3.00% Interest Rate starts February 1, 2021 for Providence Association Retirement Products, which include Annuities, IRA and Roth IRA Annuities.

Due to the tremendous support of all of our members and the Ukrainian community, for over three years, we were able to pay a three and one quarter percent (3.25%) interest rate on all of our members’ Annuity, IRA and Roth IRA certificates. 

Prudence in the face of the current interest rate market, however, obliges us to lower that rate just a tic (0.25%). 

Starting February 1, 2021, THE INTEREST RATE OF PROVIDENCE ASSOCIATION ANNUITIES, IRA ROTH IRA ANNUITIES WILL RESET TO 3.00%.

Nevertheless, we think that you will agree that earning a 3.00% tax-deferred, or in the case of Roth IRA’s tax-free, interest rate is not bad news in today’s challenging world.

2.00% lifetime guaranteed minimum interest rate: 

All Providence Association Annuities, IRAs and Roth IRAs issued after January 30, 2021 will have a favorable 2.00% guaranteed minimum interest rate and a then current rate of 3.00%, as stated above. In this regard we remind all of you that providence Association’s savings Products are governed by a “floating”/varying interest rate that its Executive fixes, sets and resets from time-to-time.   

Capacity for growth rates to increase is unlimited: 

All Providence Association Annuities, IRA Annuities and Roth IRA Annuities have the capacity to have their interest rates increased when interest market rate forces so allow.  

3.00% lifetime guaranteed minimum interest rate product will be discontinued/suspended, as of January 30, 2021.  

However, all Providence members that own products issued before that date will, naturally, retain a guaranteed minimum interest rate of 3.00% for the lifetime of their existing contracts. 

If you are not yet members, call Providence Association toll free at 1-877-857-2284. We will assist you immediately with the opening of an appropriate account, so that you too can enjoy a 3.00% interest rate on your hard-earned monies. 

We can also rollover your existing 401(k) or other employer retirement account, or transfer an existing Annuity, IRA or Roth IRA, if they are currently earning less than 3.00%.

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How much is Enough?

How much is enough to live the life you want during retirement?  A good question to ask yourself at any age, but difficult to know early in life.  If you have spent the last ten, twenty or thirty years working full time, you may think that your retirement savings are well ahead of what you may actually need.  

According to Penny Hoarder, only “27.5% of people ages 21 to 34 have a retirement account” If you save $100 each month starting at age 25, and your retirement account grows by 5% each year, you will have nearly $172,000 by the time you are 67, but if you wait another 10 years, then you will only save just under $95,000.  By the time you are 50, you should save at least six year’ worth of your salary. 

That being said, f you have not started saving for retirement, call us to open an account policy.  In 2019, the maximum annual IRA contribution is $6,000 for people under 50; it’s $7,000 for people 50 and up. If you start contributing $6,000 a year at 37, and your account grows by 3.25% annually, you will have $307,000 by the time you’re 67. Also if you have enough to make additional contributions that exceed the annual maximum or an IRA and Roth IRA, our, tax-deferred, annuities have the same interest rate structure.   

Experts generally agree that we need at least 70% of our pre-retirement income to live comfortably during retirement. Of course, everyone has a definition of comfort, so 70% may not be enough – or, in some relatively rare cases, it may be more than enough. However, it is clear that any retirement savings plan must begin with us asking ourselves: “What do I want to do with the rest of my life?”  This vision, this dream, should then fuel our efforts to save enough.

Retirement Dreams

In this article, we offer a few scenarios with estimates to give you a better idea of how much you need when the time comes.  In each case, individually tailored savings plans are important. Providence can help you design an appropriate plan based on your current situation as well as your idea of the retirement dream. 

The scenarios presented assume that the couple has a pre-retirement income of $80,000, expects a pension of $28,000 annually and will spend all its retirement savings during their lifetimes. Obviously, if they want to do more, such as helping grandchildren with college or leaving a legacy, they will need to save more. The figures also assume a 6% rate of return on investments and a 3% inflation rate.

The Homebodies

This couple views retirement as a time when they can relax and enjoy each others’ company. They will work in the garden, do charitable work and read good books. The mortgage will be paid off and the kids will be out of college. No plans of any extra expenses as far as travel or purchasing fancy cars or boats. 

• How much is enough: 70% of their pre-retirement income, or $56,000 annually.
• Savings needed with pension: $432,000 for $28,000 annually
• Savings needed without pension: $864,000 for $56,000 annually

The Snowbirds

This couple is much like the homebodies, and view retirement as one long vacation. However, rather than stay at home, they spend their winters in the Sunbelt. Whether they purchase a condo, or rent, their retirement will have to be higher than the 70% mentioned above. 

