retirement plan/401(k) in 2024, and after this limit is reached, they can contribute an additional $7,500 in catch-up contributions for a total yearly contribution of $30,500. Annually, these restrictions are increased to reflect inflation.

Why are 401(k)s and matching contributions so popular?

These retirement savings vehicles offer three primary advantages:

• Compound growth prospects (as shown above).

• Opportunities to save on taxes

• Contributions that match

Matching contributions are exactly what they sound like: your firm will match your own 401(k) contributions with company funds. If your company matches, the money is typically matched up to a particular percentage of the amount you contribute.

Unfortunately, many consumers do not take advantage of their company's matching contributions because they do not contribute enough to obtain the full match. 

According to Principal Financial Group research published in 2022, 62% of employees believe that business 401(k) matches are critical to meeting their retirement goals.

According to Bank of America's "2022 Financial Life Benefit Impact Report," despite 58% of eligible employees enrolling in a 401(k) plan, 61% contributed less than $5,000 this year.

The study also discovered that fewer than one in every ten members' contributions exceeded the IRS Section 402(g) optional deferral limit, which is $23,000 in 2024.

A 2020 Financial Engines study titled "Missing Out: How Much Employer 401(k) Matching Contributions Do Employees Leave on the Table?" discovered that individuals who do not maximize their business match typically leave $1,336 of extra retirement money on the table each year.

For example, if your business matches up to 3% of your plan contributions and you only contribute 2% of your salary, you will not receive the entire company match.  By just increasing your contribution by 1%, your firm now matches the entire 3% of your donations, for a total combined contribution of 6%. This ensures that you do not leave money on the table.

Whether you're switching jobs or retiring, deciding what to do with your hard-earned retirement assets can be tricky. A company-sponsored plan, such as a pension or 401(k), may account for the majority of your retirement assets, but do you really understand how it works?
 
There appear to be an infinite number of restrictions that differ from one retirement plan to the next, including early withdrawal offers, interest rate affects, age penalties, and intricate tax consequences.

A effective retirement plan spending strategy revolves around increasing your investment balance and lowering your taxes. At The Retirement Group, we can help you understand how your company's 401(k) fits into your overall financial picture, as well as how to maximize its benefits.

'Getting help and leveraging the financial planning tools and resources your company

makes available can help you understand whether you are on track, or need to

make adjustments to meet your long-term retirement goals...'

Source: Schwab 401(k) Survey Finds Savings Goals and Stress Levels on the Rise

Lump Sum vs. Annuity

Retirees who are qualified for a pension are frequently given the option of receiving their pension payments throughout life or receiving a lump-sum payment all at once.  The lump amount represents the equivalent present value of the monthly pension income stream, with the intention of taking the money (rolling it over to an IRA), investing it, and generating your own cash flow through methodical withdrawals throughout your retirement years.

The monthly pension has the advantage of being guaranteed to continue indefinitely. Thus, whether you live for ten, twenty, thirty, or more years after retiring from your firm, you are not at risk of outliving your monthly pension.

The main disadvantage of the monthly pension is the early and untimely death of the retiree and joint annuitant.  This frequently results in a reduced payout or the pension being terminated entirely upon death. The other disadvantage is that, unlike Social Security, employer pensions seldom include a COLA (Cost of Living Allowance).  As a result, if the dollar value of the monthly pension remains constant throughout retirement, it will lose purchasing power as inflation increases. 

In contrast, choosing the lump-sum option allows you to invest, earn higher growth, and perhaps produce even more retirement income flow. Furthermore, if something happens to you, any unused account balance will be available to your surviving spouse or heirs. However, if you fail to invest the funds for sufficient development, the money may run out entirely, and you may regret not taking advantage of the pension's "income for life" guarantee. 

Finally, the "risk" assessment that should be performed to determine whether or not you should choose the lump sum or the guaranteed lifetime income that your employer pension provides is determined by the type of return required to match the annuity payments. After all, if a 1% to 2% return on the lump-sum is all that is required to generate the same monthly pension cash flow stream, the risk of outliving the lump-sum is reduced. However, if the pension payments can only be replaced with a higher and more risky rate of return, there is a bigger danger that those gains will not materialize and you would run out of funds.

 

Interest Rates and Life Expectancy

Current interest rates, as well as your life expectancy after retirement, have a substantial impact on lump sum payouts under defined benefit pension plans.

Rising interest rates are inversely related to pension lump sum values.  The opposite is also true: declining or lower interest rates raise pension lump sum values. Interest rates are significant in calculating your lump payment option under the pension plan.

