Uber Getting Aggressive with Retirement Plans for Drivers

Uber, the popular taxi service that allows you to hire a private driver with just the tap of a smartphone screen, is getting serious about helping its drivers save for retirement. By partnering up with Betterment, a popular investment app, drivers can now create free accounts to help them save for retirement.

Why Is Uber Getting So Involved?

According to Uber’s North American General Manager, Rachel Holt, people in the United States are struggling to save for retirement. She also claims that many of the Uber drivers across the country have mentioned their desire for a retirement program that would allow them to better prepare for their economic futures. Uber is part of a shared economy system, or one in which people get to work for other people rather than for huge corporations. The main downfall, according to Uber drivers, is the fact that they have no access to perks like healthcare or even 401(k) accounts. Access to the Betterment app directly through Uber can alleviate some of the worry.

Who Is Currently Eligible?

Right now, the only drivers in select places have access to the Betterment app. These include the entire state of New Jersey as well as cities such as Boston, Chicago, and Seattle – places where Uber is more than just an alternative service and is a new way of life. These drivers are also gaining access to other perks that many employers simply don’t provide, such as discounts on their cellphone services and even auto repairs. It is hoped that by providing these discounts, Uber drivers will be able to better afford their own healthcare services and have more left over to save for their retirement.

How Betterment Works

Although only select drivers have access to the Betterment account through Uber, the company claims that it will soon roll the offer out to any and all drivers who would like access to it. According to CNNMoney, Betterment is one of the best investing apps of 2016 due to its overall simplicity, ease of use, and effectiveness. Betterment simply asks the user a few questions and then invests that user’s money across several diverse areas, thereby making it easy for people who know absolutely nothing about investing to make the right choices. The fees are among the cheapest on the planet, too, considering that users only pay index funds that range from .15% to .35% depending on the amount of money they invest.

Uber’s Role

Betterment is not a 401(k) account, so Uber will not be matching their drivers’ contributions. This is different from the accounts other, more typical employers provide – they often match contributions dollar-for-dollar up to a certain amount. This is done to help employees save more money, and to encourage them to save more of their own paychecks at the same time. While this is bothersome for some drivers, others claim that the ability to work when they want, where they want makes up for the lack of perks.

It is hoped that other companies like Uber will eventually start offering similar benefits, including access to Betterment. It is also hoped that they will eventually match employee contributions in such a way that they also encourage employees to save more – even if their contributions are only pennies on the dollar.

 

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IRS Throws Retirement Savers a Bone

For many years, those saving for retirement had 60 days to rollover their IRAs in order to avoid fees. This put many savers in a unique predicament, which forced them to do direct transfers rather than obtaining the funds themselves and then moving it to the new account. Fortunately, the IRS has relaxed a bit on this rule.

How It Used to Work

Imagine you have $200,000 in a 401(k) account, and you want to move some of those funds over to an IRA. You may choose to withdraw the portion of the funds you want to transfer, then deposit them into your IRA. However, according to the old method and tax law, you only had 60 days to get those funds out of your possession and into your IRA account. Many, many savers missed this window, but not because they were trying to hide something from the IRS. They missed it due to unforeseen circumstances, and they were forced to pay dearly. If they were younger than 59 and one-half years, their penalties were even heavier.

The New Rule

The IRS has become a bit more relaxed when it comes to redistributing retirement savings funds, which can help many people save thousands or even tens of thousands of dollars in tax penalties. Some of the circumstances that may qualify savers for a penalty waiver include:

