The 6 Components of Estate Planning that are Essential
The coronavirus has taken a toll on much more than our finances; our physical and mental health are also a concern. Most people likely know someone who has been affected by the coronavirus. and they’re worried. Appropriately planning for your health care and financial needs in an estate plan can provide much-needed peace of mind.
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Every adult needs an advance health care directive, and it becomes even more important as we grow older and experience more health issues. An advance health care directive is a written plan so your wishes are known if a time comes when you cannot speak for yourself.
Start by thinking about different treatments you do or do not want in a medical emergency. Consider talking with your doctor about your family medical history and how your current health conditions might influence your health in the future. Your wishes need to be in writing, and the document should be updated as your health changes.
Review your advance health care directive with your doctor and the person you are naming as your health care proxy to be sure all forms are filled out correctly. Give each party a copy, and keep a record of who has these forms.
Keep your completed documents in a safe but easily accessible place, such as a desk drawer. You might also consider carrying a card that states you have directives and where they can be found.
Health Care components of an Estate Plan
The COVID-19 pandemic proved to be a stark reminder to ensure your affairs are in order. Here is an overview of what you need to cover.
The Divorce Gap: Unique Retirement Issues for Women Over 50
Going through a divorce is difficult for everyone involved — but the economic consequences almost always fall more heavily on the woman. According to research by the Government Accountability Office, women over 50 who divorce will see their income drop by an average of 41%, versus only 23% for men.
In addition, these women have fewer years until retirement and fewer opportunities to recover financially than younger women. And while the divorce rate for young couples has declined, it has doubled among couples over 50 since the 1990s, reports the Pew Research Center.
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The shocking loss of income and retirement savings that disproportionately affect divorced women is a big challenge – especially for those over 50.
College 529 Savings Plans: How to Get the Most Out of Them
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School is back in session, much to the relief of parents nationwide. And in the spirit of back-to-school, now is a good time to review how to save for college and, in particular, the 529 college savings plan. After all, college isn’t cheap, and parents will need to squeeze the most out of their savings plan if they hope to have enough saved. Here to help are a few ways I advise my clients on how to get the most out of their 529 plans.
Go to the head of the class with one adviser’s tips, such as how to choose the plan that works best for you and when to get started.
4 Tips for Rebuilding Your Emergency Savings
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You may have heard that you should have three to six months’ worth of essential living expenses saved in case of emergency. It’s sound guidance — but it might be the last thing you want to hear after a year marked by emergencies.
For many of us, the past few years have tested our health, safety, bravery and basic financial stability more than any other period in recent memory. If you didn’t already have money saved for emergencies, this likely wasn’t the time to start stashing it away. And if you did, it may have been a prime opportunity to dip into your reserve.
To that end, a survey from Bankrate found that 35% of Americans have less in their emergency fund now than before the pandemic started, while just 13% have more. Only a quarter have enough saved to cover six months’ worth of expenses, and one-fifth (21%) have no emergency savings at all. Despite these sobering stats, more than half (54%) of respondents said they feel at least somewhat confident in the amount they have socked away. These findings show there’s a disconnect between what people think they need to have saved versus what best practices tell us we need to have saved.
To be sure, it can be tough to anticipate how much money we’ll need to cover an emergency, whether it’s unforeseen medical expenses, helping loved ones in need, or replacing income after prolonged unemployment. These scenarios were all too common in 2020 (and continue to be), and many Americans have found themselves coming up short.
But with the benefit of hindsight, many of us may be looking to prepare for the next time we need extra funds. Starting wherever you are today and taking small, practical steps can help you develop sound and effective saving habits. To help you get started, I’ve addressed some of the most common questions about emergency savings below.
Taking even small steps can help you work toward the larger goal of building up your emergency savings.
NYSUT NOTE: Ready to start saving for your emergency fund? Start small with the help of the NYSUT Member Benefits Corporation-endorsed Synchrony Bank Savings Program. This program offers online savings accounts with competitive interest rates and 24/7 online and mobile banking. Click here for more information and to get special discounted member rates.
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When it comes to finances, don’t be a helicopter parent. Sometimes the best way to learn about money is to make a mistake.
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NYSUT NOTE: Having a will and estate plan is crucial, especially as you approach retirement. But knowing where to start can be overwhelming. As a NYSUT member, you have access to a national network of attorneys that deal with personal legal matters through the NYSUT Member Benefits Trust-endorsed Legal Service Plan. Provided by the law firm of Feldman, Kramer & Monaco, P.C., these experts offer legal assistance with everything from preparing crucial estate planning documents to dealing with traffic violations. For more information or to enroll visit the website today.
Why You Need Renters Insurance
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Most homeowners know that they need homeowners insurance to cover loss or damage to their property— and if you have a mortgage, you usually have no choice. But if you’re one of the more than 100 million Americans who rent a home or apartment, don’t overlook the value of renters insurance. Some landlords require tenants to have renters insurance, but even if that’s not the case, a policy could go a long way toward protecting your property and personal finances.
If there’s damage to your rental from fire or a break-in, your landlord is responsible for repairs to the property you’re renting but isn’t responsible for fixing or replacing your personal possessions. That’s where renters insurance comes in. Policies typically cover up to a limited dollar amount for clothing, furniture and electronics. Particularly valuable items, such as jewelry, artwork and collectibles, may require that you get additional coverage, known as a rider or a floater. When shopping for a policy, be sure to tally up the value of your belongings as accurately as possible and determine whether the policy’s limits are adequate. Consider also whether it might make sense to store valuable items, such as family heirlooms, rarely worn jewelry or artwork, at a safe location elsewhere, such as a safe-deposit box or a secure storage facility. Keep a list of your valued items with purchase and valuation records in a secure location as well.
Renters insurance may also cover the belongings of your roommate or significant other, as long as their name is on the policy. But many insurance companies will require roommates to have separate policies, rather than one for their combined property. Theft by a roommate is generally not covered by renters insurance, so choose roommates wisely.
Renters insurance generally won’t cover damage to your personal property from natural disasters, such as hurricanes or earthquakes, says Janet Ruiz, spokeswoman for the Insurance Information Institute. For that, you’ll need to purchase special coverage.
Other protections. Renters insurance will cover liability up to a certain limit if guests in your rental injure themselves and it’s found to be your fault. For instance, if your pet bites someone, your policy could cover medical expenses. And if you are put out of your rental because it’s damaged or otherwise uninhabitable, a policy will typically cover the cost of lodging elsewhere, up to a certain amount.
Although renters insurance could save you a lot of money, it doesn’t require a big investment. “It’s one of the most affordable products you can get—often as low as $300 a year,” Ruiz says. And unlike homeowners insurance, which can cost as much as three times the national average in some regions (such as Florida), renters insurance is usually inexpensive no matter where you live, Ruiz says.
Still, there are a number of strategies to cut the cost of renters insurance. You may be able to get a discount by buying a policy from the same company that insures your automobile, for example. You may also get a discount if you take steps to make your rental property safer from break-ins, such as installing a security camera, says Dustin Lemick, an industry expert and founder of BriteCo, a jewelry insurance company.
But it’s most important to shop around. You can compare coverage and costs of various renters insurance policies at sites such as The Zebra.com and Gabi.com. And keep an eye on changing premiums. “Insurance companies are notorious for raising rates, and policyholders don’t even know it,” Lemick says. “Put a note in your calendar every eight to 10 months to review your policy and make sure your premiums haven’t gone up.”
This coverage is surprisingly affordable, and it can save you a lot of money if you need to make a claim.
How the Life Insurance Game Is Changing
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There’s nothing more impactful than the loss of someone close to you to shine a light on the need for life insurance. And these past few years, most of us have experienced some sense of loss, collectively if not personally, through the grief and suffering brought on by the global pandemic. Many of us who never before spent time thinking about or planning for our own death, or that of a loved one, likely found ourselves confronting this subject over the past couple years.
The shift has been particularly significant among millennials, who now range from age 23 to 41, as they begin to plan for the next stage of their lives. One recent study found that millennials are the most likely to be influenced by the pandemic to purchase life insurance. Forty-five percent of millennials said they are more likely to buy life insurance due to COVID-19, compared with 15% of baby boomers and 31% of Gen Xers.
And just as millennials have redefined everything from appropriate workplace attire to car-buying options, they’re reshaping the life insurance market as well. This digital-savvy group prefers online research and information that they supplement with financial advice from a human professional to make sure they’re on the right track.
Here are several ways the life insurance market has adapted in recent years and some navigating tips for millennials considering their options:
More than any other age group, millennials are feeling the need for life insurance due to COVID-19, and the way they’re shopping for it is a little different than in years past.
Fact: Fewer employers are offering life insurance as a benefit.
About 56% of Americans who work for private companies have access to life insurance through their employer. The number of employers offering such benefits, largely through group plans, has been in steady decline in the last decade. The result? More than 50% of those who have life insurance purchased it individually.
Your move, millennials: If your employer does offer life insurance, it’s worth reviewing the coverage options. You may find the value you need for your circumstances. You may also discover that you need to purchase additional coverage on your own. Many employer life insurance plans offer very basic coverage, and the policy may not be portable if you part ways with your employer. That’s an important factor for millennials, who tend to have higher rates of job changes.
Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits
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When you’re years away from retirement, Social Security seems straightforward: You’ll leave your job, file for benefits and receive a monthly check for the rest of your life – boom! But in reality, getting the most out of Social Security is anything but simple. As you near retirement, the decisions you make could have a significant impact on the amount of money you receive, and some of these choices are irrevocable. You’ll need to move carefully to maximize this income stream.
Here are 12 essential details you need to know.
Claiming Social Security benefits at the right time means more money in your pocket. Here’s a guide to everything from knowing your full retirement age to taking Social Security spousal benefits.
How to Declutter Your Home If You're Moving or Downsizing — 8 Tips to Avoid Overwhelm
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Once he retired, Jakob Miller finally had the time and energy to organize his three-bedroom home.
“As I entered my golden years, I realized that I needed to streamline my life and get rid of all the unnecessary clutter that had accumulated over the years,” says Miller, 54, a retired laboratory scientist from Staten Island, N.Y.
He headed to the basement, where he emptied boxes and bins of old clothes, toys and knick-knacks. But as he looked around the mountain of clutter, he quickly discovered that thinking he could do everything at once was a mistake. “I was so excited to get started that I didn't realize how overwhelming the task would be,” he recalls. “I was overwhelmed and exhausted, and I barely made a dent in the clutter.”
Experts have made downsizing and decluttering seem simple: Keep, trash or donate. If only it were that easy.
“Decluttering can seem daunting, especially for retirees and those nearing retirement who may have accumulated decades’ worth of clutter,” says Aaron Traub, owner of My Professional Organizer in Dallas.
For anyone who's planning a move or just downsizing to a smaller place, the process often requires sifting through a literal lifetime of memories and mementos — children’s art doodles, yellowed newspaper clippings, a grandmother’s shawl — making the process far more complex and emotionally draining.
But it doesn’t have to be that way, especially if you consider the opportunity to offload a lot of your stuff a fresh start.
“I always recommend that my clients focus on the idea of what they want to keep—what will support their lifestyle today, and their hopes and dreams for tomorrow, rather than the more traditional idea that we have to declutter to get rid of stuff,” says Danie Smallwood, a self-described decluttering mindset coach based in Bethesda, Md. “One is about the present and the future, the other is based in fear of letting go of the past, whether past memories or dreams or hobbies that just didn't work out or that we've outgrown.”
The goal is to “pare down the contents of your home to the things you honestly use and love,” says Diane Quintana, an organizer with Release Repurpose Reorganize in Atlanta. “If you don’t love or use the other things, then they are just clutter taking up valuable space in your home.”
Retirement, or planning for it, is the perfect time to invoke your inner Marie Kondo — the popular Japanese organization expert — who, famously, emphasizes keeping only those items that “spark joy” in you.
Although older people can get wrapped up in their memories and the trinkets of their past, Kondo counsels: “Truly precious memories will never vanish even if you discard the objects associated with them. No matter how wonderful things used to be, we cannot live in the past. The joy and excitement we feel here and now are more important.”
Whether you’re preparing for a big move or just starting your spring cleaning, here are some tips on how to start effective downsizing and decluttering:
What Retirees Must Know About Telehealth
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Pay Down Your Credit Card Debt
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Credit card balances rose 13%, to $887 billion, in the second quarter of 2022. That’s the fastest increase in 20 years, according to the Federal Reserve Bank of New York. Meanwhile, the personal savings rate, which spiked during the recession, fell to 3.3% in the third quarter, the lowest level since the Great Recession.
Carrying a balance has always been costly, but it’s particularly expensive now. The average credit card interest rate in November was 19.04%, the highest rate since 1992. As the Federal Reserve Board continues to raise short-term interest rates in an effort to throttle inflation, average rates could rise even higher, says Ted Rossman, credit card analyst for Bankrate.com, which tracks interest rates for consumer loans.
Getting out of debt. It is not unusual for consumers who are struggling to pay their bills to pay the minimum payment on their credit cards. But over time, paying the minimum on your cards will add thousands of dollars to the amount you owe.
The average amount owed by cardholders who are carrying a balance is $6,569, according to an analysis by LendingTree, an online loan marketplace. If you are carrying a balance of that amount, your interest rate is 18%, and you pay only the minimum of $165 each month, it will take you five years to retire the debt, and your total payments will top $10,000. (You can crunch your own numbers at www.experian.com/blogs/ask-experian/credit-card-payoff-calculator.)
Debt management. If you have good-to-excellent credit, one option is to apply for a bal-ance-transfer card with a 0% introductory rate. Wells Fargo, Bank of America and Citibank are offering balance-transfer cards with a 0% rate for up to 21 months, Rossman says. Most charge a transfer fee of 3% to 5% of the balance.
Once the introductory period ends, the interest rate will rise to the card’s regular rate, which could be even higher than the rate you were paying before the balance transfer. Ideally, you should try to pay off most or all of your balance before that happens. Divide the amount you owe by the number of months in the balance-transfer period to get an idea of how much you should try to pay down each month. Resist the temptation to add to your credit card debt, even if you get offers for 0% interest on new purchases, Rossman says.
If you’re a homeowner, another option is to use a home equity line of credit to pay off your credit cards. The average rate for a home equity line of credit is 7.3%, according to Bankrate.com, and you usually have up to 20 years to pay off the loan. But before you borrow against your home, make sure you can afford to make the payments if the economy goes south, says credit expert Gerri Detweiler. “If you fall behind on payments, you’re putting your house at risk.”
Higher interest rates make carrying a balance more expensive.
© 2020 The Kiplinger Washington Editors Inc.
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There’s Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare—and much more.
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What Happens to Debt in Divorce?
If you are in the process of getting divorced, you know that you’ll need to come to an agreement with your spouse on how to deal with debt and separate yourselves financially. Debt may have been part of the marriage, but hopefully, it won’t be part of the divorce. It’s easier said than done, but the best scenario by far is to pay off your debt before or during the divorce.
Your financial lives usually get jumbled together in the course of a marriage. This includes your financial assets, but also your financial debts or liabilities. Division and responsibility for each will be part of the divorce settlement. Here are some key steps to address during the process.
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Make a List
If you can’t pay it off before all is said and done, there are key steps you can take to ensure that everything gets handled fairly.
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Biden Administration Launches New Student Loan Repayment Plan
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If you can’t pay it off before all is said and done, there are key steps you can take to ensure that everything gets handled fairly.
DEBT MANAGEMENT
What Happens to Debt in Divorce?
Finance Fundamentals
The shocking loss of income and retirement savings that disproportionately affect divorced women is a big challenge – especially for those over 50.
The Divorce Gap: Unique Retirement Issues for Women Over 50
Go to the head of the class with one adviser’s tips, such as how to choose the plan that works best for you and when to get started.
College 529 Savings Plans: How to Get the Most Out of Them
When it comes to finances, don’t be a helicopter parent. Sometimes the best way to learn about money is to make a mistake.
4 Money Mistakes to Let Your Kids Make (for Their Own Good!)
DIVORCE
COLLEGE
PERSONAL FINANCE
LIFE INSURANCE
RETIREMENT PLANNING
A weak stock market can create uncertainty when retiring, but a good financial plan can help you find a comfortable path.
Retiring in a Slowing Economy? 3 Steps Can Help You Prepare
The pandemic has led millennials more than any other group to feel the need for life insurance, and the way they’re shopping for it is a little different than in years past.
How the Life Insurance Game Is Changing
MEDICARE
There’s Medicare Part A,
Part B, Part D, Medigap plans, Medicare Advantage plans
and so on. We sort out the confusion about signing up
for Medicare—and much more.
Medicare Basics: 11 Things You Need to Know
The COVID-19 pandemic proved to be a stark reminder to ensure your affairs are in order. Here is an overview of what you need to cover.
ESTATE PLANNING
The 6 Components of Estate Planning that are Essential
INSURANCE
This coverage is surprisingly affordable, and it can save you a lot of money if you need to make a claim.
Why You Need Renters Insurance
DEBT MANAGEMENT
Higher interest rates make carrying a balance more expensive.
Pay Down Your Credit Card Debt
ESTATE PLANNING
Retirees should secure themselves first, and if you’re all set there, then consider a few other things, such as the impact on the kids and tax issues.
HOME IMPROVEMENT
Planning to declutter your home — whether you're moving or downsizing — can be overwhelming. Here's how to do it.
How to Declutter Your Home If You're Moving or Downsizing — 8 Tips to Avoid Overwhelm
Leaving an Inheritance? Is It Better to Give to Kids Now or Later?
SOCIAL SECURITY
Claiming Social Security benefits at the right time means more money in your pocket. Here’s a guide to everything from knowing your full retirement age to taking Social Security spousal benefits.
Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits
Retirement Living
It’s a common question these days: My portfolio is way down. Can I still afford to retire? To calculate a ballpark answer, here’s a quick and easy exercise.
RETIREMENT Planning
Find Out in 5 Minutes If You Have Enough to Retire
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Taking even small steps can help you work toward the larger goal of building up your emergency savings.
SAVINGS
4 Tips for Rebuilding Your Emergency Savings
Financial Learning Center Resources
Need a Financial Planner?
Planning to declutter your home — whether you're moving or downsizing — can be overwhelming. Here's how to do it.
Financial Learning Center
Powered by Kiplinger
There’s Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare—and much more.
There’s no one-size-fits-all formula for how much you’ll need.
Emergency Funds: How to Get Started
You worked hard to build your retirement nest egg. But do you know how to minimize taxes on your savings?
RETIREMENT
10 Questions Retirees Often Get Wrong About Taxes in Retirement
It’s often smart to borrow to boost your income and your assets.
Good Debt, Bad Debt: Knowing the Difference
CREDIT & DEBT
MEDICARE
Medicare Basics: 11 Things You Need to Know
SOCIAL SECURITY
Why visit a government office to get your Social Security business done? You can do much of that online.
14 Social Security Tasks You Can Do Online
Finding the lowest rate to protect you and your vehicle can be a challenge.
Reshop Your Car Insurance
INSURANCE
Parents may now use money from their 529 college-savings plans to help their children pay off student loans.
A New Way to Pay College Loans
STUDENT LOANS
Kiplinger Today
People have lots of questions about the new $3,000 or $3,600 child tax credit and the advance payments that the IRS will send to most families in 2021. Here are answers to some of those questions.
CORONAVIRUS AND YOUR MONEY
MOBILE VERSION TO BE COMPLETED AFTER DESKTOP APPROVAL
There are limits on what debt collectors can do to recoup what you owe. If you have medical debts, you have even more rights.
ESTATE PLANNING
How to Keep Tabs on Your Credit Reports
Free weekly access is ending, but several services let you view your credit files more than once a year.
CORONAVIRUS AND YOUR MONEY
RETIREMENT
You might be surprised to see some of the things you'll find yourself spending less or more on in your golden years.
10 Things You'll Spend Less and More on in Retirement
Retirement Living
CORONAVIRUS AND YOUR MONEY
The pandemic has created significant challenges for all types of senior living communities.
A COVID Storm Hits Senior Living
TRAVEL
Retirees wanting to take a cruise should plan for additional safety measures, such as temperature checks and wearing a mask in public areas.
How Cruise Ships Are Setting Sail During COVID
Use our road map to find an advisor who will truly look out for your best interests.
Financial Planning
How to Find a Financial Planner You Trust
Financial Learning Center Resources
Need a Financial Planner?
Long-Term Care Insurance
Auto and Home Insurance
Mortgage Discount Program
Synchrony Bank
Savings Program
403(b) Field Guide
Financial Planning in Retirement: Seeing All the Angles
What to Discuss With Your Aging Parents as They Get Older
In addition to investments, your financial adviser should be talking to you about insurance, Medicare, Social Security, long-term care, estate planning and tax planning.
The time will come when you need to have a conversation with your parents about their plans as they age. Here are some of the things you should talk about.
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Federal student loan borrowers can file immediately for the new SAVE program.
ESTATE PLANNING
Retirement Planning
STUDENT LOANS
Biden Administration Launches New Student Loan Repayment Plan
Kiplinger Today
Leaving an Inheritance? Is It Better to Give to Kids Now or Later?
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Flying off on a recent family vacation, I was sitting next to my 4-year-old and had my 8-month-old on my lap. Thank goodness it was a short flight! Before takeoff, as always, the flight attendant told us, “In the event of emergency, secure your own oxygen mask before helping your kids.” It’s a statement that we have become almost numb to, but my guess is, it would be hard to follow through on. When it comes to giving your kids their inheritance now or after you die, my advice is the same as the flight attendant’s: Make sure you secure yourself first. That is: Do you have enough money that you can afford to give it to your kids or anyone else?
The biggest unknown in this projection is undoubtedly long-term-care expenses. Most certified financial planners with a decent piece of software or calculator can answer this for you. Assuming you check this box, and there is enough to go around, consider the impact on your kids.
Retirees should secure themselves first, and if you’re all set there, then consider a few other things, such as the impact on the kids and tax issues.
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Inflation tops health care costs as the biggest concern, and many preretirees are boosting their saving rate.
The pandemic has altered retirement plans for some Americans, and inflation has emerged as a top concern, according to a new national poll of retirees and near-retirees by Kiplinger and wealth management firm Personal Capital.
One-third of respondents in the poll say the pandemic has convinced them that they will need a bigger nest egg for retirement. And 36% believe it has lowered their current (or anticipated) standard of living. Nevertheless, most respondents say they are still confident that they will have enough income to live comfortably throughout retirement.
Among those who are planning to retire within the next five years, more than four out of 10 have already started saving more. Nearly one-fourth have delayed their retirement date, and a similar percentage say they now plan to work part-time in retirement.
Investors have largely stayed the course since early 2020, despite a volatile stock market. Most respondents (63%) say their investment outlook has not changed since early 2020, even after a sudden but short-lived bear market that was followed by stocks scaling to new heights. But more than one-fifth say they have become more risk averse after seeing how quickly the market can change. Only 13% report feeling more bullish about stocks.
Higher-income investors ($200,000+) were almost three times more likely than less-affluent investors to say they became increasingly bullish in 2020 and added stocks to their portfolio. They were also more likely to report a “significant” increase in the value of their portfolio during the pandemic compared with investors who have lower income. The asset allocation of investors remains conservative across genders and ages and regardless of whether investors are retired or not. On average, portfolios were made up of 35% stocks, 26% cash, 15% bonds, 9% real estate and 15% other. (Figures are medians unless otherwise indicated.)
