Tag Archives: retirement

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


Higher Tariffs Won’t Work Now Because They Never Did

My Comments: At the national level, if we want more money to spend, both on ourselves as citizens and at the Federal level on things that require money to finance, please tell me why this administration insists on doing things that will result in less money.

Yes, I know, the old and wealthy white cadre somehow feel threatened by those with brown and black skin, but come on!

We’ve pulled out of the Trans Pacific Partnership, effectively ceding global economic supremacy to China, we’ve enacted tax rules that will effectively bankrupt the middle class, what’s left of it, over the next two decades and beyond, and as these comments about tariffs show, will result in slower economic growth in this country.

How does any of this Make America Great Again ?????

By Al Root \ Oct. 26, 2018

Smoot-Hawley is a dirty word in economics. That law, named for its congressional sponsors, raised tariff rates significantly as the global economy was weakening. It was passed in January 1930, just weeks after the stock market crashed on Oct. 24, 1929—Black Thursday. That’s the ultimate in pro-cyclical policy making—kicking the economy when it’s down. We still are taught about the Great Depression in American schools, but the impact of the Smoot-Hawley tariffs may be forgotten by the general public.

After all, the current generation of investors only knows a world with declining trade barriers. The General Agreement on Trade and Tariffs (GATT) was signed after World War II in 1948. That was the precursor to the World Trade Organization (WTO), which was formed in 1995. China joined the WTO in 2001 which helped usher in the boom in fixed-asset investment witnessed there in the early 2000s.

Don’t forget the European Union was also formed in 1993. That improved personal mobility on the continent and then the euro was adopted in 1999. Closer to home, the North American Free Trade Agreement (Nafta) was finalized in 1992.

The story of trade liberalization over the last 130 years can be seen by looking at U.S. customs receipts versus the size of the American economy. This is a proxy on tariff rates and, importantly, it pre-dates the global institutions that most of us have grown up with.

Tariffs were higher in the past, but don’t forget the federal government used to fund itself with customs duties. The U.S. didn’t have federal income tax until 1913. The first tax bracket was a levy of 1%. Talk about a different era.

That chart also shows that tariff rates were persistently high in the 1930s. The U.S. government was, apparently, slow to change its thinking on trade. The Barron’s forecast, shown with the blue bars, tries to imagine a worst-case scenario where all Chinese product imported to America is taxed at 25%. The level of trade-taxation looks significant, but predicting how long this era of trade readjustment will last is more important for understanding the long-term impacts.

Barron’s spoke with Gian Maria Milesi-Ferretti, deputy director of the research department at the International Monetary Fund, to talk about tariff distortions. The IMF is still using its influence to promote open markets – “no (trade) agreement is perfect, things can be tweaked, but we believe strongly in multilateral cooperation.”

Milesi-Ferretti talked in detail about the impacts of tariffs, some of which are harder to characterize than others, and added “global supply chains are highly integrated,” a fact that is different today versus other prior eras.

Clearly, the world is worried about trade tensions. The doctrine of trade liberalization appears to be under siege and companies are talking about higher procurement costs impacting 2019 profits. Presently, the short-term impact of higher costs may be well understood, but the bigger question remains. What impact will trade conflict have in 2020 and beyond?

Source article : https://www.barrons.com/articles/higher-tarriffs-taxes-wont-work-now-because-they-never-did-1540566408

Millions Of Americans Are Leaving Social Security Spousal Benefits On The Table

My Comments: Facing retirement without enough money is a frightening prospect. And leaving money on the table that you can claim doesn’t make much sense. These words from Laurance Kotlikoff might apply to you if you’re between ages 64.9 and 68.

by Laurence Kotlikoff \ October 15, 2018

• The 2015 Social Security amendments severely curtailed the ability to take a spousal or divorcee spousal benefit while waiting to take one’s retirement benefit at an increased level.
• What’s not generally known is that the new law grandfathered those who were 62 as of January 1, 2016.
• The cumulative free spousal benefits available to those grandfathered can range as high as $67,000.

