Section 1: 2024 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

Individuals must be aware of any new changes implemented by the IRS. The key elements influencing employees will be the following:

• The standard deduction for 2024 will rise to $14,600 for single filers and married couples filing separately, $29,200 for joint filers, and $21,900 for heads of household.

• Taxpayers over the age of 65 or blind can increase their standard deduction by $1,550. If you are not married or have no surviving spouse, the payment increases to $1,950.

Retirement planning is a verb. And consistent action must be taken whether you’re 20 or 60.

The truth is that most Americans don’t know how much to save or the amount of income they’ll need.

No matter where you stand in the planning process, or your current age, we hope this guide gives you a good overview of the steps to take and resources that help you simplify your transition from Northrop Grumman into retirement and get the most from your benefits.

You know you need to be saving and investing, especially since time is on your side the sooner you start, but you don’t have the time or expertise to know if you’re building retirement savings that can last after leaving Northrop Grumman.

'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

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 allow you to take advantage of three major benefits:

• Compound growth prospects (as described above)

• Tax-saving opportunities

• Matching contributions

Matching contributions are exactly what they sound like: your company matches your 401(k) contributions with money from the company. If your company matches, the company money will normally match up to a specified percentage of the amount you contribute.

Unfortunately, many consumers do not take advantage of their business's matching contributions because they do not contribute the sufficient amount to obtain the entire corporate match. 

Whether you're changing jobs or retiring, deciding what to do with your hard-earned retirement funds can be challenging. A company-sponsored plan, such as a pension or 401(k), may account for the majority of your retirement assets, but how much do you actually understand about it and 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 implications.

Increasing your investment balance and lowering taxes are the keys to a successful retirement plan spending strategy. At The Retirement Group, we can explain how your company's 401(k) fits into your entire financial picture and how to make it work for you.

'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

Many defined benefit plans, such as the NGC pension plan, give current and future retirees a lump sum payment or a monthly pension benefit. These plans may have billions of dollars in unfunded pension liabilities, and in order to remove the burden from their books, they give a lump payout.

Depending on life expectancy, the first lump sum is usually smaller than recurring pension payments throughout a typical retirement period. Most people who choose the lump-sum plan, however, invest the majority of the income because the assets aren't needed right away after retirement.

Another thing to bear in mind is that current interest rates, as well as your life expectancy at retirement, affect annuity payment options in defined benefit pension plans. Lump sum distributions are normally higher in a low interest rate environment; however, lump sums fall in a rising interest rate environment.

Furthermore, predicted pension lump sum payments for current employees frequently drop as they age and their life expectancy declines. This might possibly be detrimental to continuing to work, thus it is critical that you run your pension statistics frequently and clearly grasp the timing difficulties. Other criteria, such as income requirements, the necessity for survivor benefits, and tax liabilities, frequently influence the decision to select the lump-sum over the annuity option on the pension.

401(k) Savings Plan

Employees are advised to immediately enroll in a 401(k) savings plan. Northrop Grumman's 401(k) plan allows employees to contribute pre-tax, Roth 401(k), and after-tax dollars. Additionally, there are Company-matching contributions equal to:

 * 100% of the first 4% of pre-tax, Roth 401(k), and after-tax contributions; and

* 50 percent of the subsequent 4% of employee contributions

You can invest before tax and/or after tax (regular or Roth) and select from a variety of investment options with varied levels of risk. You can also transfer pre-tax and Roth contributions from other qualifying plans.

Vesting

As a participant, you become eligible for the employer match after three years of service. If you leave your job after fewer than three years, you lose the corporate match but keep the rest.

Note: If you contribute at least 8% of your earnings, you will receive a 6% corporate match.

If you have 401(k) plan balances at the time of retirement, you will receive a Participant Distribution Notice in the mail. This notification will outline the current value of each plan and explain your distribution alternatives. It will also tell you what steps you need to do to obtain your final allocation. Please call The Retirement Group at (800)-900-5867 for additional information, and we will put you in touch with a retirement-focused advisor.

Next Step:

• Watch for your Participant Distribution Notice and Special Tax Notice Regarding Plan Payments. These notices will help explain your options and what the federal tax implications may be 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 Northrop Grumman, you may not be eligible to receive the annual contribution.

Over fifty percent 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.

In-Service Withdrawals
 
In general, you can withdraw funds from your account while still employed with your firm, subject to the conditions outlined below.

Certain withdrawals are subject to standard federal income tax, and if you're under age 59½, you may also face an additional 10% penalty tax. You can check if you're qualified for a withdrawal and then request one online or by phoning your company's Benefits Center.

Rolling Over Your 401(K) 

An in-service dividend can be rolled over to an IRA if the plan participant is under 72 years old. A straight rollover avoids both the 10% early withdrawal penalty and the necessary 20% tax withholding. More information, including potential rollover and withdrawal limits, can be found in your company's plan summary.

Because a withdrawal permanently decreases your retirement savings and is taxed, you should always consider obtaining a loan from the plan rather than withdrawing to satisfy your financial needs. Loans, unlike withdrawals, must be repaid and are tax-free (unless you fail to repay them). In other situations, such as hardship withdrawals, you are not permitted to make a withdrawal unless you have taken out the maximum loan available under the employer plan.

