Tag Archives: social security benefits

Your Local Social Security Office: Who Can Help

SSA-image-3My Comments: There are a lot of good people working for the Social Security Administration. It’s just that some of them are not equipped to answer your questions. This leads to frustration and sometimes making the wrong choices. Here’s an article that might be helpful if you have questions of them and need the right answer.

Devin Carroll | February 17, 2017

I help a lot of clients with Social Security. One thing they all have in common is that they’ve called their local Social Security office at least once. Most of these calls have ended in frustration. It doesn’t have to be that way. If you know who to ask for, you’ll get the help you need.

I often consult with individuals throughout the nation regarding Social Security issues. For some, it’s simply determining how their filing strategy fits in with their overall retirement plan and making sure they haven’t missed anything. For others, I help solve complex Social Security problems. Many that I help would never call me if they would have received a satisfactory answer and solid advice when they called their local Social Security office. So I may be hurting myself slightly, but I can’t stand to see any more bad, and sometimes non-reversible, decisions made as a result of incorrect guidance from the Social Security Administration.

I’m going to tell you who to ask for the next time you call.

The Hierarchy at the Social Security Office

If you’ve ever been to your local Social Security office, you’ve probably seen a maze of cubicles and possibly more employees than you expected. All these people have a role and handle very specific areas of Social Security benefits. Within each Social Security office there is a hierarchy of representatives. Not all are created equal. For retirement and disability benefits, the Social Security employee will most likely have one of the following titles.

Service representatives have the responsibility of handling general inquiries, fixing simple post-claim issues and answering the phones. Simply put, they are generalists. Although this is the first position for a new hire, I wouldn’t automatically discount their experience. Some service representatives begin—and end—a long Social Security career with the same title. Just understand, the service representative that answers your call may be a six-month employee or a 25-year employee.

Claims Representative

The claims representative is there for one reason: to assist individuals in filing claims to benefits under Social Security programs. Unless you are ready to process your claim, you’ll have little interaction with this representative.

Technical Expert

The technical experts handle the complex cases and do the stuff that’s too complicated for the others. Those I’ve come in contact with have exhibited a deep understanding of the rules and provisions of the Social Security programs. But you won’t find them answering the phones or meeting with just anyone. Normally, you have to be referred by a service representative or a claims representative to get in front of the technical expert.

How to Get Help

The next time you call (or visit) your local Social Security office, you’ll speak to a service representative. Give them a chance and they may be able to help you. However, if you have ANY doubt about what you’re being told, it’s time to escalate. Ask them to let you speak to a technical expert. It may take a while, but eventually you’ll be able speak to the most knowledgeable person in the office.

Source: http://www.investopedia.com/advisor-network/articles/021717/your-local-social-security-office-who-can-help/#ixzz4ZLjiVeHc

What You Should Know About Medicare Enrollment

health-is-wealthMy Comments: Medicare, along with a Medicare supplemental policy, is, for many millions of Americans, a critical element in their lives. I know it is in mine and that of my wife.

As longevity raises its sometimes ugly head, the ability to seek professional health care when the need arises, without having to worry about its cost, is a huge peace of mind element. This is a simple and effective introduction.

David J. Fernandez, CFP® February 1, 2017

One important area of planning for a successful retirement is to have adequate healthcare coverage, including Medicare. Healthcare costs have been escalating at over twice the rate of inflation for a number of years. For those wanting to retire prior to age 65, healthcare is typically one of the largest bridge expenses to cover until Medicare eligibility.

For most people, their health insurance is provided through their employer. Or, if self-employed, they likely own a private health insurance policy. But once you reach age 65, you have the opportunity to transition to the federal government’s Medicare healthcare system. This article will provide a quick overview of some of the options available, answer some frequently asked questions and provide some resources to help you navigate the system.

