Bodnar Financial Advisors, IncJohn Bodnar, III, CFP®, CIMA®,248 Columbia Tpk.Suite 104Florham Park, NJ 07932Phone: 973-966-6939Fax: 973-966-0032john@bodnar.netwww.bodnar.net

September 2016Projecting a Happy Retirement

How to Get a Bigger Social SecurityRetirement Benefit

Five Things to Know About Inherited IRAs

I have matured U.S. savings bonds. Are theystill earning interest and, if not, can I roll themover to another savings bond?

BODNAR FINANCIAL ADVISORS INCClient Quarterly NewsletterProjecting a Happy Retirement

See disclaimer on final page

Summer has flown by once again,making us all wonder where the timereally goes. Enclosed is a special BFAwhite paper reflecting on the 15thanniversary of the 9/11 terror attacks.It's hard to believe that much time haspassed by, but here we are.

The milestone is a sobering reminderthat life goes on. We are all 15 yearsolder, 15 years closer to retirement.Just like the aftermath of any majorcultural event or tragedy, Americanspicked up the pieces and movedforward, working, planning, saving,and investing.

This fall, Team Bodnar will continue tocelebrate our resilient community atthe 3rd annual Morristown Festival ofBooks on Saturday 10/1. This year'sauthor selection is TBA, but pleasesave the date in the meantime. Wehope to see you there!

A 2015 study foundthat 41% ofhouseholds headedby someone aged55 to 64 had noretirement savings,and only about athird of them had atraditional pension.Among householdsin this age group

with savings, the median amount was just$104,000.1

Your own savings may be more substantial, butin general Americans struggle to meet theirsavings goals. Even a healthy savings accountmay not provide as much income as you wouldlike over a long retirement.

Despite the challenges, about 56% of currentretirees say they are very satisfied withretirement, and 34% say they are moderatelysatisfied. Only 9% are dissatisfied.2

Develop a realistic pictureHow can you transition into a happy retirementeven if your savings fall short of your goals?The answer may lie in developing a realisticpicture of what your retirement will look like,based on your expected resources andexpenses. As a starting point, create a simpleretirement planning worksheet. You might adddetails once you get the basics down on paper.

Estimate income and expensesYou can estimate your monthly Social Securitybenefit at ssa.gov. The longer you wait to claimyour benefits, from age 62 up to age 70, thehigher your monthly benefit will be. If youexpect a pension, estimate that monthlyamount as well. Add other sources of income,such as a part-time job, if that is in your plans.Be realistic. Part-time work often pays lowwages.

It's more difficult to estimate the amount ofincome you can expect from your savings; thismay depend on unpredictable market returnsand the length of time you need your savings tolast. One simple rule of thumb is to withdraw4% of your savings each year. At that rate, the

$104,000 median savings described earlierwould generate $4,160 per year or $347 permonth (assuming no market gains or losses).Keep in mind that some experts believe a 4%withdrawal rate may be too high to maintainfunds over a long retirement. You might use 3%or 3.5% in your calculations.

Now estimate your monthly expenses. If you'vepaid off your mortgage and other debt, you maybe in a stronger position. Don't forget to factorin a reserve for medical expenses. One studysuggests that a 65-year-old couple who retiredin 2015 would need $259,000 over theirlifetimes to cover Medicare premiums andout-of-pocket health-care expenses, assumingthey had only median drug expenses.3

Take strategic stepsYour projected income and expenses shouldprovide a rough picture of your financialsituation in retirement. If retirement isapproaching soon, try living for six months ormore on your anticipated income to determinewhether it is realistic. If it's not, or youranticipated expenses exceed your income evenwithout a trial run, you may have to reduceexpenses or work longer, or both.

Even if the numbers look good, it would be wiseto keep building your savings. You might takeadvantage of catch-up contributions to IRAsand 401(k) plans, which are available to thosewho reach age 50 or older by the end of thecalendar year. In 2016, the IRA catch-upamount is $1,000, for a total contribution limit of$6,500. The 401(k) catch-up amount is $6,000,for a total employee contribution limit of$24,000.

Preparing for retirement is not easy, but if youenter your new life phase with eyes wide open,you're more likely to enjoy a long and happyretirement.1 U.S. Government Accountability Office,"Retirement Security," May 20152 The Wall Street Journal, "Why Retirees AreHappier Than You May Think," December 1,20153 Employee Benefit Research Institute, Notes,October 2015

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How to Get a Bigger Social Security Retirement BenefitMany people decide to begin receiving earlySocial Security retirement benefits. In fact,according to the Social Security Administration,about 72% of retired workers receive benefitsprior to their full retirement age.1 But waitinglonger could significantly increase your monthlyretirement income, so weigh your optionscarefully before making a decision.

Timing countsYour monthly Social Security retirement benefitis based on your lifetime earnings. Your basebenefit--the amount you'll receive at fullretirement age--is calculated using a formulathat takes into account your 35 highestearnings years.

If you file for retirement benefits beforereaching full retirement age (66 to 67,depending on your birth year), your benefit willbe permanently reduced. For example, at age62, each benefit check will be 25% to 30% lessthan it would have been had you waited andclaimed your benefit at full retirement age (seetable).

Alternatively, if you postpone filing for benefitspast your full retirement age, you'll earndelayed retirement credits for each month youwait, up until age 70. Delayed retirement creditswill increase the amount you receive by about8% per year if you were born in 1943 or later.

The chart below shows how a monthly benefitof $1,800 at full retirement age (66) would beaffected if claimed as early as age 62 or as lateas age 70. This is a hypothetical example usedfor illustrative purposes only; your benefits andresults will vary.

Birth year Full retirementage

Percentagereduction atage 62

1943-1954 66 25%

1955 66 and 2months

25.83%

1956 66 and 4months

26.67%

1957 66 and 6months

27.50%

1958 66 and 8months

28.33%

1959 66 and 10months

29.17%

1960 or later 67 30%

Early or late?Should you begin receiving Social Securitybenefits early, or wait until full retirement age oreven longer? If you absolutely need the moneyright away, your decision is clear-cut;otherwise, there's no ''right" answer. But taketime to make an informed, well-reasoneddecision. Consider factors such as how muchretirement income you'll need, your lifeexpectancy, how your spouse or survivorsmight be affected, whether you plan to workafter you start receiving benefits, and how yourincome taxes might be affected.

Sign up for a my SocialSecurity account at ssa.govto view your online SocialSecurity Statement. Itcontains a detailed record ofyour earnings, as well asbenefit estimates and otherinformation about SocialSecurity.

1 Social SecurityAdministration, AnnualStatistical Supplement, 2015

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Five Things to Know About Inherited IRAsWhen an IRA owner dies, the IRA proceeds arepayable to the named beneficiary--or to theowner's estate if no beneficiary is named. Ifyou've been designated as the beneficiary of atraditional or Roth IRA, it's important that youunderstand the special rules that apply to"inherited IRAs."

It's not really "your" IRAAs an initial matter, while you do have certainrights, you are generally not the "owner" of aninherited IRA. The practical result of this fact isthat you can't mix inherited IRA funds with yourown IRA funds, and you can't make 60-dayrollovers to and from the inherited IRA. Youalso need to calculate the taxable portion of anypayment from the inherited IRA separately fromyour own IRAs, and you need to determine theamount of any required minimum distributions(RMDs) from the inherited IRA separately fromyour own IRAs.

But if you inherited the IRA from your spouse,you have special options. You can takeownership of the IRA funds by rolling them intoyour own IRA or into an eligible retirement planaccount. If you're the sole beneficiary, you canalso leave the funds in the inherited IRA andtreat it as your own IRA. In either case, the IRAwill be yours and no longer treated as aninherited IRA. As the new IRA owner (asopposed to beneficiary ), you won't need tobegin taking RMDs from a traditional IRA untilyou reach age 70½, and you won't need to takeRMDs from a Roth IRA during your lifetime atall. And as IRA owner, you can also name newbeneficiaries of your choice.

Required minimum distributionsAs beneficiary of an inherited IRA--traditional orRoth--you must begin taking RMDs after theowner's death.* In general, you must takepayments from the IRA annually, over your lifeexpectancy, starting no later than December 31of the year following the year the IRA ownerdied. But if you're a spousal beneficiary, youmay be able to delay payments until the yearthe IRA owner would have reached age 70½.

In some cases you may be able to satisfy theRMD rules by withdrawing the entire balance ofthe inherited IRA (in one or more payments) bythe fifth anniversary of the owner's death. Inalmost every situation, though, it makes senseto use the life expectancy method instead--tostretch payments out as long as possible andtake maximum advantage of the IRA'stax-deferral benefit.

You can always elect to receive more than therequired amount in any given year, but if youreceive less than the required amount you'll be

subject to a federal penalty tax equal to 50% ofthe difference between the required distributionand the amount actually distributed.

More stretching...What happens if you elect to take distributionsover your life expectancy but you die with fundsstill in the inherited IRA? This is where your IRAcustodial/trustee agreement becomes crucial.If, as is sometimes the case, your IRA languagedoesn't address what happens when you die,then the IRA balance is typically paid to yourestate--ending the IRA tax deferral.

Many IRA providers, though, allow you to namea successor beneficiary. In this case, when youdie, your successor beneficiary "steps into yourshoes" and can continue to take RMDs overyour remaining distribution schedule.

Federal income taxesDistributions from inherited IRAs are subject tofederal income taxes, except for any Roth ornondeductible contributions the owner made.But distributions are never subject to the 10%early distribution penalty, even if you haven'tyet reached age 59½. (This is one reason whya surviving spouse may decide to remain asbeneficiary rather than taking ownership of aninherited IRA.)

When you take a distribution from an inheritedRoth IRA, the owner's nontaxable Rothcontributions are deemed to come out first,followed by any earnings. Earnings are alsotax-free if made after a five-calendar-yearholding period, starting with the year the IRAowner first contributed to any Roth IRA. Forexample, if the IRA owner first contributed to aRoth IRA in 2014 and died in 2016, anyearnings distributed from the IRA after 2018 willbe tax-free.

Creditor protectionTraditional and Roth IRAs are protected underfederal law if you declare bankruptcy. The IRAbankruptcy exemption was originally aninflation-adjusted $1 million, which has sincegrown to $1,283,025. Unfortunately, the U.S.Supreme Court has ruled that inherited IRAsare not covered by this exemption. (If youinherit an IRA from your spouse and treat thatIRA as your own, it's possible that the IRA won'tbe considered an inherited IRA for bankruptcypurposes, but this was not specificallyaddressed by the Court.) This means that yourinherited IRA won't receive any protectionunder federal law if you declare bankruptcy.However, the laws of your particular state maystill protect those assets, in full or in part, andmay provide protection from creditors outside ofbankruptcy as well.

You are generally not the"owner" of an inherited IRA.The practical result of thisfact is that you can't mixinherited IRA funds withyour own IRA funds, andyou can't make 60-dayrollovers to and from theinherited IRA. Spousalbeneficiaries, however, maybe able to assume actualownership of an inheritedIRA.

*If the traditional IRA ownerdied after age 70-1/2 and didnot take an RMD for theyear of his or her death, youmust also withdraw anyremaining RMD amount forthat year.

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Bodnar FinancialAdvisors, IncJohn Bodnar, III, CFP®, CIMA®,248 Columbia Tpk.Suite 104Florham Park, NJ 07932Phone: 973-966-6939Fax: 973-966-0032john@bodnar.netwww.bodnar.net

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016

John Bodnar, III, RegisteredPrincipal, Securities offeredthrough Cambridge InvestmentResearch, Inc., a Broker/Dealer,Member FINRA/SIPC.

Investment Advisor RepresentativeCambridge Investment ResearchAdvisors, Inc., a RegisteredInvestment Advisor.

Financial Planning Services offeredthrough Bodnar Financial Advisors,Inc., a Registered InvestmentAdvisor.

Cambridge and Bodnar FinancialAdvisors, Inc., are not affliated.

Should I pay off my student loans early or contribute tomy workplace 401(k)?For young adults with collegedebt, deciding whether to payoff student loans early orcontribute to a 401(k) can be

tough. It's a financial tug-of-war betweendigging out from debt today and saving for thefuture, both of which are very important goals.Unfortunately, this dilemma affects manypeople in the workplace today. According to astudent debt report by The Institute for CollegeAccess and Success, nearly 70% of collegegrads in the class of 2014 had student debt,and their average debt was nearly $29,000.This equates to a monthly payment of $294,assuming a 4% interest rate and a standard10-year repayment term.

Let's assume you have a $300 monthly studentloan payment. You have to pay it eachmonth--that's non-negotiable. But should youpay more toward your loans each month to paythem off faster? Or should you contribute anyextra funds to your 401(k)? The answer boilsdown to how your money can best be put towork for you.

The first question you should ask is whetheryour employer offers a 401(k) match. If yes, you

shouldn't leave this free money on the table.For example, let's assume your employermatches $1 for every dollar you save in your401(k), up to 6% of your pay. If you make$50,000 a year, 6% of your pay is $3,000. So ata minimum, you should consider contributing$3,000 per year to your 401(k)--or $250 permonth--to get the full $3,000 match. That'spotentially a 100% return on your investment.

Even if your employer doesn't offer a 401(k)match, it can still be a good idea to contribute toyour 401(k). When you make extra paymentson a specific debt, you are essentially earning areturn equal to the interest rate on that debt. Ifthe interest rate on your student loans isrelatively low, the potential long-term returnsearned on your 401(k) may outweigh thebenefits of shaving a year or two off yourstudent loans. In addition, young adults havetime on their side when saving for retirement,so the long-term growth potential of even smallinvestment amounts can make contributing toyour 401(k) a smart financial move.

All investing involves risk, including the possibleloss of principal, and there can be no guaranteethat any investing strategy will be successful.

I have matured U.S. savings bonds. Are they stillearning interest and, if not, can I roll them over toanother savings bond?Once U.S savings bonds havereached maturity, they stopearning interest. Prior to 2004,

you could convert your Series E or EE savingsbonds for Series HH bonds. This would haveallowed you to continue earning tax-deferredinterest. However, after August 31, 2004, thegovernment discontinued the exchange of anyform of savings bonds for HH bonds, so thatoption is no longer available.

Since matured savings bonds no longer earninterest, there is no financial benefit to holdingon to them. If you have paper bonds, you cancash them in at most financial institutions, suchas banks or credit unions. However, it's a goodidea to call a specific institution before goingthere to be sure it will redeem your bonds. Asan alternative, you can mail them to theTreasury Retail Securities Site, PO Box 214,Minneapolis, MN 55480, where they will beredeemed. If you have electronic bonds, log onto treasurydirect.gov and follow the directionsthere. The proceeds from your redeemedbonds can be deposited directly into yourchecking or savings account for a relatively

quick turnover.

Another important reason to redeem yourmatured savings bonds may be becausesavings bond interest earnings, which can bedeferred, are subject to federal income taxwhen the bond matures or is otherwiseredeemed, whichever occurs first. So if youhaven't previously reported savings bondinterest earnings, you must do so when thebond matures, even if you don't redeem thebonds.

Using the money for higher education maykeep you from paying federal income tax onyour savings bond interest. The savings bondeducation tax exclusion permits qualifiedtaxpayers to exclude from their gross income allor part of the interest paid upon the redemptionof eligible Series EE and I bonds issued after1989 when the bond owner pays qualifiedhigher-education expenses at an eligibleinstitution. However, there are very specificrequirements that must be met in order toqualify, so consult with your tax professional.

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