Living a Life of Purpose after Retirement: 3 Action Steps to Take
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When someone asks about what you do, the answer shouldn’t be, “I’m retired.” There is more to the second half of your life … a lot more.
Action #1: Reinvent Yourself
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3 Strategies to Avoid Running
Out of Money in Retirement
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For a financially sustainable retirement that could last 30 years or more, here are three ways to help manage your risks and avoid financial roadblocks in your golden years.
The trend of increasing life expectancy means that Americans are much more likely to live 25, 30 or even 35 years in retirement. The benefits of this trend include spending more time with your family and a higher chance of meeting your great-grandchildren. The downsides include the increased potential for running out of money close to the end of this retirement.
Today’s retirees can expect to live 40% longer than those who retired 70 years ago. Recent research reveals that affluent Americans are likely to live longer. This means that if you’ve had consistent access to health care and high income, you are more likely to enjoy a longer lifespan. Men in the top quintile of income born in 1960 will live on average 12.7 years longer than men who are in the lowest quintile of income; for women the equivalent is 13.6 years.
These raw numbers can be headache-inducing. However, the implications are profound. What they mean basically is that those who have recently retired or who are getting ready to retire, one out of three women and one in five men can expect to live to 90 years or beyond.
As retirements lengthen, they require more financial resources to support not only day-to-day expenses, but also the increased health care expenses that can crop up due to aging. It’s no surprise then, that 60% of pre-retirees surveyed by Allianz fear running out of money in retirement.
Fortunately, holistic retirement planning built around three strategies — minimizing taxes, managing savings and reducing market downside risks — can mitigate the risk of running out of money in retirement.
A typical woman suffers a 73% drop in her standard of living post-divorce. However, her ex-husband enjoys an on-average 42% improved standard of living, according to Lenore Weitzman, a George Mason University sociology and law professor.
"Women are more likely to feel divorce's financial burden,” says Shweta Lawande, CFP ®, CDFA® and lead adviser with Francis Financial, a firm specializing in divorce financial planning. “A woman can pretty much see her retirement savings in IRAs, 401(k)s, pension plans, 457s and 403(b) plans cut in half, which can be devastating. In addition, she is unable to recover because she tends to earn less in her career and may have also taken time out of the workforce to care for children."
The divorce gap also creates inequalities between married and divorced women. For example, the Retirement Confidence Survey released in March 2020 revealed that 76% of married women voiced being very or somewhat confident they will have enough money to live comfortably throughout their retirement years. Yet only 43% of divorced women feel the same. But, of course, since that time, pandemic-related stock-market volatility has most likely caused divorced women to feel even more financially vulnerable, along with most Americans.
A Staggering Loss for Divorced Women
What Is a 529 Plan?
Hands down, the 529 plan is a great way to save for college. The tax benefits are key. With a 529 plan, you pay no annual taxes on the investment gains inside the account, plus distributions for qualified expenses like tuition, certain fees and qualified room-and-board expenses are tax-free.
A relatively new provision allows account owners to withdraw $10,000 a year per student for private primary or secondary education.
Each state administers its own plan, and you are free to use any state’s plan. However, some states offer a state-tax deduction if you are a resident and use its in-state plan. That’s the basics, there is much more to know, but today I want to focus on five ways parents can maximize their 529 plan.
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When considering a new 529 account, I always look for a plan with a strong mutual fund lineup and competitive fees. A good 529 plan will have a wide selection of different mutual fund investment objectives, like growth, value, large and small companies, domestic and international and various fixed income choices, like a preservation portfolio or government bond offering. This can help with diversification. Even if you use a target date fund, which picks the mutual funds for you, diversification is key in my opinion.
Beyond that, the underlying mix of stocks and bonds — your asset allocation — is key to the performance of the account. You don’t want to be too conservative with a young child’s account — the account might not grow enough to outpace the rising cost of college. Parents of younger children may want to be more growth-oriented, whereas those within a few years of needing the money should scale back the risk.
Keep an eye on mutual fund expense ratios, too, that can eat into your return. I sometimes will recommend a client use the large-cap index mutual fund if their 529 has one, then sprinkle in more active managers where I find it may make more sense. I will use an active manager within the 529 if I like the track record and/or use it to complement the index fund. Using index mutual funds within the 529 can help keep the costs down.
The Right 529 Plan
Start by making a list of your debts. A list of liabilities includes:
• Mortgage
• Credit cards
• Auto loans
• Student loans
• Personal loans
• Legal fees
• Tax debt
• Any other debts, including loans from family members
Some debts are easier to divide than others. Student loan debt is usually handled by the student. An auto loan might be assumed by the person who takes ownership of the vehicle.
Credit card debt is more difficult. Some cards may have joint responsibility, but many of us also use our individual cards for expenses for the entire family. Division of those debts may be a key financial issue in some cases.
Debt incurred during a marriage is generally the joint responsibility of both parties, as long as both are co-signers on the credit cards. In community property states, both are responsible, even for debt incurred by one partner.
Determine Responsibility
It will be nearly impossible to divide your debts if they continue to grow. Set a date after which there will be no new joint debt. This will likely be the date of separation (physical or legal). Note debt balances as of that date.
After separation, debt incurred on credit cards is the responsibility of the spouse who made the purchases charged on the card. However, you can prevent any room for disagreement by using completely separate cards.
If possible, close your joint credit card accounts. Closing joint accounts will help you avoid the possibility of your ex-spouse incurring debt in your name. Open up a new credit card after you’ve separated and use it for your personal expenses going forward. This will keep your non-marital debt independent of the debts you accumulated while you were still married.
At the very least, have your name removed from any joint accounts that will continue to be used by your spouse. This will not end your liability for debts incurred up to that point, but it should end your responsibility for any new debts incurred on those accounts by your spouse. If you hold any accounts in your own name for which your spouse is an authorized signer, revoke the authorization. Keep detailed records of your charges.
Even if you disagree on responsibility for a debt, continue to pay all minimum payments on credit card accounts that bear your name. Failing to do that could compromise your credit score and adversely affect your credit history down the road.
Set a Deadline
There are several options for handling or eliminating joint credit card debt.
• Agree to transfer portions of joint debt onto individual cards and cancel the joint cards.
• Agree to use joint savings to pay off all or a portion of the debt.
• Agree to sell a car or other asset and use the money to pay off outstanding debts.
• Agree to use a home equity line of credit in a jointly owned house.
One person can also agree to take on payments toward credit card debt in exchange for keeping the car or another valuable item. This type of offset is known as an equalization payment and may be part of your divorce settlement.
If your debt seems insurmountable, bankruptcy may be worth considering. If you’re still married, you should file together so neither is stuck with joint debt. Filing for bankruptcy does not affect payments for child or spousal support. Consult a bankruptcy attorney.
Make a Plan to Pay Your Debt
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© 2022 Future US LLC
No matter where you are in life, you need to understand your cash flow: money coming in, and money going out. That’s where keeping a budget – especially as you enter young adulthood and take charge of your own finances for the first time – is extremely helpful.
A budget (or budgeting system) means you maintain awareness of what your money is doing day to day. The better you track your cash flow, the more informed you’ll be about your financial situation, and the better the quality of your decisions is likely to be.
For an older teen, college student or young adult, budgeting can seem like a chore, extremely boring or both. But when they fail to budget, they miss the opportunity to truly understand their money and where it goes each month.
Living without a budget is a big money mistake, but it’s worth letting your kids make it so they understand how difficult it is to live without any kind of structure or system to keep their cash flow under control.
If they continue to struggle on their own, you could offer to sit down with them and give them a peek at your own budgeting system. Offer to help them get started on a platform like Mint or You Need A Budget. And talk to them about how their money is a tool that they can use wisely to get more of what they want … but only if they manage it well. Budgeting is a first step.
1. Failing to budget
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It is really frustrating to watch a kid of any age take their hard-earned allowance money, or cash gifts from birthdays, or salary from their first job and blow it on something you know doesn’t align with what they truly value.
But spending mindlessly because we can is a bit of a rite of passage. When you’ve lived most of your life not having your own resources, it’s extremely exciting to finally have money of your own to do whatever you want with … which is also the challenge! When there are no guardrails or rules anymore, it’s easy to veer off course.
You shouldn’t lecture your kids on what a good use of money looks like. Plus, that’s not nearly as effective a teacher as realizing they wasted a precious and limited resource – money – on something stupid that they later regret.
Letting your kids experience some buyer’s remorse may help them think more carefully before their next spending spree. And in the meantime, you can help … just don’t tell them what’s important. Instead, ask them about their goals, priorities and values. See if they can articulate what’s most important to them. Once they have a clear picture of that, you can suggest ways they could use their money that actually align with those stated values (rather than spending on the stuff that doesn’t matter so much).
If you see your kids veering toward these kinds of money mistakes, pause before intervening. Letting them handle the situation on their own can be painful to watch in the short term. In the long run, however, it could leave them better equipped to manage their finances successfully.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About the Author
Eric Roberge
Certified Financial Planner (CFP) and Investment Adviser
Founder, Beyond Your Hammock
Eric Roberge, CFP®, is the founder of Beyond Your Hammock, a financial planning firm working in Boston, Massachusetts and virtually across the country. BYH specializes in helping professionals in their 30s and 40s use their money as a tool to enjoy life today while planning responsibly for tomorrow. Eric has been named one of Investopedia's Top 100 most influential financial advisers since 2017 and is a member of Investment News' 40 Under 40 class of 2016 and Think Advisor's Luminaries class of 2021.
4. Spending mindlessly and thoughtlessly
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2022 Future US LLC
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Millennials are comfortable researching and buying nearly everything from groceries to cars online. Life insurers and agents were already making enhancements to digital tools to make it easier for consumers to research and purchase life insurance online, but the pandemic accelerated those improvements. It’s now easier than ever to gather quotes from multiple insurers, research potential providers, and even go through the application and delivery process entirely online.
In addition, physicals for many policies are optional (but you might still want one). A growing number of insurers have ditched the physical examination requirement in recent years, meaning you can purchase a life insurance policy without a medical exam or blood tests. Exam-free policies typically have faster underwriting times than traditional policies, and they offer the convenience of avoiding an additional appointment. But they’re not the right choice for everyone. Exam-free policies, for example, typically cost more than those that include a physical, and coverage may be capped at $500,000.
Your move, millennials: Given the ease with which you can research and purchase insurance, you now have a marketplace of tools and options at your disposal. The sooner you get started the better, since prices only go up as you get older.
Trend alert: The process continues to get faster and easier…
Advance Health Care Directive
A health care power of attorney is a legal document naming a health care proxy. This is someone who can review your medical records and make decisions, such as how and where you should be treated. This person would come into play if you were incapacitated and unable to make medical decisions for yourself.
Choose your health care proxy carefully. This person will potentially have to make difficult decisions, so a close family friend or relative (who is not a spouse or child) may be a good choice.
Health Care Power of Attorney
A living will is different from a will. It’s a type of advance health care directive that specifically deals with end-of-life decisions for people who are terminally ill or permanently unconscious. This legal document covers specific medical treatments, such as resuscitation, mechanical ventilation, pain management, tube feeding and organ and tissue donation. When writing a living will, think about your values. It’s also important to talk to your doctor, your health care proxy and your family and friends about your decisions.
Living Will
By creating a financial power of attorney, you can choose someone to help with your finances if you become incapacitated and unable to do so. You can choose how much control your power of attorney will have, like accessing accounts, selling stock and managing real estate. Choose someone you trust completely, such as a spouse, an adult child, a close friend or sibling.
Financial Components of an Estate Plan
Financial Power of Attorney
You can set up a qualified trust to protect your assets as you pass them down to your heirs. If your children or grandchildren aren’t old enough or mature enough to handle their inheritance, you can set up a trust that gives them a small amount of money each year, increasing that amount as they get older. You can also leave money specifically for paying down an adult child’s mortgage, wedding expenses or student loans. If charitable giving is a priority of yours in retirement, a charitable trust can protect your assets until they are distributed to the charities of your choosing.
Trusts
One of the biggest mistakes people make is forgetting to update their plans. Life insurance policies, bank and brokerage accounts and retirement plans typically all have beneficiary forms, and these forms typically override your will. You should update all of these forms, along with your estate plan, every couple of years and after every major life change, including marriages, divorces, deaths or births.
Now more than ever, it’s important you discuss with your loved ones your health care wishes and how you wish to pass on your assets. Your loved ones need to know if you have a will or trust, who is listed as beneficiaries on your accounts and who the attorney is who created the plan. Your family should also be introduced to your financial adviser. We enjoy these meetings where we get to know our clients’ kids and grandkids. Those you trust should also know where you keep your important documents. Also, make sure you are reviewing and updating your estate plan when you review your retirement plan each year or every six months.
Estate planning is a key piece of a comprehensive retirement plan.
Beneficiaries
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About The Author
Tony Drake, CFP®, Investment Advisor Representative
Founder & CEO, Drake and Associates
Tony Drake is a CERTIFIED FINANCIAL PLANNER™ and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
How much do I need to have saved?
As noted above, typical guidance suggests you should have three to six months’ of basic living expenses in your emergency fund. Granted, that’s a pretty wide range — so what should you aim for? Everyone’s circumstances are different, but if you have children or ongoing medical expenses, it can be wise to plan for the higher threshold or more.
Not to mention, the events of 2020 showed us that certain industries are particularly hard hit by economic crises — for indeterminate periods of time. If you’re in a job that’s vulnerable to market fluctuations, you may need an even higher target.
For most people, essential living expenses include housing, food, utilities, transportation and health care. Depending on your family, they might also include child care or eldercare costs, or education expenses. If you have debts, they might also include minimum monthly payments to your lenders.
To determine your emergency savings target, take an average of how much you spend on all of your essentials in a given month and multiply it by six (or nine or 12, depending on the number of months you want to prepare for). Don’t just estimate: review your bank and credit card statements to get an accurate picture of your spending. The totals may surprise you. Of course, a loss of income isn’t the only type of financial emergency, so you may want to build in a cushion for home repairs, unforeseen medical events or the sudden need to travel or relocate.
Meeting your current expenses can be hard enough without the additional pressure of saving for future unknowns. But understand that funding an emergency reserve doesn’t happen overnight; you can set aside smaller amounts over time until you arrive at your target. There are a number of strategies you can apply as you source this money.
First, you can factor saving for this purpose into your monthly budget. This may require pulling back in certain non-essential categories until you’ve met your goal, but remember that these adjustments can be incremental and temporary. For example, with many of us spending more time at home, money previously spent on dining, entertainment, travel and commuting might be steered toward emergency savings instead.
Next, if you’re working, you can dedicate part of your bonus or tax refund to your emergency reserve. While it can be tempting to treat those dollars as “fun money” or use them on short-term expenses, your future self may thank you for allocating some of them to your rainy-day fund.
Another possibility is starting a side business. If your friends are always saying, “You should charge for that!” when commenting on your hobbies and skills, give it some serious consideration. There are many online platforms that could help you earn money for your time and wares.
Lastly, if you have money invested, take a look at your total financial picture to ensure you’ve got an appropriate ratio of liquid cash on hand for emergencies. A financial professional can be a great resource for providing tailored guidance on asset allocation.
You can also mix and match these strategies to make the task of saving more manageable and potentially meet your goal sooner.
Where do I get the money from?
Put your rainy-day fund in a liquid account — for example, a high-yield savings account — that can be accessed quickly if an emergency strikes. Importantly, keep this money in its own account, separate from those you use to pay bills and make purchases day to day. This way, you’ll have an easier time preserving it for when you really need it.
Where do I keep it?
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If you find yourself in the midst of an emergency and haven’t built up sufficient savings, the guidance above may feel like too little, too late. Fortunately, there are short-term sources of funding and relief available, from temporary loan forbearance and debt relief, to lines of credit and new credit cards with zero-interest promotional periods, to employer assistance and unemployment.
What if I need money fast but don’t have enough in my emergency fund?
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
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Rebuilding Emergency Savings: Take a Realistic Approach
Life is unpredictable — but just because you can’t predict the future, it doesn’t mean you can’t plan for the possibility of financial emergencies.
It’s easy to fall into the trap of “status quo bias,” assuming whatever you have stashed away now is sufficient for the future. However, taking a moment to evaluate your current level of savings versus how much you actually need can motivate you to take action and better prepare your finances for future emergencies.
The bottom line
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About The Author
Krystal Barker Buissereth, CFA®
Head of Financial Wellness, Morgan Stanley
Krystal Barker Buissereth, CFA®, is a Managing Director and the Head of Financial Wellness for Morgan Stanley at Work. In this role, she is responsible for working with corporate clients and organizations on creating, implementing and managing financial wellness programs that meet the needs of their employees.
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You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
How to Know When You Can Retire
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You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
What to Do and How to Know When You Can Retire
There is a lot to this if done correctly, and at some point you’re probably going to want some professional help, but there are a few things you can do to get moving in the right direction.
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How to Know When You Can Retire
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You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
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© 2022 The Kiplinger Washington Editors Inc.
How to Know When You Can Retire
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You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
Learning Center Home
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How to Know When You Can Retire
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You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
Learning Center Home
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How to Know When You Can Retire
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You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
What to Do and How to Know When You Can Retire
There is a lot to this if done correctly, and at some point you’re probably going to want some professional help, but there are a few things you can do to get moving in the right direction.
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Find Income-Producing Assets
When you’re looking to fill your income gap, the obvious solution is to generate more income to fill it. How this is done can vary from person to person, but the primary outcome you’re looking for is income regardless of how you go about it.
If you’re wanting to remain active, you can consider taking on a part-time job, start or buy a business, acquire some rental properties or work another full-time job that you enjoy.
If you prefer not to work and want passive income, then you’re going to have to rely on income-oriented investments. This would be through specific types of income annuities or select alternative investments that are designed specifically for income.
When doing this, be sure you are working with a qualified professional who is properly licensed and who can education you on your options.
Get A Checklist
It is always a good idea to work off of a checklist, and regardless of where you are in this process, there are likely a few tweaks that can help increase your probability for a successful retirement. I encourage you to formulate a plan that articulates where you are, where you’re going and what needs to be done to start receiving the income you need.
You can download a retirement checklist for free and use it as a guide as you prepare for your retirement. In addition, taking a retirement readiness quiz can be a good idea, too. A quiz is a useful tool to measure your level of understanding about a topic or your readiness for progressing toward something.
This article was written by and presents the views of our contributing adviser(s), not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About The Author
Brian Skrobonja, Investment Adviser Representative
Founder & President, Skrobonja Financial Group LLC
Brian Skrobonja is an author, blogger, podcaster and speaker. He is the founder of St. Louis Mo.-based wealth management firm Skrobonja Financial Group LLC. His goal is to help his audience discover the root of their beliefs about money and challenge them to think differently. Brian is the author of three books, and his Common Sense podcast was named one of the Top 10 by Forbes. In 2017, 2019 and 2020 Brian was awarded Best Wealth Manager and the Future 50 in 2018 from St. Louis Small Business.
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NYSUT NOTE: Are you considering professional financial planning guidance? The NYSUT Member Benefits Corporation-endorsed Financial Counseling Program offers access to a team of Certified Financial Planners® and Registered Investment Advisors that provide members with fee-based financial counseling services. Get unbiased advice that is customized specifically for you and your financial situation. Visit the website for more information or to enroll.
© 2022 The Kiplinger Washington Editors Inc.
How to Know When You Can Retire
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You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
What to Do and How to Know When You Can Retire
There is a lot to this if done correctly, and at some point you’re probably going to want some professional help, but there are a few things you can do to get moving in the right direction.
Learning Center Home
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How to Know When You Can Retire
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You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
What to Do and How to Know When You Can Retire
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How to Know When You Can Retire
Getty Images
You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
What to Do and How to Know When You Can Retire
There is a lot to this if done correctly, and at some point you’re probably going to want some professional help, but there are a few things you can do to get moving in the right direction.
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How to Know When You Can Retire
Getty Images
You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
Learning Center Home
1 2
How to Know When You Can Retire
Getty Images
You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually take the plunge.
See if you can relate to this … You have contributed to a 401(k), 403(b) or other employer-sponsored account at work, maybe you’re paying extra on the mortgage or have already paid it off, you keep cash on hand for those unexpected expenses or upcoming big-ticket purchases and you often wish there was a way to pay less in taxes.
You have worked for 30 or 40 years and are at or approaching Social Security eligibility and are now looking at when to take Social Security to maximize your benefits.
Sound familiar? Now, here’s what often comes next … You look at the account statements and begin to wonder whether the investments you have are the right ones to own for where you are in life. You begin weighing your options for making withdrawals from your retirement accounts. You aren’t sure exactly how this is done, and you’re nervous about the risk of a stock market pullback and the possibility of running out of money. And then it happens, you begin searching the internet for answers. (That may even be how you ended up here!) After a lot of searching and reading you realize that there are just too many opinions to choose from, and you resort to simply eliminating options that you’re not as familiar with or have heard negative things about. Then you take what’s left and try to put together a coherent strategy while continuing a search to find information that supports what you have contrived.
This is an all-too-common situation. Maybe this is exactly where you are or perhaps it describes something similar, but either way, you wouldn’t be reading this far into the article without some truth to what I am describing.
Regardless of the details, what you do next is critical to your long-term success. The decisions you make will determine the trajectory of your financial future, and it’s imperative to have a good plan to follow.
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Important Planning Considerations: Insurance & Long-Term Care
LONG TERM CARE INSURANCE
Your retirement plan isn’t complete until you’ve looked into getting the insurance you need, including a plan for long-term care.
LIFE INSURANCE
Millennials are feeling the need for life insurance due to COVID-19, and the way they’re shopping for it is different than in the past.
How Millennials Are Changing the Life Insurance Game
ESTATE PLANNING
The COVID-19 pandemic isn’t going away soon. This health crisis is dangerous for older Americans. Here is an overview of what you need to cover.
Estate Planning During a Pandemic
Saving for a rainy day can be a tall order, especially if you have recently experienced a financial setback. Taking even small steps can help you work toward the larger goal of building up your emergency savings.
SAVINGS
Rebuilding Emergency Savings: Take a Realistic Approach
HAPPY RETIREMENT
Finance Fundamentals
New Hardcopy Textbooks
For decades, universities required students to purchase those 10-pound tomes of knowledge––their prices even heftier than their weight. But recently, hardcopy textbooks have given way to digital e-books. According to Educause, a non-profit advocating for information technology in higher education, the number of college students using an e-textbook for coursework rose from 42% in 2012 to 66% in 2016.
Depending on the university, students may either purchase a subscription code for e-textbooks through their school, or purchase e-textbooks off of popular platforms such as Bookshelf, McGraw Hill-Connect, and Google Books. With one subscription or account, students can access the textbook across multiple devices, including their laptop, phone, or even a touch-screen tablet to take notes. Platforms themselves offer a range of functions, from basic highlighting, to annotation, to embedded quizzes.
The shift hasn’t just been to digital; renting a hardcopy book (consider pioneer Chegg.com for this) has become just as popular as owning one, and it’s becoming easier to get by with used text as well. Sites such as SlugBooks.com, CampusBooks.com and BookFinder.com can help you comparison-shop for new and used books, e-books, and rentals. If you are looking specifically for second-hand books, students often sell their old textbooks on eBay, Facebook or other marketplaces.