I had dinner recently with friends I hadn’t seen for years. Darren is 67. His wife, Suzy, is 62. Somehow the topic of Social Security came up. Suzy, I learned, was already collecting her retirement benefit. Darren told me he’s waiting till 70 to collect his.

Within 15 seconds, I made them $15,000 in free Social Security spousal benefits.

I told Darren, “Tomorrow, file with Social Security, but just for your spousal benefit based on Suzy’s work record. You’ll receive half of her full retirement benefit through age 70.”

“But,” said Darren, “I thought they changed the law to keep people from collecting a spousal benefit while waiting to collect their retirement benefit.”

“They did,” I replied. “But they grandfathered those born before January 1, 1954. You were grandfathered! So get up early tomorrow and file a restricted application at the local office – just for your spousal benefit. Given the size of Suzy’s full retirement benefit, you’ll get an extra $425 per month for free and this will mean about $15K over the next 3 years. And, by the way, you’re paying for dinner.”

“Fantastic,” said Darren. “Order whatever you want.”

“I wish I had talked to you a year ago.” I bemoaned. “You should have filed just for your spousal benefit the day you turned 66. Or the other hand, it may well be that Suzy filed a year or two too early. In taking benefits early, she enabled you to collect a free spousal benefit. You didn’t know it, but she did. However, because she filed early, her own retirement benefit will be permanently reduced.”

“Well, $15K is just fine.” said Darren.

There are millions of couples who can do what Darren and Suzy are now going to do. And the amount of available free spousal benefits can be as high as $67,000. The strategy will, to repeat, only work if the spouse who was grandfathered has not yet filed for his or her retirement benefit and the other spouse has filed for their retirement benefit or is willing to do so.

How about divorcees? They too can collect a free spousal benefit (called a divorced spousal benefit) for up to 4 years (between full retirement age and 70) provided they were married for 10 or more years, their ex is over 62 and either a) they have been divorced for more than 2 years or b) their ex has started collecting their retirement benefit.
As we waited for the check, Darren asked, “Any other tricks up your sleeve?”

“There are. You may do even better by taking your retirement benefit earlier than 70 so that Suzy can start collecting an excess spousal benefit off of your record. Since your retirement benefit is much higher than hers, this strategy could produce more than the $15K in higher lifetime benefits.”

“Or,” I continued, “it may be optimal for Suzy to suspend her retirement benefit at full retirement age and restart it at 70 when it will be almost 30 percent higher. Once she suspends, her own retirement benefit will stop and she won’t be eligible to collect any benefits off of your record. Nor can anyone collect any benefit off of a suspended benefit while the benefit is in suspension. But, in your case, you’ll be 70 and collecting your own retirement benefit by the time Suzy hits full retirement age. So it may be optimal for her to suspend. It depends not just on your own full retirement benefits, but also Suzy’s birth date and the maximum ages to which you two might live.”

“So it’s complicated,” said Darren.

“Very.” I answered.

“How’s anyone supposed to figure out precisely what to do?” asked Darren.

“That’s where my company’s software tool comes in. Run it. You can afford the 40 bucks. It will consider thousands, possibly tens of thousands of alternative joint strategies to figure out precisely the one that maximizes your and Suzy’s remaining lifetime benefits.

“That many?” asked Darren.

“Yes.” I said. “There is a ton of options given the different months in which you both can take particular actions and given the different benefits at play. This includes the widows benefit for which Suzy will be eligible once you die.”

“By the way,” I said. “The Social Security officials at the local office may not realize you are eligible for free spousal benefits. If they tell you that you aren’t, show them the PDF from my program. If they still get it wrong, ask to speak to a supervisor or call me from the office. I’ve talked to many a supervisor in real time. It’s amazing how quickly they change their tune when they realize someone speaks their language and may be on to their mistakes.”

“My other warning is this. Make sure you specify in the comments section of the application that you are filing a restricted application – just for spousal benefits and that you plan to wait to file for your own retirement benefit. If the staffer you deal with mistakenly files you for both your spousal and retirement benefit, your retirement benefit will start immediately and you’ll get a zero excess spousal benefit given you earned much more than Suzy.