  • A lost distribution check. Things often can and do happen. In the past, savers who lost or misplaced their distribution checks missed the 60-day window simply because they had to wait for a replacement check. This is no longer the case.
  • Accidental deposit into a non-qualifying retirement account. Many more people accidentally deposited their funds into accounts that retirements they believed were qualified, but were not. Not only did these people have to pay major taxes, but they also had to move their funds a second time, resulting in yet another waiting game. To help alleviate this, there is no more tax penalty in this case, and the IRS provides more detailed guidance.
  • The taxpayer’s home was significantly damaged. In the event of a fire, natural disaster, or other event, it is possible for taxpayers to get an extension on the 60-day window to avoid penalties.
  • A death in the family. In this case, the taxpayer can self-certify that a death in the family prevented them from meeting the window.
  • A postal error. Though it is relatively rare, it is very possible for distribution checks to get lost in the mail. In this case, there are no penalties.
  • A serious illness. If the taxpayer or a member of his or her immediate family was seriously ill during the 60-day window, they can get a penalty waiver.

Of course, according to the experts, the best way to avoid these fees is to transfer the money directly without ever taking possession of it. This completely negates any risk, and it simplifies things, too.

Retirement savers across the country are getting a much-needed tax break, and that’s always a good thing. The 60-day window does still apply in many cases, but if you fit any of the aforementioned criteria, you can have your penalties waived and keep your account’s tax-advantaged status.

 

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Reasons Why You Should Diversify Your Retirement Portfolio

The term “diversification” refers to the act of putting your investments in multiple places so that your exposure to risk is limited. Thus, if one investment starts to go downhill, you still have the rest to fall back on. Diversifying your portfolio can be difficult, but it’s a necessary part of retirement planning.

The Goal of Diversification

Many people mistakenly believe that the goal of diversification is maximizing returns on investments, but this is not the case. The actual goal is to limit the impact that a volatile market might have on your investments. For example, if you put all of your money in bonds, you may not earn a large enough return to support your lifestyle after retirement. If you put all of your money in domestic stock, then the volatility of the stock market may cause you to lose most of your nest egg at some point. The goal of diversifying is to spread your assets across several different places, which allows you to reduce risk while earning reasonable profit.

Reason #1 – The Whole offers Less Risk than its Parts

Let’s say you’re interested in investing in some risky places that have a potential to give you an insane return. It’s always fun – and sometimes exciting – to imagine your investments paying off beyond your wildest dreams. At the same time, though, it’s important to make sure that you are putting some money in safe places, such as IRA accounts and bonds. When you diversify in this way, the risk you can expect is far less than the risk associated with the individual parts of your portfolio. You get to take some chances, but you have your dependable investments to back you up.

Reason #2 – It Puts a Limit on Losses

When you invest, your ultimate goal should involve keeping up with the market averages and ensuring that you will have the funds you will need at the end of your time horizon. In doing this, you’ll need to focus not only on your gains, but also on the potential for losses. A giant loss can set you back several years in your time horizon. Essentially, the more diversified (and the better diversified) your portfolio, the less you stand to lose in the long run, and the less time it will take you to make up for any losses you incur.

Reason #3 – It Helps You Stay On Track

Rebalancing is also important to diversification. Essentially, rebalancing refers to the act of allocating funds between different types of stock in order to find the perfect balance between conservatism and risk. As an example, you may decide to spend 25% of your entire stock investing budget on foreign stocks, 5% on real estate, 25% for high-value stock, etc. Then, once per year, go back and take a look at how your balance performs, then talk to a professional to help you decide if some rebalancing is necessary. This will help you stay on track over the long term and meet your retirement goals.

Diversifying your portfolio does far more than ensure you get the best possible returns. It also helps you lessen your risk of exposure, puts a limit on your losses if and when they occur, and helps you stay on the right track to earn the amount of money you want during your time horizon.

 

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What’s the Perfect Age to Start Retirement Planning?

The truth is that putting an age to retirement planning isn’t necessarily the right way to go about it. Ideally, the perfect time to start retirement planning is when you get your first pay check; however, for most people this doesn’t happen. Somewhere in the mix of finding a place to live, food to eat, a family to support, and keeping your job, the idea of planning for something forty years down the road gets lost in thought. This is completely understandable, yet it’s a still a mistake. In order to understand why it’s so important to start planning for retirement right away, it’s important to know how compound interest works and how you can use it to make money.