Before making pension decisions, the Retirement Group believes that all employees should receive a full RetireKit Cash Flow Analysis that compares their lump sum value to monthly annuity payout choices.

As appealing as a lump payment may seem, a monthly annuity for all or a portion of the pension may still be a viable alternative, particularly in a high interest rate environment.

Each person's circumstance is unique, and a complimentary Cash Flow Analysis from The Retirement Group will show you how your pension options stack up and play out over the duration of your retirement years, which might be two, three, four, or more decades.

Knowing where you stand allows you to make more informed decisions about when to retire and which pension distribution choice is best suited to your circumstances.

401k Savings Plan

Employees are encouraged to immediately enroll in their 401(k) savings plan.

Merck offers a qualified retirement savings plan, or 401(k), to enhance your Pension Plan retirement income.

This plan allows you to save before, Roth, or after-tax, based on your needs.

About the Savings Plan

• You can start participating in the Merck Savings Plan as soon as you are hired; there is no waiting time.

• Full, immediate vesting—which means you always own your and company-matching contributions.

• Easy payroll deductions, including pre-tax, Roth, and after-tax contributions up to IRS restrictions.

• Company-matching contributions of 75 cents every dollar saved (of the first 6% of total pay, up to IRS contribution restrictions) to encourage and augment your savings.

• A variety of investment options designed to help you develop a well-diversified portfolio.

• Tax-deferred investment of your (and the company's) contributions

• Emergency access to your account—via loan, withdrawal and distribution provisions

When you retire and have balances in your 401(k), you will get a Participant Distribution Notice in the mail. This message will display the current value that you are eligible to receive from each plan and explain your distribution options.

It will also explain what you must do to obtain your final allocation.

For additional information, please call The Retirement Group at (800)-900-5867, and we will connect you with a retirement-focused advisor.

Next Step:

• Look for your Participant Distribution Notice and Special Tax Notice Regarding Plan Payments. These mailings will assist you understand your options and the potential federal tax implications for your vested account balance.

• ' What has Worked in Investing ' & ' 8 Tenets when picking a Mutual Fund '.

• To learn about your distribution options, call The Retirement Group at (800)-900-5867. Click our e-book for more information on ' Rollover Strategies for 401(k)s '. Use the Online Beneficiary Designation to make updates to your beneficiary designations, if needed.

Note : If you voluntarily terminate your employment from Merck, you may not be eligible to receive the annual contribution.

More than half of plan participants say they lack the time, desire, or understanding required to manage their 401(k) portfolio. But the benefits of seeking assistance extend beyond convenience. According to Charles Schwab's research, plan participants who receive investment advice tend to have portfolios that perform better: The annual performance difference between those who receive assistance and those who do not is 3.32%, net of expenses. This suggests that a 45-year-old person may increase their wealth by 79% by the age of 65 simply by contacting an advisor. That's a significant difference.

Getting assistance can be the key to improved outcomes across the 401(k) board.

A Charles Schwab study discovered some favorable results common to those who sought independent professional guidance. They include:

• Improved savings rates -  70% of individuals who received 401(k) guidance raised their contributions.

• Increased diversification - Participants who managed their own portfolios invested in an average of just under four asset classes, whereas those in advice-based portfolios invested in at least eight asset classes.

• Increased chances of staying the course - Receiving assistance enhanced participants' odds of sticking to their investing goals, making them less reactive during unpredictable market conditions and more likely to stick with their original 401(k) investments during a downturn. accomplish not try to accomplish it alone. Seek assistance with your company's 401(k) plan investments. Your nest egg will thank you.

 

Net Unrealized Appreciation (NUA)

When you qualify for a distribution, you have three choices:

• Roll over your eligible plan to an IRA and continue to defer taxes.

• Take a distribution and pay regular income taxes on the entire amount.

• Take advantage of NUA and profit from a more favorable tax structure for gains.

 

How does Net Unrealized Appreciation Work?

First, an employee must be eligible for a distribution from a qualified company-sponsored plan. At retirement or age 59 1⁄2, employees often get a 'lump-sum' distribution from their plan, which distributes all assets over a year period. The portion of the plan that consists of mutual funds and other investments can be transferred to an IRA for additional tax deferral. The highly appreciated firm shares is subsequently moved into a non-retirement account.

The tax benefit occurs when you transfer business stock from a tax-deferred account to a taxable account. At this point, you apply NUA and pay ordinary income tax on the cost basis of your shares. The stock's appreciated value above its basis is taxed at the lower long-term capital gains rate, which is now 15%, rather than the higher ordinary income tax. This could result in savings of over 30%.

