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The I.R.S. Has Enhanced the 2020 RMD Waivers

8/13/2020

 
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Investors may be eligible to “undo” certain retirement account withdrawals before September.
In March, the Coronavirus Aid, Relief, and Economic Security (CARES) Act became law. It was designed to help Americans impacted by the COVID-19 pandemic.1
 
The new law offered investors a financial break. It gave people the option to skip required minimum distributions (RMDs) from traditional Individual Retirement Accounts (IRAs) and 401(k)-style plans in 2020. (Original owners of Roth IRAs never have to take RMDs from those accounts.)2,3
 
Keep in mind that this article is for informational purposes only. It’s not a replacement for real-life advice, so make sure to consult your tax legal and accounting professionals before modifying your RMD strategy. 
 
Some investors were left wanting. People who took some or all of their 2020 RMDs in January were initially prohibited from putting that money back – but lawmakers helped amend that rule.
 
The Internal Revenue Service (I.R.S.) recently expanded the terms of 2020 RMD relief. Now, 2020 RMDs taken from January 1 to June 30 may be fully or partly restored without penalty, and the deadline for doing so has been extended to August 31.3
       
The fine print about this is important, especially if you take your RMD in increments or have an inherited IRA in your financial picture.  
    
Do you usually spread your IRA RMD out across the year? Then you may have a chance to restore the RMD amount to your IRA in the same way. In 2020, the I.R.S. is characterizing each redeposit of RMD assets as a tax-free rollover. Normally, you can only make this type of rollover once every 12 months, but the I.R.S. is lifting that restriction for 2020.3
 
Do you have an inherited IRA? In June, the I.R.S. issued guidance stating that the 2020 RMD waivers also apply to inherited traditional and Roth IRAs. RMDs from inherited IRAs taken in the first half of 2020 may be fully or partly redeposited with no penalties by August 31. The 10-year rule to empty an inherited IRA is still in place, but if an IRA owner passes away in 2020, then the 10-year drawdown of that IRA begins in 2021.2,3
 
A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and child of the IRA owner who has not reached the age of majority may have other minimum distribution requirements.
    
Incidentally, RMDs are still required this year from traditional pension plans (sometimes called defined benefit plans). The CARES Act does not permit such RMDs to be redeposited this year.3
  
A rule about early distributions from retirement accounts has also been relaxed. In 2020, account owners younger than 59½ have a chance to take a distribution of up to $100,000 from their retirement plan or IRA without the 10% early withdrawal penalty that normally applies. The withdrawn amount is still taxable, though.4
 
The CARES Act is a 335-page law, and some of its provisions and passages remain open to interpretation. A financial professional may be able to provide you with up-to-date information about the new rules.
 
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
 
Citations.
1 - Financial Industry Regulatory Authority (FINRA), April 10, 2020
2 - Forbes.com, March 30, 2020
3 - TheStreet, July 15, 2020
4 – Forbes.com, July 6, 2020

​Before You Claim Social Security

7/13/2020

 
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A few things you may want to think about before filing for benefits.
 
Whether you want to leave work at 62, 67, or 72, claiming the retirement benefits you are entitled to by federal law is no casual decision. You will want to consider a few key factors first.
   
How long do you think you will live? If you have a feeling you will live into your nineties, for example, it may be better to claim later. If you start receiving Social Security benefits at or after Full Retirement Age (which varies from age 66 to 67 for those born in 1943 or later), your monthly benefit will be larger than if you had claimed at 62. If you file for benefits at FRA or later, chances are you probably a) worked into your mid-sixties, b) are in fairly good health, and c) have sizable retirement savings.1
 
If you really need retirement income, then claiming at or close to 62 might make more sense. If you have an average lifespan, you will, theoretically, receive the average amount of lifetime benefits regardless of when you claim them. Essentially, the choice comes down to more lifetime payments that are smaller versus fewer lifetime payments that are larger. For the record, Social Security’s actuaries project that the average 65-year-old man to live 84.0 years, and the average 65-year-old woman, 86.5 years.2  
  
Will you keep working? You might not want to work too much, since earning too much income may result in your Social Security being withheld or taxed.
 