Medicare: the Four Parts
• Part A – Hospital insurance that provides coverage for inpatient hospital services, care received in skilled nursing facilities, hospice care and some home healthcare. There is no premium cost for this coverage. However, there are co-pays, deductibles and co-insurance when seeking medical care.
• Part B – Medical insurance that provides coverage for outpatient care such as doctors’ visits, laboratory and imaging tests, medical supplies and preventative services. There is a monthly premium which is automatically deducted from your monthly Social Security check. If you are not receiving Social Security benefits, your premium will be billed to you once a quarter. In 2017 the base premium is $134 per month. You may pay a larger premium if your annual income is higher. You can learn more about your potential premium costs in this article. Your Part B coverage generally covers 80% of your covered care expenses after a deductible has been met.
• Part C – Medicare Advantage Plans, which are Medicare-approved private insurer plans that typically provide medical coverage for Part A, Part B and often include prescription drug coverage. Many of these plans provide extra coverage and may lower out-of-pocket costs.
• Part D – Prescription drug coverage. This particular coverage is optional and has a monthly premium that varies depending on the plan you choose. Similar to Part B coverage, those with higher levels of income may pay higher premiums. The link to my article above provides a chart of premium surcharges for Parts B and D based on income level.

What is Medigap Insurance?

In addition to the options mentioned above, there are approximately 12 different private insurance plans which vary by state. These extra coverage plans are often referred to as Medicare supplemental insurance or Medigap. These policies are designed to fill in the coverage gaps found in original Medicare Parts A and B. A large percentage of those receiving Medicare are also enrolled in one of these policies.

When to Apply for Medicare

If you are already receiving Social Security benefits prior to turning age 65, you will automatically be enrolled in Medicare Parts A and B. If you are not receiving Social Security benefits, then you have a seven-month window to apply. You can apply three months prior to turning age 65, the month you turn 65, and up to three months after you turn 65. Your Medicare benefits will generally begin approximately one month after you enroll.

How to Apply for Medicare

You can enroll in Medicare Part A and Part B in the following ways:
• Online at http://www.SocialSecurity.gov
• By calling Social Security at 1-800-772-1212, Monday to Friday from 7a.m. to 7p.m.
• In person at your local Social Security office; it is recommended that you call first for an appointment.

Should Choose a Coverage Plan for Part C, Part D or a Medigap Policy?

Because each person has a unique health history with specific health coverage needs, you may want to consult with a local resource to help you compare and contrast your options. Every state offers a free health benefits counseling service for Medicare beneficiaries. You can search by your state for the local SHIP office (state health insurance assistance program). This is a valuable service available to answer all of your Medicare questions. You can also seek a private, independent health insurance broker that specializes in Medicare plans.

What if I Don’t Enroll on Time? Is There a Penalty?

If you don’t sign up for Medicare Part B (medical insurance) when you are first eligible at age 65, there is a 10% penalty for every 12 months you are not enrolled on time. The current base premium for part B is $134. Thus you would pay an extra 10% every month for this premium going forward. If you didn’t sign up for two years you would pay 20% extra every month for as long as you are enrolled in Part B.

What if I Had Health Coverage Provided by an Employer?

Medicare does provide an exception if you are covered under group healthcare via an employer, and therefore do not enroll on time. You need to provide a letter of credible coverage from your employer when you sign up and they will usually waive the penalty.

Additional Resources for Your Medicare Questions

Besides the SHIP link above, or an independent health insurance broker, another option is to call Medicare directly at 1-800-Medicare or 1-800-633-4227. If you prefer searching for your answers online, you can go directly to http://www.Medicare.gov.

Why China Doesn’t Need The U.S. For Trade

USA ChinaMy Comments: China First! Are you OK with China leading the world through the 21st Century? While I have issues with the politics of Steve Forbes, I have no issues with the credibility of Forbes Magazine, who published this article by Winter Nie.

Now that Trump has ceded global economic leadership to China, it’s important to now understand what has to happen in this country for us to maintain the economic role we still have, much less once again ride to the top.

Consider this: price is the number assigned to something you want to buy. As a ten year old, if I wanted a piece of bubble gum that came with a picture of a baseball player, I had to give the store person 5¢. The same principal applies today when I gas up my car; I give them about $2.30 for every gallon I need.

Right now that $2.30 is much less than it was a couple of years ago, principally because there are a lot more gallons of gas available for me to buy. The demand has not shrunk but the supply has increased. Ergo the price went down.

