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Social Security and the U.S. deficit: Separating fact from fiction

My Comments: As someone who depends on payments from the Social Security Administration to maintain my standard of living, the idea that people in Congress are considering reducing those payments is concerning.

We have to hope that elected representatives find a reasonable solution that will allow the program to remain viable. It’s become an integral part of our economic destiny. Keeping it viable for the forseable future with structured changes over time is essential and doable without chaos.

Unfortunately, there is also a effort to promote chaos as a governing mantra.

by Mark Miller \ November 1, 2018

CHICAGO (Reuters) – For decades, some of our most prominent U.S. politicians have been sounding the alarm that Social Security is an important driver of the federal budget deficit. But is that really true?

U.S. Senate Majority Leader Mitch McConnell, a Republican, recently pointed to “entitlements” as the key cause of rising federal deficits, and blamed Democrats for refusing to go along with proposals to cut spending by Medicare, Medicaid and Social Security.

McConnell was responding to a report from the U.S. Department of the Treasury last month that the budget deficit grew to $779 billion in fiscal 2018, the highest in six years. Treasury attributed the increase to the tax cuts contained in the Tax Cuts and Jobs Act (TCJA), higher spending and rising interest payments. (Full Story) (reut.rs/2CNjSBm).

The call for cuts to our very popular entitlement programs just before an election makes for surprising politics – and it is not selling well with the public; a poll this week by NPR, PBS NewsHour and Marist (bit.ly/2zewazj) found that 60 percent of Americans would prefer to reverse the tax cuts than cut spending on Social Security, Medicare and Medicaid.

But is there substance to McConnell’s argument?

You can make a case that rising spending on Medicare and Medicaid contribute to deficits, since both depend partially on federal general revenue. I would counter that the rising cost of these programs reflects a general problem with rising healthcare costs that affects not just government, but employers who insure workers and individuals buying their own insurance.

But it is quite a stretch to argue that Social Security drives deficits.

By law, Social Security cannot contribute to the federal deficit, because it is required to pay benefits only from its trust funds. Those, in turn, are funded through a dedicated payroll tax of 12.4 percent of income, split evenly between employees and employers, levied on income (this year) up to $128,400.

The program’s revenue and expenses are accounted for through two federal trust funds that have operated with large and growing surpluses in recent years, and they finished fiscal 2018 with an estimated $2.89 trillion. By law, Social Security must invest these surplus funds only in special-issue U.S. Treasury notes, which have the same full faith and credit guarantee as any other federal bond.


Going forward, the trust fund surplus will be drawn down as an aging population claims benefits, and as the U.S. fertility rate continues to decline, which means fewer workers are coming along to pay taxes into the system.

That already is starting to happen. In fiscal 2018, expenditures exceeded revenue (including interest on investments) for the first time since 1982. Social Security took in $912 billion in fiscal 2018 and spent $991 billion. The difference – $79 billion – came from repayment of interest on those Treasury notes. Some conservative policy analysts point to that payment as evidence that Social Security is a cause of deficits, since the $79 billion payment came from general revenue.

“We can call that $79 billion an interest payment on past borrowing – fine,” said Brian Riedl, senior fellow at the Manhattan Institute, a conservative think tank. “Social Security in the past ran annual surpluses and lent that surplus money to the Treasury. In those years, the existence of Social Security reduced the federal budget deficit. Today, it is relying on a cash infusion from the Treasury to pay full benefits.”


Riedl’s point is technically correct. But in this sense, Social Security is no more a cause of the deficit than any other holder of U.S. Treasuries, be it Wall Street or the Chinese government. “Government needs to raise a certain amount of money unless it balances its general fund,” said Nancy Altman, president of Social Security Works, an advocacy group.

“If it doesn’t do that, it issues bonds – the only question is, who buys them?” said Altman.

A second argument that Social Security contributes to deficits is related to the longer-run outlook for the program. The trust funds are projected to be exhausted in 2034; at that point, incoming revenue would be sufficient to continue paying only about 75 percent of promised benefits.

We might or might not reach that point – we could eliminate much of this long-range shortfall by gradually increasing payroll taxes and raising the cap on covered income. Or we could reduce benefits by further increasing the full retirement age, or craft some combination of tax increases and benefit cuts.

Other creative options could include permitting the Social Security trustees to invest a modest portion of reserve funds in equities, or to levy a tax on financial services. From where I sit, the smart move is to bolster the program with higher revenue to close the shortfall and expand benefits.