Compound Interest

Retirement plans aren’t just savings plans where money is taken from your account and stashed away for a later day. They’re a way for you to actually make money. In fact, potentially a lot of money if done properly. The key is understanding what compound interest is. Compound interest is the force which drives retirement accounts. It differs from the more commonly known and discussed simple interest. Simple interest is interest with a fixed rate. For example, if you put $100 in an account that has a 10% simple interest rate, you can expect to gain interest payments based off the original principle you put into the account ($100). Now, if you put $100 into an account with compounding interest, the interest you gain is based of your principle plus any interest you’ve make. In other words, compounding interest is interest that builds on itself. It’s a way for you to make money by doing nothing.

Putting Money in a Retirement Account

Once you have a good understanding of what compound interest is and how it works, it becomes much easier to justify taking money out of your account and putting it into a retirement account. The question now becomes: how much should I take out? The answer is as much or as little as you can afford. The amount really isn’t that important. What’s important is that you’re consistently putting something into the account. This will give your account a chance to compound in the manner described above. If done for a long enough time, you can make a tremendous amount of money. This should make you feel good about not only your future financial state, but your current one as well.

If you’re smart and start planning for retirement early, that’s great. If you’ve already dropped the ball and are years or even decades into your career and haven’t put a single thought into retirement, it’s not the end of the world. The past isn’t what’s important. The present is. Now is the time to start planning for your retirement by putting money into your account. Search for an experienced and trusted financial planning company that can help you with your retirement planning and you will be on the right track to being prepared when your retirement day arrives.

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How to Prepare for Retirement During Your Last Year at Work

Planning for retirement goes all the way up until the day you retire. If you’re one year away, you’re heading down the home stretch and should begin to start feeling excited. Your retirement day is drawing near. In order to completely prepare yourself for it, you should make sure the following are squared away:

Housing

It’s important that your housing situation be taken care of before your retirement begins. If you’re thinking about moving to a smaller place or different state, it’s important that you do it sooner rather than later.

Social Security

The time you begin collecting social security will impact how much social security money you get for the rest of your life. It’s important that you know when the best time to start collecting social security will be so that you maximize your benefits. Delaying social security is a great way to get extra retirement money.

Health Insurance

Medicare will begin to cover you when you turn 65, but don’t make the mistake of thinking Medicare will be enough. Before you retire you should understand what Medicare Plan A and B cover and what co-payments you will be responsible for. You should also look into purchasing Medicare Plan D, which is plan that covers all prescription medications. It’s usually a good idea to go to the doctor before your retirement. Use your current health plan to get dental, hearing, and vision treatment, as these aren’t covered by Medicare.

Retirement Budget

There’s no way of knowing exactly how much you’ll be spending during retirement, but it’s possible to have a general idea. Developing a list of monthly and annual expenses that you know will be recurring during retirement. Add in things like vacations and expensive items you wish to purchase. Know around how much you should expect to spend during the first few months, so that you know if you’re spending too much after you retire.

Post Retirement Plans

Far too often people get to retirement and don’t know what to do with themselves. Don’t let this happen to you. Investigate any and all things you might be interested in beforehand. Common things to think about are community involvement, future work, personal goals, and health.

Post Retirement Social Outlets

Unfortunately, work is often times a main social outlet. Before you retire, you should analyze your social situation and make arrangements. If you only socialize with people from work, realize that that social outlet will soon be gone and need to be replaced. It’s always a good idea to connect with friends who have already retired, as they can be a new social outlet and support group.

If the above mentioned things are squared away before your retirement, you will surely kick your retirement off to good start. You’ll put yourself in a situation where all your basics needs are met and you can be free from worry and burden. The only thing you’ll have to be concerned about is enjoying your retirement in the best ways possible.

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