Starting a trade war with China, given the state of our mature economy today, is going to mean we lose. There is only one way we might win and that’s to embrace immigration. With hundreds of thousands of additional people available for low end jobs, the price of labor will go down, and the US will grow. At the same time, in order for the Trump voters to gain what they want, they will have to be educated, or re-educated, so they can move into the higher paying jobs that will result from growth.

Unless you’re OK with China leading the world through the 21st Century.

Winter Nie | February 7, 2017, in Forbes magazine

During his election campaign, President Donald Trump threatened to impose 35% to 45% tariffs on Chinese imports to force China into renegotiating its trade balance with the U.S. The immediate result of that would be a fierce trade war that America would almost certainly lose. And while we don’t know yet whether Trump will follow through with this threat, his abandonment of the Trans Pacific Partnership (TPP) in his first few days in office is an indication that he is not shying away from his campaign pledges.

Trump is now entering uncharted waters. He has already demonstrated his ignorance of Asian affairs when he publicly accepted a phone call from Taiwan’s president, Tsai Ing-wen, in December, and shortly afterwards announced that he didn’t understand the “One China” policy, or why he should respect it. His abandonment of the TPP will simply accelerate China’s displacement of America as the world’s leading economic power.

For the moment, China has decided to wait for the U.S. to make the first move. A trade war would be problematic for the region, not least for South East Asia, which would be most likely to suffer negative fallout as a major trade partner to both the U.S. and to China. But it would not be a disaster for China, mainly because the U.S. needs China more than vice versa.

Unfortunately for Trump, it’s not the 1980s anymore. Twenty years ago, the situation might have been different. China was dramatically underdeveloped, and it wanted access to Western technology and manufacturing techniques. China has most of what it needs now, and what it doesn’t have it can easily obtain from vendors outside the U.S. While the American market looked enticing a few decades ago, it is relatively mature, and today the newer emerging market countries have become much more interesting to Beijing.

The fastest growing markets for the best items China produces, like laptop computers and cell phones, are in developing regions such as India, Latin America, and Africa. In contrast, China itself is a market that the U.S. can hardly ignore. By the end of 2015, Chinese consumers had bought 131 million iPhones. The total sales to U.S. customers during the same period stood at only 110 million. And iPhones are only a small part of U.S. exports. Boeing, which employs 150,000 workers in the U.S., estimates that China will buy some 6,810 airplanes over the next 20 years, and that market alone will be worth more than $1 trillion.

Were Trump to start a trade war, the most immediate effects would probably be felt by companies like Walmart, which import billions of dollars of cheap goods that are bought mostly by the people who voted Trump into office. The prices on almost all of these items would quickly skyrocket beyond the reach of the lower economic brackets—not because of manufacturing costs, but because of the tariffs. The result would be an economic war of attrition that China is infinitely better positioned to win.

China’s foreign currency reserves now stand at more than $3 trillion. In contrast, the U.S. has foreign exchange reserves that hover at around $120 billion. Trump’s tariffs would automatically trigger penalties against the U.S. in the World Trade Organization (WTO), and might even lead to the WTO’s collapse, which would lead to higher tariffs against U.S. exports. While it might take a while for that to happen, the turmoil would be catastrophic for American business and employment. China, on the other hand, would emerge relatively unscathed.

In fact, the importance of the U.S.-China relationship is already being challenged by other players. Apple’s iPhone sales in China are running into competition from local Chinese manufacturers, and Samsung is more than happy to fill any void that the Chinese can’t deal with. Likewise, the Chinese would happily shift their trillion dollars in future aircraft purchases to Airbus, a European firm that is already building a plant in China to finish assembly of large, twin-aisle jets. As for automobiles, most Chinese would just as soon drive a Mercedes, BMW, or Lexus as a Ford.

Both China and leading economic experts hope that a trade war won’t happen. The American political system is relatively mature with checks and balances, but with a president who often acts uniquely based on his own beliefs regarding complex issues, almost anything is possible.

Putting Clients Second

My Comments: Readers of my posts have seen me comment before on the proposed Department of Labor Fiduciary Rule that is scheduled to be implemented this coming April.

It’s directed toward anyone providing investment advice related to retirement accounts (with one major exception!). The rule says that anyone providing such advice must adhere to a fiduciary standard, similar to the fiduciary standards that apply to attorneys, doctors, and accountants, among others. Namely it must be in the clients’ best interest.

