Category: Social Security

Retirees Help Us Learn from Mistakes

As you get nearer to retirement, there is more pressure to plan ahead. Kiplinger’s article, “4 Big Retirement Regrets That You Should Avoid,” says that sometimes failure is the most effective teacher. 10-18-16

Retirees often consider their regrets and the things they'd do differently if they could. The following are a few of the more common mistakes retirees make:

  1. Quitting too soon. After all those years of working, it's hard not to dream of retirement. This decision, however, can be more emotional than logical. If you retire too early, you cut down on the time you have to save money, and you also lengthen the time you'll need that money.
  2. Depending too much on hope. When you retire, your amount of financial risk needs to change. Don’t keep the same investment strategy and look for big returns. In retirement, it's not as much about how much money you can grow, but rather it's about taking distributions. It’s not a gamble with the future. No, you’re risking money you need to live on right now. If there's a serious downturn, you could lose much of your lifetime saving, which may not be easy to recover.
  3. Cashing in too early. Many retirees regret drawing Social Security at age 62 rather than waiting until they reached their full retirement age (or even longer)—when they would have received bigger monthly checks. Without a strategy to address taxes and other expenses, they fail to address the potential issues when it comes to sustaining the lifestyle they want on the money that remains.
  4. Spending too much, planning too little and enjoying too late. Retirees frequently overspend in the first few years when they have their good health and freedom. Unfortunately, they don't have a plan to address their income needs, so they withdraw too much too fast to pay for that new life without considering the future.

There are also some who regret not doing enough in retirement, saving every penny but afraid to do anything. Others give no thought to what they'll do with their leisure time, and when health issues arise, they're sorry they didn't enjoy things more when they could.

It’s a balancing act—getting out and enjoying life and making certain you have the money to pay for it. This requires planning ahead, which is far better than living with regrets.

Reference: Kiplinger’s (August 2016) “4 Big Retirement Regrets That You Should Avoid”

Be Smart When You Say “I Do” the Second or Third Time

Can you believe that 37% of second marriages and 74% of third marriages end up in divorce? Those are not good odds. CBS Boston’s recent article, “Breaking Up Is Hard to Do: Second or Third Go Around,” asks, “What is it about marriage that makes folks want to try it again and again?”

It sort of goes without saying that when you land at the altar for the second or third time, you need to do some more planning than you did the first time. Use your past experience to pinpoint some of the pitfalls because there are studies—believe it or not—that show most individuals actually repeat their mistakes. 10-11-2016

Before the ceremony, have an open and honest conversation about money, children, estate planning, and maybe even a prenuptial agreement. A prenuptial agreement can be a wise move for almost anyone with assets; they aren’t just for celebrities or the very wealthy.

A prenup can provide a fair and equitable way for a couple to start a relationship—particularly when: one has more assets than the other; one spouse is expecting to inherit future assets; or there are children from a previous marriage for whom you want to provide.

It’s important to remember that the older you are when you enter into a second marriage, the more concerned you should be about planning. Love at any age can throw things out of kilter in a good way, and you want to provide for this new person in your life.

But marriage has its advantages and disadvantages. One of the disadvantages is potentially losing benefits from your first marriage such as a pension or health care coverage if you remarry. In addition, it could impact your Social Security benefits.

If you’re entering into a relationship, and you both have adult children, assets, and a home from a previous marriage, consider a prenup and a conversation with an estate planning attorney.

If you’re married, the law says that you’re financially responsible for your spouse’s care. If you don’t have an estate plan, most states will assume that you want everything to go to your spouse and children if you should pass away, with 50% going to each. That may not be what you wanted, and if you want everything to go to your children upon your death, you need to speak with a qualified estate planning attorney and create a sound estate plan.

Reference: CBS Boston (August 18, 2016) “Breaking Up Is Hard to Do: Second or Third Go Around”

Look out: Medicare Changes on the Way!

8-25-2016Can you believe that Social Security’s 60 million-plus beneficiaries are scheduled to get a miniscule 0.2% cost-of-living adjustment next year? In addition, some Medicare recipients could be in line for some steep premium increases, according to the annual trustees reports about the financial health of Social Security and Medicare as reported in AARP.org’s article, “Social Security COLA Projected for 2017.”