How Your Social Security Benefits Are Earned
To be eligible for Social Security benefits in retirement, you must earn at least 40 "credits" throughout your career. You can earn as many as four credits each year, so it takes 10 years of work to qualify for Social Security.
In 2021, you must earn $1,470 to get one Social Security work credit and $5,880 to get the maximum four credits for the year.
Conversation Starter 1: Money talks pay off
Fidelity Investment's 2021 Couples & Money Survey highlights that couples who make decisions about their finances together experience positive benefits. These are heartening statistics in contrast to the 2014 American Psychological Association's survey revealing that 31% of adults with partners cite money as a major source of conflict in a relationship.
In light of these findings, consider these talking points:
Taxes: Is Your New State a Friend or Foe?
Even in retirement, you can expect to pay taxes. Some states are friendlier on this count than others, so it pays to know the situation before you load up the moving van.
Florida, for example, doesn’t have a state income tax. Neither does Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming. All other states do.
So, if you move in retirement from New York to Florida, you rid yourself of a state income tax, but if you move from New Hampshire to North Carolina, you gain a tax.
Another consideration is that 33 states have neither an estate tax or an inheritance tax (on the other hand, several states are much less tax friendly). Let’s revisit our previous example states. New York has an estate tax, but Florida has neither an estate nor an inheritance tax, so once again, a retiree could ditch a tax with a Florida move. New Hampshire and North Carolina have neither of these taxes, so that’s a wash.
Heading into retirement brings a slew of new topics to grapple with, and one of the most maddening may be Medicare. Figuring out when to enroll in Medicare and which parts to enroll in can be daunting even for the savviest retirees. There's Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on.
And what is a doughnut hole, anyway? To help you wade into the waters of this complicated federal health insurance program for retirement-age Americans, here are 11 essential things you must know about Medicare.
Medicare Basics: 11 Things You Need to Know
Fact: Fewer employers are offering life insurance as a benefit.
About 56% of Americans who work for private companies have access to life insurance through their employer. The number of employers offering such benefits, largely through group plans, has been in steady decline in the last decade. The result? More than 50% of those who have life insurance purchased it individually.
Your move, millennials: If your employer does offer life insurance, it’s worth reviewing the coverage options. You may find the value you need for your circumstances. You may also discover that you need to purchase additional coverage on your own. Many employer life insurance plans offer very basic coverage, and the policy may not be portable if you part ways with your employer. That’s an important factor for millennials, who tend to have higher rates of job changes.
There is a lot to this if done correctly, and at some point you’re probably going to want some professional help, but there are a few things you can do to get moving in the right direction.
Health Care components of an Estate Plan
Advance Health Care Directive
Every adult needs an advance health care directive, and it becomes even more important as we grow older and experience more health issues. An advance health care directive is a written plan so your wishes are known if a time comes when you cannot speak for yourself.
Start by thinking about different treatments you do or do not want in a medical emergency. Consider talking with your doctor about your family medical history and how your current health conditions might influence your health in the future. Your wishes need to be in writing, and the document should be updated as your health changes.
Review your advance health care directive with your doctor and the person you are naming as your health care proxy to be sure all forms are filled out correctly. Give each party a copy, and keep a record of who has these forms.
Keep your completed documents in a safe but easily accessible place, such as a desk drawer. You might also consider carrying a card that states you have directives and where they can be found.
Health Care Power of Attorney
A health care power of attorney is a legal document naming a health care proxy. This is someone who can review your medical records and make decisions, such as how and where you should be treated. This person would come into play if you were incapacitated and unable to make medical decisions for yourself.
Choose your health care proxy carefully. This person will potentially have to make difficult decisions, so a close family friend or relative (who is not a spouse or child) may be a good choice.
Health Care components of an Estate Plan
Advance Health Care Directive
Every adult needs an advance health care directive, and it becomes even more important as we grow older and experience more health issues. An advance health care directive is a written plan so your wishes are known if a time comes when you cannot speak for yourself.
Start by thinking about different treatments you do or do not want in a medical emergency. Consider talking with your doctor about your family medical history and how your current health conditions might influence your health in the future. Your wishes need to be in writing, and the document should be updated as your health changes.
Review your advance health care directive with your doctor and the person you are naming as your health care proxy to be sure all forms are filled out correctly. Give each party a copy, and keep a record of who has these forms.
Keep your completed documents in a safe but easily accessible place, such as a desk drawer. You might also consider carrying a card that states you have directives and where they can be found.
Financial Power of Attorney
By creating a financial power of attorney, you can choose someone to help with your finances if you become incapacitated and unable to do so. You can choose how much control your power of attorney will have, like accessing accounts, selling stock and managing real estate. Choose someone you trust completely, such as a spouse, an adult child, a close friend or sibling.
Trusts
You can set up a qualified trust to protect your assets as you pass them down to your heirs. If your children or grandchildren aren’t old enough or mature enough to handle their inheritance, you can set up a trust that gives them a small amount of money each year, increasing that amount as they get older. You can also leave money specifically for paying down an adult child’s mortgage, wedding expenses or student loans. If charitable giving is a priority of yours in retirement, a charitable trust can protect your assets until they are distributed to the charities of your choosing.
How much do I need to have saved?
As noted above, typical guidance suggests you should have three to six months’ of basic living expenses in your emergency fund. Granted, that’s a pretty wide range — so what should you aim for? Everyone’s circumstances are different, but if you have children or ongoing medical expenses, it can be wise to plan for the higher threshold or more.
Not to mention, the events of 2020 showed us that certain industries are particularly hard hit by economic crises — for indeterminate periods of time. If you’re in a job that’s vulnerable to market fluctuations, you may need an even higher target.
For most people, essential living expenses include housing, food, utilities, transportation and health care. Depending on your family, they might also include child care or eldercare costs, or education expenses. If you have debts, they might also include minimum monthly payments to your lenders.
To determine your emergency savings target, take an average of how much you spend on all of your essentials in a given month and multiply it by six (or nine or 12, depending on the number of months you want to prepare for). Don’t just estimate: review your bank and credit card statements to get an accurate picture of your spending. The totals may surprise you. Of course, a loss of income isn’t the only type of financial emergency, so you may want to build in a cushion for home repairs, unforeseen medical events or the sudden need to travel or relocate.
Rebuilding Emergency Savings: Take a Realistic Approach
What if I need money fast but don’t have enough in my emergency fund?
If you find yourself in the midst of an emergency and haven’t built up sufficient savings, the guidance above may feel like too little, too late. Fortunately, there are short-term sources of funding and relief available, from temporary loan forbearance and debt relief, to lines of credit and new credit cards with zero-interest promotional periods, to employer assistance and unemployment.
Federal student loan borrowers can file immediately for the new SAVE program.
Money can be a rope or quicksand depending on the amount and the recipient. Think about what your kids have done in the past when they have received more money than they are used to. Did they use it to cover expenses? Did they invest it? Did they show up at the next family gathering in a nicer car? If your money went toward a flashy vehicle, you may want to reconsider.
In all seriousness, the beneficiary of the funds often matters more than the amount or vehicle for the gift. This is one reason revocable trusts are such a popular estate planning tool. They allow you to control how and when the beneficiary spends their new money.
Will Giving an Inheritance Early Have a Positive Impact?
Let’s say you’re 65 years old and you had twins at the age of 30. Your life expectancy is about 85. So, you are essentially deciding whether you should give money to your kids in the next 20 years, or in 20 years. In 20 years, your Millennial kids will be 55 and likely in their peak earnings years. Their kids will be graduating from college. They will be entering the period where the gap between their earnings and expenses is largest. Said differently, they don’t need the money then.
On the opposite end of the spectrum, when expenses may actually be larger than expenses, is the period when the kids are young. Childcare expenses paired with the possibility of only one working spouse means this may be the period of greatest financial need.
Consider the Kid’s Age at the Time of the Gift
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Find Your Social Security ‘Full Retirement Age’
You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. But first you have to know what it is.
Also known as “normal retirement age,” your Social Security ‘Full Retirement age’ (FRA) is the age at which you’re entitled to 100% of the Social Security benefits you’ve earned. FRA is 66 for beneficiaries born between 1943 and 1954; it gradually increases to 67 for beneficiaries born in 1960 or later. (Are you in that transition zone? Use our Social Security Full Retirement Age calculator to pin it down.) If you take benefits before FRA, your benefits will be reduced. If you file at age 62, for example, benefits will be as much as 30% lower. More on that in a moment.
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Getting a bill for a medical procedure or an appointment you thought your insurance would cover can throw you for a loop. But if you think the bill was sent to you in error or you believe the amount listed is wrong, you can—and should—fight back. First, though, you need to know common mistakes to look for, as well as what your insurance plan does and does not cover.
Start by reviewing your insurer’s explanation of benefits. Was the service in network—that is, from providers that have typically agreed to reduced reimbursement from your insurance company? Next, call your insurer and ask the insurance representative to explain why the claim was denied (in part or in full), why certain services weren’t covered and what you need to do to fix it.
Denials of claims for in-network procedures are usually the easiest to resolve, says Katalin Goencz, a medical insurance and reimbursement specialist in Stamford, Conn. (Goencz also serves as the president of the nonprofit group Alliance of Claims Assistance Professionals.) If a provider sends incorrect information, it is required to resubmit corrected info directly to the insurance company once the provider has been alerted, she says. For example, an error in how a procedure was coded could lead to a denial, as could an outdated insurance card.
In some cases, you could simply be billed erroneously. For example, the Coronavirus Aid, Relief and Economic Security (CARES) Act mandated that providers offer COVID-19 vaccines and boosters at no charge. Providers are prohibited from charging co-payments or administrative fees. However, you could receive a bill for a COVID-19 vaccination if the provider bills you directly instead of your insurer or due to human error in medical billing systems. If you’re charged for a vaccine, call your provider and dispute the charges. Your insurer may also be willing to help you get the bill waived.
Likewise, the Affordable Care Act requires your insurance to cover all of the costs of annual physical exams and other preventive care. However, if your doctor decides to order extra tests, such as an electro-cardiogram to track heart issues, your insurance company may conclude that the service isn’t a necessary part of your physical exam and send you a bill.
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Avoid Surprise Medical Charges
First, the basics. A reverse mortgage is a loan, with the interest on it compounding, but unlike a traditional mortgage, you or your estate repays the principal and interest at the end of the loan.
Federally insured HECMs have strict requirements. You must be age 62 or older, and as of 2022, the loan can't be based on a home value greater than $970,800, even if the house is worth more. Typically, you must have at least 50% equity in the home, which must be your principal residence. In 2021, the average age of an HECM borrower was 73 years old, with the average home value $415,000, according to Steve Irwin, president of the National Reverse Mortgage Lenders Association. Besides HECMs, a small number of private reverse mortgages are available in some states through specific lenders. Typically, private reverse mortgages are more appropriate for someone younger than 62 who has a high-dollar-value house or lives in a condominium. Condos aren't always eligible for HECMs.
The lender takes over a house when the borrower dies or moves out for more than a year, but heirs are entitled to any leftover home equity and can even use it to pay off the reverse mortgage and reclaim the house. Because a reverse mortgage is considered a nonrecourse loan, you or your heirs can't owe more than the home's fair-market value. Mortgage insurance, which FHA requires borrowers to have, protects the lender if the home's value falls.
But other pitfalls exist, some of which HUD has addressed. The agency now requires that borrowers receive counseling at HUD-approved sites before closing on an HECM and limits how much a borrower can draw at closing or in the loan's first year. HUD also mandates a financial assessment of the borrower's sources of income, including Social Security, pensions and investments. The amount you can borrow depends on your age (with older homeowners typically receiving more) and your house value, the amount of equity in it and interest rates. Although other debts are considered, there is no debt-to-income ratio requirement.
One important provision that HUD addressed pertains to spouses who aren't named on the reverse mortgage. Before 2014, the nonborrowing spouse could be evicted from the home or required to repay the reverse mortgage loan if the borrowing spouse died or moved into assisted living. HUD made it easier for an eligible nonborrowing spouse to stay in the house, although the reverse mortgage payments cease. The reverse mortgage is paid off when the nonborrowing spouse dies or moves out of the home.
HUD's changes have helped. The number of reverse mortgage defaults have fallen to about 1.5% in 2019, compared with between 3.6% and 5% before 2014, says Irwin. According to HUD, 49,207 HECMs were taken out in 2021. Nevertheless, some people still don't know what a reverse mortgage is, says Cora Hume, a lawyer in the Office for Older Americans in the Consumer Financial Protection Bureau. "If people are taking out a product and don't understand it, that's a problem."
Irwin notes that about 40% of potential applicants who go through counseling to take out the loans decide not to proceed. Expense is a factor. Reverse mortgage fees, which are usually rolled into the loan, can be high. For example, fees and the required mortgage insurance are about $25,000 for an $800,000 house, according to Pfau.
The reverse mortgages themselves can be paid out in four different ways: a lump sum when the loan is taken out; tenure, which is equal monthly payments as long as at least one borrower lives and continues to use the home as a main residence; term, which consists of equal monthly payments over a fixed period; or a line of credit, also known as a standby mortgage, that can be used until the money is gone. Only the lump sum option qualifies for a fixed interest rate. Everything else has a variable rate.
How to Get Your Grown Children to Move Out
The number of adults who live with their parents has been increasing for decades. For many, that’s a good thing. But if you’d like to uproot yours, here’s how.
If your adult children are still living in your home past when you thought you’d have the place to yourself, well at least you’re not alone. Nearly a third of Americans between the ages of 18 and 34 (and more than half of those 18-24) live with their parents, according to data from the U.S. Census. And those numbers have been steadily increasing over the last 60 years. (The pandemic gave those numbers a boost in 2020, but they’ve retreated somewhat in 2021; see table below for a deep dive)
Many people like these multigenerational arrangements. They can be mutually beneficial, financially and practically speaking. But sometimes there’s an unpleasant imbalance. The progeny doesn’t pull their weight around the house, say, or just generally impedes what many parents expected to be their “empty nest” years – the reasons are myriad.
What if you want yours to move out, and they’ve rooted themselves firmly in your basement? What can you do? Therapists and financial advisors have some recommendations; most of them involve collaborative negotiations, reasonable expectations and an assisted pathway to your offspring living on their own. You could charge them rent, but covertly set some of the money aside to help them pay for their own home, for example.
Sometimes that’s not enough. Sometimes it takes tough love and drastic steps. Sometimes – yes – the police might even get involved. Read on for some specifics.
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How to Get Your Grown Children to Move Out
The Biden administration has launched a beta version of a student loan repayment plan for any college student who took out a federal student loan.
The new plan, Savings on a Valuable Education (SAVE), replaces the administration’s Revised Pay As You Earn (REPAYE) program. REPAYE participants will automatically qualify for SAVE, the Department of Education (DOE) said.
SAVE is an income-driven replacement plan that calculates a student loan borrower’s monthly payment number, using the borrower’s monthly income and family size as key payment determiners.
Federal student loan borrowers interested in the SAVE plan can file immediately and receive an email confirmation once the application is submitted.
The application process is convenient, says Robert Farrington, founder and CEO of The College Investor in San Diego. “Borrowers also don’t need to re-apply each year because the [StudentAid.gov] website is able to access tax returns to see which plans and benefits they qualify for under the plan.”
The plan includes borrowers with direct subsidized loans, unsubsidized loans, consolidated loans, and PLUS graduate loans. Similar to the REPAYE program, the SAVE has a payment lid based on the borrower’s discretionary monthly income. While REPAYE had a 10% cap on discretionary income, that number will slide to 5% beginning in the summer of 2024.
The SAVE plan boosts the student loan repayment income exemption from 150% to 225% of the poverty line, the DOE said.
“That means you won’t owe loan payments if you are a single borrower earning $32,800 or less or a family of four earning $67,500 or less,” the agency said. “Borrowers earning more than these amounts will save at least $1,000 per year, compared to the current income-driven repayment plans.”
While how much money a borrower saves depends on annual income and family situation, a borrower with no dependents and a $38,000 annual income will save $91 per month under SAVE, according to the DOE.
Whether you’re getting married or just moving in together, every couple needs to come to an understanding about how they will handle money and learn what benefits their coupledom may afford them.
Wedding season is in full swing, and along with all the beauty and joy that it can bring, it’s also important to keep in mind that with marriage comes a fair amount of financial decisions and plans to be made. To be sure these are not always the first things we think about, but given my career in finance, I can’t help but bring them front and center.
Whether you are already part of a “we” or are forging a new connection, you’ll need a strong financial foundation for a meaningful and sustainable future. It may not sound romantic at first, but if you’re on the verge of moving your relationship forward in a big way, these three steps can help you deepen one of the most important bonds a couple can share: your finances.
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Wedding Season: 3 Steps to Empower Your Finances as a New Couple
While your kids may benefit from your funds most during this period, it may not be the optimal time to give from a tax perspective. Due to the large gift tax exemption, I would not worry about the gift tax when giving, unless your estate is larger than about $12 million. You should, however, consider capital gains and income taxes.
Sometimes we recommend giving stock to kids when they are in school and have very little income. That’s because there is a tax arbitrage opportunity. If you sell the stock, you’re likely to pay 15% in capital gains taxes. If someone in the lowest two income tax brackets sells the stock, there is no tax.
I know, I know, I haven’t gotten to the negative part. If you leave a stock at death in a non-retirement account, there is a “step-up” in basis. That means your child won’t have to pay any taxes on the gains accumulated during your lifetime. So, if you’re one of the lucky (maybe smart) ones who bought Apple stock in the ’90s, it’s probably best to leave those funds at death.
This step-up in basis applies to all capital assets, including real estate. It can be a powerful way to avoid large tax bills on investment properties and your home.
So, capacity to give has to come first. A serious talk about the impact is next. Then, put together an efficient plan to execute your wishes.
What About Taxes?
Social Security uses your highest 35 years of earnings, indexed to a national average wage index, to calculate your primary insurance amount (PIA) If you have fewer than 35 years of earnings, each year with no earnings will be entered as zero. You can increase your Social Security benefit at any time (even via part-time work during retirement) by replacing a zero or low-income year with a higher-income year.
There is a maximum Social Security benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2022, the maximum monthly benefit is $3,345. For someone filing at age 70, the maximum monthly amount is $4,194. And for someone retiring early, at age 62, the maximum monthly benefit is $2,364.
How Are Your Social Security Benefits Calculated?
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Distributions from your 529 will no longer reduce your grandchild’s financial aid
In the near term, there’s a welcome change that grandparents can begin taking advantage of for financial planning purposes.
Under the old FAFSA rules, students were required to report distributions from grandparent-owned 529 savings plans as untaxed student income, which had the potential of reducing a student’s aid eligibility by up to half of the distributed amount from the college savings plan.
In other words, a $15,000 distribution from a grandparent’s 529 plan could reduce aid eligibility by $7,500. This has led some families to do some tricky planning — where grandparents would delay 529 distributions until the grandchild was in their last few years of college to avoid the potential financial aid eligibility pitfalls.
Fortunately, with the FAFSA simplification come new rules regarding how grandparent 529 assets are treated. The new rules, effective for the 2023-2024 school year, will no longer count distributions from grandparent-owned 529 college savings plans as untaxed student income, and they will not have a detrimental impact on aid eligibility.
But grandparents can take advantage of the new 529 rules now. Why? The FAFSA looks back at the prior two years of a student’s income tax returns.
If you want to retain control over your college savings for one or more grandchildren, you can now do so without having to worry about it hurting their financial aid eligibility. And you can say goodbye to the complexities of planning distributions in future calendar years to avoid potential problems.
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Most insurance companies allow you to file or appeal a claim online, which is useful because the system will usually flag missing or incorrect information. Goencz says some problems with out-of-network claims occur when a provider gives you a piece of paper to file with your insurance company but the paperwork has missing or incorrect information. If filing online isn’t an option, download and print out a paper claim form from the insurer’s website.
The No Surprises Act, which took effect in January, prohibits providers from charging patients out-of-network rates for emergency care and ancillary services, such as anesthesiology, for nonemergency procedures delivered by out-of-network providers at in-network facilities. The law also applies to out-of-network charges for air ambulances, which can cost thousands of dollars. If you receive an out-of-network charge for services covered by the legislation, file an appeal with your insurance company.
For nonemergency procedures, some out-of-network providers at in-network facilities can charge the higher rates if they give you an estimated bill at least 72 hours in advance and you agree to pay it. For procedures scheduled within that 72-hour window, you must be notified about the higher cost the day the appointment is made.
Finally, don’t let fears about your credit record deter you from challenging a medical bill. Debt collectors are required to wait 180 days from the time a medical bill becomes delinquent before reporting it to the three major credit bureaus. That provides extra time either for your insurance to pay the bill or, if it’s not covered, for you to work out a payment plan with the hospital or medical services billing department. In addition, if your insurance company pays a medical bill in full, the default account must be immediately removed from your credit report.
How to appeal
St. Augustine said that asking yourself the question of your own legacy — “What do I wish to be remembered for?” — is the beginning of adulthood.
In Bob Buford’s book Halftime, Bob quotes Matthew 13:5-9, which illustrates the eventual harvest of a farmer who sows his seed. Bob uses this verse to point toward his own epitaph of 100x. He says, “I want to be remembered as the seed that was planted in good soil and multiplied a hundred-fold. It is how I wish to live…how I attempt to envision my own legacy…to be a symbol of higher yields, in life and in death.”
The theme of the book is what the title suggests: that wherever you are right now, you are at halftime in your life, and the second half should be the better half.
Every day up until your retirement transition, you dedicated eight or more of the 24 hours a day that you had to someone or something to earn a living. That commitment of time and what you were responsible for during that time manifests into a sense of purpose. When that time commitment goes away, so can that sense of purpose.
Your purpose while working may have been closely associated with your daily projects, leading a team, fulfilling a role or other responsibilities. It could have been a sense of belonging to a team, a brotherhood (or sisterhood), a company or group that gave you motivation each day to go to work. This is all left behind once you retire, and what often happens after the “retirement party” is over is the onset of feeling lost, unfulfilled, bored or even depressed.
This underscores the importance of viewing retirement as a transition, not as your new reality.
When I consult with clients who are retiring, I often encourage them to begin thinking about how they will spend their time once they make the transition. This conversation is not only important for cash flow planning, but it is the first step in helping them begin to think beyond the transition of retirement and about their purpose.
Playing golf, traveling and spending time with grandkids are all great things, but they are not anyone’s purpose. When asked what someone does, unless they are a professional golfer, they aren’t going to say they golf. They may play golf, but it is not their purpose.
Author and futurist Buckminster Fuller has a question designed for finding your life’s mission: “What is it on this planet that needs doing that I know something about, that probably won’t happen unless I take responsibility for it?”
The transition of retirement is not the destination; it is the transition to what is next. It is your opportunity to reinvent yourself and live out the second half of your life with purpose.
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Retiring in a Slowing Economy? 3 Steps Can Help You Prepare
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Many people don’t keep a household budget in the earning years of their career. They also do not want to live on a strict budget in retirement, so I use a different approach: We add up all annual spending over the last three years to look at macrotrends in spending patterns. Anyone can do this by collecting all credit card and bank statements to find spending averages.
