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New Statistics on Retirement Ages and Mortality Rates

Think Advisor’s recent article, “Americans Are Retiring Later, Dying Sooner and Sicker in Between,” notes that lifespans aren’t necessarily extending to offer equal time in the sun. Data released recently shows that the health of Americans is declining. In fact, millions of middle-age workers may experience shorter, less active retirements than those of their parents.

The U.S. age-adjusted mortality rate, which is a measure of the number of deaths annually, increased 1.2% from 2014 to 2015, according to the Society of Actuaries. It’s the first year-over-year increase since 2005, and only the second rise greater than 1% since 1980.

Entrepreneur-1340649_640Meanwhile, Americans’ life expectancy is stagnant, with millions of U.S. workers waiting longer to retire. The age when people can claim their full Social Security benefits is sliding up, from 65 for those retiring in 2002 to 67 in 2027. Nearly 33% of Americans age 65 to 69 are still working, along with almost 20% in their early 70s.

Postponing retirement can make financial sense: extended careers can make it possible to pay for retirements that last beyond age 90 or even 100. However, a recent study caution about this calculation, because Americans in their late 50s already have more serious health problems than people at the same ages did 10 to 15 years ago.

Death rates can vary from year to year, but research is showing that the health of Americans is deteriorating. Researchers say that an epidemic of suicide, drug overdoses and alcohol abuse have contributed to a spike in death rates among middle-age whites. Higher rates of obesity may also be a cause.

However, the declining health and life expectancy are good news for one group—pension plans. These plans must send a monthly check to retirees for as long as they live.

According to the latest figures from the Society of Actuaries, life expectancy for pension participants has gone down since its last calculation by 0.2 years.

A 65-year-old male can expect to live to 85.6 years. A woman can expect to live to 87.6. Because of these changes, the group calculates a typical pension plan’s obligations could drop by 0.7% to 1%.

If you have questions about your family estate planning needs and retirement planning, complete the short and we'll help point you in the right direction.

Reference: Think Advisor (October 23, 2017) “Americans Are Retiring Later, Dying Sooner and Sicker in Between”

 

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When Do I Sign up for Medicare Part B?

Old couple in classic carWhat if you signed up for Medicare Part A when you turned 65, but didn’t enroll in Part B because you were still working and had health insurance from your employer? Now, at 68 you’re planning to retire this year. What do you need to do to enroll in Medicare Part B, and when do you need to do it?

Kiplinger’s recent article, “What to Know About Enrolling in Medicare Part B,” says that many people who are still working do this. They sign up for Medicare Part A at 65 (because it’s free) and wait to sign up for Part B, while they’re covered by their employer’s insurance. However, you are required to sign up for Medicare Part B no later than eight months after you leave your employment and lose that coverage. Failure to do so, can result in a lifetime penalty and a gap in coverage.

You’re unable to sign up online, since your employer must provide proof that until now you have coverage at work. You must mail in the paperwork by mail or bring it in person to your local Social Security office. You’ll need to complete these forms: CMS-40B Application for Enrollment in Medicare Part B and, because you worked past 65, CMS-L564 Request for Employment Information (to be completed by your employer). If you’ve had more than one job with health coverage since you turned 65, you must also have each employer to fill out a separate form.

The Social Security Administration must then process the paperwork. Mail your application or make an appointment with Social Security at least two months before you retire to ensure that your Part B coverage starts in the first month you’re officially retired. The Social Security office can also provide you with a letter of eligibility or enrollment—that will help with finding a medigap policy, Medicare Part D prescription plan or a Medicare Advantage plan.

Note that only health insurance from a current employer counts as eligible coverage for delaying Medicare sign-up. Therefore, if you have retiree health coverage or if you continue your employer’s coverage through COBRA, you still need to sign up for Medicare Part B within eight months of leaving your job.

Reference: Kiplinger (June 23, 2017) “What to Know About Enrolling in Medicare Part B”

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When is the Right Time to Take Social Security?

Man in cafeA critical decision in your retirement planning, is when to begin taking your Social Security payments. A wrong move can result in long-term consequences.

Kiplinger notes, in its June article, “What to Consider Before Filing for Social Security Early,” that some Americans are beginning see the financial benefits of waiting for their full retirement age (between 66 and 67 based on your birth year). But others don’t wait, because you can take them as early as 62 with reduced benefits.

Some folks want to take their benefits as soon as possible. They’ve been paying into the fund for years and want to get their money back ASAP.  It is also possible that Social Security might go away, and they want to be paid before that happens. Others expected to work until they were 65 or 66, but then they’re “downsized” in their early 60s, making it hard to find another job. They may decide they need the steady income that Social Security offers.

You should understand the options before you file: this includes smaller payments for life, earnings limitations on future job possibilities in your retirement, and a potential income hit on your spouse. Remember that monthly payments will be about 30% percent higher at your full retirement age than if you file at 62, plus 8% per year after full retirement age (FRA) if you delay until age 70.

A fellow who is laid off at 62, may prematurely take his benefits when he can’t find work. If he does get a job, he’ll have an earnings threshold of $16,920 in 2017, if filing prior to his FRA. This limits how much he can make. If he makes more, Social Security will withhold $1 in benefits for every $2 he makes over that limit! In addition, if the husband’s been the higher earner in the family for years, and he takes his benefits at 62, he’s greatly reducing the amount his wife will receive if she outlives him.