• How much is enough: 90% of income, or $72,000 annually.
• Savings needed with pension: $679,000 for $44,000 annually
• Savings needed without pension: $1.1 million for $72,000 annually

The Globetrotters 

This couple sees retirement as the beginning of a bold new chapter in their lives. They plan to travel the world – all of it: Argentina in Spring; The Alps in summer; Tuscan and the Riviera in Fall; and Bali in Winter. Oddly enough this hectic schedule requires earnings greater than those enjoyed in pre-retirement years. 

• How much is enough: 110% of income, or $88,000 annually.
• Savings needed with pension: $926,000 for $60,000 annually
• Savings needed without pension: $1.36 million for $88,000 annually

The Part-Timers 

This is the couple who finds joy in their job; it gives them a sense of purpose. They would feel lost not doing what they love so they plan on working twenty hours per week, thereby earning some additional income in the process.

• How much is enough: 50% of income, or $40,000 annually.
• Savings needed with pension: $185,000 for $12,000 annually
• Savings needed without pension: $617,000 for $40,000 annually

Reality – Life is Expensive

Now lets look at reality, life is expensive. You may fit the Homebodies category, but there are things that you want to possess to be comfortable.  For example a nice pool, or a vacation home on the beach for your grandchildren to visit during the summer. Or maybe you may want to sponsor a family vacation to a nice resort in the Poconos. You may want to donate to churches or charities. You may even like fancy clothes, purses, TVs or computers.  Just because you are retired does not mean that you should not be able to buy yourself some toys. There is also the possibility that you want to be a Homebody now, but when you get to retirement, your dream may change. So in reality, you will need to save more than the above amounts to have a little extra wiggle room.  

Retirement Expenses

The above calculations do not take into account some major expenses that you may encounter in retirement, including healthcare costs, existing debt, and taxes.  According to an article in the Motley Fool, “retirement healthcare costs range from $285,000 to over $363,000 for a 65-year old couple retiring in 2019.”  Also, taxes do not go away during retirement. Unless you saved exclusively in Roth Accounts, for instance, you will be taxed by that year’s tax brackets on amounts you withdraw from your retirement accounts. Taxes will also be due on your pension, property, investment, dividend and other income. 

It is absolutely possible to reach your retirement goals if you start investing your extra income today.  Although there are many investment opportunities, an IRA, Roth IRA or annuity are guaranteed forms of retirement saving that bear no risk. So even if you decide to be a bit risky with your investments, it is a good idea to place a significant portion of your retirement savings into these plans.  This way, no matter what happens with the stock market, you will still have enough to live your retirement dream.

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IRA’s – The federal government has increased the deposit limit for income earners under the age of 70.5 to $5,500 (for persons over 49 years old, this amount is higher: $6,500) for the tax year 2017. A similar deposit can be made for the income earner’s spouse. Such deposits generate a deduction on the investor’s tax return and interest earnings accumulate tax free. Although withdrawals are subject to income tax, they are usually made after the investor has retired and is in a lower tax bracket. Withdrawals before age 59.5 incur a 10% excise tax penalty and are subject to ordinary income tax with several exceptions noted below. The proceeds from 401(k)’s or other qualified pension plans, upon distribution, can be easily “rolled-over” into a Providence IRA.

Roth IRA’s – Although deposits into Roth IRAs are not tax-deductible, withdrawals after age 59.5 and 5 years are completely tax-free. If a person owns an individual IRA and a Roth IRA, combined contributions into both cannot exceed $5,500 ($6,500 for persons over 49 years of age) in the year 2017.

IRA Withdrawals – The 1997 Tax Relief Act allowed withdrawals from all IRA’s in the following circumstances: 1.) For tuition for higher education; and 2.) For qualified first-time homebuyers ($10,000 maximum. In addition, withdrawals from traditional IRA’s are permitted to cover long-term disabilities and excessive medical expenses stemming from illnesses without a prognosis of recovery.

Supplemental Annuity – Although IRA’s and Roth IRA’s are wonderful vehicles for retirement savings, because they generate either tax deductions or tax-free distributions, respectively, their greatest limitation stems from the restrictions on the amount of annually permitted deposits. A wise investor will also purchase a Flexible Premium Deferred Annuity for the purpose of accommodating additional retirement income and/or wealth for future generations.

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