But deficit hawks point to the 2034 exhaustion date to argue that the government would have to make up any shortfall and continue paying full benefits. The argument here is that Congress would never allow a huge cut to Social Security benefits in light of the program’s popularity and the importance of benefits; if the trust fund were to run dry, lawmakers would simply make up the difference out of general revenue.

But the assertion that we will reach the 2034 benefit cuts is speculative. Congress may craft a solution ahead of that date, or it may not.

Even more speculative is the question whether general revenue would be tapped if we do reach the 2034 exhaustion doomsday scenario. The long-range budget forecast by the Congressional Budget Office assumes this would happen – but not because the nonpartisan congressional budget scorekeeper has an opinion one way or the other. Federal law requires the CBO to assume that payments for some mandatory programs would continue to be fully funded in this situation.

What would the Social Security Administration actually do if the trust fund were exhausted? The answer is not clear, according to recent analysis by the Congressional Research Service. It could continue paying benefits on a delayed schedule or cut payments. And beneficiaries might take legal action to claim full benefits, since Social Security is a legal entitlement.

One hopes that these questions will never be answered, because exhaustion would be a real mess. But we can get the answer to the question of whether Social Security drives the deficit right now: No.

Source: https://www.reuters.com/article/us-column-miller-socialsecurity/social-security-and-the-u-s-deficit-separating-fact-from-fiction-idUSKCN1N64GR


5 Facts You Didn’t Know About Retirement

My Comments: Though written two years ago, the message here is increasingly relevant.

Social Security is under attack by the Republican leadership in the Senate. Reasonable solutions to keep it viable and properly funded are readily available provided there is a political will to make that happen.

My experience over the past 40 years in the insurance industry reflects an annual increase in the cost of health insurance of over 10%. I’ve written in the past about how without remedies to correct this, the health care costs would exceed the entire gross national product of the US. That is obviously not sustainable.

A simple step to allow Medicare and Medicaid to negotiate lower drug prices would have a huge impact, but again, Congress doesn’t have the will power to move in that direction. Money from drug companies to help pay for elections make sure of that.

by Jason Hall \ October 2, 2016

If you want to have the best retirement possible, it’s important to take steps to prepare for the things that could affect you the most. Here’s a closer look at five retirement facts that could have a huge impact on your retirement plans, and there’s a good chance you may not even know about them.

Whether you’re a few years or still a few decades from retirement, these five facts are important. Let’s take a closer look at how they could affect you.

1. You’ll probably need long-term care (and have to pay for it)

According to the U.S. Department of Health and Human Services, 70% of people who live past 65 will need long-term care. If you’re married, there’s a 90% likelihood either you or your spouse will need long-term care.In other words, if you live to retirement age, the odds are good that you’ll end up needing some sort of long-term care.

And since long-term care is not always covered by health insurance or Medicare, retirees need to have a plan to provide for it. Here is how the majority of non-medical long-term care — what Medicare doesn’t pay for — is provided for:

  • Long-term care insurance
  • Increased retirement savings to cover this cost
  • Unpaid care provided by family members (usually a spouse or adult children)

2. Social Security Full Retirement Age will increase soon

Full Retirement Age — that is, the age you qualify to receive 100% of your Social Security retirement benefit — is 66 for retirees in 2016, and is set to remain age 66 through 2020. But for a six-year period starting in 2021, Full Retirement Age will be pushed by two months — meaning 66 and 2 months for those born in 1955, 66 and 4 months for those born in 1956, etc., until the full retirement age reaches 67 in 2027.

In other words, anyone born after 1954 will either have to delay retiring a little longer to get their full benefit, or elect to get a smaller check each month if they retire at 66 or sooner. If you’re planning to retire anytime between now and 2027, it’s a good idea to make sure you know when your Full Retirement Age is, since the amount of your monthly benefit is predicated on that number.

3. Average retirement savings will generate less than $500 per month

According to Vanguard, which manages millions of retirement savings accounts, the median balance in defined contribution plans (think 401(k) plans) it manages for people 55 and over was less than $72,000 in 2015. For context, that would only generate about $240 per month in retirement income. This only covers a small selection of total retirement savings, but even as a small sample size it’s concerning.

The numbers below explain why many retirees end up back at work. Image source: Getty Images.

