Jul
20
2016

As a nation, we protect ourselves against threats to our future—many of which are beyond our control. We rely on our military to protect us from security threats, both foreign and domestic. We rely on the U.S. Food and Drug Administration to protect us from foodborne pathogens. We rely on the Centers for Disease Control and Prevention to protect us from communicable diseases. We each pay for these securities through our taxes. When it comes to living in retirement, however, we can only rely on ourselves and must fund that challenge accordingly.

A study on retirement security by the U.S. Government Accountability Office (USGAO) for the Senate Committee on Health, Education, Labor and Pensions presented in May 2016 revealed low defined contribution savings—an indication that, as a country, we must do some serious thinking about our future.

What’s most intriguing is that this possibility of being underfunded is quite controllable. As regulations and customs have changed throughout the years, the preferred method for individuals and business owners to save for retirement has shifted from defined benefit (DB) plans to defined contribution (DC) plans, such as a 401(k). Although DC plans have become increasingly easy to administer for business owners, many workers do not have access to them.

Here are some thought-provoking statistics gathered through the study:

  • Forty percent of U.S. households had some retirement savings in a DC plan in 2013, and account balances varied by household income and race
  • Sixty percent of households without any DC savings resulted from a number of factors—39 percent of working households lacked access to, or were not eligible to participate in, an employer-sponsored DC plan at their job
  • Low-income, black, and Hispanic households were even less likely to have access to a DC plan at their workplaces or to have DC savings
  • Twenty-five percent of working, low-income households had savings in a DC plan, compared to 81 percent of working, high-income households
  • Account balances declined for some, but not all, groups during the recent recession and recovery from 2007 to 2013

What does this mean in the long term?

We have a challenge on our hands to fund our individual and collective futures in retirement. The Social Security fund can only supplement a portion of our financial needs in retirement—the rest is up to each of us individually. Fortunately, the government has provided tax-advantaged options for American workers to help them fund individual and business retirement savings plans.

How much can you save?

We know from the recent USGAO study that low-earning households have accumulated, on average, enough funds to provide $560 per month in retirement, which is barely enough to live on, let alone live comfortably. The highest earning group has saved enough to generate 11 times that amount in retirement. A significant factor to how much you can save is certainly the amount of money available once the bills are paid, but another factor is the type of plan that you put into place.

A typical IRA allows $5,500 to be saved with a tax deduction each year ($6,500 if you’re age 50 or over) in 2016. This is certainly a starting point for many individuals who do not have access to a DC plan through their employers. And let’s look at the word “deduction”. It means that you can put the money away before taxes are imposed. So, putting away $5,500 might only feel like a $4,000 hit to the paycheck, depending on your tax bracket, filing status, and your other deductions. Plus, it can grow tax-deferred, which means that you don’t pay taxes each year on the accumulated funds, unlike a bank account or CD, which require you to declare any interest on your tax forms annually. For more information, please consult with a tax advisor.

If you are a small business owner, consider offering a DC plan through your veterinary practice. It will help you prepare your employees for retirement and can give you an edge when it comes to recruiting and retaining top talent. Many plans allow contributions of up to $18,000 per year ($24,000 if you’re age 50 or over), which allows you and your employees to have a bigger impact than the $5,500 permitted in an IRA. Let’s not forget, based on the FinFit study from September 2014, that 85 percent of employers believe that employees who participate in financial wellness programs are more productive on the job, which is good news for the health of your veterinary hospital.

If you do not have employees, you may benefit from a special type of DC plan designed for one-person businesses or those who only employ immediate family members. These plans allow you to defer up to $53,000 per year toward retirement ($59,000 if you’re age 50 or over), depending on the business earnings of your veterinary practice. This is a significant advantage, as the limits for the Solo 401(k) is one of the highest among qualified plans.

AAHA helps you manage the risk

Whether you’re starting a veterinary hospital, are already established as a hospital owner, or are preparing to wind down, AAHA offers retirement savings and distribution vehicles through AXA Equitable. With over 47 years of experience working with association members and 25 years specializing in the veterinary industry as an AAHA-recommended provider, AXA Equitable can help you review your options and offer you choices that will alleviate the burden of establishing and managing a retirement savings plan. It’s one of the ways that AAHA makes it easier for you to focus on doing what you do best.

Please call 1-800-523-1125 to speak with a retirement program specialist or visit us at www.axa.com/aaha to learn how you can start saving today.

Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided by this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor. AXA Advisors, LLC and AXA Network, LLC do not provide tax or legal advice.

Withdrawals from retirement plans are subject to ordinary income tax treatment and if taken prior to age 59 ½ may also be subject to an additional 10% federal income tax penalty.

The retirement plan would be funded by an annuity contract issued and distributed by AXA Equitable Life Insurance Company (AXA Equitable), New York, NY. Annuities contain certain limitations and restrictions. For costs and complete details, contact a Retirement Program Specialist.

GE-115427 (06/16) (Exp. 06/18)

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