Now, in a manner consistent with so much that is emerging from the Trump White House, the DoL has been instructed to review and by inference, remove the new set of rules.

You may recognize the author below. He’s associated with the Vanguard Group, a company that manages over $3T (trillion) worldwide.

by John Bogle in the New York Times on Feb. 9, 2017

THE Trump administration recently announced that it intends to review, and presumably overturn, the Obama-era fiduciary duty rule that is scheduled to take effect in April. The administration’s case was articulated by Gary Cohn, the new director of the National Economic Council.

Mr. Cohn, most recently the president of Goldman Sachs, called it “a bad rule” and likened it to “putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.” Comparing healthy and unhealthy food to healthy and unhealthy investments is an interesting analogy.

The now-endangered fiduciary rule is based on a simple — and seemingly unarguable — principle: that in giving advice to clients with retirement funds, stockbrokers, registered investment advisers and insurance agents must act in the best interests of their clients. Honestly, it seems counterproductive to go to war against such a fundamental principle. It simply doesn’t seem like a good business practice for Wall Street to tell its client-investors, “We put your interests second, after our firm’s, but it’s close.”

The annulment of the government’s fiduciary rule would clearly be a setback for investors trying to prepare for retirement. But the fiduciary principle itself will live on, and even spread.

The truth is, the existing proposal doesn’t go nearly far enough. It is limited to retirement plan accounts and ignores the other three-quarters of the assets owned by individual investors. Any effective rule must encompass all investors.

It is widely agreed that the fiduciary rule would give impetus to the growing use of lower-cost, broadly diversified index funds (pioneered by Vanguard, the company I founded), such as those tracking, with remarkable precision, the S&P 500 stock index. But even without the rule, there has already been a tidal shift to index funds — actually, more like a tsunami. Since 2008, mutual fund investors have liquidated more than $800 billion of their holdings in actively managed equity mutual funds and purchased about $1.8 trillion of equity index funds. Low-cost index funds are almost certainly what Mr. Cohn means when he refers to the “healthy food on the menu.”

Several major brokerage firms have already embraced the fiduciary principle, announcing plans to comply with the rule by eliminating front-end commissions (known as loads) on retirement plan accounts in favor of an annual asset charge. And dozens of companies have reacted to the proposed rule by creating a class of generally less costly mutual fund shares with initial loads of 2.5 percent followed by annual charges of 0.25 percent of total assets.

I do not envision these responses to the fiduciary rule being reversed. With or without regulation by the federal government, the principle of “clients first” is here to stay.

In the debate about the fiduciary rule, one basic fact has been largely ignored. Investment wealth is created by our public corporations and reflected in stock prices. Stock market returns are then allocated between the financial industry (Wall Street) and shareholders (Main Street). So when the consulting firm A. T. Kearney projected that the fiduciary rule would result in as much as $20 billion in lost revenue for the industry by 2020, it meant that net investment returns for investors would increase by $20 billion.

By any definition, that’s a social good.

One must wonder how Wall Street, broadly defined, has been able to defy the interests of its millions of clients for so long. After all, 241 years ago, Adam Smith concluded that “consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.”

In other words, it is in Wall Street’s interest to promote the interests of its clients. As Smith put it: “The maxim is so perfectly self-evident that it would be absurd to attempt to prove it.”

Make no mistake. The demise of the fiduciary rule would be a step backward for our nation, allowing Wall Street to continue to profit by providing conflicted advice at the expense of working Americans saving for retirement.

But the principles of fiduciary duty are strengthening. Investor awareness grows with each passing day. The nation’s investors are already awakening to the role of low costs and broad diversification, and understand that long-term investing is a far more profitable strategy than short-term trading.

The fiduciary rule may fade away, but the fiduciary principle is eternal. The arc of investing is long, but it bends toward fiduciary duty.

6 Steps to Retire When You Want

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

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

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

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

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

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

Assess Your Savings

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

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

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

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

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

Analyze Your Spending

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

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

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

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

Plan for Social Security

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

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

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

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

Leverage Your House

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

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

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

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

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

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

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

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

Secure Health Coverage

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

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

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

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

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

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

Plan for Your New Life

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

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

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

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

How to Have a Comfortable Retirement on Social Security Alone

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

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

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

By Rebecca Lake | January 13, 2017

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

Having a Comfortable Retirement on Social Security Alone

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

Who’s Banking on Social Security?