The U.S. Government Accountability Office offers up a bigger picture look, but it’s still concerning. According to the GAO, the median age 55-64 household has $104,000 in retirement savings, while the median age 65-74 household has $148,000 saved. Sure, that’s a lot more than Vanguard’s data, but in terms of dependable retirement income, it’s only worth $347 to $493 per month in retirement income. Paired with an average Social Security benefit of less than $1,500 per month, that’s not a lot of money to live on in retirement.

For millions of older Americans, there’s an even bigger concern. The GAO found that 29% of households age 55 and over don’t haveanydefined benefit (such as a pension) or retirement savings at all.

4. You’ll still pay (some) income tax in retirement

Whether it’s Social Security, distributions from a 401(k) or IRA, or a pension you’ll almost certainly pay federal income tax. Since these kinds of retirement income sources are generally considered regular income, you’ll pay federal income tax on your total earnings based on your adjusted gross income (after deductions) at your marginal tax rate.

There are some exceptions to this, including distributions from a Roth IRA or Roth 401(k), which are not taxed, but by and large, retirement doesn’t mean the end of federal income tax.

However, many states don’t have income taxes at all, while others give income tax breaks to retirees. Since the laws vary from state to state, it’s good to learn about income tax in your state (or the state you plan to retire to). Furthermore, if a state doesn’t have an income tax, it’s important to understand how it makes up that revenue, whether in higher sales tax, property tax, or some other way, and how that could impact you in retirement.

5. Homeownership rates in retirement are trending down (but mortgage debt is increasing)

Over the past decade, the percentage of older Americans who own their home has fallen. According to a Harvard University study in 2014, the percentage of Americans aged 50-79 who owned a home fell between 2005 and 2013. The biggest percentage decline was in the younger group, with those 50-64 owning home falling from over 80% in 2005 to below 76% in 2013.

Homeownership rates are trending the wrong way for retirees. Image source: Getty Images.

At the same time, more homeowners are carrying mortgages later in life. According to the same Harvard study, the percentage of homeowners 65 and over with a mortgage doubled from below 20% to 40% from 1992 to 2010, while the 50-64 age group saw the rate increase from more than 60% to more than 70% over the same period.

The rising number of retirees who don’t own a home will likely face higher housing costs over time compared to homeowners. At the same time, older homeowners still paying a mortgage may be forced to delay retirement longer than expected to cover their expenses.For both groups, the burden of expensive housing costs leads to less spending on food, healthcare, and other areas that are important to higher quality of life for retirees.

Furthermore, home equity often provides a critical safety net for many older retirees, and can be tapped to pay for care later in life. Carrying a mortgage into retirement diminishes this shield, while not owning a home eliminates it entirely.

Source: https://www.foxbusiness.com/markets/5-facts-you-didnt-know-about-retirement

7 Things Everyone Gets Wrong About Social Security

My Comments: If you are not yet retired, which means different things to different people, chances are you’ll be eligible for Social Security benefits.

Before your magic day of retirement arrives, you need to have a solid understanding of how the Social Security System works and what you can expect to receive.

And also know that the system is currently under threat from so called leaders in Congress who may or may not fix it properly so that your generation can count on it being there as intended.

By Sabah Karimi / GoBankingRates \ October 18, 2016

Millions of Americans rely on Social Security earnings in retirement. If your golden years are far off in the distance, you might not give a second thought to Social Security and what the program means for you.

But that can be a mistake. If you don’t understand Social Security now, you could be in for some unfortunate surprises after you stop working.

For starters, the program might not be as healthy as you think. “Many estimates have the Social Security Trust Fund exhausting around 2034,” said Peter Donohoe, a Boston-based certified financial planner at Citizens Investment Services.

While many experts are hopeful politicians eventually will act to shore up the system, there are no guarantees. So, to be safe, it’s probably wise to make some smart money moves now that could put you in a better financial position when you retire.

Following are seven things everyone gets wrong about Social Security — and the truths you need to know to be prepared for retirement.

Myth No. 1: Your Benefit Is the Same Regardless of When You Retire

Three months before your birthday, the Social Security Administration sends you a recap of your annual earnings history. If you review this statement closely, you will see that the breakdown of benefits is based on your earnings to date. The statement gives you an estimate of benefits you will earn if you continue working until you reach a certain age.