Prior to Full Retirement Age, your benefits may be lessened if your income tops certain limits. In 2018, if you are aged 62 to 65, receive Social Security, and have an income over $17,040, $1 of your benefits will be withheld for every $2. If you receive Social Security and turn 66 later this year, then $1 of your benefits will be withheld for every $3 that you earn above $45,360.3
    
Social Security income may also be taxed above the program’s “combined income” threshold. (“Combined income” = adjusted gross income + nontaxable interest + 50% of Social Security benefits.) Single filers who have combined incomes from $25,000 to $34,000 may have to pay federal income tax on up to 50% of their Social Security benefits, and that also applies to joint filers with combined incomes of $32,000 to $44,000. Single filers with combined incomes above $34,000 and joint filers whose combined incomes surpass $44,000 may have to pay federal income taxes on up to 85% of their Social Security benefits.3
  
When does your spouse want to file? Timing does matter, especially for two-income couples. If the lower-earning spouse collects Social Security benefits first, and then the higher-earning spouse collects them later, that may result in greater lifetime benefits for the household.4  
 
Finally, how much in benefits might be coming your way? Visit SSA.gov to find out, and keep in mind that Social Security calculates your monthly benefit using a formula based on your 35 highest-earning years. If you have worked for less than 35 years, Social Security fills in the “blank years” with zeros. If you have, say, just 33 years of work experience, working another couple years might translate to a slightly higher Social Security income.1
  
A claiming decision may be one of the most significant financial decisions of your life. Your choices should be evaluated years in advance – with insight from the financial professional who has helped you plan for retirement.
 
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
 
Citations.
1 - MarketWatch.com, November 2, 2019
2 - SSA.gov, May 28, 2020
3 - BlackRock.com, May 28, 2020
4 - MarketWatch.com, November 11, 2019

​72(t) Distributions

10/24/2019

 
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Sometimes you can take penalty-free early withdrawals from retirement accounts.
 
Do you need to access your retirement money early? Maybe you just want to retire before you turn 60 and plan a lifelong income stream from the money you have saved and invested. You may be surprised to know that the Internal Revenue Service allows you a way to do this, provided you do it carefully.
 
Usually, anyone who takes money out of an IRA or a retirement plan prior to age 59½ faces a 10% early withdrawal penalty on the distribution. That isn’t always the case, however. You may be able to avoid the requisite penalty by taking distributions compliant with Internal Revenue Code Section 72(t), section 2.
   
While any money you take out of the plan will amount to taxable income, you can position yourself to avoid that extra 10% tax hit by breaking that early IRA or retirement plan distribution down into a series of substantially equal periodic payments (SEPPs). These periodic withdrawals must occur at least once a year, and they must continue for at least 5 full years or until you turn 59½, whichever period is longer. (Optionally, you can make SEPP withdrawals on a monthly basis.)
   
How do you figure out the SEPPs? They must be calculated before you can take them, using one of three I.R.S. methods. Some people assume they can just divide the balance of their IRA or 401(k) by five and withdraw that amount per year, but that is not the way to determine them.
   
It is wise to calculate your potential SEPPs by each of these three methods. When the math is complete, you can schedule your SEPPs in the way that makes the most sense for you.
   
The Required Minimum Distribution (RMD) method calculates the SEPP amount by dividing your IRA or retirement plan balance at the end of the previous year by the life expectancy factor from the I.R.S. single life expectancy table, joint life and last survivor expectancy table, or uniform life table.
   
The Fixed Amortization method amortizes your retirement account balance into SEPPs based on your life expectancy. A variation on this, the Fixed Annuitization method, calculates SEPPs using your current age and the mortality table in Appendix B of Rev. Ruling 2002-62.
  
If you use the Fixed Amortization or Fixed Annuitization method, you are also required to use a reasonable interest rate in calculating the withdrawals. That interest rate can’t exceed more than 120% of the federal midterm rate announced periodically by the I.R.S.
    
A lot to absorb? It certainly is. The financial professional you know can help you figure all this out, and online calculators also come in handy. Bankrate.com, in fact, offers you a free 72(t) distribution calculator.
   
There are some common blunders that can wreck a 72(t) distribution. You should be aware of them if you want to schedule SEPPs.
    
If you are taking SEPPs from a qualified workplace retirement plan instead of an IRA, you must generally separate from service (that is, quit working for that employer) before you take them. If you are 51 when you quit and start taking SEPPs from your retirement plan, and you change your mind at 53 and decide you want to keep working, you still have this retirement account that you are obligated to draw down through age 56 – not a good scenario.
     