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

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

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

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

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

Streamline Your Other Expenses

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

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

Keep Healthcare Costs Under Control

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

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

Delay Taking Social Security as Long as You Can

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

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

The Bottom Line

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

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

Investment Strategies for Your Retirement Accounts

InvestMy Comments: A phrase I’m known to use from time to time is that ‘life in this country is better with more money than it is with less money.” While this might seem too obvious for you, there are many people whose efforts to have more money have fallen flat. Here’s a few ideas that might help you.

Michelle Mabry, CFP®, AIF® January 26, 2017

With interest rates coming off a 36-year low and expected to rise, most investors expect to see bond prices fall and consequently deliver a negative return in what is considered a low-risk asset. We have seen a rebound in equities, and with the S&P 500 and Dow at all-time highs, some say the stock market is richly valued. As a retiree seeking income from your investments and looking to preserve your principal, where can you turn? What are ways retirees can invest for income and still minimize risk?

You have always heard you need a diversified portfolio and that has not changed, but what has changed is how you diversify it. Retirees need to determine the proper asset allocation of stocks, bonds, cash and alternatives based on income needs, time frame, and tolerance for risk.

How to Diversify Investments in Retirement

Let’s look at bonds first. If you invest in a traditional bond portfolio you are exposing yourself to interest-rate risk as rates rise and bond prices fall. You need to understand the average duration of the bond investments you hold. For example, a typical intermediate-term bond fund will have a duration of 5-10 years. If the average duration is eight years, then a 1% increase in rates will result in an 8% decrease in the net asset value (NAV). This would wipe out all the interest gains and then some. The shorter the duration, the less the potential loss.

So it is important to look for other assets that have low-risk characteristics or standard deviation similar to bonds but produce absolute returns, that is, a positive return regardless of which way rates are moving. Floating rate income, TIPs and some market neutral funds can be a good way to diversify your fixed-income portfolio. You may also want to look at structured notes as a way to produce yield and protect your downside.

Dividends as Equity

For the equity portion of your retirement portfolio, consider blue chip dividend-paying stocks or dividend growth strategies. Many large-cap funds pay dividends in excess of 2.5%, plus you have the upside appreciation potential over time to keep pace with inflation during your retirement years. Remember to keep focused on the longer term and not be too concerned with short-term volatility. Dividend-paying stocks have outperformed most other asset classes over time. Small-cap stocks have been one of the best-performing asset classes, so it would make sense to find dividend-paying small- and mid-cap equities as well.

When searching the universe of mutual funds and ETFs, there are not many of these, but a couple that have attracted our attention are WisdomTree Midcap Dividend Fund and WisdomTree Small Cap Dividend Fund with yields of 2.63% and 3.03% respectively as of December 30, 2016. Of close to 2,000 ETFs available in the U.S., a search revealed only four that are exclusively dividend-driven and which also hold just domestic small- or mid-cap stocks. Two of the portfolios feature issues that have exhibited dividend growth while the other two ETFs (the WisdomTree funds) include all dividend payers in their capitalization range.

Include Alternative Assets for Diversification

Also important in developing a portfolio for retirement is a focus on absolute return strategies, and many of these fall into the alternative asset class. Alternatives are anything that is not a stock, bond or cash. Alternatives have no correlation or negative correlation to other asset classes so they are great diversifiers. Our retired clients typically have one-third of their portfolio in alternatives. Examples include managed futures and long/short strategies as well as volatility strategies using options. An example is LJM Preservation and Growth which has shown a positive return every year since its inception 10 years ago with the exception of one year, 2013, when the stock market went straight up and there really was no volatility. The fund was up in 2008 when stocks and bonds were not, and therein lies the importance of a diversified portfolio to manage risk.

By rebalancing your investments quarterly or semi-annually back to the original investment allocations you can create the cash needed to sustain your monthly withdrawals in retirement until the next rebalance. We do not recommend a withdrawal rate in excess of 4% in light of current market and economic conditions.