Many people mistakenly assume their monthly Social Security retirement benefit will be the same no matter what age they retire. However, retiring from work and claiming Social Security at a younger age can hurt you.

Look closely at your statement, and you will see that you can get a bigger benefit by delaying retirement and claiming benefits after your full retirement age. The difference can be as much as a few hundred dollars more per month if you wait than if you retire at 62.

Myth No. 2: You Can Wait Until Retiring Before Thinking About Social Security

Long before you retire, try to learn about the Social Security benefits for which you eligible. Too many people overlook this step.

Learning more about Social Security benefits can help you make more effective financial planning decisions. For example, you might be eligible for your ex-spouse’s benefits, yet not even know it. You can also earn a bigger Social Security check simply by delaying retirement beyond your full retirement age.

You can find a wealth of information about retirement planning on the “Retirement Planner” page of the Social Security Administration website.

Myth No. 3: You Automatically Get Full Benefits When Reaching Age 65

Don’t automatically assume you will receive benefits as soon as you reach 65 years of age. Social Security rules have changed over the years. “The reality is that full retirement age, or ‘FRA,’ was age 65, but is now based on your year of birth and may currently be up to age 67,” Donohoe said.

You still have the option of taking your benefits at age 62, but you will receive a reduced benefit — about a 30 percent reduction — if you do. If you receive a spouse’s benefit beginning at age 62, your benefit is reduced to about 32.5 percent of the amount your spouse would receive if he started getting benefits at full retirement age.

It is a myth that taking your benefit early always pays the highest lifetime benefit, Donohue said. The reality is that many factors — including future cost-of-living adjustments and your eventual age of death — influence “which claiming date maximizes lifetime benefit,” he said.

Myth No. 4: You Can Keep Working While Claiming Full Social Security Benefits

A big percentage of Americans misunderstand the rules for working when collecting Social Security benefits.

More than half of people in a MassMutual survey wrongly thought they could continue working at any age while also collecting full Social Security retirement benefits.

Although you are free to work and receive Social Security retirement benefits, the government will reduce your benefit if you are younger than your full retirement age and end up making more than the yearly earnings limit. In 2016, that earning limit is $15,720. The Social Security Administration deducts $1 in benefits for every $2 you earn above that limit until you reach retirement age.

Things change a little as you get close to full retirement age. In the year you reach your full retirement age, the Social Security Administration deducts $1 for every $3 you earn above the annual limit. In 2016, this limit was $41,880. And once you are fully retired, you can keep working without any deductions on benefits — there are no limits on your earnings.

Myth No. 5: You Cannot Collect an Ex-Spouse’s Social Security Benefits

If you end up getting divorced during your lifetime, you are eligible to receive Social Security retirement benefits based on your ex-spouse’s earnings history, said David Freitag, a financial planning consultant with MassMutual. More than 55 percent of Americans who took the MassMutual survey didn’t know this was an option.

The Social Security Administration lists the conditions of eligibility for these benefits. Among other factors, they include having been in a marriage that lasted at least 10 years to an ex-spouse who is unmarried, and age 62 years or older.

If you start receiving benefits at your full retirement age, your benefit is equal to one-half of your ex-spouse’s full retirement amount or disability benefit, according to the Social Security Administration. But, if you end up remarrying, you cannot collect benefits unless your next marriage ends by death, divorce or annulment.

Myth No. 6: A Spouse Can’t Receive Your Social Security Benefits

Even if your spouse has no earnings history or doesn’t meet the 40-credit requirement to receive benefits, he is eligible for Social Security retirement benefits simply because he is married to you, Freitag said.

To receive this spousal benefit, your spouse must be at least 62 years of age or have a qualifying child in his care. The total benefit might be as much as half of the primary worker’s primary insurance amount. The Social Security website can help you calculate the primary insurance amount.

Myth No. 7: You Are Likely to Be Disqualified for Social Security Benefits

Don’t worry about getting to retirement only to end up disqualified for benefits. “It is more likely to accidentally ‘miss out’ on full benefits than it is to be disqualified for Social Security,” Donohue said.

You can, however, miss out on benefits if you get a part-time job before full retirement age and no longer pass the earnings test, Donohue said. You might also miss out on benefits if you are eligible for a large widow or widower benefit when your spouse dies, but you then get remarried before you turn 60. If you are divorced and get remarried, you will miss out on a spousal benefit.

“Proper planning around life events and claiming is vitally important when claiming Social Security,” Donohue said.