This will reduce, not increase, your lifetime benefits. Our software will indicate the payment you receive. If it’s bigger than what the program says, they screwed up. The Social Security staff are well meaning, but they are overworked, underpaid and undertrained. This, by the way, is due to Congress not properly funding the program. In any case, the staff routinely get things wrong. And their mistake can become your mistake. If you don’t write precisely what you’ve told them to do in the comments section, you’ll have no way to appeal their mistake.”

After dinner, I wrote this column realizing that there are as many as 13 million Darrens and Suzys out there who may be leaving lots of free money on the table. This includes those who are grandfathered and have filed within the year for their retirement benefit. They still have the option of filing an application to withdraw their retirement benefit and repay all the benefits they’ve received. Once the retirement benefit application is withdrawn, one can file just for a spousal benefit.

I’ve written extensively in the past about free spousal benefits and the many other ways people can maximize their lifetime Social Security benefits. I’ve done so in my co-authored, best seller, Get What’s Yours – the Revised Secrets to Maxing Out Your Social Security and in my Forbes blog, Ask Larry. These are additional resources for figuring out what you, your friends, and your colleagues should do to max out their lifetime benefits.

11 Proven Ways to Boost Your Retirement Income

My Comments: Personally, I’m completely invested in #4, #6, #8, and #9. I’m working hard on #1 and #10. What you choose is entirely up to you.

Boosting your retirement income is not about accumulating more stuff. It’s about enjoying life, completing your bucket list of things to do, and having money to pay your bills. Remember, you’ll have your GO-GO years, your SLOW-GO years and your NO-GO years. All require money.

by Selena Maranjian | Apr 8, 2018

Many Americans feel they’re on shaky financial ground these days. Fully 39% said that they feel not too confident or not at all confident that they’ll have enough money with which to live comfortably in retirement, according to the 2017 Retirement Confidence Survey.

How much money will you need for retirement? The answer will be different for different people, and many of us will not amass our needed amount. Fortunately, we can boost our odds of having a happy retirement by taking some steps. Here are 11 strategies you might employ now or later to increase your retirement income.

1. Get rid of debt

For starters, aim to enter retirement without a mortgage or any other costly debt, as that can weigh on you when you’re surviving on a fixed or limited income. Having to make debt payments while retired can hurt your ability to make other necessary payments. If you can pay off such debt before retiring, you can enjoy more income in retirement.

2. Make the most of retirement savings accounts

Tax-advantaged retirement savings accounts such as IRAs and 401(k)s are another good way to boost retirement income, as the more money you contribute to them while working, the more you’ll have in retirement. There are two main kinds of IRA: the Roth IRA and the traditional IRA. In 2018, the contribution limit is $5,500 for most people and $6,500 for those 50 and older in both types of accounts. You can amass even more with a 401(k) account, as it has much more generous contribution limits — for 2018 the limit is $18,500 for most people and $24,500 for those 50 or older. Give particular consideration to Roth IRAs and Roth 401(k)s (which are increasingly available), as they let you withdraw money in retirement tax-free.

The table below shows how much money you can accumulate over various periods socking away various amounts:
Growing at 8% … $5,000 Invested Annually     $10,000 Invested Annually
10 years              $78,227                                   $156,455
15 years              $146,621                                 $293,243
20 years              $247,115                                 $494,229
25 years              $394,772                                 $789,544
30 years              $611,729                                 $1.2 million
Calculations by author.

3. Set yourself up with dividend income

Fill your portfolio with a bunch of dividend-paying stocks, and you can collect income from it without having to sell off any or many shares to generate funds. A $400,000 portfolio, for example, that sports an overall average yield of 3% will generate about $12,000 per year — a solid $1,000 per month.

Dividend income isn’t guaranteed, but if you spread your money across a bunch of healthy and growing companies, you’ll likely receive regular — and growing — payments. Here are a few well-regarded stocks with significant dividend yields:

Stock                      Recent Dividend Yield
Amgen                    2.8%
General Motors    4.2%
National Grid        5.1%
PepsiCo                  2.9%
Pfizer                      3.7%
Verizon                   4.9%
Data source: The Motley Fool (April, 2018).