The long-term outlook for Social Security old-age and disability benefits is still good, with promised benefits payable until 2034. Without any changes to the law, 79 % of promised benefits will be payable through 2090. However, the trust fund that finances Medicare’s hospital coverage is fully funded until 2028—that’s two years less than projected a year ago.

Social Security annually weighs whether to give beneficiaries a cost-of-living adjustment based on inflation compared to the last year that a cost of living allowance (COLA) was awarded. Beneficiaries didn’t receive a COLA for 2016 because the inflation rate fell, which is the third time since 2010 they didn’t get an increase in payments. The 0.2% COLA that the trustees project for 2017 still could change with inflation. We’ll need to wait for the final word to come in October.

Medicare beneficiaries want to know what will happen to the Part B premium in 2017. With no COLA for 2016, about 70% of Medicare beneficiaries were “held harmless” from cost increases and are paying the same standard premium as they did in the previous three years at $104.90 a month. The remaining folks are required by law to share the load of increased costs; they must pay much more. But Congress came through with a solution that limited the impact of the increases for this year.

The small COLA now projected for 2017 would still have an effect on Part B premiums. Standard premiums for most of those in the 30% not currently held harmless would jump by about $27.00 to $149.00 a month next year. The other 70 % would pay $107.60 a month in 2017, which is $2.70 more than they pay now.

Among the 30% impacted next year are those who didn’t have their premiums deducted from Social Security checks in 2016, including those new to Medicare in 2017, and those who already pay higher premiums because they have higher incomes. The higher-income beneficiaries would see even higher jumps in premiums next year. Those look to increase from $166.30 to $204.40 a month for the lowest affected tax bracket and from $380.20 to $467.20 for those in the highest.

One other group, which includes low-income people whose states pay their Part B premiums, aren’t personally affected. However, their states will face some additional costs.

Part B premiums are to cover 25% of total costs. The federal government will contribute the remaining 75% out of general revenues. The increased income-related premiums are set to cover 35%, 50%, 60% or 80% of the costs, depending on income level. The increase in Medicare costs, which means increases in Part B premiums, is primarily due to the high prices of some recently developed prescription drugs.

“High cost drugs are a major driver of Medicare spending growth,” said Medicare’s acting administrator, Andy Slavitt. “For the second year in a row, the spending growth for prescription drugs dramatically outpaced cost growth for other Medicare services.”

Reference: AARP.org (June 22, 2016) “Social Security COLA Projected for 2017”

Personal Finance Myths Debunked!

8-18-2016You want to prosper by following tried-and-true principles of effective wealth creation and asset management—not myths passed down from older generations or heard around the office water cooler. Kiplinger’s “8 Urban Myths of Personal Finance” unravels several urban legends of personal finance that have gained credence over the years.

Myth: There’s No Need to Start Saving for Retirement Until You’re 40. Did you know that 25% of Americans ages 30 to 49 have saved nothing for retirement and that 59% say they plan to save more aggressively “later” to make up for that shortfall? The long-term effects can be disastrous if you don’t put away money in a retirement savings plan as soon as you start earning a paycheck. The truth is the sooner you start saving and investing, the better.

Myth: Social Security Won’t Be Around When I Retire. Many people in the U.S. (55%) have this fear. The truth is Social Security isn’t going away. But remember that Social Security was designed as a supplemental retirement insurance program, not a pension per se.

Myth: I Can Borrow from My 401(k) When Needed. More than 20% of 401(k) plan participants who are eligible to take loans against their retirement savings had outstanding balances in 2012. But there’s a problem in doing this—you’re borrowing pre-tax dollars set aside in your 401(k) and paying the loan back with after-tax money. That money will be taxed once again when you withdraw from your savings after you retire! If you quit your job, are laid off or are fired, you’ll need to pay the loan back—usually within 60 days. If you can't pay it back, the outstanding balance is deemed a taxable distribution, and you’ll get dinged with a 10% early-withdrawal penalty if you are under 55. The truth is that while you are permitted to borrow from your 401(k) to make a down payment on a home or in cases of financial hardship, you’ll take a huge hit on your nest egg.

Myth: Only Rich People Need a Will. About one half of all Americans ages 55 to 65 don’t have a will. If you should pass away without one, a judge will decide how to divvy up your assets and who will raise your children. The truth is everybody should have a will, even if it’s just to detail funeral and burial wishes.

Reference: Kiplinger (May 2016) “8 Urban Myths of Personal Finance”