Source: https://www.gobankingrates.com/retirement/social-security/everyone-wrong-social-security/

If you’re in your 50s, you need to plan for long-term care right now

My Comments: “Who me? Nah, I’m good. I’m not going to become goofy or worry about someone helping me take my meds every morning. Or help me prepare my meals. Or help me in the shower…”

(BTW, this image is of my mother who suffered from Alzheimers for 10 years after my father died.)

by Carmen Reinicke \ June 22, 2018

More money doesn’t always lead to more planning, especially when it comes to unpopular subjects like end-of-life care.

Less than a quarter of high net worth clients currently have plans for long-term care in place, according to a poll of financial advisors by Key Private Bank, the wealth management arm of KeyCorp.

The poll surveyed nearly 150 advisors about their experiences with high net worth clients, those with assets over $1 million.

Advisors said persuading clients to devise plans for long-term care is a challenge. They also said it is difficult to balance saving for long-term care with other financial goals such as saving for college or buying a house.

“Part of it has to be the typical head-in-the-sand approach,” said Chad Stevens, senior financial planner at Key Private Bank. “‘If I ignore it, it’ll go away.'”

Having tough conversations is part of the job of an advisor, and it’s important to talk about the financial risks of aging, said Stevens.

“Unless you plan now, you can’t be sure that your goals will be accomplished,” Stevens said.

Plan carefully
It is important to make sure that your financial goals align with your lifestyle goals for retirement and end-of-life care.

Most clients said their top choice for long-term care is to stay in their own home and be fully independent, according to the survey. But this wish may be unrealistic; more than half of people over age 65 today will need long-term care at some point, according to AARP, a nonprofit advocacy group for in older Americans.

The second most popular choice is to move into an assisted living facility, followed by staying at home with the help of family members and personal aids.

The projected costs of long-term care are increasing, according to a report by Genworth Financial, an insurance company. In 2017, the median annual cost of a home health aide was $49,192, and the median cost of a private room in a nursing home was $97,455. By 2027, the median annual cost of a home health aide is expected to be $66,110, while the median cost of a private room in a nursing home will be $130,971 per year.

“Many underestimate the costs or think that Medicare or health insurance will cover it,” said Jean Accius, vice president of long-term services and supports at the AARP Public Policy Institute, which does public policy research, analysis and development at AARP.

But, that is not always the case, Accius said.

Most people “think they’ve prepared but when something happens they don’t have nearly enough,” said Amy Fuchs, an aging life-care expert. She also said that when people sign up for long-term life insurance without thinking through what their needs will be later in life, they might think they are covered when they are not.

If clients don’t prepare for these costs, they may end up paying out of pocket. This can quickly eat into their savings and negatively affect other financial goals.

“If leaving a financial legacy for your family is important, you need to plan ahead for that,” said Debra Drelich, who runs a private practice called New York Elder Care Consultants LLC.

Start early

Advisors recommend that clients start planning for long-term care years before they think they will need it. The most robust planning sessions should occur between ages 40 and 50.

“Don’t avoid the conversation,” said Stevens from Key Private Bank. “Find a trusted advisor that will give you an idea of what plans are out there so you can make an educated decision.”

Starting early will give you more time to assess what the options are in your home city and state, because location can greatly limit what services are available.

“Where you live matters — it limits your choices and options,” said Accius. He said many resources are available for families who want to begin planning, including the AARP scorecard, which ranks states based on the long-term services they provide.

An early start will also help if you decide to buy long-term care insurance; the younger and healthier you are when you purchase, the lower the cost will be.

Having a plan is the best way to ensure that the late years of your life are as smooth as possible, according to financial advisors and aging life care experts.

“We plan for weddings and we plan for graduations, and we do it very thoughtfully,” said Anne Sansevero, a geriatric nurse practitioner and founder and CEO of HealthSense LLC, an aging life care management consulting company. “But this is our life, our years ahead.”

“Just like saving for retirement, you have to save for your health and well-being,” she said.

Communicate with family

Beyond having a plan, it is important to communicate your wishes for long-term care with your family, financial advisors and aging life care professionals say. Few advisors report that their clients are communicating with their families about their wishes for long-term care, according to the Key survey.

“Sometimes older adults don’t let their kids in and provide them with that information, so the kids have no idea,” said Debra Feldman, an aging life care professional and founder and president of her own firm, Debra D. Feldman and Associates.