The purpose of this exercise is to see if this spending trend is sustainable for the next 30 years in retirement. A person or couple must be able to afford to live on their portfolio savings and guaranteed sources of income, such as Social Security benefits.
In addition, most new retirees soon realize they need to fill their days with at least one major activity – and this usually costs money. During the first two years of retirement, I’ve watched my clients spend large sums on home improvements, as well as things like international and domestic travel in a recreational vehicle. Certain hobbies, such as restoring a classic car, can easily run into the tens of thousands of dollars and stress the financial plan.
If spending needs to be reduced, there can be some easy fixes. These can include cutting back on monthly automated subscription payments, increasing home and auto deductibles in exchange for lowering premiums on insurance policies, traveling during the off-seasons and taking on some home improvement projects instead of hiring professionals.
Some can be bigger changes – people may decide to downsize their home or consider selling extra cars to save even more money.
1. Examine Your Spending History.
Worry during uncertain times is normal. But those with a comprehensive financial plan should be able to ride it out without making costly errors.
Selling investments at a loss is often based in fear. Most financial advisers know someone who sold their stocks when the market dropped in March 2020. But markets quickly reversed course and set record highs for nearly the next two years. A person with millions in investments who sold their stocks and lost 20% of their value often locked in their losses, missing out on reaping the potential benefits of market gains down the road in the recovery.
As a possible recession approaches, one way I help prepare clients plan for retirement income is to create a bond ladder.
A bond ladder enables someone to purchase a variety of individual bonds with different maturity dates – the date an investor receives the interest payment on their bond. For example, a person could invest $100,000 and buy 10 different bonds each with a face value of $10,000. Because each bond will have a different maturity date, an investor will have a regular stream of guaranteed income if held to maturity. High-quality bonds that will be held to maturity can provide a household with a steady stream of income for the next few years.
2. Build a Plan to Survive a Down Stock Market.
Many people in their 60s planning to retire with between $1.5 million and $5 million in investment assets may feel comfortable. But they often don’t know if their money will last them at least two decades, possibly longer. By building a plan based on different statistical models, a retiree is able to define their sustainable withdrawal rate, including longevity risks.
America's population of people 90 and older almost tripled between 1980 and 2010 to 1.9 million and is expected to increase significantly over the next four decades. This means new retirees will need enough money to live comfortably for a long time and may not be able to leave money to their heirs.
Each plan is different to fit an individual’s or couple’s needs. But all of them should help to determine a sustainable rate of withdrawal from a person’s or couple’s portfolio that will last a lifetime and meet their financial goals. For example, some couples may want to spend every last penny, while others will want to leave some for their heirs. Each plan is built to withstand the stress of events that create uncertainty, such as a recession or a major geopolitical event.
I regularly work with clients during tough times who plan to retire or have just retired, and I help them to segment assets into buckets of money so they have the ability ride out market volatility and also be prepared to take advantage of growth opportunities when the market recovers. Being intentional about a retirement income strategy is key to reducing emotional fears, because the spend-down phase of life is so very different than the mindset of accumulation.
Tough times may be ahead. But with a mindful spending plan and a strategic retirement income plan that has been stress-tested using statistical modeling, retiring with confidence in a volatile market may still be possible.
3. Understand You Will Need Enough Money to Last 20-30 Years.
People considering retirement in the near future, as well as early retirees, will likely need to navigate some choppy waters during these times. A slumping stock market, a slowing economy and a Federal Reserve that has signaled further increases in interest rates to combat inflation require retirees to make smart decisions to avoid jeopardizing a successful retirement.
That’s where a well-thought-out financial plan can help make a comfortable retirement possible – even during a tough economy. When speaking with recent retirees or people who are considering retiring soon, here are three actions I generally recommend to help them navigate this major life transition.
A weak stock market can create uncertainty when retiring, but a good financial plan can help you find a comfortable path.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC (opens in new tab) or with FINRA.
About the Author
Erin Hadary, CFP®, MBA, CAP®, CeFT®
Partner, Moneta
Erin Hadary is a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional and a Partner at Moneta. Based in Denver, CO, and serving clients nationally and internationally, she specializes in financial planning for life transitions, including retirement and sudden wealth. When a person inherits a large amount of money – often referred to as “sudden wealth” – they are often overwhelmed and getting personal financial planning help can be life-changing. Erin has more than 15 years of experience in comprehensive wealth management and personal finance. In addition, she has expertise in managing individual and institutional investment portfolios and philanthropic advising.
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While divorced women workers stand out in the survey as having the lowest retirement confidence, they also lack knowledge about what they need for a financially secure future. For example, fewer than half of the divorced women were very or somewhat confident in knowing how much money they needed to save by retirement to live comfortably in their golden years. So not only do divorced women fret about having enough savings for their golden years, they are also struggling with even knowing how much they will need.
To help close the gap, Lawande suggests that women become more educated about their financial situation and work with a Certified Divorce Financial Analyst™ to understand better how they need to plan for retirement and even everyday money issues. She also recommends that they hire a lawyer who is well versed in their state's laws to ensure that they have a financially advantageous settlement agreement.
Matrimonial attorney Lisa Zeiderman of Miller Zeiderman LLP says women typically feel the financial repercussions of divorce more intensely than men. "Getting a divorce will absolutely impact how much money you will have for retirement. Divorce and the loss of retirement assets can hit you hard. This is especially true if you haven't hired a lawyer who will advocate for you and if you have not taken steps to protect you and your financial future."
Unfortunate Gaps in Knowledge
Don't look to income from an employer to make up the gap. Women earn about 20% less than their male counterparts, also resulting in smaller pensions and fewer dollars saved into company 401(k)s and other retirement accounts. Women are blessed with longer life spans, but this can also wreak havoc, financially, for a divorced woman in her 50s, 60s and 70s. She faces an uphill battle against time to create enough assets to last the rest of her long life.
Divorcing later in life is much different than in your 20s, 30s and even 40s, when you still have plenty of time to rebuild your assets, reduce your spending and increase your income.
The Gap in Wages and Savings Creates an Uphill Battle
According to Zeiderman, who in addition to her law degree is also a Certified Divorce Financial Analyst™, "There is no room for error at this stage of your life. Mistakes can be costly, and most women over age 50 do not have the time to recover. Therefore, hiring the right divorce team that includes a seasoned divorce lawyer and divorce financial expert is critical.”
Lawande chimes in, "The women who fare best post-divorce are those who not only have the right divorce team but have also 'leaned into' the finances. They work with their expert divorce advisers to better understand the implications of the property division, Social Security and pension payout options, spousal support payments, and health insurance coverage."
The Solution for Divorcing Women
Divorce is not easy, but you do not have to do it on your own. The divorce industry has stepped up to the plate with numerous legal, financial and emotional support structures to help empower those moving from coupledom to single life with the right legal advice and financial security.
Be sure to reach out to a divorce attorney who is highly recommended in your state as well as a Certified Divorce Financial Analyst™ to ensure that you understand all the legal and financial issues of your divorce.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Final Thoughts for Women Headed for Divorce
About the Author
Stacy Francis, CFP®, CDFA®, CES™
President & CEO, Francis Financial Inc.
Stacy is a nationally recognized financial expert and the President and CEO of Francis Financial Inc., which she founded 15 years ago. She is a Certified Financial Planner® (CFP®) and Certified Divorce Financial Analyst® (CDFA®) who provides advice to women going through transitions, such as divorce, widowhood and sudden wealth. She is also the founder of Savvy Ladies™, a nonprofit that has provided free personal finance education and resources to over 15,000 women.
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Parents of teenagers often ask me if they should open a 529. They wonder if it makes sense given how close the child may be to needing the money for college. While there are a variety of factors to consider, I remind parents the time horizon for needing the money for college is not freshman year, but by senior year. So, for instance, a parent with a 13-year-old may think they have only four years till they’ll need the 529 money, when in reality the time horizon could be eight years, since not all the money is withdrawn in the freshman year. If that is the case, then yes, eight years may still be enough time to invest in a 529. (There may be some financial aid considerations.)
Having said that, I probably wouldn’t invest all the 529 money in equity mutual funds, given the time horizon is only eight years — that is too risky. But perhaps the tuition payment earmarked for the eighth year, or senior year, could be invested in a dividend-paying mutual fund or a balanced mutual fund, since that has the longest time horizon. I suggest consulting with a qualified financial adviser who can help ensure your investment mix is aligned properly with your risk tolerance and time horizon.
The Time Horizon Is Not Freshman Year
Some states offer a state income tax deduction on your contributions, assuming you are a resident of the state. Other states have upped the ante even more, with some offering matching contributions. Always check your state’s offerings and incentives before opening a 529 account.
Keep in mind, you are not limited to your home state’s option. A parent in Connecticut can use California’s plan and vice versa. The downside in this example is the Connecticut parent does not receive a tax deduction for contributing to a California 529 plan.
Why would anyone not use their home state’s plan and forgo the state tax deduction? Mutual fund choices and fees. If the mutual fund choices in your home state’s plan are lousy or expensive, that probably won’t help the account grow. There are several websites to compare 529 plans, or a financial adviser should know what to look for as far as fees and investment selection. The point is don’t take it for granted your state’s plan is the best option.
Your State’s Plan May Not Be the Best Plan
If you still want to use your home state’s plan to get the state income tax deduction, but want better mutual funds, you may want to try using your state’s plan up to the state tax deduction cap – usually $10,000 a year for married parents – and a separate 529 somewhere else for any additional money.
I see this in states that cap the tax deduction to the first $10,000 of contributions. The next penny over the cap is not state tax deductible. A parent then can contribute the first $10,000 to the home state’s plan for the deduction and use another state’s plan for anything above the cap. This may help with diversification, or using a different plan may have more and better fund choices. You want to be mindful of the annual contribution limits.
The downside is the administrative burden, do you really have the time to oversee two different accounts for each child?
A Compromise: Use More Than One 529 Plan
A recent rule change on the FAFSA is helpful for grandparents who want to use a 529 for a grandchild’s education. Prior to the rule change that took effect Oct. 1, 2022, distributions from a grandparent’s 529 were counted as untaxed income to the student and could reduce the student’s aid eligibility. Starting with this year’s FAFSA, for the 2023-2024 school year, a grandchild does not have to report a distribution that was taken from a grandparent’s 529. That’s a big change and should prompt more grandparents to use 529 plans.
Keep in mind, the CSS Profile – a financial aid form used by many colleges to calculate their own financial need – still considers a grandparent’s 529 as a countable asset. However, I’m not sure that should deter grandparents from wanting to use 529 plans, as not all colleges use the CSS. Either way, I believe the more hands that can help fill the piggy bank for college, the better, and with the holidays coming up, this could be a good time to talk to Grandma about 529s.
Get the Grandparents Involved
Parents can use up to $10,000 a year from their 529 plan to pay for private K-12 tuition. If you are paying for private school out of a cash or checking account, you may want to consider first routing the payment to the 529 for the state tax deduction. This is a good idea for parents who are already contributing to a 529 plan but not up to the amount for the state tax deduction — they’d have more room to contribute.
For example, if a family is contributing $5,000 a year to their state’s 529 plan, but the state tax deduction is up to $10,000 in annual contributions, they can contribute the additional K-12 tuition payment to the 529 plan to get them to the $10,000 cap. (The $10,000 cap is an example — each state’s rules vary.) This assumes your state offers a state tax deduction for contributions, your state considers K-12 tuition a qualified expense, and there is no minimum waiting period for withdraws. It’s best to check with the 529 administrator first.
There may be some drawbacks to this approach. Namely, it can be a hassle to move money around. Also, it could lead to commingling college funds and K-12 money, which should be invested differently, given their different time horizons, but this trick could also save you a few bucks on your state taxes.
Paying Private K-12 With a 529 Plan
College 529 Savings Plans: How to Get the Most Out of Them
The 529 plan is a great way to save for college, grad school and K-12 education expenses. Beyond what I mention here, the best piece of advice I can give new parents is to start early and automate your savings. Starting early can help your investment grow over time, while automating your savings — having some of your paycheck go directly into the 529 each pay period — takes the guesswork out of savings because it’s done for you.
The rest of what I offer here can help enhance the 529 plan and maximize your college savings plan, which, based on the current cost of a four-year college education, is something I think we can all agree is a good thing.
Investment advisory and financial planning services are offered through Summit Financial LLC, a SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Summit is not responsible for hyperlinks and any external referenced information found in this article.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About the Author
Michael Aloi, CFP®
CFP®, Summit Financial, LLC
Michael Aloi is a CERTIFIED FINANCIAL PLANNER™ Practitioner and Accredited Wealth Management Advisor℠ with Summit Financial, LLC. With 21 years of experience, Michael specializes in working with executives, professionals and retirees. Since he joined Summit Financial, LLC, Michael has built a process that emphasizes the integration of various facets of financial planning. Supported by a team of in-house estate and income tax specialists, Michael offers his clients coordinated solutions to scattered problems.
Parting Thoughts
What Happens to Debt in Divorce?
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About the Author
Sara Stanich, MBA, CFP®, CDFA™, CEPA
Founder, Cultivating Wealth
Sara Stanich is the founder of Cultivating Wealth, an independent, women-owned financial planning firm serving families and individuals nationwide. Residing at the intersection of life and finances, Cultivating Wealth offers fee-only financial planning services for people who want to take power over their wealth. To learn more, visit cultivatingwealth.com.
Teaching kids, teens and young adults about how to handle their money is one of the greatest gifts you can give your children. It’s an education that pays dividends (sometimes literally!), and not just when you share the knowledge. Financial literacy benefits us over the entire course of our lifetimes, as there’s never a point at which we’re not making important financial choices and decisions as adults.
While much of the education your kids receive can come from leading by example, modeling smart money habits and sitting down to explain bigger concepts and financial ideas, we also learn by failing. As your children become older teenagers and young adults, it might be worth letting them mess up just a bit.
Good mistakes that provide learning opportunities allow us to experience consequences – as long as those consequences aren’t so detrimental as to be prohibitively expensive or extremely difficult from which to recover. To be clear, “letting” your kids make mistakes doesn’t mean letting them crash and burn. It means stepping back enough for your children to actually experience their failure, but then offering the support they need to quickly regain their footing.
Here are a few money mistakes that can teach powerful lessons, if you allow your children to learn them by going through it themselves.
A budget doesn’t just help people spend more thoughtfully. It also introduces some organization into what otherwise quickly turns to chaos. And financial chaos can get expensive.
When you are financially disorganized, you’re more likely to miss payments, get hit with late fees, forget to move cash to savings or investments, and ignore problems that could snowball into bigger issues over time. You don’t have to let it get to that point before offering to help – but giving your kids a chance to see how expensive financial disorganization can be could provide the incentive they need to get serious about implementing and maintaining a system.
Again, you can offer support by sharing how you organize and structure your own money. Your kids may not copy your style exactly, but it can get them thinking. You can also encourage them to try out different methods, because there really is no one “right way.” The best system is the one that actually works for you.
You can also go over their finances with them and point out what they could automate. Automation removes some of the room for human error (or forgetfulness), and reduces the number of decisions your kids have to make each month.
2. Getting stuck in financial disorganization
It is hard to see your kids barely getting by when they live paycheck to paycheck. But before you jump in with a bailout from the Bank of Mom and Dad, it’s worth considering why they are struggling.
In some cases, they genuinely may not earn enough in their first year out of college to pay for much more than basic expenses. If your child is going through that, your own parenting and financial philosophies will inform whether or not you want to intervene. Some parents believe letting their kids go through some scrappy years is character-building; others will want to pave the way a bit so their children don’t have to fight as hard as they did when they were that age.
But there are other times when your young adult (or even older adult) children are living paycheck to paycheck because of their own choices about how they use the money they earn.
In this case, they may spend what they earn today on what they want in the short-term – leaving little to nothing left over for longer-term goals or priorities like saving for retirement, or for shorter-term desires like joining in on a family trip where they need to pay some of their own way or buying their own house.
Instead of jumping into fund some of these bigger costs, let your children realize on their own that living paycheck to paycheck means only being able to do very short-term things. If all their money goes toward lifestyle expenses in the present, it’s going to be difficult to build wealth.
What can you do to support a change? First, avoid bailing them out or paying for bigger, more expensive things (like a house) for them. Explain that if they want something that will cost more than what they can afford between paychecks, they need to develop a savings habit for themselves and work toward those goals over time.
Then, try introducing the idea of creating a gap between income and expenses. By spending less than they earn, your kids can start to build up a little extra cash in their accounts at the end of the month. They can then use that money to save up for a goal, fund emergency savings or contribute to investments to grow wealth for their financial future.
3. Living paycheck to paycheck
4 Money Mistakes to Let Your Kids Make (for Their Own Good!)
4 Money Mistakes to Let Your Kids Make (for Their Own Good!)
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My 4-year-old daughter loves working around the house to earn money. Perhaps we’re a bit early with these lessons. Nevertheless, when she earns money, it goes into an envelope with the words “baby doll” on it. One thing that kids understand that adults seem to have forgotten is that money itself has no intrinsic value; it is what it affords us that actually matters.
As adults, we tend to forget this until we face imminent transitions, such as buying a home, sending our kids to college, and the big one: retirement. When our portfolio gets hit by a big downturn, we start to question whether we can still afford the goal.
In the next few paragraphs, I’m going to teach you a five-minute exercise to see if you have (about) enough to retire. Note that there are lots of rules of thumb and assumptions in this exercise that may not apply to you. If you want this to be much more complicated, it can, and probably should be, if you’re going to decide to walk away from work. But, if you just want a spot check to see where you stand, this should do the job.
It’s a common question these days: My portfolio is way down. Can I still afford to retire? To calculate a ballpark answer, here’s a quick and easy exercise.
Find Out in 5 Minutes If You Have Enough to Retire
If you make more than you spend, you have earned the luxury of not having to budget. Budgeting is not an exercise that people enjoy. Unlike your working years, budgeting in retirement is not optional. Pull out too little money and you’ve unintentionally paid for your kids’ country club memberships. Pull out too much and you’ll run out.
Here’s a simple trick: Look at two years of annual statements from your bank accounts. Divide the total debits by 24. That’s it. This is an accurate portrayal of your monthly expenses. This should encompass everything except what you pay for before it hits your bank account (taxes, health insurance premiums, group life insurance, etc.).
1. Figure out your expenses
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It’s likely that the majority of your retirement savings will be taxed in some shape or form. Roth IRAs and municipal bonds are notable exceptions.
If your monthly expenses are $10,000 and your effective tax rate (how many cents you lose on the dollar to taxes) is 20%, divide $10,000/0.8, to arrive at $12,500 per month. That’s the gross amount you’ll need every month to end up with $10,000 in your bank account to cover your expenses.
2. Gross up the monthly amount to account for taxes
Let’s say that you and your spouse are receiving $5,000 per month from Social Security. This leaves a gap of $7,500 per month ($12,500-$5,000) that needs to come from somewhere else.
If you have a pension or annuity, subtract those figures out, too. Let’s say for this example there is a pension of $2,000 per month. Therefore, we need to take $5,500 per month from our investments.
3. Subtract Social Security and other fixed income streams
The next, most important question is how much we need saved up in our investment account in order to be able to pull out that amount each month. The 4% “rule” has gotten more widespread attention in the last year as inflation has spiked and markets have tumbled, with folks wondering if it still works. There are lots of different retirement income strategies that, in my opinion, are more effective for withdrawing your savings. However, I have found nothing better that the 4% rule to quickly determine whether you are in the range of having enough money saved.
Using the numbers from step three, you’ll have to multiply $5,500 X 12 to get your annual shortfall amount: $66,000. Divide $66,000/0.04 (4%) and you’ll get $1,650,000. If this example is your exact situation and you have more than $1,650,000, you probably have enough. If you have much less, you’ll need to work longer, spend less or find some other way to stretch your savings.
4. Divide by 4%
As I have repeatedly pointed out, this is just a back-of-the-envelope framework. Here are a few of the major things that could throw it off:
5. Verify for your situation
If you retire before you claim Social Security. In that situation, there is a gap between the income streams and the paychecks, which would cause a higher than 4% withdrawal rate in the early years.
If you need long-term care late in life. This is a risk for almost everyone. It can be offset by insurance or by earmarked investments. Either way, it will create a need for more money.
If you have a really low risk tolerance. Bill Bengen, who created the 4% framework, assumed a 50% stock/50% fixed income portfolio. If you’re not willing to have 50% of your money in stocks, you’ll likely have to withdraw less.
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A financial plan is your road map. It will tell you if you have enough, (mostly) confirm that it will last, and point out any other gaps in your situation. It’s imperfect and life is always changing, so I would not walk away without a plan to confirm the numbers.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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About the Author
Evan T. Beach, CFP®, AWMA®
Wealth Manager, Campbell Wealth Management
Evan Beach is a Certified Financial Planner™ professional and an Accredited Wealth Management Adviser. His knowledge is concentrated on the issues that arise in retirement and how to plan for them. Beach teaches retirement planning courses at several local universities and continuing education courses to CPAs. He has been quoted in and published by Yahoo Finance, CNBC, Credit.com, Fox Business, Bloomberg, and U.S. News and World Report, among others.
Get a copy of your credit report. Comparing your list of debts with your official credit report will ensure that there are no surprises, and make sure that any debts not paid off in full are assigned to one spouse or the other.
After the divorce is final, you could still be liable for outstanding debt, even if your spouse agreed to pay it. If your ex files for bankruptcy or just does not pay the debts, your creditors could demand payment from you for the full amount of the debt, plus interest and penalties. Your divorce decree is an agreement you and your ex-spouse have with the court and does not legally change the contracts you have with your lenders.
Try to leave your marriage with no joint debt. By either paying off the joint cards together or dividing up the debt on joint cards and transferring it to cards in individual names, you eliminate your liability for your partner’s debts.
Developing a plan to divide and eliminate debt may involve tough decisions. However, it must be completed to proceed.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Protect Yourself
A Staggering Loss for Divorced Women
A typical woman suffers a 73% drop in her standard of living post-divorce. However, her ex-husband enjoys an on-average 42% improved standard of living, according to Lenore Weitzman, a George Mason University sociology and law professor.
"Women are more likely to feel divorce's financial burden,” says Shweta Lawande, CFP ®, CDFA® and lead adviser with Francis Financial, a firm specializing in divorce financial planning. “A woman can pretty much see her retirement savings in IRAs, 401(k)s, pension plans, 457s and 403(b) plans cut in half, which can be devastating. In addition, she is unable to recover because she tends to earn less in her career and may have also taken time out of the workforce to care for children."
The divorce gap also creates inequalities between married and divorced women. For example, the Retirement Confidence Survey released in March 2020 revealed that 76% of married women voiced being very or somewhat confident they will have enough money to live comfortably throughout their retirement years. Yet only 43% of divorced women feel the same. But, of course, since that time, pandemic-related stock-market volatility has most likely caused divorced women to feel even more financially vulnerable, along with most Americans.
Unfortunate Gaps in Knowledge
While divorced women workers stand out in the survey as having the lowest retirement confidence, they also lack knowledge about what they need for a financially secure future. For example, fewer than half of the divorced women were very or somewhat confident in knowing how much money they needed to save by retirement to live comfortably in their golden years. So not only do divorced women fret about having enough savings for their golden years, they are also struggling with even knowing how much they will need.