Once you start taking SEPPs, you are locked into them for five consecutive years or until you reach age 59½. If you break that commitment or deviate from the SEPP schedule or calculation method you have set, then the I.R.S. applies a 10% early withdrawal penalty to all the SEPPs you have already made, plus interest.
   
The I.R.S. does permit you to make a one-time change to your distribution method without penalty: if you start with the Fixed Amortization or Fixed Annuitization method, you can opt to switch to the RMD method. You can’t switch out of the RMD method to either the Fixed Amortization or Fixed Annuitization methods, however.
    
If you want or need to take 72(t) distributions, ask for help. A financial professional can help you plan to do it right.

A Retirement Fact Sheet

9/19/2019

 
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Some specifics about the “second act.”
 
Does your vision of retirement align with the facts? Here are some noteworthy financial and lifestyle facts about life after 50 that might surprise you. 
 
Up to 85% of a retiree’s Social Security income can be taxed. Some retirees are taken aback when they discover this. In addition to the Internal Revenue Service, 13 states levy taxes on some or all Social Security retirement benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. (It is worth mentioning that the I.R.S. offers free tax advice to people 60 and older through its Tax Counseling for the Elderly program.)
 
Retirees get a slightly larger standard deduction on their federal taxes. Actually, this is true for all taxpayers aged 65 and older, whether they are retired or not. Right now, the standard deduction for an individual taxpayer in this age bracket is $13,500, compared to $12,200 for those 64 or younger.
      
Retirees can still use IRAs to save for retirement. There is no age limit for contributing to a Roth IRA, just an inflation-adjusted income limit. So, a retiree can keep directing money into a Roth IRA for life, provided they are not earning too much. In fact, a senior can potentially contribute to a traditional IRA until the year they turn 70½.
 
A significant percentage of retirees are carrying education and mortgage debt. The Consumer Finance Protection Bureau says that throughout the U.S., the population of borrowers aged 60 and older who have outstanding student loans grew by at least 20% in every state between 2012 and 2017. In more than half of the 50 states, the increase was 45% or greater. Generations ago, seniors who lived in a home often owned it, free and clear; in this decade, that has not always been so. The Federal Reserve’s recent Survey of Consumer Finance found that more than a third of those aged 65-74 have outstanding home loans; nearly a quarter of Americans who are 75 and older are in the same situation.
 
As retirement continues, seniors become less credit dependent. GoBankingRates says that only slightly more than a quarter of Americans over age 75 have any credit card debt, compared to 42% of those aged 65-74.
            
About one in three seniors who live independently also live alone. In fact, the Institute on Aging notes that nearly half of women older than age 75 are on their own. Compared to male seniors, female seniors are nearly twice as likely to live without a spouse, partner, family member, or roommate.
    
Around 64% of women say that they have no “Plan B” if forced to retire early. That is, they would have to completely readjust and reassess their vision of retirement and also redetermine their sources of retirement income. The Transamerica Center for Retirement Studies learned this from its latest survey of more than 6,300 U.S. workers.
    
Few older Americans budget for travel expenses. While retirees certainly love to travel, Merrill Lynch found that roughly two-thirds of people aged 50 and older admitted that they had never earmarked funds for their trips, and only 10% said that they had planned their vacations extensively.
    
What financial facts should you consider as you retire? What monetary realities might you need to acknowledge as your retirement progresses from one phase to the next? The reality of retirement may surprise you. If you have not met with a financial professional about your retirement savings and income needs, you may wish to do so. When it comes to retirement, the more information you have, the better.

Three Key Questions to Answer Before Taking Social Security

5/23/2019

 
When to start? Should I continue to work? How can I maximize my benefit?
 
Social Security will be a critical component of your financial strategy in retirement, so before you begin taking it, you should consider three important questions. The answers may affect whether you make the most of this retirement income source.
 
When to Start? The Social Security Administration gives citizens a choice on when they decide to start to receive their Social Security benefit. You can:
 
* Start benefits at age 62.
* Claim them at your full retirement age.
* Delay payments until age 70.
 