She said that if older adults are not initiating the conversation, children should come to their parents. Waiting too long can lead to scrambling in a time of crisis, she said.

Having your family on the same page will alleviate stress and pressure and allow everyone to enjoy the golden years of your life more.

“Talking through long-term care desires early-on with family members will be crucial to setting expectations, delegating responsibilities and avoiding misunderstandings or surprises,” said Stevens.

Source: https://www.cnbc.com/2018/06/22/if-youre-in-your-50s-you-need-to-plan-for-long-term-care-right-now.html

A Retirement Plan for Workaholics – 5 Tips

My Comments: If you’re still a working stiff, the idea of eventual retirement crosses your mind from time to time.

In years past, we thought of live as having two phases: childhood and adulthood. In childhood we are dependent on others and in adulthood we are dependent on ourselves. Adults worked until they died or found someone to look after them.

In the mid 19th Century, the idea of ‘retirement’ surfaced and became a third phase of life if you had not already died. Here in the 21st Century it’s the norm. Having enough money to live another 30 years without working is the game plan for most people.

What to do if you’re someone who loves to work, is happy working, and probably has enough money saved to make some kind of retirement possible. Here are five tips for you.

by Douglas Dubitsky \ July 5, 2017

Can a workaholic ever retire?

Many workaholics genuinely enjoy the rush of starting and completing projects and continuing the nonstop cycle. So it may also be difficult for them to contemplate what life may be like in retirement once they are officially out of the workforce.

If you’re a workaholic, smoothing your transition to retirement means uncovering the answer to the question: What part of the end of your job will you miss the most? It might be the people. Or the challenges. Or having purpose. Once you know which it is, you can focus on how to reap the same benefits — and feelings — while not holding down full-time employment.

Here are 5 tips to help workaholics ease into retirement:

1. Start slowly. If you jump into retirement all at once, the shock to your routine might be too much to handle. Instead, look for opportunities where you can work part-time, even with your current employer.

Cut back on your work hours gradually and your nonworking life could just slip into place. Look for a weekend job, or an after-hours job, to start while you’re employed full time. This could turn into part-time employment that you may want to pursue during retirement.

You might want to find out if your current employer would consider keeping you on as a consultant in retirement. This may help your employer retain your institutional knowledge while you enjoy a more flexible schedule.

If you plan to take Social Security retirement benefits before Full Retirement Age (between 66 and 67, depending on when you were born) and work at the same time, however, your benefit will be reduced if you make more than the yearly earnings limit. In 2017, the Social Security earnings limit is $16,920. Social Security deducts $1 from your benefit payments for every $2 you earn above the earnings limit.

2. Experiment and schedule.
As you wean yourself away from work, look for new ways to occupy your mind. This could be as simple as taking a cooking class, volunteering or exercising every morning before breakfast.

Also, at least in the beginning, either schedule your days down to the hour so you always have something to do or time-block the beginning or ending half of the day.

Has your spouse or any of your friends retired recently? Retirement may prove to be a great opportunity for you to spend more time with him or her. The same goes if you have children or grandchildren. You can reroute the attention you gave to your job to your family and friends.

3. Give yourself a break. A recent study by my company, The Guardian Life Insurance Company of America, found that one in six Americans is very dissatisfied with his or her life. Often, workaholics feel guilty about not having spent enough time with their families during their careers. Some didn’t pay attention to themselves either, or to the physical and mental benefits that come with rest.

So as you ease into retirement, don’t forget to take care of your own needs even as you strive to care more for those around you.

4. Talk it out. If you find that postwork life is more difficult than you anticipated — or even worse, that you’re feeling depressed or overwhelmed — don’t hesitate to get help. It’s important that you talk about your feelings with friends, family or other retirees going through similar transitions.

5. Look ahead. Most retirees find it doesn’t take long to adjust to life without a full-time job. Keep this in mind as you look toward your personal retirement plan. Focus on your retirement the way you’ve focused on your work and the years ahead can be your best ever.


Planning for Retirement: a Checklist Approach

My Comments: Some of us are organized and some of us are not and the rest of us are ‘sorta/kinda’ organized. I’m in the ‘sorta/kinda’ organized group.