To help close the gap, Lawande suggests that women become more educated about their financial situation and work with a Certified Divorce Financial Analyst™ to understand better how they need to plan for retirement and even everyday money issues. She also recommends that they hire a lawyer who is well versed in their state's laws to ensure that they have a financially advantageous settlement agreement.
Matrimonial attorney Lisa Zeiderman of Miller Zeiderman LLP says women typically feel the financial repercussions of divorce more intensely than men. "Getting a divorce will absolutely impact how much money you will have for retirement. Divorce and the loss of retirement assets can hit you hard. This is especially true if you haven't hired a lawyer who will advocate for you and if you have not taken steps to protect you and your financial future."
The Gap in Wages and Savings Creates an Uphill Battle
Don't look to income from an employer to make up the gap. Women earn about 20% less than their male counterparts, also resulting in smaller pensions and fewer dollars saved into company 401(k)s and other retirement accounts. Women are blessed with longer life spans, but this can also wreak havoc, financially, for a divorced woman in her 50s, 60s and 70s. She faces an uphill battle against time to create enough assets to last the rest of her long life.
Divorcing later in life is much different than in your 20s, 30s and even 40s, when you still have plenty of time to rebuild your assets, reduce your spending and increase your income.
The Solution for Divorcing Women
According to Zeiderman, who in addition to her law degree is also a Certified Divorce Financial Analyst™, "There is no room for error at this stage of your life. Mistakes can be costly, and most women over age 50 do not have the time to recover. Therefore, hiring the right divorce team that includes a seasoned divorce lawyer and divorce financial expert is critical.”
Lawande chimes in, "The women who fare best post-divorce are those who not only have the right divorce team but have also 'leaned into' the finances. They work with their expert divorce advisers to better understand the implications of the property division, Social Security and pension payout options, spousal support payments, and health insurance coverage."
NYSUT NOTE: Now is the time to get your legal documents in order, and as a NYSUT member you can enlist the help of the NYSUT Member Benefits Trust-endorsed Legal Service Plan. This plan can assist you with all your personal legal issues – from preparing crucial legal documents to traffic violations. Provided by the law firm of Feldman, Kramer & Monaco, P.C., this plan provides unlimited access to toll-free legal advice from a national network of lawyers. For more information or to enroll, click here.
Divorce is not easy, but you do not have to do it on your own. The divorce industry has stepped up to the plate with numerous legal, financial and emotional support structures to help empower those moving from coupledom to single life with the right legal advice and financial security.
Be sure to reach out to a divorce attorney who is highly recommended in your state as well as a Certified Divorce Financial Analyst™ to ensure that you understand all the legal and financial issues of your divorce.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
© 2022 The Kiplinger Washington Editors Inc.
What Is a 529 Plan?
Hands down, the 529 plan is a great way to save for college. The tax benefits are key. With a 529 plan, you pay no annual taxes on the investment gains inside the account, plus distributions for qualified expenses like tuition, certain fees and qualified room-and-board expenses are tax-free.
A relatively new provision allows account owners to withdraw $10,000 a year per student for private primary or secondary education.
Each state administers its own plan, and you are free to use any state’s plan. However, some states offer a state-tax deduction if you are a resident and use its in-state plan. That’s the basics, there is much more to know, but today I want to focus on five ways parents can maximize their 529 plan.
The Time Horizon Is Not Freshman Year
Parents of teenagers often ask me if they should open a 529. They wonder if it makes sense given how close the child may be to needing the money for college. While there are a variety of factors to consider, I remind parents the time horizon for needing the money for college is not freshman year, but by senior year. So, for instance, a parent with a 13-year-old may think they have only four years till they’ll need the 529 money, when in reality the time horizon could be eight years, since not all the money is withdrawn in the freshman year. If that is the case, then yes, eight years may still be enough time to invest in a 529. (There may be some financial aid considerations.)
Having said that, I probably wouldn’t invest all the 529 money in equity mutual funds, given the time horizon is only eight years — that is too risky. But perhaps the tuition payment earmarked for the eighth year, or senior year, could be invested in a dividend-paying mutual fund or a balanced mutual fund, since that has the longest time horizon. I suggest consulting with a qualified financial adviser who can help ensure your investment mix is aligned properly with your risk tolerance and time horizon.
Your State’s Plan May Not Be the Best Plan
Some states offer a state income tax deduction on your contributions, assuming you are a resident of the state. Other states have upped the ante even more, with some offering matching contributions. Always check your state’s offerings and incentives before opening a 529 account.
Keep in mind, you are not limited to your home state’s option. A parent in Connecticut can use California’s plan and vice versa. The downside in this example is the Connecticut parent does not receive a tax deduction for contributing to a California 529 plan.
Why would anyone not use their home state’s plan and forgo the state tax deduction? Mutual fund choices and fees. If the mutual fund choices in your home state’s plan are lousy or expensive, that probably won’t help the account grow. There are several websites to compare 529 plans, or a financial adviser should know what to look for as far as fees and investment selection. The point is don’t take it for granted your state’s plan is the best option.
A Compromise: Use More Than One 529 Plan
If you still want to use your home state’s plan to get the state income tax deduction, but want better mutual funds, you may want to try using your state’s plan up to the state tax deduction cap – usually $10,000 a year for married parents – and a separate 529 somewhere else for any additional money.
I see this in states that cap the tax deduction to the first $10,000 of contributions. The next penny over the cap is not state tax deductible. A parent then can contribute the first $10,000 to the home state’s plan for the deduction and use another state’s plan for anything above the cap. This may help with diversification, or using a different plan may have more and better fund choices. You want to be mindful of the annual contribution limits.
The downside is the administrative burden, do you really have the time to oversee two different accounts for each child?
Get the Grandparents Involved
A recent rule change on the FAFSA is helpful for grandparents who want to use a 529 for a grandchild’s education. Prior to the rule change that took effect Oct. 1, 2022, distributions from a grandparent’s 529 were counted as untaxed income to the student and could reduce the student’s aid eligibility. Starting with this year’s FAFSA, for the 2023-2024 school year, a grandchild does not have to report a distribution that was taken from a grandparent’s 529. That’s a big change and should prompt more grandparents to use 529 plans.
Keep in mind, the CSS Profile – a financial aid form used by many colleges to calculate their own financial need – still considers a grandparent’s 529 as a countable asset. However, I’m not sure that should deter grandparents from wanting to use 529 plans, as not all colleges use the CSS. Either way, I believe the more hands that can help fill the piggy bank for college, the better, and with the holidays coming up, this could be a good time to talk to Grandma about 529s.
Paying Private K-12 With a 529 Plan
Parents can use up to $10,000 a year from their 529 plan to pay for private K-12 tuition. If you are paying for private school out of a cash or checking account, you may want to consider first routing the payment to the 529 for the state tax deduction. This is a good idea for parents who are already contributing to a 529 plan but not up to the amount for the state tax deduction — they’d have more room to contribute.
For example, if a family is contributing $5,000 a year to their state’s 529 plan, but the state tax deduction is up to $10,000 in annual contributions, they can contribute the additional K-12 tuition payment to the 529 plan to get them to the $10,000 cap. (The $10,000 cap is an example — each state’s rules vary.) This assumes your state offers a state tax deduction for contributions, your state considers K-12 tuition a qualified expense, and there is no minimum waiting period for withdraws. It’s best to check with the 529 administrator first.
There may be some drawbacks to this approach. Namely, it can be a hassle to move money around. Also, it could lead to commingling college funds and K-12 money, which should be invested differently, given their different time horizons, but this trick could also save you a few bucks on your state taxes.
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College 529 Savings Plans: How to Get the Most Out of Them
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Start by making a list of your debts. A list of liabilities includes:
• Mortgage
• Credit cards
• Auto loans
• Student loans
• Personal loans
• Legal fees
• Tax debt
• Any other debts, including loans from family members
Mortgage
Credit cards
Auto loans
Student loans
Personal loans
Legal fees
Tax debt
Any other debts, including loans from family members
Make a List
Start by making a list of your debts. A list of liabilities includes:
Determine Responsibility
Some debts are easier to divide than others. Student loan debt is usually handled by the student. An auto loan might be assumed by the person who takes ownership of the vehicle.
Credit card debt is more difficult. Some cards may have joint responsibility, but many of us also use our individual cards for expenses for the entire family. Division of those debts may be a key financial issue in some cases.
Debt incurred during a marriage is generally the joint responsibility of both parties, as long as both are co-signers on the credit cards. In community property states, both are responsible, even for debt incurred by one partner.
Set a Deadline
It will be nearly impossible to divide your debts if they continue to grow. Set a date after which there will be no new joint debt. This will likely be the date of separation (physical or legal). Note debt balances as of that date.
After separation, debt incurred on credit cards is the responsibility of the spouse who made the purchases charged on the card. However, you can prevent any room for disagreement by using completely separate cards.
If possible, close your joint credit card accounts. Closing joint accounts will help you avoid the possibility of your ex-spouse incurring debt in your name. Open up a new credit card after you’ve separated and use it for your personal expenses going forward. This will keep your non-marital debt independent of the debts you accumulated while you were still married.
At the very least, have your name removed from any joint accounts that will continue to be used by your spouse. This will not end your liability for debts incurred up to that point, but it should end your responsibility for any new debts incurred on those accounts by your spouse. If you hold any accounts in your own name for which your spouse is an authorized signer, revoke the authorization. Keep detailed records of your charges.
Even if you disagree on responsibility for a debt, continue to pay all minimum payments on credit card accounts that bear your name. Failing to do that could compromise your credit score and adversely affect your credit history down the road.
There are several options for handling or eliminating joint credit card debt.
Agree to transfer portions of joint debt onto individual cards and cancel the joint cards.
Agree to use joint savings to pay off all or a portion of the debt.
Agree to sell a car or other asset and use the money to pay off outstanding debts.
Agree to use a home equity line of credit in a jointly owned house.
There are several options for handling or eliminating joint credit card debt.
Make a Plan to Pay Your Debt
There are several options for handling or eliminating joint credit card debt.
NYSUT NOTE: Divorce can be complicated, but when you have the right team in place it can help simplify the process. The NYSUT Member Benefits Trust-endorsed Legal Service Plan is available to help provide legal assistance for many of the issues that may be affected by divorce. Provided by the law firm of Feldman, Kramer & Monaco, P.C., NYSUT members can get unlimited access to toll-free legal advice from a national network of lawyers. For more information or to enroll, click here.
Get a copy of your credit report. Comparing your list of debts with your official credit report will ensure that there are no surprises, and make sure that any debts not paid off in full are assigned to one spouse or the other.
After the divorce is final, you could still be liable for outstanding debt, even if your spouse agreed to pay it. If your ex files for bankruptcy or just does not pay the debts, your creditors could demand payment from you for the full amount of the debt, plus interest and penalties. Your divorce decree is an agreement you and your ex-spouse have with the court and does not legally change the contracts you have with your lenders.
Try to leave your marriage with no joint debt. By either paying off the joint cards together or dividing up the debt on joint cards and transferring it to cards in individual names, you eliminate your liability for your partner’s debts.
Developing a plan to divide and eliminate debt may involve tough decisions. However, it must be completed to proceed.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2022 Future US LLC
1. Failing to budget
No matter where you are in life, you need to understand your cash flow: money coming in, and money going out. That’s where keeping a budget – especially as you enter young adulthood and take charge of your own finances for the first time – is extremely helpful.
A budget (or budgeting system) means you maintain awareness of what your money is doing day to day. The better you track your cash flow, the more informed you’ll be about your financial situation, and the better the quality of your decisions is likely to be.
For an older teen, college student or young adult, budgeting can seem like a chore, extremely boring or both. But when they fail to budget, they miss the opportunity to truly understand their money and where it goes each month.
Living without a budget is a big money mistake, but it’s worth letting your kids make it so they understand how difficult it is to live without any kind of structure or system to keep their cash flow under control.
If they continue to struggle on their own, you could offer to sit down with them and give them a peek at your own budgeting system. Offer to help them get started on a platform like Mint or You Need A Budget. And talk to them about how their money is a tool that they can use wisely to get more of what they want … but only if they manage it well. Budgeting is a first step.
2. Getting stuck in financial disorganization
A budget doesn’t just help people spend more thoughtfully. It also introduces some organization into what otherwise quickly turns to chaos. And financial chaos can get expensive.
When you are financially disorganized, you’re more likely to miss payments, get hit with late fees, forget to move cash to savings or investments, and ignore problems that could snowball into bigger issues over time. You don’t have to let it get to that point before offering to help – but giving your kids a chance to see how expensive financial disorganization can be could provide the incentive they need to get serious about implementing and maintaining a system.
Again, you can offer support by sharing how you organize and structure your own money. Your kids may not copy your style exactly, but it can get them thinking. You can also encourage them to try out different methods, because there really is no one “right way.” The best system is the one that actually works for you.
You can also go over their finances with them and point out what they could automate. Automation removes some of the room for human error (or forgetfulness), and reduces the number of decisions your kids have to make each month.
4 Money Mistakes to Let Your Kids Make (for Their Own Good!)
The Bottom Line
Thankfully for my family, my husband's grandfather knew exactly what he had and how much his stock certificates were worth. We worked together through the whole box for several months before he died to get the certificates titled properly and make them electronic.
My family was lucky to catch him in the narrow window before he died when he was still cognitively aware. If we hadn't, it would have been so much worse. We would have had to send a certified death certificate to every one of his bank and savings accounts as well as for each and every stock certificate — just to get them converted to a new name. And, in the case where the original stock certificate was unavailable, we would have had to pay to have a new one reissued.
To help your family avert this potentially long and costly situation, talk to a financial adviser about what steps to take.
Erin Wood is a non-registered associate of Cetera Advisor Networks LLC. Cetera is under separate ownership from any other named entity.
Securities offered through Cetera Advisor Networks LLC, Member FINRA/SIPC. Investment advisory services offered through CWM, LLC, an SEC Registered Investment Advisor. Cetera Advisor Networks LLC is under separate ownership from any other named entity. Carson Partners, a division of CWM, LLC, is a nationwide partnership of advisors. Erin is a non-registered associate of Cetera Advisor Networks LLC.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
1. Figure out your expenses
If you make more than you spend, you have earned the luxury of not having to budget. Budgeting is not an exercise that people enjoy. Unlike your working years, budgeting in retirement is not optional. Pull out too little money and you’ve unintentionally paid for your kids’ country club memberships. Pull out too much and you’ll run out.
Here’s a simple trick: Look at two years of annual statements from your bank accounts. Divide the total debits by 24. That’s it. This is an accurate portrayal of your monthly expenses. This should encompass everything except what you pay for before it hits your bank account (taxes, health insurance premiums, group life insurance, etc.).
2. Gross up the monthly amount to account for taxes
It’s likely that the majority of your retirement savings will be taxed in some shape or form. Roth IRAs and municipal bonds are notable exceptions.
If your monthly expenses are $10,000 and your effective tax rate (how many cents you lose on the dollar to taxes) is 20%, divide $10,000/0.8, to arrive at $12,500 per month. That’s the gross amount you’ll need every month to end up with $10,000 in your bank account to cover your expenses.
3. Subtract Social Security and other fixed income streams
Let’s say that you and your spouse are receiving $5,000 per month from Social Security. This leaves a gap of $7,500 per month ($12,500-$5,000) that needs to come from somewhere else.
If you have a pension or annuity, subtract those figures out, too. Let’s say for this example there is a pension of $2,000 per month. Therefore, we need to take $5,500 per month from our investments.
4. Divide by 4%
The next, most important question is how much we need saved up in our investment account in order to be able to pull out that amount each month. The 4% “rule” has gotten more widespread attention in the last year as inflation has spiked and markets have tumbled, with folks wondering if it still works. There are lots of different retirement income strategies that, in my opinion, are more effective for withdrawing your savings. However, I have found nothing better that the 4% rule to quickly determine whether you are in the range of having enough money saved.
Using the numbers from step three, you’ll have to multiply $5,500 X 12 to get your annual shortfall amount: $66,000. Divide $66,000/0.04 (4%) and you’ll get $1,650,000. If this example is your exact situation and you have more than $1,650,000, you probably have enough. If you have much less, you’ll need to work longer, spend less or find some other way to stretch your savings.
© 2022 The Kiplinger Washington Editors Inc.
As I have repeatedly pointed out, this is just a back-of-the-envelope framework. Here are a few of the major things that could throw it off:
If you retire before you claim Social Security. In that situation, there is a gap between the income streams and the paychecks, which would cause a higher than 4% withdrawal rate in the early years.
If you need long-term care late in life. This is a risk for almost everyone. It can be offset by insurance or by earmarked investments. Either way, it will create a need for more money.
If you have a really low risk tolerance. Bill Bengen, who created the 4% framework, assumed a 50% stock/50% fixed income portfolio. If you’re not willing to have 50% of your money in stocks, you’ll likely have to withdraw less.
As I have repeatedly pointed out, this is just a back-of-the-envelope framework. Here are a few of the major things that could throw it off:
NYSUT NOTE: Getting a plan in place to manage your debt isn’t always easy. But with the help of the NYSUT Member Benefits Corporation-endorsed Cambridge Credit Counseling program, NYSUT members have the opportunity to work with a certified counselor on possible debt elimination options. With over 20 years of experience assisting consumers with debt, Cambridge can work with you to determine the most appropriate course of action for your specific debt situation. Get a better understanding of debt consolidation, student loan repayment options and more by visiting the website today.
A financial plan is your road map. It will tell you if you have enough, (mostly) confirm that it will last, and point out any other gaps in your situation. It’s imperfect and life is always changing, so I would not walk away without a plan to confirm the numbers.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
1. Figure out your expenses
If you make more than you spend, you have earned the luxury of not having to budget. Budgeting is not an exercise that people enjoy. Unlike your working years, budgeting in retirement is not optional. Pull out too little money and you’ve unintentionally paid for your kids’ country club memberships. Pull out too much and you’ll run out.
Here’s a simple trick: Look at two years of annual statements from your bank accounts. Divide the total debits by 24. That’s it. This is an accurate portrayal of your monthly expenses. This should encompass everything except what you pay for before it hits your bank account (taxes, health insurance premiums, group life insurance, etc.).
1. Examine Your Spending History.
Many people don’t keep a household budget in the earning years of their career. They also do not want to live on a strict budget in retirement, so I use a different approach: We add up all annual spending over the last three years to look at macrotrends in spending patterns. Anyone can do this by collecting all credit card and bank statements to find spending averages.
The purpose of this exercise is to see if this spending trend is sustainable for the next 30 years in retirement. A person or couple must be able to afford to live on their portfolio savings and guaranteed sources of income, such as Social Security benefits.
In addition, most new retirees soon realize they need to fill their days with at least one major activity – and this usually costs money. During the first two years of retirement, I’ve watched my clients spend large sums on home improvements, as well as things like international and domestic travel in a recreational vehicle. Certain hobbies, such as restoring a classic car, can easily run into the tens of thousands of dollars and stress the financial plan.
If spending needs to be reduced, there can be some easy fixes. These can include cutting back on monthly automated subscription payments, increasing home and auto deductibles in exchange for lowering premiums on insurance policies, traveling during the off-seasons and taking on some home improvement projects instead of hiring professionals.
Some can be bigger changes – people may decide to downsize their home or consider selling extra cars to save even more money.
2. Build a Plan to Survive a Down Stock Market.
Worry during uncertain times is normal. But those with a comprehensive financial plan should be able to ride it out without making costly errors.
Selling investments at a loss is often based in fear. Most financial advisers know someone who sold their stocks when the market dropped in March 2020. But markets quickly reversed course and set record highs for nearly the next two years. A person with millions in investments who sold their stocks and lost 20% of their value often locked in their losses, missing out on reaping the potential benefits of market gains down the road in the recovery.
As a possible recession approaches, one way I help prepare clients plan for retirement income is to create a bond ladder.
A bond ladder enables someone to purchase a variety of individual bonds with different maturity dates – the date an investor receives the interest payment on their bond. For example, a person could invest $100,000 and buy 10 different bonds each with a face value of $10,000. Because each bond will have a different maturity date, an investor will have a regular stream of guaranteed income if held to maturity. High-quality bonds that will be held to maturity can provide a household with a steady stream of income for the next few years.
About the Author
Stacy Francis, CFP®, CDFA®, CES™
President & CEO, Francis Financial Inc.
Stacy is a nationally recognized financial expert and the President and CEO of Francis Financial Inc., which she founded 15 years ago. She is a Certified Financial Planner® (CFP®) and Certified Divorce Financial Analyst® (CDFA®) who provides advice to women going through transitions, such as divorce, widowhood and sudden wealth. She is also the founder of Savvy Ladies™, a nonprofit that has provided free personal finance education and resources to over 15,000 women.
NYSUT NOTE: Divorce can be complicated, but when you have the right team in place it can help simplify the process. The NYSUT Member Benefits Trust-endorsed Legal Service Plan is available to help provide legal assistance for many of the issues that may be affected by divorce. Provided by the law firm of Feldman, Kramer & Monaco, P.C., NYSUT members can get unlimited access to toll-free legal advice from a national network of lawyers. For more information or to enroll, click here.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2022 Future US LLC
Heading into retirement brings a slew of new topics to grapple with, and one of the most maddening may be Medicare. Figuring out when to enroll in Medicare and which parts to enroll in can be daunting even for the savviest retirees. There's Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on.
And what is a doughnut hole, anyway? To help you wade into the waters of this complicated federal health insurance program for retirement-age Americans, here are 11 essential things you must know about Medicare.
Medicare is divided into parts. Part A, which pays for hospital services, is free if either you or your spouse paid Medicare payroll taxes for at least 10 years. (People who aren't eligible for free Part A can pay a monthly premium of several hundred dollars.) Part B covers doctor visits and outpatient services, and it comes with a monthly price tag—the standard monthly premium in 2023 will be $164.90, down from $170.10 per month in 2022. Part D, which covers prescription-drug costs, also has a monthly charge that varies depending on which plan you choose; the average Part D basic premium for 2023 is $31.50, down from $32.08 last year. In addition to premium costs, you'll also be subject to co-payments, deductibles and other out-of-pocket costs. To find the latest costs, visit Medicare.gov/your-medicare-costs.
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Beneficiaries of traditional Medicare will likely want to sign up for a Medigap supplemental insurance plan offered by private insurance companies to help cover deductibles, co-payments and other gaps. You can switch Medigap plans at any time, but you could be charged more or denied coverage based on your health if you choose or change plans more than six months after you first signed up for Part B. Medigap policies are identified by letters A through N. Each policy that goes by the same letter must offer the same basic benefits, and usually the only difference between same-letter policies is the cost. Plan F has been very popular because of its comprehensive coverage, but as of 2020, Plan F (along with Plan C) is unavailable for new enrollees. The closest substitute for Plan F is Plan G, which pays for everything that Plan F did except the Medicare Part B deductible. Anyone enrolled in Medicare before 2020 can still sign up for plans F and C.
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Medicare Comes With a Cost
Fill Medicare's Coverage Gaps With a Medigap Plan
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There’s Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare—and much more.
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Medicare Basics: 11 Things You Need to Know
Medicare Basics: 11 Things You Need to Know
You can choose to sign up for traditional Medicare: Parts A, B and D, and a supplemental Medigap policy. Or, you can go an alternative route by signing up for Medicare Advantage, which provides medical through private insurance companies. These plans also frequently include prescription drug coverage. Also called Part C, Medicare Advantage has a monthly cost, in addition to the Part B premium, that varies depending on which plan you choose. For 2023, the average monthly premium for Advantage plans is $18.