You should also be aware that your company's plan administrator reserves the right to change the regulations governing withdrawals at any moment, and may further restrict or limit the availability of withdrawals for administrative or other purposes. All plan participants shall be made aware of any such limits, which apply equally to all business workers.

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.

IRA Withdrawal

When you qualify for a distribution, you will have three options:

Your retirement assets could include IRAs, 401(k)s, taxable accounts, and others.

So, what is the best approach to withdraw your retirement income after leaving your company?

Consider fulfilling your retirement income demands by withdrawing from taxable assets rather than tax-deferred investments.

This may help your company's retirement assets last longer by allowing them to grow tax-deferred.

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

This is due to IRS guidelines for 2024, which state that you must begin taking distributions from these types of accounts when you reach age 73. Beginning in 2024, the excise tax on each dollar of under-distributed RMD will be decreased by 50% to 25%.

There is new legislation that allows account owners to postpone 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 RMDs, you have a few options. IRA distributions are taxed and may have penalties for those under 59½.

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

Systematic withdrawal plans: Set up regular, automatic withdrawals from your IRA based on your income needs once you retire from your company. If you are under 59½, you may face a 10% early withdrawal penalty (unless your withdrawal plan meets Code Section 72(t) criteria).

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

HSA's

Health Savings Accounts (HSAs) are frequently praised for their usefulness in controlling healthcare costs, especially for people with high-deductible health plans. However, its advantages go beyond medical cost management, placing 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 HSA

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

The annual contribution limits for HSAs 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), Health Savings Account (HSA) money build and can be carried over indefinitely.

Comparing HSAs to 401(k)s After Matching

Once an employer's maximum match in a 401(k) is reached, additional contributions provide less immediate financial benefit. This is where HSAs can play a strategic role. While 401(k)s provide tax-deferred growth and tax-deductible contributions, withdrawals are taxable. In contrast, HSAs allow for tax-free withdrawals for medical expenses, which account for a large amount of retirement costs.

HSA is a Retirement Tool

After age 65, the HSA proves itself as a powerful retirement tool. Funds can be taken for any reason, with the exception of non-medical expenses, for which standard income tax applies. 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 senior healthcare costs.

Furthermore, unlike 401(k)s and Traditional IRAs, HSAs do not require Required Minimum Distributions (RMDs), giving you more discretion over tax planning in retirement. This makes HSAs especially appealing to those who may not need to withdraw their funds immediately at retirement or who want to reduce their taxable income.

Investment Strategy for HSA

Initially, it's best to invest conservatively in an HSA, focusing on ensuring that there are enough liquid funds to cover the near-term deductible and other out-of-pocket medical bills. However, if a financial cushion has been developed, treating the HSA as a retirement account and investing in a diverse mix of stocks and bonds can dramatically increase the account's long-term growth potential.

Using HSAs in Retirement

In retirement, HSAs can cover a range of expenses:

• Healthcare bills Before Medicare: HSAs can pay for healthcare bills to bridge you to Medicare.

• Healthcare Costs After Medicare: HSAs can be used to pay for Medicare premiums as well as out-of-pocket medical expenses, like as dental and vision care, which are frequently excluded from Medicare.

• Long-term Care: Funds can be used to cover approved long-term care services as well as insurance payments.

• Non-medical Expenses: After the age of 65, HSA funds can be used for non-medical expenses without penalty, while withdrawals are subject to income tax.

What Happens If Your Employment Ends

Your life insurance coverage, as well as any optional coverage you acquire for your spouse/domestic partner and/or children, expires on the date your employment with your firm ends, unless it is due to disability. If you die within 31 days of your company's termination date, your beneficiary receives benefits for both your basic life insurance and any supplemental life insurance coverage you choose.

Note:

• You may be able to change your life insurance to an individual policy or choose portability for any optional coverage.

• If you cease paying additional contributions, your coverage will expire.

• If you are at least 65 years old and pay for additional life insurance, the insurance company should send you literature in the mail explaining your options.

• Make care to notify your beneficiaries. For more information, consult your company's sales and profit statement.

Schedule a Call

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 you depart from your employer, double-check your Social Security benefits status. Contact the Social Security Administration in the United States, your local office, or go to ssa.gov.
 
Are you already or soon to be eligible for Medicare?
If you or your dependents become eligible for Medicare after leaving your telecom industry company, Medicare will normally become your primary coverage as soon as they are. This has an impact on the medical benefits given by the firm.

When you initially become Medicare-eligible, you and your dependents must enroll in Parts A and B. Medical and MH/SA benefits payable under the company's sponsored plan will be lowered by the amounts Medicare Parts A and B would have paid regardless of whether you enrolled in them.
Please see your company's summary plan description for more information on benefit coordination.

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 roughly 60% of an individual's medical expenses. This indicates that a 65-year-old couple with typical prescription-drug expenses for their age will require $259,000 in savings to cover 90% of their healthcare costs. A single man will need $124,000, whereas a single woman will need $140,000 because to her longer life expectancy.

28% of couples over the age of 53 will not experience the happily ever after and until death do us part. 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)

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.

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 Northrop Grumman 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 Northrop Grumman 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 Northrop Grumman, 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.

Northrop Grumman 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 Northrop Grumman employees.