I am, however, heavily invested these days in teaching others a process to follow when thinking about their future retirement. I’ve created an internet school called Successful Retirement Secrets™ where I’ve written and published two courses on the topic. (click on the image to the right to explore them…)

Meanwhile, for those of you who need help being an organized person, this checklist from Laurie Burkhardt with help from Kelly Henning is a great way to get started.

Laurie Burkhardt, CFP  \ June 26, 2017

As financial planners, we are often asked, “Will I be OK in retirement?” Before looking at a client’s assets and expenses in order to answer that question, we ask corresponding questions such as, “What do you want your retirement to look like?” Each individual’s perspective on retirement is unique. Some people want to remain in their current house and community. Others wish to downsize and stay in the area close to family and friends. There is yet another group that wants to leave the expensive Northeast states and move south or west. Thus, it’s crucial to expand on a client’s retirement goals earlier rather than later.

The checklist below illustrates different items to think about as retirement approaches, from ten years before until right after retirement begins. The earlier one starts planning for retirement, the more prepared one should be not only financially, but also emotionally.

A Strategic Pre-Retirement Checklist

Five to ten years before targeted retirement:

  • Brainstorm retirement goals and dreams of what retirement will look like.
  • Think about where you want to live and whether you want to downsize.
  • Revisit goals and time frame annually.
  • Obtain annual credit report.
  • Pay down mortgages and other debt to strive to become debt-free by retirement age.
  • Revisit progress toward achievement of retirement goal, and adjust retirement contributions and/or spending as appropriate.
  • Review estate planning needs and update documents, titling and beneficiaries as needed. Consider long-term care insurance.

One to five years before targeted retirement:

  • Attend pre-retirement workshop and/or consider personal life coach to help prepare for transition.
  • Get comprehensive medical, dental and vision exams while still covered by employer insurance plans.
  • Consider Social Security claiming strategies.
  • Request estimate of pension or retiree medical benefits.
  • Get educated about Medicare options.
  • Revisit estimated budget for income and expenses anticipated in retirement.

Six to 12 months before targeted retirement:

  • Income tax planning
    • Speak with accountant about expected new income bracket and how to plan for it.
    • Discuss possible Roth conversions or other tax planning strategies.
    • Are you eligible for any outside retirement plan contributions?
  • 401(k) Plan
    • Plan to max out contributions for current year.
    • Confirm that all funds in 401(k) accounts are vested.
    • Confirm whether funds are pre-tax only, or pre-tax and after-tax.
    • Coordinate with wealth manager to keep 401(k) funds in plan or roll to an outside IRA.
    • If rolling to an outside IRA, open new account and obtain account number and custodian address/wire instructions for future deposit.
    • If retiring between 55 and 59 ½, consider waiting to rollover due to options to take penalty-free withdrawals from 401(k) in year of retirement, or take 72t distributions for at least 5 years.
  • Pension Benefits
    • Obtain all pension benefits available through current employer.
    • Determine whether or not a lump sum pension option is available and whether it is preferable for you.
  • Other Qualified and Non-Qualified Retirement Benefits
    • Obtain information on all additional plans offered by the company and information on vesting, tax, and transfer of these accounts.
  • Social Security Benefits
    • Login to http://www.ssa.gov, create account and obtain a current benefits statements.
      • Be sure to complete this step for spouse.
      • If divorced, contact Social Security directly at (800) 772-1213 and obtain information on taking benefits as ex-spouse.
    • Coordinate Social Security Analyzer tool with benefits statements to determine claiming strategy.

Two to three months before retirement:

  • Review Paid Time Off
    • If you have any accumulated sick days, vacation time or other PTO days, determine if/how you will be paid for these days.
  • Advise Supervisor and HR Representative in writing of desired retirement date.
    • A specific date may be agreed upon(e.g., first week in January depending on payroll and other items).
    • Consider date which you will be eligible for year-end bonus or other benefits, including 401(k) matches, profit sharing, or stock options.
  • Request Retirement package of paperwork from HR.
    • Depending on the size of the company, HR will generally provide its own packet of paperwork and forms that need to be completed.
  • Determine date for exit interview with HR/supervisor.
  • Make final decision on all insurance, including medical, dental, vision and life insurance (timing will depend on company policies).

One month before retirement:

  • Obtain the paperwork to roll your 401(k) (or other retirement accounts) out of the plan into an outside account, if that’s the choice you’ve made.
    • Complete paperwork and contact HR to see if plan administrator signature is required.
    • Paperwork will be sent in following retirement date.

One week before retirement:

  • Confirm that HR retirement package has been completed and all relevant documents are signed.
  • Clean-up desk/emails, etc.
  • Remove any personal/private information from work email and computer.

Post Retirement

  • Submit 401(k) rollover paperwork following retirement date.

The Bottom Line

There are many decisions to consider as one prepares for retirement, from healthcare considerations to account logistics. Understanding the timeframe of essential tasks well in advance of your retirement date can be key to reducing stress in the months before you stop working. Employers will have deadlines on paperwork submission, some of which will be your last day of work or thirty days after.

Knowing these deadlines and seeking information in advance is essential. Use all available resources, such as your company’s human resources department and your various professional advisors, to help make the transition as smooth as possible.

Source article: https://www.investopedia.com/advisor-network/articles/090916/planning-retirement-checklist-approach/#ixzz5VuZQfiW8

3 Reasons 62-Year-Olds Should Take Social Security Now

My Comments: To all this, I will add another reason to take your benefits early.

Reason #4: You are single and might not live very long.

This applies to people who are single, likely to remain that way, and have a serious health issue. If there is reason to think you might not live into your 80’s, take the money and run. Benefits stop when you die. So if you pass before you reach the break even point, you’ve not left any money on the table.

by Dan Caplinger \ October 15, 2018

As people approach retirement, it’s natural to want to claim Social Security as soon as possible. Even though waiting beyond the earliest claiming age of 62 for retirement benefits can give you larger monthly checks, you still have to make it through months or even years without getting anything at all from the program.

The trade-offs between more benefits later or collecting benefits sooner can be tough to analyze. But there are a few situations in which it generally makes a lot of sense to look closely at making the decision to take Social Security at 62. Here are a few of the most important ones that millions of retirees and near-retirees face all the time.

1. When a family member is waiting on you to claim

In order for a spouse, child, or other eligible family member to collect benefits based on your work history, you have to have filed for your own retirement benefits first. This wasn’t always the case, because retirees could use strategies like file-and-suspend to activate spousal or children’s benefits while retaining the right to get a larger retirement payment in the future. Recent law changes put this restriction on nearly everyone seeking to claim family benefits.

This most often comes up in one-earner families in which the nonworking spouse is older than the working spouse. For instance, someone who’s four years older than you are might have to wait until 66 to claim spousal benefits just to give you time to make it to the minimum age of 62 for claiming early benefits. Waiting even longer than that might not be a good option for your spouse in that situation.

Also, children’s benefits tend to be available only for a short period of time — until the child turns 18 or graduates from high school. For those relatively rare situations in which a child is still below that age when you hit 62, claiming immediately could be the only way to get those children’s benefits on top of regular retirement payments.

2. When a surviving spouse wants to maximize total benefits

Unlike most benefits, a surviving spouse can make separate decisions about when to claim survivor benefits based on the deceased spouse’s work record and when to claim the surviving spouse’s own retirement benefit. Therefore, it often makes sense to claim retirement benefits early while letting the survivor benefits continue to grow by waiting before claiming them as well.

At first glance, it might seem like this would result in smaller checks than what you’d get if you claimed all your benefits at once. But because of the way that Social Security calculates payments, you can often get almost as much just by claiming one of your benefits and then get more money later when the other benefits have grown. This is one of the only situations in which Social Security essentially lets you have your cake and eat it too.

3. When you’ll have to give up your benefits because of a public pension

One of the most hated Social Security provisions involves employees who work in the public sector in a state that doesn’t participate in Social Security. Through the Windfall Elimination Provision, you can lose as much as $447.50 per month in Social Security benefits if you had a career of 20 years or less for a private employer before going to work in the public sector. In some extreme cases, this can eat up your entire Social Security payment, although the reduction is also limited to one-half of your public pension.

If you become eligible for public pension benefits only at a later age, then claiming Social Security before that age can give you a brief period of full payments from the program. When pension benefits start getting paid later on, the Social Security Administration won’t go back and take away your past Social Security, as the Windfall Elimination Provision only applies to current and future payments.

Make the right choice

There are plenty of situations in which waiting to take Social Security until well beyond 62 is the smartest move. However, that’s not always the case. In these particular cases, claiming early can sometimes be the best decision you could make.

Source URL: https://www.fool.com/retirement/2018/10/15/3-reasons-62-year-olds-should-take-social-security.aspx