Like traditional Medicare, you'll also be subject to co-payments, deductibles and other out-of-pocket costs. In many cases, Advantage policies charge lower premiums than Medigap plans but have higher cost-sharing. Your choice of providers may be more limited with Medicare Advantage than with traditional Medicare, and recent research has found that sicker enrollees often dump Medicare Advantage in favor of original Medicare.
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If your income is above a certain threshold, you'll pay more for Parts B and D. These surcharges are based on your modified adjusted gross income (MAGI) from two years earlier. In 2023, single filers with a MAGI from 2021 that exceeds $97,000 ($194,000 for joint filers) will pay a premium ranging from $230.80 to $560.50 per month, depending on their income. The standard premium in 2023 is $164.90.
For Part D coverage in 2023, single filers with MAGI from 2021 that is more than $97,000 (or more than $194,000 for joint filers) will pay an extra $12.20 to $76.40 per month, depending on their income.
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Consider Medicare Advantage for All-in-One Plans
High Incomers Pay More for Medicare
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If you are already taking Social Security benefits, you will be automatically enrolled in Parts A and B at age 65 You can choose to turn down Part B, since it has a monthly cost; if you keep it, the cost will be deducted from your Social Security if you already claimed benefits.
For those who have not started Social Security, you will have to sign yourself up for Parts A and B. The seven-month initial enrollment period begins three months before the month you turn 65 and ends three months after your birthday month. To ensure coverage starts by the time you turn 65, sign up in the first three months.
If you are still working and have health insurance through your employer (or if you’re covered under your spouse’s employer coverage), you may be able to delay signing up for Medicare. But you will need to follow the rules and must sign up for Medicare within eight months of losing your employer’s coverage to avoid significant penalties when you do eventually enroll.
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When to Sign Up for Medicare
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There are several enrollment periods, in addition to the seven-month initial enrollment period. If you missed signing up for Part B during that initial enrollment period and you aren't working (or aren't covered by your spouse's employer coverage), you can sign up for Part B during the general enrollment period that runs from Jan. 1 to March 31. Coverage will begin on the month after you sign up. But you will have to pay a 10% penalty for life for each 12-month period you delayed signing up for Part B. Those who are covered by a current employer's plan, though, can sign up later without penalty during a special enrollment period, which lasts for eight months after you lose that employer coverage. If you miss your special enrollment period, you will need to wait until the general enrollment period to sign up.
Open enrollment runs from Oct. 15 to Dec. 7 every year during which you can change Part D plans or Medicare Advantage plans for the following year, or switch between Medicare Advantage and original Medicare. Advantage enrollees also can switch to a new Advantage plan or original Medicare between Jan. 1 and March 31. And if a Medicare Advantage plan or Part D plan available in your area has a five-star quality rating, you can switch to that plan outside of the open enrollment period.
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Even with Part D, you may be responsible for a deductible, co-payments or co-insurance. For 2023, when the total amount that you and your plan have paid for drugs reaches $4,660, then you will pay 25% of any additional costs. Prescription drug manufacturers pick up 70% of that tab while insurers pay 5%.
Catastrophic coverage — with the government picking up most costs — begins when a patient's out-of-pocket costs in 2023 reach $7,400, or $350 higher than in 2022. Any deductible paid earlier counts toward that annual maximum as does the 25% you contributed while in the coverage gap and the 70% that pharmaceutical companies paid on your behalf. For the latest information, visit Medicare.gov/drug-coverage-part-d.
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A Quartet of Medicare Enrollment Periods
Filling Medicare Part D’s Coverage Gap
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Medicare beneficiaries can receive a number of free preventive services. You get an annual free "wellness" visit to develop or update a personalized prevention plan. Beneficiaries also get a free cardiovascular screening every five years, annual mammograms, annual flu shots, and screenings for cervical, prostate and colorectal cancers.
Medicare Offers More Free Preventive Services
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Medicare Basics: 11 Things You Need to Know
Although most Medicare Advantage plans have been covering telehealth for years, traditional Medicare used to restrict the service only to certain devices and practitioners, and patients had to be at a Medicare facility. When the coronavirus pandemic hit, telehealth was expanded so that patients could use smartphones in their own homes to consult with a broader range of medical professionals, a feature that could become permanent.
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While Medicare covers your health care, it generally does not cover long-term care—an important distinction. Under certain conditions, particularly after a hospitalization to treat an acute-care episode, Medicare will pay for medically necessary skilled-nursing facility or home health care. But Medicare generally does not cover costs for "custodial care"—that is, care that helps you with activities of daily living, such as dressing and bathing. To cover those costs, you will have to rely on your savings, long-term-care insurance or Medicaid—if you meet the income and asset requirements. Traditional Medicare also doesn't cover routine dental or eye care and some items such as dentures or hearing aids.
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Medicare Expands Telehealth Offerings
What Medicare Does Not Cover
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If you disagree with a coverage or payment decision made by Medicare or a Medicare health plan, you can file an appeal at Medicare.gov. The appeals process has five levels, and you can generally go up a level if your appeal is denied at a previous level. Gather any information that may help your case from your doctor, health care provider or supplier. If you think your health would be seriously harmed by waiting for a decision, you can ask for a fast decision to be made and if your doctor or Medicare plan agrees, the plan must make a decision within 72 hours.
You Have the Right to Appeal a Medicare Decision
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Medicare Basics: 11 Things You Need to Know
NYSUT NOTE: As interest rates continue to increase, there is no better time to address outstanding credit card debt. The NYSUT Member Benefits Corporation-endorsed Cam-bridge Credit Counseling program can help members get a better understanding of their debt consolidation and repayment options. NYSUT members are eligible for a free, no-obligation, debt and student loan consultation with one of Cambridge's certified counselors, who will help determine the most appropriate course of action for your spe-cific debt situation. To find out how to speak to a counselor, visit the website for more information.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
NYSUT NOTE: Shop around for the right renters insurance policy by using the NYSUT Member Benefits Corporation-endorsed Farmers Insurance Choice platform. Offered by Farmers GroupSelectSM, this platform allows NYSUT members to choose from multiple insurance carriers and features competitive prices and savings for stand-alone or bundled auto and home policies. For more information or to start shopping, visit the website today.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
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How the Life Insurance Game Is Changing
Millennial consumers love customization. With so much information readily available, there is quite a bit you can do on your own if you choose to. And when you are ready and have questions or want a more guided experience, there is a financial professional who will be able to help. Whether by phone, by video, online or the good old-fashioned face-to-face meeting, a financial professional is always a great stop on this journey to be sure you have considered your needs and options. There are nuances to the features and benefits of life insurance, and an experienced professional can help you sort it all out. Among millennials who purchased life insurance in the pandemic, more than half used a live adviser, and 30% used both a live adviser and online elements in their purchase, according to Boston Consulting Group.
In addition to helping provide financial security for your loved ones in case you pass away, many life insurance policies now also offer optional riders (sometimes at additional cost) that can help address other concerns, like chronic illness or longevity risk.
Your move, millennials: Choose the method that works best for you. That may be an online-only purchase, using a live adviser, or some combination of the two. If you’re not sure where to turn for help, your employer may provide access to an adviser. It is also likely that friends or family members may have a referral for you. This is one of the most common ways advisers acquire new clients. Finally, many states have registration requirements and often have online directories of licensed financial professionals. Without a referral from someone you trust, it is a good rule of thumb to select two to three people to interview so that you can find the best person for you.
As millennials become more likely to purchase life insurance, insurers have evolved their offerings to create new products and innovations to meet their needs. That’s great news for first-time applicants who may find a much more painless process than expected.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About The Author
Salene Hitchcock-Gear, President of Prudential Individual Life Insurance
President of Prudential Individual Life Insurance, Prudential Financial
Salene Hitchcock-Gear represents Prudential as a director on the Women Presidents’ Organization Advisory Board and also serves on the board of trustees of the American College of Financial Services. In addition, Hitchcock-Gear has a bachelor’s degree from the University of Michigan, a Juris Doctor degree from New York University School of Law, as well as FINRA Series 7 and 24 securities licenses. She is a member of the New York State Bar Association.
Good news: You can have it your way!
NYSUT NOTE: The NYSUT Member Benefits Trust-endorsed WrapPlan® II Universal Life Insurance Plan underwritten by Transamerica Financial Life Insurance Company allows you to purchase life insurance coverage that increases as your term life coverage decreases or terminates. For more information on requirements and how it works, visit the NYSUT Member Benefits website today.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
NYSUT NOTE: The NYSUT Member Benefits Trust-endorsed Term Life Insurance Plan provided by Metropolitan Life Insurance Company offers term life insurance coverage for you or your spouse. With premiums especially negotiated for NYSUT members, you can ensure your family is adequately protected with crucial income to pay daily living expenses. Click here for more information or to get an application today.
NYSUT NOTE: The NYSUT Member Benefits Trust-endorsed Level Term Life Insurance Plan — provided by Metropolitan Life Insurance Company — offers level term life insurance coverage for you or your spouse/certified domestic partner. Terms are available for 10-year, 15-year and 20-year periods. For more information on requirements and term details, visit the NYSUT Member Benefits website today.
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Heading into retirement brings a slew of new topics to grapple with, and one of the most maddening may be Medicare. Figuring out when to enroll in Medicare and which parts to enroll in can be daunting even for the savviest retirees. There's Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on.
And what is a doughnut hole, anyway? To help you wade into the waters of this complicated federal health insurance program for retirement-age Americans, here are 11 essential things you must know about Medicare.
Medicare is divided into parts. Part A, which pays for hospital services, is free if either you or your spouse paid Medicare payroll taxes for at least 10 years. (People who aren't eligible for free Part A can pay a monthly premium of several hundred dollars.) Part B covers doctor visits and outpatient services, and it comes with a monthly price tag—the standard monthly premium in 2022 will be $170.10, up from $148.50 per month this year. Part D, which covers prescription-drug costs, also has a monthly charge that varies depending on which plan you choose; the average Part D basic premium for 2022 will be about $33, up from $31.47 this year. In addition to premium costs, you'll also be subject to co-payments, deductibles and other out-of-pocket costs. To find the latest costs, visit Medicare.gov/your-medicare-costs.
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Beneficiaries of traditional Medicare will likely want to sign up for a Medigap supplemental insurance plan offered by private insurance companies to help cover deductibles, co-payments and other gaps. You can switch Medigap plans at any time, but you could be charged more or denied coverage based on your health if you choose or change plans more than six months after you first signed up for Part B. Medigap policies are identified by letters A through N. Each policy that goes by the same letter must offer the same basic benefits, and usually the only difference between same-letter policies is the cost. Plan F has been very popular because of its comprehensive coverage, but as of 2020, Plan F (along with Plan C) is unavailable for new enrollees. The closest substitute for Plan F is Plan G, which pays for everything that Plan F did except the Medicare Part B deductible. Anyone enrolled in Medicare before 2020 can still sign up for plans F and C.
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Medicare Comes With a Cost
Fill Medicare's Coverage Gaps With a Medigap Plan
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There’s Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare—and much more.
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You can choose to sign up for traditional Medicare: Parts A, B and D, and a supplemental Medigap policy. Or, you can go an alternative route by signing up for Medicare Advantage, which provides medical through private insurance companies. These plans also frequently include prescription drug coverage. Also called Part C, Medicare Advantage has a monthly cost, in addition to the Part B premium, that varies depending on which plan you choose. For 2022, the average monthly premium for Advantage plans is $19.
Like traditional Medicare, you'll also be subject to co-payments, deductibles and other out-of-pocket costs. In many cases, Advantage policies charge lower premiums than Medigap plans but have higher cost-sharing. Your choice of providers may be more limited with Medicare Advantage than with traditional Medicare, and recent research has found that sicker enrollees often dump Medicare Advantage in favor of original Medicare.
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Consider Medicare Advantage for All-in-One Plans
Medicare Basics: 11 Things You Need to Know
If your income is above a certain threshold, you'll pay more for Parts B and D. These surcharges are based on your adjusted gross income from two years earlier. In 2022, single filers with an AGI from 2020 that exceeds $91,000 ($182,000 for joint filers) will pay a premium ranging from $238.10 to $578.30 per month, depending on their income. The standard premium in 2022 will be $170.10.
For Part D coverage in 2022, single filers with an AGI from 2020 that is more than $91,000 (or more than $182,000 for joint filers) will pay an extra $12.40 to $77.90 per month, depending on their income.
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High Incomers Pay More for Medicare
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If you are already taking Social Security benefits, you will be automatically enrolled in Parts A and B at age 65 You can choose to turn down Part B, since it has a monthly cost; if you keep it, the cost will be deducted from your Social Security if you already claimed benefits.
For those who have not started Social Security, you will have to sign yourself up for Parts A and B. The seven-month initial enrollment period begins three months before the month you turn 65 and ends three months after your birthday month. To ensure coverage starts by the time you turn 65, sign up in the first three months.
If you are still working and have health insurance through your employer (or if you’re covered by your working spouse’s employer coverage), you may be able to delay signing up for Medicare. But you will need to follow the rules and must sign up for Medicare within eight months of losing your employer’s coverage to avoid significant penalties when you do eventually enroll.
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When to Sign Up for Medicare
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There are several enrollment periods, in addition to the seven-month initial enrollment period. If you missed signing up for Part B during that initial enrollment period and you aren't working (or aren't covered by your spouse's employer coverage), you can sign up for Part B during the general enrollment period that runs from Jan. 1 to March 31. Coverage will begin on July 1. But you will have to pay a 10% penalty for life for each 12-month period you delay in signing up for Part B. Those who are covered by a current employer's plan, though, can sign up later without penalty during a special enrollment period, which lasts for eight months after you lose that employer coverage. If you miss your special enrollment period, you will need to wait until the general enrollment period to sign up.
Open enrollment runs from Oct. 15 to Dec. 7 every year during which you can change Part D plans or Medicare Advantage plans for the following year, or switch between Medicare Advantage and original Medicare. Advantage enrollees also can switch to a new Advantage plan or original Medicare between Jan. 1 and March 31. And if a Medicare Advantage plan or Part D plan available in your area has a five-star quality rating, you can switch to that plan outside of the open enrollment period.
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A Quartet of Medicare Enrollment Periods
Medicare Basics: 11 Things You Need to Know
In 2020 the dreaded Part D "doughnut hole" was filled. That hole is a coverage gap in which you used to face much higher out-of-pocket costs for your drugs, but that is no longer the case. For 2022, when the total amount your plan has paid for drugs reaches $4,430 then you will pay 25% of any additional costs. (This percentage used to be higher before the gap was closed.) Prescription drug manufacturers pick up 70% of that tab while insurers pay 5%.
Catastrophic coverage, with the government picking up most costs, begins when a patient's out-of-pocket costs reach $7,050, the maximum spending limit for beneficiaries in 2022, which is $500 higher than 2021’s cap. Any deductible paid before you entered the doughnut hole counts toward that annual maximum as does the 25% you contributed while in the doughnut hole and the 70% that pharmaceutical companies paid on your behalf. For the latest information, visit Medicare.gov/drug-coverage-part-d.
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A Filled Doughnut Hole for Medicare Part D
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Medicare beneficiaries can receive a number of free preventive services. You get an annual free "wellness" visit to develop or update a personalized prevention plan. Beneficiaries also get a free cardiovascular screening every five years, annual mammograms, annual flu shots, and screenings for cervical, prostate and colorectal cancers.
Medicare Offers More Free Preventive Services
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Medicare Basics: 11 Things You Need to Know
Although most Medicare Advantage plans have been covering telehealth for years, traditional Medicare used to restrict the service only to certain devices and practitioners, and patients had to be at a Medicare facility. When the coronavirus pandemic hit, telehealth was expanded so that patients could use smartphones in their own homes to consult with a broader range of medical professionals, a feature that could become permanent.
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Medicare Expands Telehealth Offerings
While Medicare covers your health care, it generally does not cover long-term care—an important distinction. Under certain conditions, particularly after a hospitalization to treat an acute-care episode, Medicare will pay for medically necessary skilled-nursing facility or home health care. But Medicare generally does not cover costs for "custodial care"—that is, care that helps you with activities of daily living, such as dressing and bathing. To cover those costs, you will have to rely on your savings, long-term-care insurance or Medicaid—if you meet the income and asset requirements. Traditional Medicare also doesn't cover routine dental or eye care and some items such as dentures or hearing aids.
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What Medicare Does Not Cover
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Medicare Basics: 11 Things
You Need to Know
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© 2021 The Kiplinger Washington Editors Inc.
If you disagree with a coverage or payment decision made by Medicare or a Medicare health plan, you can file an appeal at Medicare.gov. The appeals process has five levels, and you can generally go up a level if your appeal is denied at a previous level. Gather any information that may help your case from your doctor, health care provider or supplier. If you think your health would be seriously harmed by waiting for a decision, you can ask for a fast decision to be made and if your doctor or Medicare plan agrees, the plan must make a decision within 72 hours.
You Have the Right to Appeal a Medicare Decision
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NYSUT NOTE: As interest rates continue to increase, there is no better time to address outstanding credit card debt. The NYSUT Member Benefits Corporation-endorsed Cam-bridge Credit Counseling program can help members get a better understanding of their debt consolidation and repayment options. NYSUT members are eligible for a free, no-obligation, debt and student loan consultation with one of Cambridge's certified counselors, who will help determine the most appropriate course of action for your spe-cific debt situation. To find out how to speak to a counselor, visit the website for more information.
NYSUT NOTE: As interest rates continue to increase, there is no better time to address outstanding credit card debt. The NYSUT Member Benefits Corporation-endorsed Cam-bridge Credit Counseling program can help members get a better understanding of their debt consolidation and repayment options. NYSUT members are eligible for a free, no-obligation, debt and student loan consultation with one of Cambridge's certified counselors, who will help determine the most appropriate course of action for your spe-cific debt situation. To find out how to speak to a counselor, visit the website for more information.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
Trend alert: The process continues to get faster and easier…
Millennials are comfortable researching and buying nearly everything from groceries to cars online. Life insurers and agents were already making enhancements to digital tools to make it easier for consumers to research and purchase life insurance online, but the pandemic accelerated those improvements. It’s now easier than ever to gather quotes from multiple insurers, research potential providers, and even go through the application and delivery process entirely online.
In addition, physicals for many policies are optional (but you might still want one). A growing number of insurers have ditched the physical examination requirement in recent years, meaning you can purchase a life insurance policy without a medical exam or blood tests. Exam-free policies typically have faster underwriting times than traditional policies, and they offer the convenience of avoiding an additional appointment. But they’re not the right choice for everyone. Exam-free policies, for example, typically cost more than those that include a physical, and coverage may be capped at $500,000.
Your move, millennials: Given the ease with which you can research and purchase insurance, you now have a marketplace of tools and options at your disposal. The sooner you get started the better, since prices only go up as you get older.
Millennial consumers love customization. With so much information readily available, there is quite a bit you can do on your own if you choose to. And when you are ready and have questions or want a more guided experience, there is a financial professional who will be able to help. Whether by phone, by video, online or the good old-fashioned face-to-face meeting, a financial professional is always a great stop on this journey to be sure you have considered your needs and options. There are nuances to the features and benefits of life insurance, and an experienced professional can help you sort it all out. Among millennials who purchased life insurance in the pandemic, more than half used a live adviser, and 30% used both a live adviser and online elements in their purchase, according to Boston Consulting Group.
In addition to helping provide financial security for your loved ones in case you pass away, many life insurance policies now also offer optional riders (sometimes at additional cost) that can help address other concerns, like chronic illness or longevity risk.
Your move, millennials: Choose the method that works best for you. That may be an online-only purchase, using a live adviser, or some combination of the two. If you’re not sure where to turn for help, your employer may provide access to an adviser. It is also likely that friends or family members may have a referral for you. This is one of the most common ways advisers acquire new clients. Finally, many states have registration requirements and often have online directories of licensed financial professionals. Without a referral from someone you trust, it is a good rule of thumb to select two to three people to interview so that you can find the best person for you.
As millennials become more likely to purchase life insurance, insurers have evolved their offerings to create new products and innovations to meet their needs. That’s great news for first-time applicants who may find a much more painless process than expected.
NYSUT NOTE: The NYSUT Member Benefits Trust-endorsed Term Life Insurance Plan provided by Metropolitan Life Insurance Company offers term life insurance coverage for you or your spouse. With premiums especially negotiated for NYSUT members, you can ensure your family is adequately protected with crucial income to pay daily living expenses. Click here for more information or to get an application today.
NYSUT NOTE: The NYSUT Member Benefits Trust-endorsed Level Term Life Insurance Plan — provided by Metropolitan Life Insurance Company — offers level term life insurance coverage for you or your spouse/certified domestic partner. Terms are available for 10-year, 15-year and 20-year periods. For more information on requirements and term details, visit the NYSUT Member Benefits website today.
NYSUT NOTE: The NYSUT Member Benefits Trust-endorsed Level Term Life Insurance Plan — provided by Metropolitan Life Insurance Company — offers level term life insurance coverage for you or your spouse/certified domestic partner. Terms are available for 10-year, 15-year and 20-year periods. For more information on requirements and term details, visit the NYSUT Member Benefits website today.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About The Author
Tony Drake, CFP®, Investment Advisor Representative
Founder & CEO, Drake and Associates
Tony Drake is a CERTIFIED FINANCIAL PLANNER™ and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.
NYSUT NOTE: As a NYSUT member, you have access to a national network of attorneys that deal with personal legal matters through the NYSUT Member Benefits Trust-endorsed Legal Service Plan. Provided by the law firm of Feldman, Kramer & Monaco, P.C., these experts offer legal assistance with everything from preparing crucial estate planning documents to dealing with traffic violations. For more information or to enroll click here.
© 2022 The Kiplinger Washington Editors Inc.
Financial Planning in Retirement: Seeing All the Angles
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There’s more than one way to go about many things, but I’m sure you understand this author has his preferences on the best ways to go about finding your ideal financial planning partner. Let’s start with the evolution of advice in financial services.
Back in the days before the internet, if you wanted to buy stocks or bonds, you needed a broker. The stockbroker normally made a commission on the sale of stocks to their customers. It was more of a transactional relationship.
It was kind of like going to your favorite department store to buy clothes. You browse through the racks of clothes and when you pick out what you want, you take it to the register to buy it. In some stores, the clerk may suggest certain clothes based on what you need the clothes for, or the clerk may suggest a shirt or a pair of pants to match whatever you picked out.
When it came to buying stocks, the investor was limited in the ways they could trade in the stock market, and they needed a liaison to facilitate buying equities. The broker served an important role during that period of time.
In addition to investments, your financial adviser should be talking to you about insurance, Medicare, Social Security, long-term care, estate planning and tax planning.
1. Don’t try to do it all in one day
Downsizing and decluttering need to be done consistently. “Even if all you can manage is dealing with one paper from the mountain that has built up on your desk, commit to doing that one tiny thing every single day,” Smallwood says. “Will you unclutter your whole desk that way? No. But you will create the confidence in yourself that you are someone who declutters, who sticks with it, who can keep it up — and that's the most important step you can possibly take in the beginning.”