A dividend-focused exchange-traded fund (ETF) can be a fine option, too, offering instant diversification. The iShares Select Dividend ETF (DVY), for example, recently yielded about 3.2%. Preferred stock is another way to go. The iShares U.S. Preferred Stock ETF (PFF) recently yielded 5.6%.

4. Keep working in retirement

Another way to boost your retirement income is to work during the first years of your retirement — at least a little. Working just 12 hours per week at $10 per hour will generate about $500 per month. Also, given that many retirees can find themselves restless and a bit lonely in retirement, a part-time job can help by offering more daily structure and regular opportunities for socializing.

Here are some possibilities: You could be a cashier at a local retailer or deliver newspapers. You might do some freelance writing or editing or graphic design work. You might tutor kids in subjects you know well, or perhaps give adults or kids music or language lessons. Make and sell furniture or sweaters or candles. Do some consulting — perhaps even for your former employer. Babysit, walk dogs, or take on some handy person jobs. These days the internet offers even more options. You might make jewelry, soaps, or jigsaw puzzles and sell them online, or write e-books that you self-publish online.

5. Lock in income with fixed annuities

Give fixed annuities some consideration, as they can deliver regular income, and favor them over variable annuities and indexed annuities that often charge steep fees and sport restrictive terms. Fixed annuities are much simpler instruments and they can start paying you immediately or on a deferred basis. Below are examples of the kind of income that various people might be able to secure in the form of an immediate fixed annuity in the current economic environment. (You’ll generally be offered higher payments in times of higher prevailing interest rates.)

Person/People            Cost       Monthly Income      Annual Income Equivalent
65-year-old man       $100,000       $546                         $6,552
65-year-old man       $100,000       $522                          $6,264
70-year-old man       $100,000       $628                          $7,536
70-year-old woman  $100,000       $588                          $7,056
65-year-old couple   $200,000       $929                         $11,148
70-year-old couple   $200,000     $1,028                        $12,336
75-year-old couple   $200,000     $1,180                        $14,160
Data source: immediateannuities.com.

A deferred annuity can also be smart, starting to pay you at a future point, such as when you turn a certain age.

6. Consider a reverse mortgage

Look into a reverse mortgage, too. It’s essentially a loan secured by your home. A lender will provide (often tax-free) income during your retirement, and that money doesn’t have to be paid back until you no longer live in your home — such as after you move into a nursing home or die. It has some drawbacks, such as requiring your heirs to sell your home unless they can afford to pay off the loan, but if you’re really pinched for funds and no one is counting on inheriting your home, it can be a solid solution.

7. Borrow against your life insurance

Many people don’t think of this strategy, but in the right circumstances, it can deliver needed income. If you have a life insurance policy that no one is depending on — such as if the children you meant to protect with it are now grown and independent — you might consider borrowing against it. This can work if you’ve bought “permanent” insurance such as whole life or universal life, and not term life insurance that generally only lasts as long as you’re paying for it. You’ll be reducing or wiping out the value of the policy with your withdrawal(s), but if no one really needs the ultimate payout, it can make sense. Plus, the income is typically tax-free.

8. Move to a less expensive home or region

You can also beef up your retirement income by spending less in retirement on your home. You can achieve this by downsizing into a smaller home and/or moving to a region with lower taxes or cost of living. This strategy can shrink your property taxes, insurance costs, home maintenance expenses, utility costs, landscaping bills, and so on. The median home value in Massachusetts, for example, was recently about $341,000, but it was only $264,600 in Colorado, only $143,600 in South Carolina, and $114,700 in Arkansas.

9. Collect interest

Parking money in interest-generating investments is a strategy that varies in its effectiveness as the economic environment changes. When interest rates are high, it’s great. In times like these, not so much. If you park $100,000 in certificates of deposit paying 1.5% in interest, you’ll collect $1,500 per year, not a very helpful sum. Back in 1984, though, rates for five-year, one-year, and six-month CDs were in the double digits. If you could get 10% on a $100,000 investment, you’d enjoy $10,000 per year, equivalent to about $830 per month. If interest rates are sufficiently low, they won’t even keep up with inflation, which has averaged about 3% annually over long periods.