You may want to learn more about NUA by scheduling a complimentary one-on-one consultation with a financial advisor from The Retirement Group.

IRA Withdrawal

When you qualify for a distribution, you have three choices:

Your retirement assets could include a variety of retirement accounts, such as IRAs, 401(k)s, and taxable accounts.

So, what is the most efficient manner to withdraw your retirement income after leaving your company?

You may wish to consider fulfilling your retirement income demands by first withdrawing from taxable assets rather than tax-deferred investments.

This may extend the life of your company's retirement assets by allowing them to grow tax-deferred.

You should also plan to take required minimum distributions (RMDs) from any company-sponsored retirement plans, as well as traditional or rollover IRA accounts.

This is due to the IRS's mandate in 2024 to begin taking withdrawals from these types of accounts when you reach the age of 73. Beginning in 2024, the excise tax on each dollar of under-distributed RMD will be decreased from 50% to 25%.

There is new legislation that allows account holders to postpone taking their first RMD until April 1 of the calendar year in which they reach age 73 or, in a company retirement plan, retire.

Two flexible distribution alternatives for your IRA.

When it comes to drawing on your IRA for income or taking your RMDs, you have a few options. IRA distributions are taxed and may incur penalties if under 59½.

Partial withdrawals: You can withdraw any amount from your IRA at any time. If you're 73 or older, you must withdraw at least enough from one or more IRAs to pay your annual RMD.

Systematic withdrawal plans: Set up regular, automatic withdrawals from your IRA based on the quantity and frequency of your income needs once you retire from your company. If you're under 59½, you may face a 10% early withdrawal penalty (unless your withdrawal plan follows Code Section 72(t) regulations).

Your tax advisor can assist you with understanding distribution alternatives, determining RMD obligations, calculating RMDs, and developing a systematic withdrawal strategy.

About Retirement Health Care

• Group retiree medical coverage (including prescription medication coverage) is offered if you meet the plan's age and service eligibility conditions at the conclusion of your employment, until you reach age 65 and become eligible for Medicare.

• Merck retirees and eligible dependents who are 65 years or older and Medicare-eligible can purchase individual health insurance (including prescription drug coverage) through a private health exchange and may receive financial assistance from Merck through a health reimbursement account.

HSA's

Health Savings Accounts (HSAs) are frequently praised for their effectiveness in managing healthcare costs, particularly for people with high-deductible health plans. However, their advantages go beyond medical cost management, establishing HSAs as a potentially superior retirement savings vehicle compared to typical retirement plans such as 401(k)s, particularly after employer matching contributions are exhausted.

Understanding HSAs

HSAs are tax-advantaged accounts intended for people who have high-deductible health insurance policies. For 2024, the IRS classifies high-deductible plans as having a minimum deductible of $1,600 for individuals and $3,200 for families. HSAs provide pre-tax contributions, tax-free investment growth, and tax-free withdrawals for qualified medical costs, making them a triple-tax-advantaged account.

HSAs' annual contribution limits in 2024 are $4,150 for individuals and $8,300 for families, with an additional $1,000 allowed for those 55 and older. Unlike Flexible Spending Accounts (FSAs), HSA funds do not expire at the end of the year; they grow and can be carried forward indefinitely.

Comparing HSAs versus 401(k)s after Matching

Once an employer's maximum 401(k) match is reached, additional contributions result in less immediate financial rewards. This is where HSAs can serve as a strategic complement. 401(k)s provide tax-deferred growth and tax-deductible contributions, but withdrawals are taxed. In contrast, HSAs allow for tax-free withdrawals for medical expenses, which account for a major amount of retirement costs.

HSA as a Retirement Tool

After age 65, the HSA stretches its muscles as a powerful retirement tool. Funds can be withdrawn for any reason, subject only to standard income tax if spent for non-medical expenses. This flexibility is similar to that of regular retirement plans, but it also includes tax-free withdrawals for medical bills, which is a substantial benefit given escalating healthcare costs in retirement.

Furthermore, unlike 401(k)s and Traditional IRAs, HSAs have no Required Minimum Distributions (RMDs), giving you more flexibility over your tax planning in retirement. This makes HSAs especially appealing to those who may not need to access their funds immediately after retirement or who want to reduce their taxable income.

Investment Strategy for HSAs.