If you claim early, you can expect to receive a monthly benefit that will be lower than what you would have earned at full retirement. If you wait until age 70, you can expect to receive an even higher monthly benefit than you would have received if you had begun taking payments at your full retirement age.
 
When researching what timing is best for you, It’s important to remember that many of the calculations the Social Security Administration uses are based on average life expectancy. If you live to the average life expectancy, you’ll eventually receive your full lifetime benefits. In actual practice, it’s not quite that straightforward. If you happen to live beyond the average life expectancy, and you delay taking benefits, you could end up receiving more money. The decision of when to begin taking benefits may hinge on whether you need the income now or if you can wait, and additionally, whether you think your lifespan will be shorter or longer than the average American.
 
Should I Continue to Work? Besides providing you with income and personal satisfaction, spending a few more years in the workforce may help you to increase your retirement benefits. How? Social Security calculates your benefits using a formula based on your 35 highest-earning years. As your highest-earning years may come later in life, spending a few more years at the apex of your career might be a plus in the calculation. If you begin taking benefits prior to your full retirement age and continue to work, however, your benefits will be reduced by $1 for every $2 in earnings above the prevailing annual limit ($17,640 in 2018). If you work during the year in which you attain full retirement age, your benefits will be reduced by $1 for every $3 in earnings over a different annual limit ($45,360 in 2018) until the month you reach full retirement age. After you attain your full retirement age, earned income no longer reduces benefit payments.
 
How Can I Maximize My Benefit? The easiest way to maximize your monthly Social Security is to simply wait until you turn age 70 before claiming your benefits.

Are You Retiring Within the Next 5 Years?

3/28/2019

 
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What should you focus on as the transition approaches?
 
You can prepare for your retirement transition years before it occurs. In doing so, you can do your best to avoid the kind of financial surprises that tend to upset an unsuspecting new retiree.  
       
How much monthly income will you need? Look at your monthly expenses and add them up. (Consider also the trips, adventures and pursuits you have in mind in the near term.) You may end up living on less; that may be acceptable, as your monthly expenses may decline. If your retirement income strategy was conceived a few years ago, revisit it to see if it needs adjusting. As a test, you can even try living on your projected monthly income for 2-3 months prior to retiring.
  
Should you downsize or relocate? Moving into a smaller home may reduce your monthly expenses. If you will still be paying off your home loan in retirement, realize that your monthly income might be lower as you do so.
   
How should your portfolio be constructed? In planning for retirement, the top priority is to build investments; within retirement, the top priority is generating consistent, sufficient income. With that in mind, portfolio assets may be adjusted or reallocated with respect to time, risk tolerance, and goals: it may be wise to have some risk-averse investments that can provide income in the next few years as well as growth investments geared to income or savings objectives on the long-term horizon.
   
How will you live? There are people who wrap up their careers without much idea of what their day-to-day life will be like once they retire. Some picture an endless Saturday. Others wonder if they will lose their sense of purpose (and self) away from work. Remember that retirement is a beginning. Ask yourself what you would like to begin doing. Think about how to structure your days to do it, and how your day-to-day life could change for the better with the gift of more free time.
 
How will you take care of yourself? What kind of health insurance do you have right now? If you retire prior to age 65, Medicare will not be there for you. Check and see if your group health plan will extend certain benefits to you when you retire; it may or may not. If you can stay enrolled in it, great; if not, you may have to find new coverage at presumably higher premiums.
 
Even if you retire at 65 or later, Medicare is no panacea. Your out-of-pocket health care expenses could still be substantial with Medicare in place. Extended care is another consideration – if you think you (or your spouse) will need it, should it be funded through existing assets or some form of LTC insurance?
 
Give your retirement strategy a second look as the transition approaches. Review it in the company of the financial professional who helped you create and refine it. An adjustment or two before retirement may be necessary due to life or financial events.

The A, B, C, and D of Medicare

2/21/2019

 
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Breaking down the basics & what each part covers.
 
Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover and where they come from.
     
Parts A & B: Original Medicare. There are two components. Part A is hospital insurance. It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long and only under certain parameters.
 
Seniors are frequently warned that Medicare will only pay for a maximum of 100 days of nursing home care (provided certain conditions are met). Part A is the part that does so. Under current rules, you pay $0 for days 1-20 of skilled nursing facility (SNF) care under Part A. During days 21-100, a $170.50 daily coinsurance payment may be required of you.
   
Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (hospital beds, wheelchairs), and other medical services, such as lab tests and a variety of health screenings.
 
Part B isn’t free. You pay monthly premiums to get it and a yearly deductible (plus 20% of costs). The premiums vary according to the Medicare recipient’s income level. The standard monthly premium amount is $135.50 this year. The current yearly deductible is $185. (Some people automatically receive Part B coverage, but others must sign up for it.)
 
Part C: Medicare Advantage plans. Insurance companies offer these Medicare-approved plans. To keep up your Part C coverage, you must keep up your payment of Part B premiums as well as your Part C premiums. To say not all Part C plans are alike is an understatement. Provider networks, premiums, copays, coinsurance, and out-of-pocket spending limits can all vary widely, so shopping around is wise. During Medicare’s annual Open Enrollment Period (October 15 - December 7), seniors can choose to switch out of Original Medicare to a Medicare Advantage plan or vice versa; although, any such move is much wiser with a Medigap policy already in place.
  
How does a Medigap plan differ from a Part C plan? Medigap plans (also called Medicare Supplement plans) emerged to address the gaps in Part A and Part B coverage. If you have Part A and Part B already in place, a Medigap policy can pick up some copayments, coinsurance, and deductibles for you. You pay Part B premiums in addition to Medigap plan premiums to keep a Medigap policy in effect. These plans no longer offer prescription drug coverage.
    
Part D: prescription drug plans. While Part C plans commonly offer prescription drug coverage, insurers also sell Part D plans as a standalone product to those with Original Medicare. As per Medigap and Part C coverage, you need to keep paying Part B premiums in addition to premiums for the drug plan to keep Part D coverage going.
  
Every Part D plan has a formulary, a list of medications covered under the plan. Most Part D plans rank approved drugs into tiers by cost. The good news is that Medicare’s website will determine the best Part D plan for you. Go to medicare.gov/find-a-plan to start your search; enter your medications and the website will do the legwork for you.

Social Security Gets Its Biggest Boost In Years

1/17/2019

 
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Seniors will see their retirement benefits increase by an average of 2.8% in 2019.
    
Social Security will soon give seniors their largest “raise” since 2012. In view of inflation, the Social Security Administration has authorized a 2.8% increase for retirement benefits in 2019.
          
This is especially welcome, as annual Social Security cost-of-living adjustments, or COLAs, have been irregular in recent years. There were no COLAs at all in 2010, 2011, and 2016, and the 2017 COLA was 0.3%. This marks the second year in a row in which the COLA has been at least 2%.
 
Not every retiree will see their benefits grow 2.8% in 2019. While affluent seniors will probably get the full COLA, more than 5 million comparatively poorer seniors may not, according to the Senior Citizens League, a lobbying group active in the nation’s capital.
 
Why, exactly? It has to do with Medicare’s “hold harmless” provision, which held down the cost of Part B premiums for select Medicare recipients earlier in this decade. That rule prevents Medicare Part B premiums, which are automatically deducted from monthly Social Security benefits, from increasing more than a Social Security COLA in a given year. (Without this provision in place, some retirees might see their Social Security benefits effectively shrink from one year to the next.)
 
After years of Part B premium inflation being held in check, the “hold harmless” provision is likely fading for the above-mentioned 5+ million Social Security recipients. They may not see much of the 2019 COLA at all.
    
Even so, the average Social Security beneficiary will see a difference. The increase will take the average individual monthly Social Security payment from $1,422 to $1,461, meaning $468 more in retirement benefits for the year. An average couple receiving Social Security is projected to receive $2,448 per month, which will give them $804 more for 2019 than they would get without the COLA. How about a widower living alone? The average monthly benefit is set to rise $38 per month to $1,386, which implies an improvement of $456 in total benefits for 2019.
 
Lastly, it should be noted that some disabled workers also receive Social Security benefits. Payments to their households will also grow larger next year. Right now, the average disabled worker enrolled in Social Security gets $1,200 per month in benefits. That will rise to $1,234 per month in 2019. The increase for the year will be $408.

Financial Insights: 5 Retirement Concerns Too Often Overlooked

12/20/2018

 
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Retirement is undeniably a major life and financial transition. Even so, baby boomers can run the risk of growing nonchalant about some of the financial challenges that retirement poses, for not all are immediately obvious. In looking forward to their “second acts,” boomers may overlook a few matters that a thorough retirement strategy needs to address.
 