Bonds are another interest-paying option, but the safest ones (from the U.S. government) tend to pay modest interest rates, especially in low-interest-rate environments. Still, if you have a lot of money, you might make this strategy work by buying a variety of bonds that will mature at different times, generating income over many years.

10. Retire later

Here’s a very powerful strategy, but one that many people would rather not employ: Retire later than you planned to. If you can work two or three more years, your nest egg can grow while you put off starting to tap it. (In other words, it can ultimately deliver more income, and it will have to do so for fewer years.) You might enjoy your employer-sponsored health insurance for a few more years, too, perhaps while also collecting a few more years’ worth of matching funds in your 401(k).

Imagine that you sock away $10,000 per year for 20 years and it grows by an annual average of 8%, growing to about $494,000. If you can keep going for another three years, still averaging 8%, you’ll end up with more than $657,000! That’s more than $160,000 extra just for delaying retirement for a few years.

11. Maximize Social Security

There are a bunch of ways to boost your Social Security income, too. You can increase or decrease your benefits by starting to collect Social Security earlier or later than your full retirement age, which is 66 or 67 for most of us, and you can make some smart moves by coordinating with your spouse when you each start collecting.

If you and your spouse have very different earnings records, for example, you might start collecting the benefits of the spouse with the lower lifetime earnings record on time or early, while delaying starting to collect the benefits of the higher-earning spouse. That way, you both get to enjoy some income earlier, and when the higher earner hits 70, you can collect their extra-large checks. Also, should that higher-earning spouse die first, the spouse with the smaller earnings history can collect those bigger benefit checks.

When to Take Social Security: The Complete Guide

My Comments: Social Security is a complicated issue for almost everyone in the retirement planning process. There are so many variables it’s hard to get your arms around what is in your best interest. Many people just say to hell with it and sign up at age 62.

And that can be a huge mistake. You’ll probably end up with less money over your lifetime, not because you’ll get less in total from the Social Security Administration, but because it may cause you to pay more in taxes. And if you have a surviving spouse, it could hurt them too.

What you pay in taxes cannot be used to pay your bills. And retirement is all about being able to pay your bills and enjoy your life.

By Amy Fontinelle | March 12, 2018

If you’re about to retire, you might be wondering if you should start claiming your hard-earned Social Security benefits. If you need the income and you’re at least 62 – the minimum age to claim – the answer is obvious. But if you have enough other income to keep you going until you’re older, how do you decide?

Benefit Amount
The size of your monthly benefit payment depends on the year you were born and your age when you start claiming, down to the month. You receive your full monthly benefit if you start claiming when you reach full retirement age. To find your full retirement age, see the chart below.

Let’s say your full retirement age is 66. If you start claiming benefits at 66 and your full monthly benefit is $2,000, you’ll get $2,000 per month. If you start claiming benefits at age 62, which is 48 months early, your benefit will be reduced to 75% of your full monthly benefit (also called your primary insurance amount). In other words, you’ll get 25% less per month and your check will be $1,500. You’ll receive that reduced benefit not just until you turn 66, but for the rest of your life (though it will go up slightly over time with cost-of-living adjustments). The easiest way to do the math for your own situation is to use the Social Security Administration’s (SSA) Early or Late Retirement calculator (scroll down the linked page to find it).

If you wait until you’re 70 to start claiming benefits, you’ll get an extra 8% per year, and in total, you’ll get 132% of your primary insurance amount, or $2,640 per month, for the rest of your life. Claiming after you turn 70 doesn’t increase your benefits any further, so there’s no reason to wait longer.

The SSA’s many retirement calculators can also help you determine your full retirement age, the SSA’s estimate of your life expectancy for benefit calculations, rough estimates of your retirement benefits, actual projections of your retirement benefits based on your work record and more.

The longer you can afford to wait, the larger your check will be. But you’ll also have no money coming in from Social Security during the months when you postpone claiming. Waiting as long as possible to start claiming benefits doesn’t necessarily mean you’ll come out ahead overall, though, for several reasons: expected longevity, spousal benefits, taxes, investment opportunity and health insurance.

Expected Longevity
So much of our strategizing about how to maximize Social Security retirement benefits depends on guesses about how long we’ll live. Any of us could die in a car accident or get a terminal cancer diagnosis next week. But putting aside these unpredictable possibilities, how long do you think you’ll live? What is your health like now, and what has your relatives’ longevity looked like? Have you had a physical and blood work lately? How are your blood pressure, cholesterol, weight and other markers of health? If you predict an above-average life expectancy for yourself, you may come out ahead by waiting to claim benefits. If not, you might want to claim as soon as you’re eligible.

To make an educated guess about how to come out ahead, you’ll need to do a break-even analysis. What do we mean by breaking even? It’s the point where your lifetime benefits are the same given different initial claim ages. The question is this: Will you be better off – that is, will you get a higher total lifetime payout – getting more checks for a smaller amount (by claiming at 62, for example), or fewer checks for a larger amount (by claiming as late as age 70)?

The Social Security website will tell you that regardless of when you start claiming, your lifetime benefits will be similar if you live as long as the average retiree. The problem is that most people will not have an average life expectancy, hence all the different claiming strategies.

Spousal Benefits
Being married further complicates the decision of when to take Social Security because of the program’s spousal benefits. Certain divorcees are also entitled to benefits.

Spouses who didn’t work or who didn’t earn enough credits to qualify for Social Security on their own are eligible to receive benefits starting at age 62 based on their spouse’s work record. As with claiming benefits on your own record, your spousal benefit will be reduced if you claim benefits before reaching full retirement age (though not at the same rate as claiming your own benefits early). The highest spousal benefit you can receive is half the benefit your spouse is entitled to at their full retirement age.

While spouses will get a lower benefit if they claim before reaching their own full retirement age, they will not get a larger spousal benefit by waiting to claim after full retirement age – say, at age 70. But a nonworking or lower-earning spouse can get a larger spousal benefit if the working spouse has some late-career, high-earning years that boost benefits.

When one spouse dies, the surviving spouse is entitled to receive the higher of their own benefit or their deceased spouse’s benefit, but not both. That’s why financial planners often advise the higher-earning spouse to delay claiming. If the higher-earning spouse dies first, the surviving, lower-earning spouse will receive a larger Social Security check for life.

When the surviving spouse hasn’t reached full retirement age, he or she will be entitled to prorated amounts starting at age 60. At full retirement age, the surviving spouse is entitled to 100% of the deceased spouse’s benefit or to their own benefit, whichever is higher.

A claiming strategy called file and suspend used to allow married couples of full retirement age to receive spousal benefits and delayed retirement credits at the same time. This strategy, which ended as of May 1, 2016, helped some couples receive tens of thousands more from Social Security.

Here’s the next-best thing for older, dual-income couples: Individuals who turned 62 by January 1, 2016, can use a strategy called restricted application. Spouse A claims benefits first; spouse B claims spousal benefits. Once spouse B turns 70, spouse B claims their own benefit instead. Spouse A then claims spousal benefits, which are now higher than their own benefit because of how much spouse B’s benefit has grown by waiting to claim until age 70.

Social Security benefits become taxable at rather low income thresholds. No matter how much you make, the first 15% of your benefit payments are not taxable. But income from interest, dividends and taxable retirement accounts such as 401(k)s and traditional IRAs can quickly push you over the tax threshold.
The Social Security Administration calculates your “combined income” as follows:

Your adjusted gross income
+ Nontaxable interest (for example, municipal bond interest)
+ ½ of your Social Security benefits
= Your “combined income”

If you file your federal tax return as an individual and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, you may have to pay income tax on up to 85% of your benefits.

If you’re married filing a joint return and you and your spouse’s combined income is $32,000 to $44,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $44,000, you may have to pay income tax on up to 85% of your benefits.

Because the math isn’t at all straightforward, the best way to calculate your tax liability is to use a calculator like the Motley Fool’s Social Security tax calculator. It gives you a detailed breakdown of how the result is calculated after you enter your numbers.

Let’s say you receive the maximum Social Security benefit for a worker retiring at full retirement age in 2018: $2,788 per month. Your spouse receives half as much, or $1,394 per month. Together, you receive $4,182 per month, or $50,184 per year. Half of that, or $25,092, counts toward your “combined income” for the purpose of determining whether you pay tax on part of your Social Security benefits. Let’s further assume that you don’t have any nontaxable interest, wages or other income except for your traditional IRA’s required minimum distribution (RMD) of $10,000 for the year.

Your combined income would be $60,184 (your Social Security income plus your IRA income), which would make up to 85% of your Social Security benefits taxable because $60,184 is more than $44,000. Now, you’re probably thinking, 85% of $50,184, is $42,656, and I’m in the 22% tax bracket, so my tax on my Social Security benefit will be $9,384. Fortunately, that’s completely wrong. By using an online calculator, you’ll see that your tax will really be a mere $340. You can read all about the taxation of your Social Security benefits in IRS publication 915. A Roth conversion could help you lower your tax bill.

How do all of these tax calculations affect when you should apply for Social Security benefits? You’ll lose less of your Social Security benefits to taxes if you can wait until your income is lower to claim.

Investment Opportunity
Are you a disciplined, savvy investor who thinks you can earn more by claiming early and investing your benefit than by claiming later and receiving Social Security’s guaranteed higher benefit? Then you may want to claim early instead of waiting until age 70.

Most investors, however, are neither disciplined nor savvy. People take early benefit payments intending to invest the money, then use it to tour Europe instead. And even savvy investors cannot predict how their investments will perform over the first decade or two of their retirement.

If you claim early, invest in the stock market and average an 8% annual return – which is far from guaranteed – you will almost certainly come out ahead compared with claiming late, according to an analysis by Dan Caplinger, director of investment planning for Motley Fool. But if your returns are lower, if you receive reduced Social Security benefits because you continue working past age 62, if you have to pay taxes on your Social Security income or if you have a spouse who would benefit from claiming Social Security benefits based on your record, then all bets are off. Most people, in other words, will not benefit from this strategy – but it is a strategy to be aware of in case you’re one of the few who might.

Effect on Health Insurance
Here’s another factor to consider: Do you have a health savings account (HSA) that you want to keep contributing to? If so and if you’re 65 or older, receiving Social Security benefits requires you to sign up for Medicare Part A. The problem with signing up for Medicare Part A is that you’ll no longer be allowed to add funds to your HSA.

The Social Security Administration cautions that even if you delay receiving Social Security benefits until after age 65, you might still need to apply for Medicare benefits within three months of turning 65 to avoid paying higher premiums for life for Medicare Part B and Part D. If you are still receiving health insurance from your employer, you might not have to enroll in Medicare yet.

The Bottom Line
You don’t have to take Social Security just because you’re retired. If you can live without the income until age 70, you will ensure the maximum payment for yourself and lock in the maximum spousal payment. Just be sure you have enough other income to keep you going and that your health is good enough that you are likely to benefit from the wait. When you’re ready, you can apply for benefits online, by phone or at your local Social Security office.

Source article: Read it HERE!

The Biggest Risk Retirees Face Right Now

My Comments: On TV and in murder mysteries, there’s often a reference to ‘being in the wrong place at the wrong time’. Well, it can happen to any of us planning to retire, but instead it reads this way: ‘being born at the wrong time…”.

These words from Michael Aloi from earlier this year show what this means. And it has special meaning for any of you planning to retire in the next twelve months or so. We’re close to the end of an historic bull market and for some of us, it will be painful. Look at the two respective totals in the chart below.

Michael Aloi, CFP | March 23, 2018

Those planning to retire face many risks. There is the risk their money will not earn enough to keep up with inflation, and there is the risk of outliving one’s money, for example. But perhaps, the biggest risk retirees face now is more immediate: Retiring in a bear market.

To put this in perspective, First Trust, an asset manager, analyzed the history of bull and bear markets from 1926-2017 and found bull markets — which are up or positive markets — lasted on average nine years. If that is the case, this bull market should be ending right about now, as it just turned 9 on March 9, 2018. Consider also the study found that the typical bear market lasts 1.4 years, with an average cumulative loss of 41%.