Initially, it is prudent to invest conservatively in an HSA, with an emphasis on ensuring that there are enough liquid assets to cover the near-term deductible and other out-of-pocket medical expenses. However, if a financial cushion has been formed, using the HSA as a retirement account and investing in a diverse mix of equities and bonds can considerably improve the account's long-term growth potential.

Utilizing HSAs in retirement

In retirement, HSAs can cover a variety of expenses:

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Understanding and claiming Social Security can be challenging for many retirees, but determining the best ways to do so is critical to your retirement income planning. Social Security benefits are not intended to be the primary source of retirement income, but rather to supplement your total withdrawal strategy.

Knowing the fundamentals of Social Security and applying that knowledge to your advantage will help you collect the most benefit.

It is your duty to enroll in Medicare Parts A and B when you first become eligible, and you must remain enrolled to receive coverage for Medicare-eligible expenses. This also applies to your dependents who are qualified for Medicare benefits.

You should understand how your retiree medical plan selections and Medicare eligibility affect your plan alternatives. Before you resign from your employer, contact the Social Security Administration at 800-772-1213, your local Social Security Office, or ssa.gov.

They can assist you in determining your eligibility, enrolling you and/or your eligible dependents in Medicare, and providing information about other government programs. Please call us if you need additional information about Social Security.

Before retiring from your company, check the status of your Social Security benefits. Contact the United States Social Security Administration, your local Social Security office, or go to ssa.gov.
 
Are you currently eligible for Medicare or will you be soon?
If you or your dependents become eligible after leaving your telecom industry company, Medicare normally takes over as your primary coverage as soon as they become eligible. This will have an impact on the medical benefits supplied by Merck.

When you initially become eligible for Medicare, you and your dependents must enroll in Parts A and B of the program. Medical and MH/SA benefits payable under the company-sponsored plan will be lowered by the sums Medicare Parts A and B would have paid, whether or not you enrolled in them.
For more information on benefit coordination, see your company's summary plan description.

If you or an eligible-dependant do not enroll in Medicare Parts A and B, your provider may bill you for amounts not covered by Medicare or your company's medical plan. This increases your out-of-pocket spending dramatically.

According to the Employee Benefit Research Institute (EBRI), Medicare only covers approximately 60% of an individual's medical expenses. This indicates that a 65-year-old couple with average prescription-drug expenses for their age will require $259,000 in savings to cover 90% of their healthcare costs. A single guy will need $124,000, whereas a single female, because to her longer life expectancy, will require $140,000.

For 28% of couples over the age of 53, happily ever after and until death do us part will not come true. Most couples save for decades, expecting they would retire together. Following a divorce, they must face the expenses of a pre- or post-retirement lifestyle while only having half of their savings.

If you're divorced or in the process of divorce, your ex-spouse(s) may be interested in a portion of your company's retirement benefits. Before you may begin your pension—and for each former spouse who may be interested—you must submit your firm with the necessary documentation:

• A copy of the court-filed Judgment of Dissolution or Judgment of Divorce, together with any Marital Settlement Agreement (MSA)

• A copy of the court's Qualified Domestic Relations Order (QDRO)

To avoid having your pension payout delayed or suspended, please provide your firm with any needed documentation. Please contact us for more information on options for dealing with divorce and its impact on your company's retirement benefits.

Regardless of how long or brief your marriage was, you must submit this evidence to your company's online pension center. *Source: The Retirement Group, "Retirement Plans - Benefits and Savings," U.S. Department of Labor, 2019, and "Generating Income That Will Last Throughout Retirement," Fidelity, 2019.

Unlike a married couple, you do not have to wait for your ex-spouse to file for Social Security before applying for your divorced spouse's benefit.

Divorce does not disqualify you for survivor benefits. You can claim a divorced spouse's survivor benefit if the following apply:

• Your ex-spouse has died.

• You are at least sixty years old.

• You were married for at least ten years before the divorce.

• You are single (or remarried after turning 60).

Are you going through a divorce?

If your divorce is not finalized by the time you retire from your company, you are still considered married. You have two choices:

Retire from your company before your divorce is finalized and opt for a combined pension of at least 50% with your spouse — or obtain your spouse's signed, notarized approval to a different election or lump amount.
Defer your retirement from your company until your divorce is finalized and you can supply the necessary 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 should do:

• Report your death. Your spouse, family member, or friend should contact your company's benefits service center as quickly as possible to report your death.
• Receive life insurance benefits. To get life insurance benefits, your spouse or other designated beneficiary must contact your company's benefits service center.

 

If you have a joint pension: