Category Archives: Retirement Planning

Ideas to help preserve and grow your money

6 Reasons to Work Past Retirement Age

retirement_roadMy Comments: You may not need a reason to keep working. But more and more of us are choosing to remain employed. Modern medicine has conspired to keep us healthy, and boredom is an ugly threat. If you have great ways to spend your time and enough money to avoid running out if you live too long, good for you, go ahead and retire.

By Jane Bennett Clark | Kiplinger | Updated January 2017

Employee Benefits

The perks you get on top of your paycheck can be worth hundreds or even thousands of dollars. Among them: employer-paid life insurance and the employer contributions to your 401(k). Another biggie is health insurance, which can be cheaper than Medicare and provide more comprehensive coverage. Employer coverage is especially valuable if your spouse is younger than 65 and covered by your plan.

Whether you should maintain your employer health coverage over parts of Medicare depends on the size of your company. Here’s how it works: At 65, you qualify for Medicare Part A, which covers inpatient hospital services. Because Part A is free, you have few reasons not to enroll. At that point, you can also enroll in Medicare Part B (for doctor visits), Medicare supplemental coverage and Part D (for prescription drugs). If your company has fewer than 20 employees, you must sign up for Medicare as your primary insurance, even if your employer offers its own coverage. (If you don’t sign up for Medicare, you may not be covered at all. Discuss your options with your employer.)

If your company has 20 or more employees, however, employer-based coverage pays first, and you can stay on it if you choose. When you do retire, you can sign up for Part B and the other coverage without penalty or having to wait for open enrollment.

A Bigger Pension

If you’re lucky enough to have a pension (and it hasn’t been frozen), you may get a bigger payout by working a few more years. Pensions are calculated based on pay and years of service. Some plans base the benefit on your average earnings over the last three or five years of employment, others on your average earnings over all the years in which you’ve participated in the plan. Assuming your income is still going up, your pension benefit could be richer for every year you work.

You Like Working

Working isn’t all about paychecks and benefits. “The relationships, the recognition and the sense of fulfillment that work provides give people purpose and structure,” says Dee Cascio, a psychotherapist and retirement coach in Sterling, Va. That can be especially true for men, she says, who often rely on work for their social network. If you haven’t a clue how you’ll spend your time — and with whom — after you leave the workforce, stay on the job until you do.

A Fatter Nest Egg

Retirement planners generally recommend having enough in retirement savings to last 25 years. For instance, if the difference between your projected spending and income (including Social Security and pensions) in retirement is $25,000 a year, you’ll need 25 times $25,000, or $625,000. Fall short of the mark and working longer is the best solution. Not only will you have fewer years in which you’ll be drawing down savings, but, while you’re working, you can keep feeding your retirement accounts. Even if you don’t add a penny, the money in the accounts will continue to benefit from tax-deferred growth.

A Higher Social Security Benefit

The full retirement age for Social Security, once 65, is now 66 for people born in 1943 to 1954, and it will gradually rise to 67 for people born in 1960 or later. But for every year you delay taking the benefit past full retirement age, you get a bump of 8% in your benefit, until age 70. If you’re healthy and anticipate having at least an average life expectancy (82.9 for men who reach 65, 85.5 for women), it makes sense to wait until 70 to collect the bigger benefit, particularly if you have a spouse who will prosper from a boosted survivor benefit. But that means coming up with another way to cover your expenses during the interim. A paycheck keeps the money flowing.

Coordinating With Your Spouse

Most husbands and wives hope to retire within a year or two of each other, says Richard Johnson, director of the program on retirement policy at the Urban Institute. How so? “When you retire, you have more leisure. Most people want to spend that leisure with their partner,” Johnson says.

If your spouse is much younger or simply not ready to retire, working several more years yourself is a simple solution to the home-alone syndrome.

Opinion: This, not Donald Trump, is the true revolution upending stock-market investing

InvestMy Thoughts on This:

Hysteria on Wall Street! The Crash is Coming! No, It’s NOT!

It’s refreshing to see behind the news and find an insight that serves to explain what’s probably going on. These comments by Howard Gold are probably close to the truth. NOT FAKE NEWS!

Published: Feb 1, 2017 by Howard Gold

Stocks have made big gains since Election Day on the hope President Donald Trump and the Republican Congress would cut regulations and taxes and boost growth. They sold off Monday and Tuesday after the president imposed a temporary ban on visitors from seven Muslim-majority countries.

The ebbs and flows of Trump-related fear and euphoria fascinate Wall Street and the media—myself included—but they don’t matter much in the long run. Far more important, but getting almost no coverage, is a true revolution that’s upending investing—I think, for the better.

This sea change, which has developed over the last decade, consists of three big trends:
1. Investors have abandoned individual stocks for funds and exchange-traded funds (ETFs).
2. They have dumped actively managed mutual funds for index funds.
3. They have flocked to target-date funds as vehicle of choice for retirement saving and investing.

How revolutionary is this?

A generation ago, investors bought baskets of individual stocks, often on the advice of a stockbroker or relative, with little regard for how they worked together. This culminated in the internet bubble of the 1990s when people thought they were diversified by owning tech highfliers Dell, Sun Microsystems, Altera, and Novellus Systems, all of which suffered huge losses in the dot-com crash.

That and the emergence of ETFs in the 2000s prompted investors to dump individual stocks en masse. According to the Investment Company Institute, U.S. households’ net investment in individual stocks fell by an amazing $3.35 trillion from 2006 to 2015. During that same period their investment in mutual funds, annuities, closed-end funds, and ETFs rose by $3.62 trillion.

It’s unlikely all the money that came out of individual stocks went directly into equivalent funds, but the trend is clear: “…Investors are moving from directly owning individual stocks to owning stocks through mutual funds,” including ETFs, Sarah Holden, ICI’s senior director, retirement and investor research, told me in an interview. That’s why I think stock pickers are a dying breed.

It makes sense: When elite hedge funds run by the world’s supposedly smartest money managers trailed the S&P 500 index SPX, +0.30% for the eighth consecutive year in 2016, how can amateur stock pickers hope to beat the market consistently?

But active mutual-fund managers also have an abysmal track record. There’s overwhelming evidence very few of them beat index funds over the long haul: A 2016 study by S&P Dow Jones Indices found that over a 10-year period, more than 80% of actively managed funds trailed their benchmarks.

Cost is the main reason, Vanguard founder Jack Bogle has long argued. Actively managed funds’ average expense ratio was 0.84% last year, according to ICI, while index funds averaged 0.11%. Some of Vanguard’s broadest U.S. stock index funds charge as little as 0.05%—a full percentage point less than many active stock funds. That difference really compounds over the years.

So, index funds now comprise 40% of total U.S. equity fund assets, double their share a decade ago. From 2006 to 2016, $1.1 trillion flowed out of actively managed U.S. equity funds and about the same amount went into similar index funds, in what Morningstar called a “remarkable exodus.” Last year, the flow became a torrent as passive funds took in a record $504.8 billion.

That dovetails with our third big trend. According to ICI, three-quarters of all 401(k) plans offer target-date retirement funds (funds of funds that rebalance as shareholders get closer to their specified retirement date), and the number of those funds has increased 3½ times over the past decade. From 2006 to 2015, assets rose more than tenfold, to $762.5 billion.

The Pension Protection Act of 2006, which eased automatic enrollment in 401(k) plans, and a subsequent Labor Department ruling that allowed target-date funds (TDFs) to be “default” investments in those plans spurred their explosive growth. TDFs’ ease of use makes them especially attractive to millennials, who are gobbling them up.

“I make one decision,” explained Holden at ICI. “I go into the TDF appropriate for my date, and…there’s a whole lot of work done for me in terms of keeping me diversified and then also rebalancing as we move toward retirement.”

A lazy solution? Maybe, but it also shows investors know their limitations, which is very wise.

So, it looks like we’re at an inflection point where most investors will jump into broad market indexes using set-it-and-forget-it TDFs as their principal method for retirement investing.

That’s bad for fund managers, stock pickers, newsletter writers, and media outlets that specialize in stock selection. But it’s good for millions of Americans who just want to save and invest for a decent retirement. It’s a drive towards diversification, automatic investing and rebalancing and simplicity—and who can argue with that?

This, quite simply, is the future of investing. The revolution is happening right now.

6 Steps to Retire When You Want

retirement_roadMy Comments: For some, retirement will be bliss. For others, not so much. WHEN you retire, and HOW you retire, will have a lot to do with WHAT will happen.

Jane Bennett Clark, Senior Editor,
Kiplinger’s Personal Finance, Feb 2017

For some, the idea of retiring early is a dream nurtured over decades. For others, it’s the realization that they could walk away from their career right now and manage just fine. For still others, it comes as a virtual smack upside the head from a financial planner who asks why they’ve waited so long.

In some ways, the above scenarios—all of which represent the experiences of people featured in this story—run counter to the current trend of working longer. The average age at which people retire has increased over the past two decades, and longer life expectancy is just one of several compelling reasons for staying in the workforce a few extra years.

For all that, the idea of working well into old age has yet to catch fire. Men retire at 64, on average, just two years later than they did in the mid 1990s, according to the Center for Retirement Research at Boston College; women retire at 62, on average, up from 59 two decades ago. In a recent survey of Kiplinger’s readers, 55% of those responding said they retired at 62 or younger. And for workers of both genders, by far the most popular age at which to claim Social Security is 62—as soon as they’re eligible.

There’s no right time to retire for everyone, but there is a right way to plan for it. Here’s how to position yourself to retire when you want.

Assess Your Savings

Saving regularly from the beginning of your career to the end has always been the prescription for a comfortable retirement. To retire at 67, for instance, Fidelity Investments recommends that you set aside 15% of your salary, including any employer contribution, starting at age 25 and continuing throughout your career, resulting in a retirement stash of 10 times your final income. The formula assumes you’ll replace 45% of your preretirement income with savings, with the rest of your income coming from Social Security. To replicate your standard of living and retire at 62, you’d have to save 25% of your salary starting at age 25, says Fidelity.

As with all long-term goals, however, life has a way of intruding, in the form of kids, mortgages and college costs. If you start saving for retirement late or cut back on saving for a few years, you’ll have to double down to get back on track. That’s challenging but not impossible, says Kevin Reardon, a certified financial planner in Pewaukee, Wis. “We get clients who are in their early fifties, the kids are out of the house and they’re past the college expenses. Now they’re able to sock away a big chunk of money.” Uncle Sam gives you a boost: If you are 50 or older, you can make annual catch-up contributions of up to $6,000 to your 401(k), for a total of $24,000 in 2017, and up to $1,000 to your IRA, for a total of $6,500.

You may realize that your post-career plans—hanging with the grandkids or enjoying long walks in the woods—don’t require 10 times your preretirement income, or that retiring a year or two earlier than scheduled is worth skipping the ski trips to Gstaad later on. Savings benchmarks are a guide, not an imperative, says Jeanne Thompson, a senior vice president at Fidelity. “When people decide they’re ready, they take stock of what they have and make it work.”

Tim and Mary Joyce of Muskego, Wis., have always lived modestly. “We’re very conscious of budgets and saving, and we’re not extravagant. We don’t incur much debt, and we paid our house off quite a few years ago,” says Tim, 64. When Mary, 63, a longtime employee of General Electric, was offered early retirement, the couple assessed their resources and realized they could retire whenever they chose. She took the offer and left her career job at 56; Tim retired a few years later, at 59. “We retired early because we could,” he says.

And they have no regrets. Financially, “our lifestyle hasn’t changed at all,” says Tim, but now they have more time to pursue their hobbies (he restores old cars, and they are renovating their vacation home, a log cabin in northern Wisconsin). They are also able to contribute to college-savings accounts for each of their four grandchildren.

Analyze Your Spending

No matter how you envision your retirement, you still have to figure out how you’ll cover your costs when you no longer have a paycheck. Well before you retire, determine what your current expenses are and which of them you expect to carry into retirement. “If I had to put my finger on the one issue for people coming into my office, it’s that they don’t know what they’re spending,” says Reardon.

The process doesn’t have to be arduous or time-consuming, he says. “Go to your credit card and checking account statements over the past three to six months and look at your average monthly spending. You’ll get a picture of your annualized expenses, and you can probably do it in 20 minutes or less.” Make one list of ongoing, essential costs, such as food, housing and clothing, and another for the nice-to-haves, such as club memberships and hobbies. Don’t neglect to plan for big, occasional expenses—say, a new roof.

Once you’ve gotten a handle on those expenses, match them to income—any pensions and Social Security payments (more about that below), plus the annual amount you intend to withdraw from savings. Be sure to factor in taxes on distributions from your savings accounts. The general rule is to draw from taxable accounts first. If you sell stocks held longer than a year, you pay tax on the profit at the long-term capital-gains rate, up to 20%, whereas you’ll pay ordinary income tax of up to 39.6% on every dollar you withdraw from pretax accounts, unless Congress changes the tax rules. If you withdraw from a pretax account before age 59½, you may have to pay a 10% penalty on earnings on top of taxes due on the distribution itself. (There’s no penalty on distributions from a 401(k) if you are 55 or older in the year you leave the job.)

After you’ve run the numbers, do a reality check. If there’s a gap between expenses and income, you’ll have to either spend less in retirement or work longer. “I have clients who look at the results and say, Wow, we’re not ready. We had better make some changes,” says Derek Tharp, a CFP in Cedar Rapids, Iowa. For others, the analysis comes as welcome news that they can retire on course.

Plan for Social Security

Deciding when to take Social Security is a key part of the planning process. But it’s even more important if you retire before your full retirement age—66 for people born between 1943 and 1954, gradually rising to 67 for people born in 1960 or later. If you claim as soon as you’re eligible, at 62, you’ll take a 25% to 30% reduction in benefits from what you’d get at full retirement age. For every year you wait after full retirement age until 70, you’ll get an 8% boost in benefits, on top of any cost-of-living adjustments.

The earlier you retire, the more tempting it is to file for benefits—after all, at 62, it’s yours for the taking, and you can’t live on fumes. But many financial planners recommend holding off, even if that means using retirement savings to cover the income gap. By forgoing benefits a little longer, you’ll reap a much higher amount, which will help you stretch your savings over a retirement that could last as long as 40 years.

That higher benefit also applies to your spouse, who qualifies for a survivor’s benefit equal to your benefit if you die first. Given the increase in life expectancy (men who reach 65 live until 82.9, on average; women live until 85.5), “for every couple who retires today at 65, chances are good that one spouse will live into his or her nineties,” says Jenny Martella, a CFP in Charlotte, N.C.

Delaying Social Security doesn’t make sense for everyone. If you’re retiring because you have a health issue or you lost your job and need the income, or if you believe you won’t reach your life expectancy, you should probably take the money sooner rather than later. Even so, says Russ Thornton, a CFP in Atlanta, try to wait at least until your normal retirement age to get the full benefit. One way to do that is to have one spouse (usually the lower earner) take his or her benefit early to generate income while the other spouse waits.

Leverage Your House

Another way to access money while you’re delaying Social Security is to tap home equity through a reverse mortgage. Available to homeowners age 62 or older, a Home Equity Conversion Mortgage gives you access to built-up equity—up to the federal loan limit of $625,000—and does not have to be repaid until the last surviving borrower dies, sells the house or moves out for at least 12 months.

You can take the money, which is tax-free, as a line of credit, monthly payments or, with some restrictions, a lump sum; you must pay off any current mortgage with the proceeds. You’ll also have to pay a one-time fee of up to 2.5% of the loan amount plus an annual insurance premium of 1.25% of the balance over the life of the loan. The insurance guarantees that the lender will be repaid by the government if the house sells for less than the loan’s balance. (For more information on these deals, see Reverse Mortgages Get a Makeover.)

Review Your Portfolio
For any soon-to-be retiree, the challenge is to figure out how to generate growth in your investments while tamping down risk. A portfolio with 55% stocks, 40% bonds and 5% cash (see How to Build the Right Mix of Investments in Retirement) gets you in the ballpark. For a bit more growth, you might adjust the mix to 60% stocks and 40% bonds and cash; for less risk, you’d do the reverse.

If you’re retiring early, however, striking the right balance becomes a bit trickier. Should you pump up the stock portion of your portfolio to generate growth over a longer period, or do you come up with a more conservative blend to protect savings?

Some financial planners argue for the more conservative approach, at least at the beginning, to protect against the chance that a bear market could cripple your savings and maybe even force you to go back to work. Others believe you need some extra oomph in your portfolio to protect against inflation over several decades. “If you’re investing in ‘safe’ investments, such as money market funds or bonds, a 2.5% inflation rate over time will eat your savings alive,” says Martella. She recommends a stocks-to-bonds ratio of 60-40 to 70-30, depending on your risk tolerance.

Another way to address the growth-versus-risk problem is to separate your portfolio into “buckets.” With this approach, says Marcy Keckler, vice president for financial advice strategy at Ameriprise Financial, you set aside enough cash or cash equivalents in the first bucket to cover one to three years of living expenses, after factoring in guaranteed income, such as Social Security. The second bucket holds slightly riskier investments, such as intermediate-term bond funds and a few diversified stock funds, for income with some growth; you’ll eventually use profits from that bucket to replenish the first. The third and largest bucket represents a balanced portfolio of diversified stock and bond funds, for long-term growth.

Darrow Kirkpatrick of Santa Fe, N.M., was in his thirties when he began to think about retiring early. A computer engineer, Kirkpatrick, now 56, got in on the ground floor of the PC revolution, and he had the bucks to show for it. He loved his job but still wanted to retire. By living frugally and saving diligently, he and his wife, Caroline, now 58, believed he would be able to retire in 2008, when he was 47. Then the market tanked. Kirkpatrick ended up retiring in 2011. Caroline, who had taken time off to raise their son, returned to work as a schoolteacher before retiring in 2015.

Not surprisingly, Kirkpatrick has designed his investment strategy to protect against shocks such as that of 2008. “I keep several years’ income in cash and a lot in bonds, so I don’t have to liquidate when the market is down,” he says. He also calibrates withdrawals to align with market conditions rather than go with a set withdrawal rate of, say, 4%. “It’s intuitive. If the market is down, you bring your lifestyle down; if the market is doing well, you can splurge a little that year,” says Kirkpatrick. His approach accords with advice from retirement planners who recommend taking withdrawals using the same “dynamic strategy.”

Secure Health Coverage

A few years ago, John Patterson, 64, of Annapolis, Md., sold his share of a family insurance company for a generous annual payout. He and his wife, Linda Stein-Patterson, 61, had already accumulated substantial savings, put their two daughters through college and paid off their home. Although Patterson expected to continue working, perhaps part-time (Linda had left the workforce years earlier to be home with their kids), his financial planner insisted he could afford to retire.

So far, the plan has worked out well—but one element of retiring early has caused John a bit of heartburn. Neither he nor Linda is eligible yet for Medicare. They get their coverage through the Affordable Care Act, paying a premium of $1,600 a month for a basic Bronze plan, with a $6,500 per-person deductible.

Prior to the ACA, many would-be retirees were unable to quit their day jobs before 65 because insurers in the individual market made it difficult to get coverage for preexisting conditions. The ACA prohibits insurers from denying coverage for existing health problems, a godsend for many early retirees.

But the coverage can be pricey. Premiums in 2017 for the Silver plan—the most popular choice for those who qualify for subsidies—run an average of $872 a month for a 60-year-old nonsmoker, according to Health Pocket Info Stat, an independent research company. The average deductible is $3,572 for an individual and $7,474 for a family.

You may qualify for a premium subsidy in 2017, however, if your modified adjusted gross income is 100% to 400% of the 2016 federal poverty level ($11,880 to $47,520 for individuals and $16,020 to $64,080 for married couples filing jointly). That could be the case if your wealth is mostly in savings and home equity and you have yet to take distributions from pretax accounts, or if you have enough exemptions and deductions to be in the lowest tax bracket. Lawmakers are preparing to repeal this law, although they have also pledged to work on a replacement.

Other options? If you work for a company with 20 or more employees, you can usually continue your coverage for up to 18 months after leaving your job through the federal law known as COBRA (some states have similar rules for smaller employers). You’ll have to pay both the employer’s and the employee’s share of the cost, plus a 2% administrative fee. Once you qualify for Medicare, your COBRA coverage generally ends, although employers will let you keep it for benefits Medicare doesn’t cover, such as for prescription drugs and vision care. Your spouse can continue to get COBRA for up to 36 months or until he or she also qualifies for Medicare (see the Medicare Rights Center’s Part B Enrollment Toolkit).

Plan for Your New Life

Patterson wasn’t planning to retire when he did, but he has had no problem filling his time. An accomplished cellist, he plays in several area orchestras (for which he practices several hours a day) as well as with a smaller group, and he sings in a choir. He and Linda attend concerts and take classes together at a local community college.

Patterson was lucky: Music, his lifelong avocation, provided him with a built-in structure for his retirement. Not all retirees can say the same, says Tharp. After enjoying a few months of leisure, “they realize they weren’t prepared for retirement. They don’t have anything to do.” That’s especially painful for hard-charging executives who retire in the prime of life, he says. “They’re bored out of their mind.”

Kirkpatrick came up with his own second act by writing a blog on retiring early. “You can’t just quit a job without a plan and expect to be happy,” he says. “You start to feel a loss of meaning.” He suggests coming up with ideas for what you might want to do and then trying them before you retire. “Volunteer, start working on that novel, start an online business.”

For some people, the dream activity just might be returning to work—on their own terms. After leaving GE, Mary Joyce decided to get a part-time job at a senior living center, not because she needed the money but because “she gets to help a lot of people,” says Tim. She set up her schedule so the couple could spend long weekends at their log home and still have time for their grandchildren, who live in the area. Bored? No way, says Tim. “There’s always something going on.”

How to Have a Comfortable Retirement on Social Security Alone

SSA-image-3My Comments: Some of the folks who attend my workshops on SS benefits planning reveal that they have virtually no other resources to fund their retirement. That’s a challenge, especially for those whose lives were spent in physical labor of some kind and simply can’t continue working that way.

There is real pain in their eyes when they now hear that whatever they can expect to come from Social Security may be cut. I try to persuade them this is highly unlikely given their current age and the numbers they can see on the SSA.GOV web site.

I’m careful not to remind them, especially those from rural areas nearby, that the person they voted for in the last election is among those who are promoting a reduction in their benefits.

By Rebecca Lake | January 13, 2017

Is it possible to have a comfortable retirement on Social Security alone? It’s a necessary question, because although saving for retirement should be at the top of your financial to-do list, for many Americans it often ends up slipping through the cracks. According to PwC’s 2016 Employee Financial Wellness Survey, 33% of Baby Boomers say they’re worried about running out of money in retirement, while 47% of all workers have less than $50,000 tucked away for their later years.

Having a Comfortable Retirement on Social Security Alone

Social Security is one way to supplement retirement income when your savings fall short, but it only goes so far. As of November 2016 the average monthly retirement benefit was just $1,309. If you’re headed toward retirement with a nest egg that’s smaller than you’d like, you’ll need a game plan for making do with Social Security alone, so let’s see what we can come up with.

Who’s Banking on Social Security?

Nearly nine out of 10 Americans aged 65 or older currently receive Social Security. The Social Security Administration estimates that 21% of married couples and 43% of single seniors rely on Social Security for 90% or more of their income. According to a 2015 Gallup poll, 36% of near-retirees say they expect Social Security to be a major source of income once they retire. (For more, see How Social Security Works After Retirement.)

Income and the time frame to save for retirement seem to be major factors in determining who’s going to be more dependent on Social Security. In the Gallup poll, for example, 48% of non-retirees aged 55 and older and 45% of those making less than $30,000 said that Social Security would account for a large chunk of their retirement income.

When Social Security is your primary or only source of funds in retirement, it takes some creativity to make those dollars go further. Making certain adjustments can help you to navigate retirement without leaving like you’re feeling broke. Here are four concrete steps you can take.

Downsize Your Home
Housing costs can easily eat up your Social Security benefits. The Bureau of Labor Statistics estimates that seniors aged 65 to 74 spend approximately 32% of their household income on housing each year. That amount climbs to 36.5% at age 75.

Trading in your current home for something smaller can help to cut down on what you’re spending. A reduction of even $100 a month could make a significant difference in the type of lifestyle you’re able to maintain. Avoid the Downsides of Downsizing in Retirement can help you handle this decision intelligently. If the numbers really don’t work out well in your current location, consider moving to a region with a lower cost of living (See Least Expensive States to Retire In) – or even moving abroad

Streamline Your Other Expenses

If you’ve managed to make your housing more affordable, the next step is reducing or eliminating other household spending. If you’ve got credit card debt or a car loan, for example, you’d want to get those paid off as quickly as possible. Then you can move on to cutting down things such as your utility bills, transportation expenses and food budget. (For more, see 5 Ways to Stretch Your Retirement Budget.)

The key question that you must ask is what do you really need to have an enjoyable retirement and what can you live without? Could you ditch cable TV, for example, in favor of watching TV online (see The 4 Best Ways to Cut the Cord) or pursuing a low-budget hobby? If you own two cars but you and your spouse are both retired, could you sell one of them? Making these kinds of decisions can be tough, but they can make your transition to retirement on Social Security a much smoother one in the long run.

Keep Healthcare Costs Under Control

Healthcare is another potential trouble spot for which you need to plan, especially if you have an existing medical condition. While Medicare can cover some of the costs beginning at age 65, it doesn’t pay for everything. If you’ve retired and your income is exclusively coming from Social Security, you’ll need to look beyond Medicare to pay for your medical expenses.

Medicaid, for example, is available to low-income seniors, and you can have this coverage along with Medicare. It’s designed to pick up the tab for things Medicare doesn’t cover, including long-term care. State-sponsored Medicare Savings Programs help with the cost of Medicare premiums, while the Extra Help program helps with prescription drug costs. Just keep in mind that your ability to qualify for these programs is based on your age, income and in some cases your disability status. (For more, see Medicare 101: Do You Need All 4 Parts? and 10 Best States for Affordable Senior Care.)

Delay Taking Social Security as Long as You Can

Normal retirement age is 67 these days for most seniors, but you can begin taking your Social Security benefits as early as 62. The problem is that if you do so, you’ll see your benefits reduced for each year you take benefits ahead of schedule.

On the other hand, if you can put off taking your benefits past full retirement age, you’ll see your monthly benefit check increase. For someone who was born in 1943 or later and waits until age 70 to apply for Social Security, the increase should come to 8%. Those extra dollars could come in handy if you don’t have any other retirement money to fall back on.

The Bottom Line

Social Security isn’t a substitute for building a solid retirement base, and if you’ve still got time before you retire, consider looking for ways to shore up your savings. Start by chipping in as much as you reasonably can to your employer’s retirement plan, especially if it comes with a matching contribution. If you don’t have a 401(k) or similar plan at work, an individual retirement account (IRA) is another way to grow your savings. The more you set aside now, the less pressure you’ll feel to make your Social Security benefits stretch.

Nevertheless, if you have to stretch them, cutting overhead, controlling healthcare costs and delaying taking Social Security can make a big difference. For more ideas, see Retirement Strategies for Low Income Seniors. And if the numbers really don’t work out well, consider

Our life in three stages – school, work, retirement – will not survive much longer

108679-bruegel-wedding-dance-outsideMy Comments: We are now starting a periodic review of the basic assumptions about how our lives should be governed, and a review of the fundamental values that define our society. It’s probably overdue, and while I disagree with the tactics so far used to push the doors open to let in a different light, it will work to our advantage in the long run. The challenge will be survive in the short run.

My life is slowing down. It now takes me two hours to accomplish what I was able to get done in one hour just a few years ago. But to avoid terminal boredom, I re-opened my financial planning practice and no longer consider myself retired. The following thoughts resonate with me. Perhaps they will with you too.

Lynda Gratton and Andrew Scott – September 4, 2016

For much of human history, life was well described by Thomas Hobbes as “nasty, brutish and short”. However, continued scientific, economic and social progress over the centuries has raised living standards and life expectancy. While these benefits have not been spread equally across countries, or even within countries, in general, life is now less nasty, less brutish and certainly less short. The challenge now is to ensure that this progress continues in the face of growing longevity.

Over the last 200 years, best practice life expectancy has increased at a near constant rate of more than two years every decade. If this trend continues, a child born in the UK today has more than a 50% chance of living to 105. On average, most of these extra years of life will be healthy ones. It is as if the arc of life has been extended.

Our interest is in what this extending arc of life means for individuals and how government can best respond. Currently, the main focus is on dealing with ageing and end-of-life issues such as pensions and healthcare. But longevity is not just about ageing – it has crucial implications for all ages. Already, people are marrying and having children later, creating mid-career breaks, taking time out to explore, building their own businesses, going back to education. This is already leading to a redefinition of age – how many times have you heard that 70 is the new 60, or 40 the new 30?

Those who live to 100 have around 100,000 extra productive hours than those who live to 70. Undoubtedly, work will take a significant portion of these hours. Historically low interest rates and growing longevity are destroying the inadequate provision societies have made for future pension support. Unless people are prepared to save more, then the inevitable consequence is that they will have to work longer. Already in the UK, one in 10 people over 70 is still in employment, double the figure of 20 years ago.

Simple calculation suggests that, given the current level of household savings, those aged 20 today are likely to be working into their late 70s or even early 80s and those in their mid-40s into their early or mid 70s. We need to create a world where this is feasible and beneficial, a way that makes a longer life a blessing and not a curse.

However, this is not just about working longer – the broader challenge is how to restructure social and working lives to make best use of these extra hours. The life structure that emerged in the 20th century – a three-stage life of education, work and then retirement – is unlikely to survive this elongation.

How can you maintain and build productive assets when most education takes place in your 20s? How can what you have learned remain relevant over the next 60 years against a backdrop of technological upheaval and industrial transformation? There is also the question of vitality – while an unbroken, extended working life may solve the financial challenge, it will inevitability deplete other important assets of life, such as health and friendships.

A way around this is a multi-stage life – with transitions and breaks in between. In one stage, the focus may be on accumulating financial assets, in another creating a better work-life balance. Sometimes, the switches will be driven by personal choice, at other times forced by technological obsolescence.

These multi-stage lives require a proficiency in managing transitions and reflexivity – imagining possible selves, thinking about the future, reskilling and building new and diverse networks. At its best, it offers people an opportunity to explore who they are and arrive at a way of living that is nearer to their personal values. Might it be that this growing realisation of longevity is behind the oft-stated claims about how “millennials” have different values and attitudes to previous generations?

These new ways of living create opportunities and possibilities. Yet most public debate around longevity is deeply negative. It is dominated by concerns over the risks of ill health and senility and the painful realisation that retirement will not be achieved at the age many expected, nor at the level of financial security imagined. Our existing social institutions are proving inadequate to deal with this increased life expectancy and throwing up stresses and strains that require debate and a new policy agenda.

Two pressing issues concern inequality – both across generations and across income groups. The intergenerational issues are the subject of a Resolution Foundation report Stagnation Generation: The Case for Renewing the Intergenerational Contract. If long-term economic growth has declined, the current young will be the first for centuries facing the prospect of lower income than their parents. The situation is worsened if government taxes the young in order to make good past promises made to older generations.

Longevity has increased over time and so affects each generation differently. Those near retirement want a guarantee about pension income, while those emerging into adulthood need support to make the most of a 100-year life and their multi-stage journey. That means that the intergenerational contract needs rewriting to reflect the fact that the working careers of the young will have very different needs to those of the recently retired.

The other pressing inequality is around income. Life expectancy isn’t increasing at the same rate for all, and for some it is declining, with the gap between rich and poor stretching to more than 10 years. Overcoming this gap is challenging. It is possible to redistribute income from the rich, but impossible to distribute years of life. The problem becomes even more acute when retirement ages are increased. If life expectancy isn’t increasing for the poor, but the retirement age is, then there is a real risk of eliminating retirement for many, creating a life that is “nasty, brutish and long”.

So what should governments do? There is already a growing focus on end-of-life issues, such as social care and pensions. For pensions, the main focus has been on changing the parameters of a three-stage life – eg changing retirement age, contribution rates and pension entitlement. These efforts need to be broadened to encompass a wider range of measures that help promote healthy and productive ageing and support a multi-stage life.

Two types of policies are crucial. The first is enabling measures designed to set a positive tone for the debate. That people are living longer, healthy lives is not a negative – it is an opportunity that should be seized. That means shifting age-specific features of the tax and benefits system towards a lifetime approach. Legislation will also be needed to create greater support for those seeking greater flexibility. Take, for example, the length of the working week and provision of holiday time, which are currently standardised. As people realise they may work into their 70s and 80s, they will want to sustain their vitality and productivity by taking sabbaticals and working flexibly. Each will create their way of working and living and legislation will be needed to support this diversity as corporations may be slow to respond, and then for a favoured few. With a longer life, education ceases to be a one-shot game early on, so providing lifetime support, including tax allowances, for further spells of education will be crucial.

The other set of policies is supportive – ensuring that the benefits of a good, long life are spread to the many. Tackling inequality in life expectancy has to be a priority and needs to go beyond the usual platitudes of public education and health expenditure to get a deeper understanding of its causes. Moreover, given the divergence in life expectancy, it seems inevitable that a single retirement age and a uniform state pension cannot be sustainable. Inevitably, this suggests a multi-tiered pension system, with different options of retirement age and pension benefits linked to life expectancy and income.

More radically, if differences in investment are what drives inequality, then over a longer life, inequality will increase. During the 20th century, there was significant state investment in free education and infant care – the key periods of investment for a three-stage life. As increasing life expectancy produces a multi-stage life, there will be plenty of other periods when similar investments are required. The changes required to adapt to a 100-year life are already under way, but governments and businesses lag substantially behind the actions of individuals.

This is an agenda for the decades ahead and balancing the very different needs of different groups will be challenging. The danger is that the baby boomers will focus government attention on retirement and healthcare, while the opinions of the young go unheeded about the likes of lifetime education, skill development, flexible working and transitions.

The increase in longevity has occurred slowly, but has reached a level that requires a fundamental redefinition of the social and financial institutions that support it. We can each look forward and do our best to prepare ourselves and our families for these longer lives. But the political and policy debate is only just beginning.

How To Maximize Your Social Security Benefits

My Comments: Sometimes simple is better, much better. I found these words recently and am sharing them here since so many people are now making the transition to retirement. It’s a stressful time for a lot of reasons and the more you understand the financial dynamics involved, the less stressed out you’ll be.

January 11, 2017 / MoneyTips Staff

Retirement approaches, and you are struggling to figure out how to make the most of your Social Security benefits. The rules are hard to decipher and the Social Security Administration does not generally give case-specific advice. We cannot decipher Social Security in a few hundred words — not even the Social Security Administration can do that — but we can offer the following helpful secrets to maximize your Social Security benefits.

Time your filing appropriately — You have the option of drawing benefits as early as age 62 or as late as 70. Most advisors suggest delaying filing for benefits until age 70, because your monthly benefits will increase by 8 percent annually for every year you wait past your full retirement age (FRA). Conversely, filing early will decrease your monthly benefits by up to 30 percent.

How long will you live? — Your expected lifespan is the key to your choice. If you file early, you will get less in each check — but you will be receiving checks for more years. Delaying only works if you live long enough and can afford to wait to draw your benefits. Also, delaying only increases benefits on your own record, not spousal or survivor benefits.

Change your mind (once) — If you decide you have made the wrong choice in filing for benefits, you have a one-time opportunity to change your mind within the first 12 months of receiving benefits. However, you will have to repay any benefits you and your family received, as well as any amounts withheld from your benefits for payments like Medicare premiums.

Hold off on divorce — Had enough after nine years of marriage? Hang on for at least one more year to improve your benefit options. You can still file for spousal benefits on an ex-spouse’s income history if you were married for at least 10 years.

Spousal vs. widow/widower benefits — Widow/widower benefits have one big advantage over spousal benefits — widows/widowers can start drawing benefits on their own earnings history and switch to survivor’s benefits later, or use the reverse order and draw survivor’s benefits first and draw on their own history later, even when the widow/widower files before his or her FRA.

Work at least 35 years — The calculation of benefits is quite complex, although online calculators are available to help you estimate your own Social Security benefits. The key is to have at least 35 years of work experience prior to retirement. Social Security is based on the highest-earning 35 years of your career. If you only worked 33 years, two zeroes will be included in your benefit calculations — so hanging on for a few extra years can disproportionately increase your benefits.

Keep in mind that your early earning years are indexed for annual changes in average wages, so a seemingly lower salary twenty or thirty years ago may be comparable with your current salary in adjusted terms.

Seek SSDI representation — Any watcher of daytime TV will find many ads for lawyers offering help for Social Security Disability Insurance (SSDI) cases. Should you become disabled, it is wise to seek legal representation at the time of your initial application. The process is not always straightforward and an initial denial can take significant time to reverse.