Not to be all doom and gloom, but the chart below illustrates why the biggest risk retirees face right now is a bear market. It shows what happens to two identical $1 million portfolios, depending on the timing of bad stock market years.* Adjusted for 3% inflation

Mr. Smith and Mrs. Jones start off with the same $1 million portfolio and make the same annual $60,000 annual withdrawal (adjusted for 3% inflation after the first year). Both experience the same hypothetical returns, but in a different sequence. The difference is the timing. Mrs. Jones enjoys the tailwind of a good market, whereas Mr. Smith’s returns are negative for the first two years.

The impact of increasing withdrawals coupled with poor returns is devasting to Mr. Smith’s long-term performance. In the end, Mrs. Jones has a healthy balance left over ($1,099,831), whereas Mr. Smith runs out of money after age 87 ($26,960).

With stock market valuations higher and this bull market overdue, by historical averages, retirees today could be faced with low to poor returns much like Mr. Smith in the first few years of retirement. However, retirees like Mr. Smith still need stocks to help their portfolios grow over time and keep up with the rising costs of living. Unfortunately, no one knows for sure what the equity returns will be in the next year or the year after.

This is the dilemma many retirees face. The point is to be aware of the sequence of return risk, illustrated in the chart above, and take steps now if retirement is in the immediate future.

Here are two of the many planning possibilities retirees today can use to avoid the fate of Mr. Smith:

1. Use a “glide path” for your withdrawals

In a study in the Journal of Financial Planning, Professor Wade Pfau and Michael Kitces make a compelling argument to own more bonds in the first year of retirement, and then gradually increase the allocation to stocks over time. According to the authors’ work, “A portfolio that starts at 30% in equities and finishes at 60% performs better than a portfolio that starts and finishes at 60% equities. A steady or rising glide path provides superior results compared to starting at 60% equities and declining to 30% over time.”

The glidepath strategy flies in the face of conventional wisdom, which says people should stay balanced and gradually conservatize a portfolio later in retirement.

The glidepath strategy is a like a wait-and-see approach: If the stock market craters in the first year of retirement, be glad you were more in bonds. Personally, I would only recommend this strategy to conservative or anxious clients. My concern is what if markets go up as you are slowly increasing your stock exposure — an investor like this could be buying into higher stock prices, which could diminish future returns. An alternative would be to hold enough in cash so one does not need to sell stocks in a down year per se.

Though not for everyone, the glide path approach has its merits: Namely not owning too much in equities if there is a bear market early on in retirement, which coupled with annual withdraws, could wreak havoc on a portfolio like Mr. Smith’s.

2. All hands on deck

The second planning advice for Mr. Smith is to make sure to use all the retirement income tools that are available. For instance, if instead of taking money out of a portfolio that is down for the year, Mr. Smith can withdraw money from his whole life insurance policy in that year, so he doesn’t have to sell his stocks at a loss. This approach will leave his equities alone and give his stocks a chance to hopefully recover in the next rebound.

The key is proper planning ahead of time.

The bottom line

Retirees today face one of the biggest conundrums — how much to own in stocks? With the average retirement lasting 18 years, and health care costs expected to increase by 6%-7% this year, retirees for the most part can ill afford to give up on stocks and the potential growth they can provide. The problem is the current bull market is reaching its maturity by historical standards, and investors who plan on retiring and withdrawing money from their portfolio in the next year or two may be setting themselves up for disaster if this market craters. Just ask Mr. Smith.

There are many ways to combat a sequence of poor returns, including holding enough cash to weather the storm, investing more conservatively in the early years of retirement via a “glide-path” asset allocation, or using alternative income sources so one doesn’t have to sell stocks in a bad market.

The point is to be mindful of the risk and plan accordingly.

Successful Retirement Secrets™

My Comments: I have just now joined the ranks of internet publishers!

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Among other things, it’s about investment skills and getting the most from Social Security.


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To the first 100 people who enroll before November 1, 2018, I’m offering 50% off the published price.

Click on the link below or the image above, and watch a FREE PREVIEW. Then decide if it would help to have a system to build your road map to a SUCCESSFUL RETIREMENT…