RMDs. The Internal Revenue Service directs seniors to withdraw money from qualified retirement accounts after age 70½. This class of accounts includes traditional IRAs and employer-sponsored retirement plans. These drawdowns are officially termed Required Minimum Distributions (RMDs).   
 
Taxes. Speaking of RMDs, the income from an RMD is fully taxable and cannot be rolled over into a Roth IRA. The income is certainly a plus, but it may also send a retiree into a higher income tax bracket for the year.
 
Retirement does not necessarily imply reduced taxes. While people may earn less in retirement than they once did, many forms of income are taxable: RMDs; investment income and dividends; most pensions; even a portion of Social Security income depending on a taxpayer’s total income and filing status. Of course, once a mortgage is paid off, a retiree loses the chance to take the significant mortgage interest deduction.
 
Health care costs. Those who retire in reasonably good health may not be inclined to think about health care crises, but they could occur sooner rather than later – and they could be costly. As Forbes notes, five esteemed economists recently published a white paper called The Lifetime Medical Spending of Retirees; their analysis found that between age 70 and death, the average American senior pays $122,000 for medical care, much of it from personal savings. Five percent of this demographic contends with out-of-pocket medical bills exceeding $300,000. Medicines? The “donut hole” in Medicare still exists, and annually, there are retirees who pay thousands of dollars of their own money for needed drugs.
 
Eldercare needs. Those who live longer or face health complications will probably need some long-term care. According to a study from the Department of Health and Human Services, the average American who turned 65 in 2015 could end up paying $138,000 in total long-term care costs. Long-term care insurance is expensive, though, and can be difficult to obtain.
  
One other end-of-life expense many retirees overlook: funeral and burial costs. Pre-planning to address this expense may help surviving spouses and children.
  
Rising consumer prices. Since 1968, consumer inflation has averaged around 4% a year. Does that sound bearable? At a glance, maybe it does. Over time, however, 4% inflation can really do some damage to purchasing power. In 20 years, continued 4% inflation would make today’s dollar worth $0.46. Retirees would be wise to invest in a way that gives them the potential to keep up with increasing consumer costs.
 
As part of your preparation for retirement, give these matters some thought. Enjoy the here and now, but recognize the potential for these factors to impact your financial future.

5 RETIREMENT MYTHS BUSTED

4/9/2018

 
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Urban legends, urban myths, and the latest that’s on everyone’s lips–fake news. Whatever you call it, in our age of information, claims of dubious repute can go viral in minutes.  Anyone with a computer can start a blog and offer up opinions on just about any subject, whether he or she is an authority or not. Sources? Who needs sources?
 
Alright, please excuse the sarcasm, but hopefully you know where we're going.
 
When it comes to retirement, there are plenty of misleading thoughts, opinions and fake news floating around out there. With that in mind, we'd like to clear up some misconceptions that surround the retirement years.
 
Myth #1: I’ll never see a penny of the money I put into Social Security.
If we had a nickel for every time we've heard someone utter that phrase, we'd have a lot of nickels. Sadly, if a 40-something says he is confident he will receive monthly checks, he sets himself up for ridicule among his contemporaries.
 
We wouldn’t disagree with the hypothesis that young people getting started in the workforce will receive a low return on contributions into Social Security, but this is a completely different argument.
 
Contrary to popular assertions, Social Security is not on the verge of bankruptcy, and we fully believe even those who are many years from retirement will be collecting monthly benefits when it’s their turn.
 
According to the 2017 annual report from the Social Security and Medicare Board of Trustees, Social Security “has collected roughly $19.9 trillion and paid out $17.1 trillion,” in its storied 82-year history, “leaving asset reserves of more than $2.8 trillion at the end of 2016 in its two trust funds.”
 
As an ever-larger number of baby boomers continue to retire and collect benefits, the trustees expect the trust funds to be depleted by 2034.
 
Thereafter, expected-tax-income receipts are projected to be sufficient to pay about three-quarters of scheduled benefits. Put another way, recipients of Social Security would receive about a 25% cut in benefits, if no changes are made to the current structure.
 