Gather all trash, clean the fridge and pantry and then collect and organize receipts and paperwork, which likely have minimal sentimental value. Next, “look for things that are out of place, like piles of books, clothes, shoes, small appliances,” says Diane Quintana. “Can you put these things away? If you can’t put them away, can you make room for them by decluttering where they would go?”
Then move on to other smaller areas. Consider tackling individual drawers before moving up to something slightly larger, such as a closet or a spare room, suggests Darcy Speed, who trains other organizers and home stagers at Ultimate Academy. “There are usually fewer decisions to be made regarding what to keep and what to donate,” she says.
2. Start with easy wins
Even if it means telling friends and family members to skip this year’s birthday present. “If you continue to accumulate things through the decluttering process, you’re just rearranging deck chairs on the Titanic, and you’ll be a lot slower in reaching your goals,” says Lisa Dooley, author of More Space. More Time. More Joy!: Organizing Your Best Life.
3. Stop collecting more stuff
Professional organizers can map out a process and timeline while keeping things moving. “It can be helpful to have an objective outsider around when things start to get stuck,” says Melissa Gungi, a San Francisco-based professional organizer who works with retirees and seniors. “I also encourage getting help for the smaller bumps, like hiring haulers for a couple of hours to move heavy things around or trash out, or finding resources for where to donate and recycle things.”
4. Consider getting outside help
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If you haven’t used it in the past year or so and don’t expect you’ll need it in the near future, it's probably safe to get rid of it, says Aaron Traub, the Dallas organizer.
6. Ask yourself the last time you used something
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If you’re on the fence about a particular item, set it aside, suggests Danie Smallwood, the Maryland decluttering coach. The hardest decisions will involve holiday ornaments, scrapbooks, pictures and other items that tear at your heart. “Sentimental items will slow you down, and the goal is to get through as much as you can, as quickly as you can,” she says.
When the box is full, “put a note on it and a date when you will revisit those contents,” she says. “By then, your decluttering muscles will be stronger” and you’ll be able to make a decision.
5. Give yourself grace with a 'maybe' box
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How to Declutter Your Home If You're Moving or Downsizing — 8 Tips to Avoid Overwhelm
Reach out to your family and ask them to go through any possessions they may have left behind. Then invite family members over for a “give and take” visit, suggests Darcy Speed. “Explain that you are looking to declutter and encourage them to choose their favorite items. The "giver" can share the story behind the keepsake, making it even more meaningful, and then it can be taken out of the home.”
You may think about keeping this stuff for your heirs, but keep in mind that “very rarely do your children have the same attachments to items that you have,” says Jil McDonald, an interior designer with Jil Sonia Interior Designs in Vancouver, Canada, who recently downsized significantly. “They want to create their own new memories.” Instead, discard the items, but “take pictures and videos to keep the memories alive,” suggests John Linden, a Los Angeles-based interior designer.
7. Involve your family
Finally, be sure that your old habits don’t return “Keep up with the organization,” says Linden. “Make sure to declutter on a regular basis, and be conscious of what new items you are bringing into your home.”
For Jakob Miller, in New York, “Decluttering was a challenging but rewarding task. Not only did it make my home more organized and functional, but it also gave me a sense of peace and clarity,” he says. “Just start small, take it one step at a time. And you'll be amazed at the results.”
8. Declutter on a regular basis
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
ABOUT THE AUTHOR
Evan T. Beach, CFP®, AWMA®
Wealth Manager, Campbell Wealth Management
Evan Beach is a Certified Financial Planner™ professional and an Accredited Wealth Management Adviser. His knowledge is concentrated on the issues that arise in retirement and how to plan for them. Beach teaches retirement planning courses at several local universities and continuing education courses to CPAs. He has been quoted in and published by Yahoo Finance, CNBC, Credit.com, Fox Business, Bloomberg, and U.S. News and World Report, among others.
NYSUT NOTE: The ins and outs of estate planning – like leaving an inheritance – can be complicated. Which is why working with a professional is crucial. And as a NYSUT member, you have access to the NYSUT Member Benefits Trust-endorsed Legal Service Plan. Provided by the law firm of Feldman, Kramer & Monaco, P.C., this plan offers NYSUT members, their spouses and even retirees access to a national network of attorneys that deal with numerous personal legal matters. Learn more about the features of this plan or enroll by visiting the website today.
To be eligible for Social Security benefits in retirement, you must earn at least 40 "credits" throughout your career. You can earn up to (but no more than) four credits each year, so it takes 10 years of work to qualify for Social Security.
In 2022, you must earn $1,510 to get one Social Security work credit and $6,040 to get the maximum four credits for the year. And yes, that means that it is possible to have money withheld for Social Security and never get it back. The minimum is the minimum.
How Do You Become Eligible for Social Security Benefits
One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is significant. It’s the equivalent of buying inflation protection on a private annuity, which can get expensive.
Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government (and they’re a bit different than those used in the monthly consumer price index followed by economists and others). In 2023, Social Security beneficiaries will likely see a 9.7% COLA in their monthly Social Security benefits, the biggest increase since 1981. The COLA for 2023 will be announced on October 13.
Here’s what COLAs have been in other recent years:
• 2009: 5.8%
• 2010: 0%
• 2011: 0%
• 2012: 3.6%
• 2013: 1.7%
• 2014: 1.5%
• 2015: 1.7%
• 2016: 0%
• 2017: 0.3%
• 2018: 2%
• 2019: 2.8%
• 2020: 1.6%
• 2021: 1.3%
• 2022: 5.9%
There’s an Annual Social Security Cost-of-Living Adjustment (COLA)
While you can collect Social Security benefits as soon as you turn 62, taking benefits before your full retirement age will spell a permanent reduction in your payments — of as much as 25% to 30%, depending on what your full retirement age is.
If you wait until you hit full retirement age to claim Social Security benefits, you’ll receive 100% of your earned benefits. But you can do even better by waiting to claim your Social Security benefits at age 70 — your monthly Social Security benefit will grow by 8% a year until then. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting. Think of that time as bonus earning years – and remember that you’d be hard pressed to find those sorts of gains for zero risk during that period anywhere else.
Waiting to claim your Social Security benefits can help your heirs as well. By waiting to take her benefit, a high-earning wife, for example, can ensure that her low-earning husband will receive a much higher survivor benefit in the event she dies before him. That extra income of up to 32% could make a big difference.
Your Monthly Social Security Benefits Increase the Longer You Wait to Claim
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Marriage is rewarded when it comes to Social Security. One spouse can take what’s called a spousal benefit, worth up to 50% of the other spouse’s Social Security benefit. For example, if your monthly Social Security benefit is worth $2,000 but your spouse’s own benefit is only worth $500, your spouse can collect a spousal benefit worth $1,000 – bringing in $500 more in income per month. (Note: The higher-earning spouse must apply for his or her own Social Security benefit first.)
Just as the benefit based on your own work history is reduced if you claim it early, the same is true for a spousal benefit. That 50% figure is the maximum amount that only a spouse who is at least full retirement age is eligible for. Taking the spousal benefit early at, say, age 62, reduces the amount to as little as 32.5% of the higher earner’s benefit. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.
The window is closing soon on another spousal-benefit tactic known as “restricted application.” This tactic only applies to individuals born on or before January 1, 1954. That means it will be obsolete after January 1, 2024, when those individuals will already be 70. If you qualify, here’s how it works: At full retirement age, the higher earning spouse claims spousal benefits only, and the lower earner claims his or her own benefit. When they hit age 70, the higher earner switches to their own benefit, which has been boosted by delayed- retirement benefits. The lower earner claims his or her own benefit or continues to take the spousal benefit, whichever is higher.
There’s a Social Security Spousal Benefit
Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits
Your benefits will be affected if you have a pension from a job that didn’t have Social Security taxes taken out of your paycheck. Common examples include people who worked for a public education system, railroad workers and Federal government employees hired before 1984 who are covered by the Civil Service Retirement System (CSRS).
Two complicated provisions will affect your claiming strategy: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). The WEP reduces your own benefits by a discounted factor based on how many years you worked in jobs that did not withhold Social Security taxes. The GPO reduces your spousal and survivor benefits by two-thirds of the amount of your noncovered pension.
Other Pensions Might Reduce Your Social Security Benefits
If your spouse dies before you, you can take a Social Security survivor benefit. However, that won’t be in addition to your own benefit. You must choose one or the other. If you are at full retirement age, that benefit is worth 100% of what your spouse was receiving at the time of his or her death (or 100% of what your spouse would have been eligible to receive if he or she hadn’t yet taken benefits).
A widow or widower can start taking a survivor benefit at age 60. However, the payment will be reduced because it’s taken before full retirement age. There’s a twist available assuming the survivor has benefits of their own available and hasn’t already filed for them: Take the survivor benefits as early as possible, which is age 60, and switch to your own retirement benefits at age 70. Your survivor benefits will be reduced because you will have filed for them before your full retirement age, but your own benefits will grow, garnering delayed-retirement increases, until age 70. Online programs such as the one offered by Social Security Solutions can help you compare the cumulative benefits for each strategy to determine which one provides the highest payout.
Remarriage has implications here. If you remarry before age 60, you are not eligible for a survivor benefit. If you remarry after age 60, you may be eligible for a survivor benefit based on your former spouse’s earnings.
Eligible children who are under age 18 (up to age 19 if attending high school full time) or were disabled before age 22 can also receive a Social Security survivor benefit. It would be worth up to 75% of the deceased's benefit.
There Are Social Security Survivor Benefits for Spouses and Children
The end of a marriage doesn’t spell the end of being able to get a Social Security benefit based on your former spouse’s earnings. You can still receive a benefit based on his or her record instead of a benefit based on your own work record, so long as you were married at least 10 years, you are 62 or older, and you are currently unmarried. And guess what: If you've made multiple trips to the altar, you can pick which spouse's benefits you want to claim, based on what's most beneficial to you.
Like a regular spousal benefit, you can get up to 50% of an ex-spouse’s benefit — less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex-spouse’s record has no effect on his or her benefit or the benefit of your ex’s new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still start collecting Social Security based on the ex’s record, though you must have been divorced for at least two years.
Note: Ex-spouses can also take a survivor benefit if their ex died after the divorce, and, like any survivor benefit, it will be worth up to 100% of what the ex-spouse received. If you remarry after age 60, you are still eligible for the survivor benefit.
A claiming strategy if you’re divorced: Exes at full retirement age who were born on January 1, 1954, or earlier can apply to restrict their application to a spousal benefit while letting their own benefit grow. But note that the time to take advantage of this tactic is almost over: Everyone who can use it will have turned 70 by 2024.
You Can Claim Social Security Benefits Earned by Your Ex-Spouse
There aren’t many times in life you can take a mulligan. But Social Security offers you the chance for a do-over. Let’s say you claimed your benefit, but now regret the decision and wish you had waited. During the first 12 months of claiming benefits, you can withdraw your application. You will have to repay all of the benefits you’ve received, along with any spousal benefits, but when you restart benefits, you’ll receive a larger amount, just as you would have if you had delayed filing in the first place.
If it has been more than 12 months since you filed for Social Security, you can’t withdraw your application and restart benefits at a later date. But early retirees who have returned to the workforce are not totally out of luck: Once you reach full retirement age, you can suspend benefits until age 70. This will enable you to earn delayed-retirement credits of 8% a year (which could erase much of the reduction from claiming early). “This can add up to tens of thousands of dollars for many people,” says William Meyer, chief executive of Social Security Solutions.
You Can Undo a Social Security Benefits Claiming Decision
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Most people know that Social Security is funded by a tax on earnings, currently 6.2% for the employee (and 6.2% for the employer). But some retirees don’t realize that you may well have to pay income tax on Social Security benefits when it comes time to claim them. Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits haven’t been increased since then.
It doesn’t take a lot of income for your Social Security benefits to be taxed. Your benefits won’t be taxed if your provisional income is less than $25,000 if you’re single or $32,000 if you’re married. If you’re single and your provisional income is between $25,000 and $34,000, or married filing jointly with provisional income between $32,000 and $44,000, up to 50% of your Social Security benefits may be taxable. If your provisional income is more than $34,000 on a single return or $44,000 on a joint return, up to 85% of your benefits may be taxable.
The Social Security Administration says about 40% of beneficiaries pay taxes on their benefits. Since the thresholds aren’t adjusted for inflation, the number of beneficiaries who pay taxes on Social Security benefits increases every year. The Social Security Trustees’ annual report estimates that taxes on Social Security will total $45.1 billion in 2022, up from $34.5 billion in 2021.
There are ways you can lower taxes on your benefits. Shifting money from a traditional IRA to a Roth IRA will help, because withdrawals from a Roth won’t increase your adjusted gross income. Once you turn 70½, a qualified charitable distribution is another tax-efficient strategy. With a QCD, you can contribute directly from your IRA to a charity (or charities). You won’t get a tax deduction, but the charitable contribution will lower your AGI.
Your May Have to Pay Taxes on Social Security Benefits
Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits
Bringing in too much money in earned income can cost you if you continue to work after claiming Social Security benefits early. With what is commonly known as the Social Security earnings test for annual income, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2022 is $19,560. Once you are past full retirement age, the earnings test no longer applies, and you can make as much money as you want with no impact on benefits.
Any Social Security benefits forfeited to the earnings test are not lost forever. At your full retirement age, the Social Security Administration will recalculate your benefits to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full year’s worth of benefits to the earnings test, at a full retirement age of 66 your benefits will be recomputed — and increased — as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.
Beware the Social Security Earnings Test
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
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1. Don’t try to do it all in one day
Downsizing and decluttering need to be done consistently. “Even if all you can manage is dealing with one paper from the mountain that has built up on your desk, commit to doing that one tiny thing every single day,” Smallwood says. “Will you unclutter your whole desk that way? No. But you will create the confidence in yourself that you are someone who declutters, who sticks with it, who can keep it up — and that's the most important step you can possibly take in the beginning.”
2. Start with easy wins
Gather all trash, clean the fridge and pantry and then collect and organize receipts and paperwork, which likely have minimal sentimental value. Next, “look for things that are out of place, like piles of books, clothes, shoes, small appliances,” says Diane Quintana. “Can you put these things away? If you can’t put them away, can you make room for them by decluttering where they would go?”
Then move on to other smaller areas. Consider tackling individual drawers before moving up to something slightly larger, such as a closet or a spare room, suggests Darcy Speed, who trains other organizers and home stagers at Ultimate Academy. “There are usually fewer decisions to be made regarding what to keep and what to donate,” she says.
3. Stop collecting more stuff
Even if it means telling friends and family members to skip this year’s birthday present. “If you continue to accumulate things through the decluttering process, you’re just rearranging deck chairs on the Titanic, and you’ll be a lot slower in reaching your goals,” says Lisa Dooley, author of More Space. More Time. More Joy!: Organizing Your Best Life.
4. Consider getting outside help
Professional organizers can map out a process and timeline while keeping things moving. “It can be helpful to have an objective outsider around when things start to get stuck,” says Melissa Gungi, a San Francisco-based professional organizer who works with retirees and seniors. “I also encourage getting help for the smaller bumps, like hiring haulers for a couple of hours to move heavy things around or trash out, or finding resources for where to donate and recycle things.”
5. Give yourself grace with a 'maybe' box
If you’re on the fence about a particular item, set it aside, suggests Danie Smallwood, the Maryland decluttering coach. The hardest decisions will involve holiday ornaments, scrapbooks, pictures and other items that tear at your heart. “Sentimental items will slow you down, and the goal is to get through as much as you can, as quickly as you can,” she says.
When the box is full, “put a note on it and a date when you will revisit those contents,” she says. “By then, your decluttering muscles will be stronger” and you’ll be able to make a decision.
6. Ask yourself the last time you used something
If you haven’t used it in the past year or so and don’t expect you’ll need it in the near future, it's probably safe to get rid of it, says Aaron Traub, the Dallas organizer.
7. Involve your family
Reach out to your family and ask them to go through any possessions they may have left behind. Then invite family members over for a “give and take” visit, suggests Darcy Speed. “Explain that you are looking to declutter and encourage them to choose their favorite items. The "giver" can share the story behind the keepsake, making it even more meaningful, and then it can be taken out of the home.”
You may think about keeping this stuff for your heirs, but keep in mind that “very rarely do your children have the same attachments to items that you have,” says Jil McDonald, an interior designer with Jil Sonia Interior Designs in Vancouver, Canada, who recently downsized significantly. “They want to create their own new memories.” Instead, discard the items, but “take pictures and videos to keep the memories alive,” suggests John Linden, a Los Angeles-based interior designer.
Will Giving an Inheritance Early Have a Positive Impact?
Money can be a rope or quicksand depending on the amount and the recipient. Think about what your kids have done in the past when they have received more money than they are used to. Did they use it to cover expenses? Did they invest it? Did they show up at the next family gathering in a nicer car? If your money went toward a flashy vehicle, you may want to reconsider.
In all seriousness, the beneficiary of the funds often matters more than the amount or vehicle for the gift. This is one reason revocable trusts are such a popular estate planning tool. They allow you to control how and when the beneficiary spends their new money.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About The Author
Kristi Martin Rodriguez
Senior Vice President, Nationwide Retirement Institute, Nationwide
Kristi Martin Rodriguez currently serves as Senior Vice President of the Nationwide Retirement Institute® for Nationwide Financial, leading the teams responsible for advocating for and educating members, partners and industry leaders on issues impacting their ability to have a secure financial future. She was a founding member of the Ohio chapter of The National Association of Securities Professionals (NASP), an organization helping people of color and women achieve inclusion in the industry.
NYSUT NOTE: Put your mind at ease and start working with a trusted financial professional through the NYSUT Member Benefits Corporation-endorsed Financial Counseling Program. This program offers members access to a team of Certified Financial Planners® and Registered Investment Advisors who can help you create a customized plan for your current situation. Get your Social Security questions answered and more by visiting the website today.
Find Your Social Security ‘Full Retirement Age’
You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. But first you have to know what it is.
Also known as “normal retirement age,” your Social Security ‘Full Retirement age’ (FRA) is the age at which you’re entitled to 100% of the Social Security benefits you’ve earned. FRA is 66 for beneficiaries born between 1943 and 1954; it gradually increases to 67 for beneficiaries born in 1960 or later. (Are you in that transition zone? Use our Social Security Full Retirement Age calculator to pin it down.) If you take benefits before FRA, your benefits will be reduced. If you file at age 62, for example, benefits will be as much as 30% lower. More on that in a moment.
How Do You Become Eligible for Social Security Benefits
To be eligible for Social Security benefits in retirement, you must earn at least 40 "credits" throughout your career. You can earn up to (but no more than) four credits each year, so it takes 10 years of work to qualify for Social Security.
In 2022, you must earn $1,510 to get one Social Security work credit and $6,040 to get the maximum four credits for the year. And yes, that means that it is possible to have money withheld for Social Security and never get it back. The minimum is the minimum.
How Are Your Social Security Benefits Calculated?
Social Security uses your highest 35 years of earnings, indexed to a national average wage index, to calculate your primary insurance amount (PIA) If you have fewer than 35 years of earnings, each year with no earnings will be entered as zero. You can increase your Social Security benefit at any time (even via part-time work during retirement) by replacing a zero or low-income year with a higher-income year.
There is a maximum Social Security benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2022, the maximum monthly benefit is $3,345. For someone filing at age 70, the maximum monthly amount is $4,194. And for someone retiring early, at age 62, the maximum monthly benefit is $2,364.
There’s an Annual Social Security Cost-of-Living Adjustment (COLA)
One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is significant. It’s the equivalent of buying inflation protection on a private annuity, which can get expensive.
Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government (and they’re a bit different than those used in the monthly consumer price index followed by economists and others). In 2023, Social Security beneficiaries will likely see a 9.7% COLA in their monthly Social Security benefits, the biggest increase since 1981. The COLA for 2023 will be announced on October 13.
Here’s what COLAs have been in other recent years:
• 2009: 5.8%
• 2010: 0%
• 2011: 0%
• 2012: 3.6%
• 2013: 1.7%
• 2014: 1.5%
• 2015: 1.7%
• 2016: 0%
• 2017: 0.3%
• 2018: 2%
• 2019: 2.8%
• 2020: 1.6%
• 2021: 1.3%
• 2022: 5.9%
Your Monthly Social Security Benefits Increase the Longer You Wait to Claim
While you can collect Social Security benefits as soon as you turn 62, taking benefits before your full retirement age will spell a permanent reduction in your payments — of as much as 25% to 30%, depending on what your full retirement age is.
If you wait until you hit full retirement age to claim Social Security benefits, you’ll receive 100% of your earned benefits. But you can do even better by waiting to claim your Social Security benefits at age 70 — your monthly Social Security benefit will grow by 8% a year until then. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting. Think of that time as bonus earning years – and remember that you’d be hard pressed to find those sorts of gains for zero risk during that period anywhere else.
Waiting to claim your Social Security benefits can help your heirs as well. By waiting to take her benefit, a high-earning wife, for example, can ensure that her low-earning husband will receive a much higher survivor benefit in the event she dies before him. That extra income of up to 32% could make a big difference.
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Where do I keep it?
Put your rainy-day fund in a liquid account — for example, a high-yield savings account — that can be accessed quickly if an emergency strikes. Importantly, keep this money in its own account, separate from those you use to pay bills and make purchases day to day. This way, you’ll have an easier time preserving it for when you really need it.
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Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
Social Security Basics:
12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits
Other Pensions Might Reduce Your Social Security Benefits
Your benefits will be affected if you have a pension from a job that didn’t have Social Security taxes taken out of your paycheck. Common examples include people who worked for a public education system, railroad workers and Federal government employees hired before 1984 who are covered by the Civil Service Retirement System (CSRS).
Two complicated provisions will affect your claiming strategy: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). The WEP reduces your own benefits by a discounted factor based on how many years you worked in jobs that did not withhold Social Security taxes. The GPO reduces your spousal and survivor benefits by two-thirds of the amount of your noncovered pension.
There Are Social Security Survivor Benefits for Spouses and Children
If your spouse dies before you, you can take a Social Security survivor benefit. However, that won’t be in addition to your own benefit. You must choose one or the other. If you are at full retirement age, that benefit is worth 100% of what your spouse was receiving at the time of his or her death (or 100% of what your spouse would have been eligible to receive if he or she hadn’t yet taken benefits).
A widow or widower can start taking a survivor benefit at age 60. However, the payment will be reduced because it’s taken before full retirement age. There’s a twist available assuming the survivor has benefits of their own available and hasn’t already filed for them: Take the survivor benefits as early as possible, which is age 60, and switch to your own retirement benefits at age 70. Your survivor benefits will be reduced because you will have filed for them before your full retirement age, but your own benefits will grow, garnering delayed-retirement increases, until age 70. Online programs such as the one offered by Social Security Solutions can help you compare the cumulative benefits for each strategy to determine which one provides the highest payout.
Remarriage has implications here. If you remarry before age 60, you are not eligible for a survivor benefit. If you remarry after age 60, you may be eligible for a survivor benefit based on your former spouse’s earnings.
Eligible children who are under age 18 (up to age 19 if attending high school full time) or were disabled before age 22 can also receive a Social Security survivor benefit. It would be worth up to 75% of the deceased's benefit.
You Can Claim Social Security Benefits Earned by Your Ex-Spouse
The end of a marriage doesn’t spell the end of being able to get a Social Security benefit based on your former spouse’s earnings. You can still receive a benefit based on his or her record instead of a benefit based on your own work record, so long as you were married at least 10 years, you are 62 or older, and you are currently unmarried. And guess what: If you've made multiple trips to the altar, you can pick which spouse's benefits you want to claim, based on what's most beneficial to you.
Like a regular spousal benefit, you can get up to 50% of an ex-spouse’s benefit — less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex-spouse’s record has no effect on his or her benefit or the benefit of your ex’s new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still start collecting Social Security based on the ex’s record, though you must have been divorced for at least two years.
Note: Ex-spouses can also take a survivor benefit if their ex died after the divorce, and, like any survivor benefit, it will be worth up to 100% of what the ex-spouse received. If you remarry after age 60, you are still eligible for the survivor benefit.
A claiming strategy if you’re divorced: Exes at full retirement age who were born on January 1, 1954, or earlier can apply to restrict their application to a spousal benefit while letting their own benefit grow. But note that the time to take advantage of this tactic is almost over: Everyone who can use it will have turned 70 by 2024.
You Can Undo a Social Security Benefits Claiming Decision
There aren’t many times in life you can take a mulligan. But Social Security offers you the chance for a do-over. Let’s say you claimed your benefit, but now regret the decision and wish you had waited. During the first 12 months of claiming benefits, you can withdraw your application. You will have to repay all of the benefits you’ve received, along with any spousal benefits, but when you restart benefits, you’ll receive a larger amount, just as you would have if you had delayed filing in the first place.
If it has been more than 12 months since you filed for Social Security, you can’t withdraw your application and restart benefits at a later date. But early retirees who have returned to the workforce are not totally out of luck: Once you reach full retirement age, you can suspend benefits until age 70. This will enable you to earn delayed-retirement credits of 8% a year (which could erase much of the reduction from claiming early). “This can add up to tens of thousands of dollars for many people,” says William Meyer, chief executive of Social Security Solutions.
Your May Have to Pay Taxes on Social Security Benefits
Most people know that Social Security is funded by a tax on earnings, currently 6.2% for the employee (and 6.2% for the employer). But some retirees don’t realize that you may well have to pay income tax on Social Security benefits when it comes time to claim them. Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits haven’t been increased since then.
It doesn’t take a lot of income for your Social Security benefits to be taxed. Your benefits won’t be taxed if your provisional income is less than $25,000 if you’re single or $32,000 if you’re married. If you’re single and your provisional income is between $25,000 and $34,000, or married filing jointly with provisional income between $32,000 and $44,000, up to 50% of your Social Security benefits may be taxable. If your provisional income is more than $34,000 on a single return or $44,000 on a joint return, up to 85% of your benefits may be taxable.
The Social Security Administration says about 40% of beneficiaries pay taxes on their benefits. Since the thresholds aren’t adjusted for inflation, the number of beneficiaries who pay taxes on Social Security benefits increases every year. The Social Security Trustees’ annual report estimates that taxes on Social Security will total $45.1 billion in 2022, up from $34.5 billion in 2021.
There are ways you can lower taxes on your benefits. Shifting money from a traditional IRA to a Roth IRA will help, because withdrawals from a Roth won’t increase your adjusted gross income. Once you turn 70½, a qualified charitable distribution is another tax-efficient strategy. With a QCD, you can contribute directly from your IRA to a charity (or charities). You won’t get a tax deduction, but the charitable contribution will lower your AGI.
2. You want to encourage your co-trustees to collaboratively make decisions, even if decision-making is ultimately not unanimous.
If you have named three or more co-trustees, you may have instructed that they act by majority consent in order to streamline the decision-making process. You can express a desire to see your trustees work through decisions in a constructive and collaborative manner — even if their final decisions are not made by unanimous agreement.
For example, say you name your children as co-trustees in your plan. By giving them each an equal platform to have their voice heard, a child who is ultimately overruled by their siblings is less likely to feel brushed aside in the decision-making. Your gentle recommendation can be essential to preserving the bond between siblings and keeping the co-trustee relationship healthy and productive, despite inevitable disagreements that can arise in the course of settling your affairs.
What to Discuss With Your Aging Parents as They Get Older
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Your parents should each have a durable power of attorney and a healthcare proxy. In fact, everyone over age 18 should have these documents. Should one or both of your parents need care either at home or in a nursing home, these documents will ensure that the care that is provided is in line with their wishes.
A durable power of attorney allows an agent to make financial decisions on a person’s behalf, while a healthcare proxy allows someone to make medical decisions on a person’s behalf.
In most cases, if your parents are married, they will have designated each other as agents. In the case of a parent who’s in ill health, it is advised that you have a conversation with the other parent about different scenarios that would require him or her to make medical decisions and pay medical expenses.
It is possible, however, that there will be a scenario in which both parents are in ill health. If this is the case, a backup agent (such as one of their children) should be chosen for the power of attorney and healthcare proxy.
In other situations, spouses acknowledge that their spouse may no longer be best suited for the role and name a child as the primary designee.
Updating legal documents
Today, many people are living longer, but that means the “sandwich generation” (i.e., the generation of people responsible for taking care of both their children and their aging parents) is growing. Many children of aging parents struggle with the idea of when to approach their parents about a plan for their senior years. Oftentimes, aging parents themselves are uncomfortable with the role reversal and hesitate to initiate conversations.
Many parents have already determined, through an estate plan, how their assets will be dealt with in the event of their death. The issue to consider next is how to ensure things are taken care of if your parents have health problems. It is important to have this conversation because advanced planning can alleviate stress, and circumstances can change quickly as your parents age.
The following are things to discuss with your parents in their golden years.
The time will come when you need to have a conversation with your parents about their plans as they age. Here are some of the things you should talk about.
Most seniors don’t want to lose control of their assets, and a conversation about protecting assets through the transfer of assets is a difficult conversation to have. The best way to address this concern is to have an open and honest conversation about your parents’ financial situation and the assets they would need in their control to feel financially secure.
Any assets remaining in their control could be at risk if they experience a medical event that requires long-term care in a nursing home or extensive home care. Medicaid, a government program that helps eligible individuals with medical costs, can be used to pay for nursing home care, but typically an individual is required to use all of their own assets to pay for their medical care before they are eligible to use Medicaid benefits.
To protect their assets if a medical emergency occurs, parents should consider the transfer of assets. This process works best when planned in advance:
Protecting their assets
Transferring assets. If your parents are married, assets can be easily transferred from the ill parent to the healthy parent at any time. If you have a single parent, the transfer of assets is more complicated. A plan must be put into place five or more years in advance of any medical emergency. Your parents’ assets should be transferred to a trusted individual, usually a beneficiary of their will, five years before they anticipate the need for long-term medical care. If your parent’s health deteriorates before Medicaid’s five-year look-back window, assets will need to be given back to them and used to pay for their care.
Irrevocable trusts. An irrevocable trust transfers assets from the grantor's control and moves them to a trust to be held for the beneficiary or beneficiaries. Irrevocable trusts cannot be modified or terminated without the permission of the grantor's beneficiary or by the order of a court. If your parent creates an irrevocable trust and transfers their money into the trust, they will not have a legal right to that money. While the parent is alive, the trustee may have the right to transfer any amount of money back to the parent or any of the beneficiaries of the trust. Following the death of the parent, the assets would be transferred pursuant to the parent’s estate plan.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About the Author
Allen J. Falke, CPA, Esq., LL.M.
Of Counsel, Mirick O'Connell
Attorney Allen Falke is the practice group leader of Mirick O’Connell’s Trusts and Estates group and a member of the firm’s Business group. He focuses his practice on tax law and estate and business planning. Allen provides estate planning for high-net-worth individuals and succession planning for business clients. He advises clients on tax matters related to business acquisitions and restructuring, and business formations and combinations. He reviews and advises clients on estate, gift, individual, corporate, partnership and fiduciary tax compliance matters. He also has extensive experience representing clients on audits with taxing authorities.
Additional considerations
Fast-forward to the internet age, and things slowly started to improve for consumers. When people could place trades on their own from the comfort of their home, a stockbroker was no longer needed to gain access to the stock market.
One benefit the broker may have provided was offering some level of advice about which stocks to consider when placing trades. What followed after the rise of the internet was a plethora of advice columns. The era of “do-it-yourself” (DIY) investing was ushered in.
I speak with many people each year who have successfully become their own financial adviser and accumulated a substantial degree of assets. DIY investors don’t generally face much of a challenge in accumulating assets, especially when the federal government is accommodative to the stock market.
For example, when interest rates are ultra-low — as they had been for much of the twenty-first century — the stock market tends to do very well. But if you happen to hit retirement age at a challenging economic time, things may get dicey. For example, if you entered retirement around the year 2000, you would have encountered wildly different circumstances than if you retired in 2010. The first decade of the millennium saw two major disruptions, while the worst market disruption in the second decade resulted in about a 6% market decline in 2018.
I’d say most people who come to see us have saved for 20, and in some cases 50, years for retirement. Now they want to figure out the best way to begin using their retirement savings. What they are looking for is an income and distribution plan.
They’re in luck, because that’s what we specialize in helping our clients with. We put together financial plans for our focused decumulation phases of retirement.
But back to our different outcomes.
Internet helped improve consumers’ financial planning experience
NYSUT NOTE: As retirement planning continues to evolve, the best way forward is with a solid comprehensive financial plan. A good place to start is with the NYSUT Member Benefits Corporation-endorsed Financial Counseling Program. Through this program, NYSUT members can connect with Certified Financial Planners® for advice and financial counseling services that can be customized for their specific needs. Get started on developing the holistic plan that works for you by visiting the website and enrolling today.
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Where Is Your Money Going?
Before you set a goal to improve your finances, you need to know where your money is going. Start by taking two or three months to track your finances. How much money is coming in? And how much is going out? And, importantly, what is it going toward?
This is a basic exercise, but without doing it, you will never truly see your whole financial picture. There are plenty of ways you could be wasting or misallocating your money, but you don’t know until you track it. The tricky part is you have to be accurate and honest with yourself to get a meaningful result. It can be hard to track because you don’t always want to admit what you’re spending money on.
You might find that you are paying for unused subscriptions. Or realize you spend more money eating out than you thought. Then you can make tangible decisions to cancel that subscription or go out to eat at least one less time a month and put that money into your savings account. At the end of the day, you need to be living within your means and not spending more than your take-home pay.
NYSUT NOTE: Combining life insurance with long-term care coverage is a great way to add financial protection for you and your loved ones. NYSUT members now can do so through the NYSUT Member Benefits Trust-endorsed Universal Life Insurance with Convalescent Care Benefit, provided by Trustmark. This new program combines Convalescent care benefits that can be used to help pay for long-term care services; a life insurance benefit to help secure your family’s financial future; and caregiving tools provided by YourCare360® that offer guidance to manage your long-term care needs. For more information on this new program and how to get started, visit the website.
NYSUT NOTE: In light of recent student loan announcements, now is the time to review your student loan repayment plan. As a NYSUT member, you can take advantage of the NYSUT Member Benefits Corporation-endorsed Cambridge Credit Counseling program. This program gives members a chance to connect at no charge with a nationally certified counselor to talk through their current plan and determine which option is best for repayment and debt management. Solidify your loan repayment plans today by visiting the member benefits website.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
Discuss their estate plan
Another critical area to discuss with your parents is their estate plan. This includes their will, any trusts they have established and any other legal documents that outline their wishes for their assets after they pass away.
Yet, according to Caring.com’s 2023 Wills Survey, less than half of Americans over the age of 55 have their estate planning documents in order. Understanding their estate plan can help you prepare for potential inheritances and ensure their wishes are fulfilled.
In addition, the loan balance amounts of borrowers who make a monthly payment will not rise because of unpaid interest. For example, if a borrower makes a $30 payment, and $50 in interest accumulates, the difference between the $50 interest and the $30 payment will not be added to the borrower’s loan balance, DOE said.
The plan also eliminates spousal income for married student loan borrowers who file separately, and so there is no longer a requirement for a spouse to co-sign an income-driven replacement plan.
The SAVE plan rolls out at a time of high anxiety for student loan borrowers.
“According to White House estimates, more than 45 million borrowers across the country are borrowers shouldering more than $1 trillion in collective federal student loan debt,” says Jonathan McCollum, chair of federal government relations for Davidoff Hutcher & Citron in Washington, D.C. “Educational loans account for 9.5% of the nation’s consumer debt, second only to mortgages.”
The SAVE plan offers some relief for borrowers after the Supreme Court ruling that ended President Joe Biden’s original student loan forgiveness plan.
“SAVE decreases the size of required payments by half – 5% of monthly discretionary income, down from 10%,” McCollum says. “Borrowers who earn less than 225% of the federal poverty level will no longer have to make monthly payments, and balances will no longer increase on account of unpaid interest, as long as monthly payments are made.”
Borrowers with original loan balances of $12,000 or less will also see their balances forgiven in half the time, he said, adding that this can amount to 10 years instead of 20.
Student loans account for a lot of debt
Becoming your own financial adviser was necessary for participants in qualified retirement plans like the 401(k), which came out in 1978. Previously, many employers offered pension programs to their employees.
My grandfather worked for the telephone company for his whole career in the town where I grew up. He knew when he went to work there as a young man that if he worked a certain number of years and made a certain amount of money, when he retired he’d receive a certain amount of money in the form of a pension payment for the rest of his life. Talk about retirement security!
A pension manager managed a defined benefit pension plan, and the manager would look at a hundred-year swath of time. The manager could predict boom and bust cycles in the economy with relative accuracy, because human nature and other factors are somewhat predictable.
Under normal circumstances, a pension manager was trained to predict market cycles. But with the creation of the Federal Reserve in 1913 under President Woodrow Wilson, the government began attempting to periodically stimulate the economy for what we’ll assume were altruistic reasons. The point we’re making here is, when a third party got involved in artificially manipulating the economy and the free market could no longer dictate what happened, it became challenging for a pension manager to reliably predict boom and bust cycles in the economy.
Retirement plans made consumers financial planners
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About the Author
David C. Treece, Investment Adviser Representative
President and Founder, Clients Excel
David C. Treece is the president and founder of Clients Excel, an investment advisory firm in Spartanburg, S.C. David has helped many people understand the role annuities play in their financial planning since his start in the business 10 years ago. He writes a weekly financial newsletter that can be found on his firm’s website (www.clientsexcel.com). David is an Investment Adviser Representative, and he is insurance licensed.
1. Self-fund through investments and/or sale of assets.
This option benefits from being easy to set up and flexible, as the funds can be used however you want — be that to pay for long-term care or for something else. However, it requires the most money because there’s no leverage from an insurance contract. There’s also the risk that your investment or asset suffers a loss in market value at the very time you need to pay for long-term care.
NYSUT NOTE: NYSUT members have access to a team of dedicated long-term care planning specialists through the NYSUT Member Benefits Trust-endorsed New York Long-Term Care Brokers program. NYLTCB is a nationally-recognized insurance intermediary that offers access to discounted long-term care insurance plans from highly-rated insurance companies. NYSUT members can get a long-term care insurance plan designed for their specific needs at a discounted member rate. Visit the member website for more information.
Misconception #3: Waiting until 70 to maximize your benefit is always the best option.
It is true that if you wait until you’re 70 to claim your benefits, your payments will be bigger.
Every month you delay filing past your FRA, Social Security will increase your payment by two-thirds of 1%, or about 8% per year. That’s a really nice bump and absolutely worth considering. But waiting isn’t necessarily the right option for everyone. It’s important to think about your overall financial plan and what you’ll require — and when you’ll require it — to reach your retirement goals.
Would you like to get your benefits when you’re younger, albeit in smaller payments, so you can travel and enjoy other activities? Or do you think you’ll need more income when you’re older, for medical bills or long-term care?
If you’re facing a long-term funding shortfall of your own, you may find it makes sense to delay filing and get the increased benefit. But you’ll also want to be sure you can make ends meet in the meantime, by continuing to work or tapping other income sources first.
Unfortunately, there’s no easy, one-size-fits-all answer.
Planning
No matter what, the planning you do should be retirement “specific” and “customized” to you. Do not settle for using generic retirement rules and outdated advice. Realize that accumulating your wealth is significantly different than preserving and distributing your wealth. Many areas of your financial life should go from being set on “autopilot” to taking a more active and focused approach. Understand, you are going from “earning a living” to “creating a retirement,” both of which will require a very different mindset and sets of strategies.
Something as popular as the 4% rule, which came to be in the early 1990s as a suggestion for the best way to make your money last throughout retirement, may not apply to you when it comes to creating retirement income.
Other common considerations and decisions that need to be customized to you and not generic are things such as:
Now that you have begun to shift your mindset from one of “accumulation” to that of “distribution and preservation,” it’s time to determine what your process (or your financial adviser’s process) will be to implement retirement strategies that will help mitigate various types of financial risks as we age.
Designing your retirement “blueprint” should not feel overwhelming, complicated or confusing. Trying to design and implement strategies for all areas of our retirement, such as income, tax, health care and estate planning, can be intimidating and cause us to avoid having the right conversations. Quite often, it leads us back to focusing only on those things we feel comfortable with, such as our investment accounts and fixating on the market.
The process for creating your plan should be systematic, go step by step, brick by brick, addressing each of these areas one at a time. This will seem so much less intimidating and increase the likelihood you will keep your focus on having a comprehensive, holistic and coordinated retirement.
Determining who will help guide you through this maze of decisions and strategies will be one of the most important considerations you will have. Do you take on this responsibility yourself or seek the guidance of advisers who specialize in retirement preparation? Understand, financial advisers, just like doctors, can either be more general in their services and serve a wide range of clients, or they can be more focused and specialize in retirement planning. Do your research and understand what you need and what you want.
As the world we live in continues to feel out of control, take a deep breath, a few steps back and focus on these three P’s for an amazing retirement!
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Most parents want the majority of their assets to be passed on to their children, and they want to avoid paying estate taxes on their assets. However, before gifting assets, which may avoid estate tax, consider that it may create an income tax liability in the future for the children. Prior to gifting, thought should be given to the potential income tax consequences of gifting low-basis assets and the income tax benefits of a step-up in basis.
As a rule of thumb, it is recommended that you start having these conversations with your parents when they reach their 70s, or if you start to notice memory loss or other health conditions. Of course, you are the best gauge of your parents’ physical and mental health, and only you can determine the appropriate time to initiate this conversation.
It might be uncomfortable at first, but you’ll appreciate having these things worked out ahead of time as your parents age.
NYSUT NOTE: Many adult children struggle with having conversations with their aging parents about their plans for their senior years. But NYSUT members have help, through the NYSUT Member Benefits Trust-endorsed Legal Service Plan. Provided by Feldman, Kramer & Monaco, P.C., this network of attorneys can help both children and their aging parents set up crucial estate planning documents — like a will, power of attorney and more. Ensure your loved ones are protected in their golden years by enlisting the help of professionals through the Legal Service Plan today.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
So, a shift in thinking suggested that perhaps the best thing to do would be to allow workers to become their own pension manager/financial planner — and this led to the introduction of the 401(k). This increased the risk of poor outcomes for the worker, but the responsibility of managing financial outcomes for retirees was no longer an employer’s obligation.
Today, most stockbroker roles are particular, while financial planning roles like mine are holistic.
The thinking is that this comprehensive approach could prevent unintended consequences that may arise by just looking at investments and not looking at the long-term care or estate planning aspects. I believe this is an appropriate direction for financial advising to move.
If you’re unable to figure out a distribution plan in retirement, or if your adviser isn’t talking to you about investments, insurance, Medicare, Social Security, long-term care, estate planning and tax planning, it may be time to get a second opinion.
Comprehensive financial planning is an appropriate direction
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC
Most seniors don’t want to lose control of their assets, and a conversation about protecting assets through the transfer of assets is a difficult conversation to have. The best way to address this concern is to have an open and honest conversation about your parents’ financial situation and the assets they would need in their control to feel financially secure.
Any assets remaining in their control could be at risk if they experience a medical event that requires long-term care in a nursing home or extensive home care. Medicaid, a government program that helps eligible individuals with medical costs, can be used to pay for nursing home care, but typically an individual is required to use all of their own assets to pay for their medical care before they are eligible to use Medicaid benefits.
To protect their assets if a medical emergency occurs, parents should consider the transfer of assets. This process works best when planned in advance:
Transferring assets. If your parents are married, assets can be easily transferred from the ill parent to the healthy parent at any time. If you have a single parent, the transfer of assets is more complicated. A plan must be put into place five or more years in advance of any medical emergency. Your parents’ assets should be transferred to a trusted individual, usually a beneficiary of their will, five years before they anticipate the need for long-term medical care. If your parent’s health deteriorates before Medicaid’s five-year look-back window, assets will need to be given back to them and used to pay for their care.
Irrevocable trusts. An irrevocable trust transfers assets from the grantor's control and moves them to a trust to be held for the beneficiary or beneficiaries. Irrevocable trusts cannot be modified or terminated without the permission of the grantor's beneficiary or by the order of a court. If your parent creates an irrevocable trust and transfers their money into the trust, they will not have a legal right to that money. While the parent is alive, the trustee may have the right to transfer any amount of money back to the parent or any of the beneficiaries of the trust. Following the death of the parent, the assets would be transferred pursuant to the parent’s estate plan.
NYSUT NOTE: In light of recent student loan announcements, now is the time to review your student loan repayment plan. As a NYSUT member, you can take advantage of the NYSUT Member Benefits Corporation-endorsed Cambridge Credit Counseling program. This program gives members a chance to connect at no charge with a nationally certified counselor to talk through their current plan and determine which option is best for repayment and debt management. Solidify your loan repayment plans today by visiting the member benefits website.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
About the Author
Nicholas J. Toman, CFP®
Certified Financial Planner & Retirement Planning Specialist, Empowered Financial Management
Nicholas Toman, CFP®, is a lead retirement planner and investment adviser with Empowered Financial Management, a firm that specializes in retirement planning for those individuals within five to seven years of retirement or who have recently retired and no longer wish to serve as their own financial adviser. Nicholas is a graduate of the University of Wisconsin-Whitewater with a BBA in accounting and has been a Certified Financial Planner since 2014.
Retirement plans made consumers financial planners
Becoming your own financial adviser was necessary for participants in qualified retirement plans like the 401(k), which came out in 1978. Previously, many employers offered pension programs to their employees.
My grandfather worked for the telephone company for his whole career in the town where I grew up. He knew when he went to work there as a young man that if he worked a certain number of years and made a certain amount of money, when he retired he’d receive a certain amount of money in the form of a pension payment for the rest of his life. Talk about retirement security!
A pension manager managed a defined benefit pension plan, and the manager would look at a hundred-year swath of time. The manager could predict boom and bust cycles in the economy with relative accuracy, because human nature and other factors are somewhat predictable.
Under normal circumstances, a pension manager was trained to predict market cycles. But with the creation of the Federal Reserve in 1913 under President Woodrow Wilson, the government began attempting to periodically stimulate the economy for what we’ll assume were altruistic reasons. The point we’re making here is, when a third party got involved in artificially manipulating the economy and the free market could no longer dictate what happened, it became challenging for a pension manager to reliably predict boom and bust cycles in the economy.
Kiplinger is part of Future plc, an international media group and leading digital publisher
© 2023 Future US LLC