We offer one final piece of advice that is not a secret: It is very difficult to retire comfortably on Social Security benefits alone. Maximize your benefits to the extent that you can, but make sure that you save separately for your retirement as well. Social Security is a lot less stressful when you can consider it as supplementary income.

Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing you.

Turning 65 this year? Don’t overlook these 3 steps

retirement_roadMy Comments: The transition from working FOR money to having money FOR YOU is full of tension and hard to answer questions. If you’re beyond this stage, then don’t bother with this. On the other hand, if it’s today or in your future, then this is good stuff.

Gail MarksJarvis / The Chicago Tribune / January 6, 2017

If you will be turning 65 this year and plan to keep working, you have essential money decisions to make that can’t be ignored.

The arrival of your 65th birthday requires that you take specific steps so you don’t get in trouble with the government on Medicare rules and face fines later. And the years around your birthday command attention to money details that could make the difference between having plenty of money for retirement and running out of funds early. So don’t drift by this major time in your life without attention to the three issues people at age 65, or near retirement, must address.

Sign up for Medicare. When you are 65, you will be eligible to start taking Medicare to cover some of your doctor, hospital and other medical costs. Full Medicare coverage is not free so you typically don’t want to start taking it if you are still working full time, aren’t on Social Security and will have solid, affordable medical coverage at work until you decide to retire. But you can sign up for Medicare at 65 and get a small part of Medicare — the free benefits that cover some hospital care — even if you don’t need the full Medicare package while working. (See Signing up doesn’t have to mean you give up your health insurance at work. And the hospital coverage you get free through Medicare Part A can supplement the health insurance you have through your workplace insurance, said Philip Moeller, who walks people through the confusing Medicare requirements in his book, “Get What’s Yours for Medicare.”

If you are going to keep working after 65, you simply say on the Medicare form you fill out that you won’t be claiming the form of insurance yet that covers doctors because you have solid coverage through work. (See In other words, you aren’t taking Medicare Part B at that time. Part B is the Medicare insurance that you will use later in retirement to pay for doctors, outpatient treatment and supplies like knee braces or walkers.

After doing the basic sign-up at age 65, you will get a Medicare card in the mail and you will start being eligible for one of the three parts of Medicare: Part A. Later, when you actually retire, or when you don’t have solid medical insurance through work, you will need to sign up for full Medicare coverage. Then, you will be able to rely on all three parts of Medicare — Part A for hospitals, Part B for doctors, equipment like leg braces and walkers and outpatient medical services, and Part D for some prescriptions. For Part B, you will pay premiums each month — typically $104.90, although what you pay depends on your income. Your drug Part D cost depends on the plan you choose from numerous insurance companies, and you need to scrutinize them carefully to make sure they cover your particular prescriptions. Monthly premiums for popular drug plans range from about $18 to more than $66 and swing dramatically depending on where you live, Moeller said.

If you plan to rely on your employer insurance while working, beware: Employers can’t kick you out of their health insurance at 65 or as you age, but that rule applies only to businesses with 20 or more employees, Moeller notes. So if you work for a small company with only a few employees, at age 65 you could end up needing to sign up for Medicare and also start using — and paying for — all three types of Medicare: Parts A, B and D. Your employer is supposed to tell you if your insurance through work is considered to be sufficient enough that you don’t have to apply for full Medicare. If not, you will have to apply for full Medicare including Parts A and B.

If you don’t have acceptable coverage at work, and fail to sign up for Medicare when 65, the government can penalize you throughout your retirement. When you start using Medicare Part B for doctors, the penalties could boost your monthly payments by 10 percent for each full 12-month period. (See If you miss the deadline for signing up for drug coverage through Part D, another penalty on drug coverage can last through retirement. (See There are specific times during the year when you must enroll. Make sure you pay attention to enrollment periods because there is no leeway.

If possible, wait on Social Security. Although you can start getting Medicare at age 65, and must pay attention to paperwork then, Social Security is different.

You don’t have to apply for Social Security at a certain age, and the longer you wait, the better. Most people who are around 65 now won’t be able to retire and get full Social Security retirement benefits until they are at least 66. If they are healthy and can work until 70, they will boost their Social Security benefits significantly. For each year a person waits to retire after 66, the person can increase his or her Social Security payments 8 percent a year. And there are also cost-of-living increases in Social Security benefits annually. Those payments are guaranteed. You aren’t going to find a guarantee like that in any investment. That makes waiting to retire a smart move if possible.

Budgeting and investing. When you start depending on Medicare, you will not be able to count on it for all your medical needs. Full Medicare covers only about half of your medical expenses. So as you plan for retirement, you will need to shop for supplemental insurance that picks up where Medicare leaves off. There are two types: Medigap insurance and Medicare Advantage plans. They differ in what they charge, what they cover, and whether they apply to your community, or cover your medicines, your doctors and the places where you might travel. Costs vary broadly with some of the expensive Medigap plans costing well over $600 a month per person. (See Medicare’s PlanFinder

Also, realize that your income impacts what you will be charged for Medicare and the taxes you pay on Social Security. So financial planners suggest that people examine their savings a few years before retiring to ensure that during retirement they have a blend of IRA and Roth IRA plans. Roth IRAs don’t get taxed in retirement and IRAs are taxed. So by plucking a little money from each of the two plans for expenses each year, retirees can keep their taxes down and hold on to more of their Social Security and Medicare benefits than they would if they didn’t consider tax implications.