Of course, these are simply projections and much will depend on economic growth, job creation, and wages. Yet, it’s a far cry from, “I won’t see a penny of Social Security.”
 
We suspect that politicians will eventually settle on some type of compromise that will extend the life of the current system, but it may take a catalyst event that would generate enough political pressure for this to happen.
 
That said, we recognize that timing and strategies that can be implemented for Social Security may be complex. If you have questions, please give us a call or shoot us an email. We would be happy to discuss your options with you.

Myth #2: The stock market is too risky.
There’s no question about it, the bear markets that followed the dot.com bubble and the 2008 financial crisis were unprecedented in that we saw two steep declines in less than 10 years.
 
Made fearful by what they see as too much risk, millennials have shied away from stocks, according to a Bankrate survey. There has always been a degree of risk in stocks, even with a fully diversified portfolio. Yet, a well-diversified portfolio is akin to a stake in the U.S. and global economy. Moreover, the U.S. and global economy has been expanding for many decades and history tells us it will likely be bigger in 10 or 20 years.
 
When it comes to investing in stocks, the only resistance we typically come across is from folks who haven’t seriously entertained the idea before. We listen to their concerns, and answer with an array of factual data that’s not designed to win an argument, but simply to educate. When you have all the facts, then you can make an educated decision about what's best for you.
 
Myth #3: Medicare will handle all my health care needs in retirement. 
If only Medicare did cover everything. But then, the cost to finance it would be much higher.
 
Medicare doesn’t cover the full cost of skilled nursing or rehabilitative care, according to AARP. Yes, the first 20 days of a stay in a nursing home is covered, but you’ll pay over $160 per day for days 21 through 100. And Medicare doesn’t cover stays past 100 days.
 
You may be paying out of pocket for personal care assistance, too. The same holds true for miscellaneous hospital costs, routine eye exams, hearing, foot and dental care.
 
Myth #4: Why save today when you can start tomorrow—there’s plenty of time.
This section is designed for millennials and those who are just beginning their journey in the workforce. There’s no better day to begin saving than today and we can’t stress this enough!
 
Here's a simple example:
  • Susan invests $5,000 annually between the age of 25 and 35 and earns 7% annually. She puts away a total of $50,000.
  • Bill invests $5,000 annually between the age of 35 and 65 and earns 7% annually. He saves a total of $150,000.
  • When Susan reaches 65, she will have amassed $602,070, while Bill will have $540,741.
 
Source: JP Morgan Asset Management
This is a hypothetical example and is not representative of any specific investment. Your results may vary.
 
In other words, Susan begins 10 years earlier than Bill, saves 20 years less than Bill, and saves $100,000 less than Bill, but winds up with $61,329 more. 
 
For every parent or grandparent reading this, we encourage you to forward this powerful example to your kids and grandkids that are near or have already entered the workforce. It's a teachable opportunity with a simple lesson: The sooner you begin; the better off you may be as you approach retirement.
 
Take full advantage of your company’s retirement program. If your company doesn’t have a savings plan, there are many simple ways that you can get started. Feel free to reach out to us and we can assist.
 
Myth #5: Retirement is easy.
Many look forward to the day when they will no longer prepare for Monday mornings at the office. For those who face the work challenges that crop up daily, retirement may seem like a welcome oasis in the distance.
 
But that oasis sometimes turns out to be a mirage. Often, the transition from decades of working to retirement isn’t so simple.
 
For a better retirement, set goals, and not simply financial ones. Can you transition to part-time in your job? Consider part-time employment or consulting. It will ease the transition, keep you busy, and extend your savings.
 
Volunteer with your local church or local community organizations. Look for groups with similar interests. You’ll not only derive an enormous amount of satisfaction from helping others, but you’ll meet like-minded folks and make new friends.
 
Try something new. Keep up any exercise routines—and it's never too late to start a new one.  Check with your doctor, who will be happy to prescribe a fitness plan that’s suited to you.
 
Have you ever considered taking a class? How about writing a book or mentoring someone young? Expanding your knowledge or sharing your ideas can be quite fulfilling. We've heard of retirees writing books and personal autobiographies for their kids – talk about a legacy!
 
The most important thing you can do to make retirement enjoyable is to stay active and keep your mind and body sharp.

This research material has been prepared by Horsesmouth

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.


​There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. 
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