Understanding all of your Social Security options, and most importantly, how Social Security fits into your overall retirement income and distribution plan, is crucial in deciding when to take your benefits. There are income needs like basic expenses and lifestyle. Some use the first few years of retirement to travel, start hobbies and visit the grandkids. This means more spending in the early retirement years than later. Next review your income streams, like a pension, taxable retirement accounts, non-taxable Roth IRAs and Social Security.

Understand when the distributions start from those various sources to fulfill your needs. You should also consider the scenario of a surviving-spouse. Take away all income associated with the other spouse and see how that changes the income for the surviving spouse. Before you decide to rush down and file for your Social Security, look at all your options and consider the short and long term picture.

Reference: Kiplinger (June 2017) “What to Consider Before Filing for Social Security Early”

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Answers to 401(k) Questions

401k eggAs you develop your financial and estate plans, you should consider integrating 401(k) accounts into an overall retirement strategy. It’s an important part of the process, says Kiplinger in its recent article, “6 Answers to Your 401(k) Questions.”

401(k) s are the largest source of funds that most individuals set aside for retirement. Here are some thoughts on questions you should consider.

How do I enroll? If your employer has a retirement plan,  such as a 401(k) or a 403b, your Human Resources department should talk about enrolling when you’re hired. If you’ve been there a while, most companies will hold a group meeting with HR and a representative from the plan sponsor. They will go through the highlights of the plan and help you to enroll. There are a couple of things to bear in mind: figure out the company match and take advantage of it; and if there’s no company match, you may want to look at a personal Roth IRA and IRA contributions, before going with your employer’s retirement plan.

Which one: Roth or Traditional IRA? Some employer retirement plans are offering Roth options, so choosing between traditional or Roth to save for retirement is important. In a traditional 401(k), you’re not getting a tax deduction for your pre-tax contributions, but instead are getting a tax deferral. You’ll eventually pay taxes on the money in these accounts funded with pre-tax dollars, when you take withdrawals in retirement. You’ll pay tax on the pre-tax contributions and all of the gains.

For a Roth, you invest post-tax dollars going into the account and won’t be taxed again. Withdrawals in retirement are tax-free for your contributions and your growth. Therefore, do you want to pay the taxes now (on a Roth) or pay taxes during retirement (with a traditional IRA)? If your plan offers a Roth 401(k), it’s wise to put your contributions there because the money will be tax-free after you retire.  It also shields your retirement assets from possible future income-tax rate increases.

How much do I contribute? Look at the current IRS contribution limits and the additional contribution limits of your specific company plan. Try to contribute up to the company match in order to max out your employer’s contributions to your retirement savings. You also should consider how much you can afford to contribute based on your monthly budget and cash flow. Once you’ve contributed up to the match, if you’re able to save more for retirement, review your Roth IRA and other tax-free options.

How should I invest? There are many factors to consider. Each person’s situation is different. Consider your age, risk tolerance, investment timeline, other available retirement assets, fees, taxes, and the amount you’re able to contribute, among other factors.

When do I change my investments? Most employer sponsored retirement plan participants never make changes to their investment choices after they enroll! Broad exposure to low-cost index funds and ETFs across multiple asset classes typically work for most investors to withstand market swings.  However, you shouldn’t disregard your account for years or decades until retirement. Your specific factors, as well as the available investments within your plan, may change with time. Major life events may also necessitate changes in your investment strategy. Get financial advice and think about making annual adjustments to rebalance your allocations, as needed.

When you save for retirement, start early, be consistent, max out your Roth options first whenever possible and don’t be afraid to ask for help.

Reference: Kiplinger (June 2017) “6 Answers to Your 401(k) Questions”

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Review These Retirement Planning Criteria

401k piggy bankStock Investor’s recent article, “6 Retirement Estate Planning Criteria You Must Address,” says every retiree’s investment objective should address these six criteria:

  1. Minimum required yield. This is the first factor when looking for reliable long term income. It is calculated based on household income requirements and investable assets—typically IRAs, taxable brokerage accounts and other savings that are planned for retirement income. When the required percent of investment (portfolio yield) increases, so does the income risk. When the yield is too high to be practical, traditional thought says to liquidate some of your principal by gradually drawing down your investment portfolio over retirement years or by using an insurance product like a single premium immediate annuity.
  2. Income Reliability. This means the income, just like a paycheck, will be there regularly and will have a low risk of fluctuation—and an even lower risk of being reduced or eliminated.
  3. Income growth that keeps up with inflation. This can come from the investments organically growing their dividends over the years or from the excess income the actual investments produce that are accumulated and used to supplement future household income with inflation.
  4. Liquidity. This is the ease with which investment securities can be converted into cash. This will be a high priority, if you think a need could arise that would require an unplanned tap into the principal of the investment portfolio.
  5. Future capital preservation of the investment principal. Conventional wisdom says that retirement savings will be consumed and the savings will decumulate. Capital preservation is a priority, if you want to maintain the investment capital to meet future possible household major expenses—like assisted living costs or creating a testamentary special needs trust (a trust created at your death in your estate) to provide for a disabled child or grandchild, to provide for a grandchild’s college expenses or to donate a favorite charity.
  6. Simple transfer to the surviving spouse. In many instances, a spousal retirement account has just one person who builds, monitors, and manages the portfolio. Therefore, it’s important to have an easy transition for the surviving spouse to continue the management of the income portfolio.

Reference: Stock Investor (May 24, 2017) “6 Retirement Estate Planning Criteria You Must Address”

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