Estate Planning During a Pandemic – Quit Stalling
The coronavirus is taking 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 isn’t going away anytime soon. This global health crisis has proved especially dangerous for older Americans, a stark reminder to ensure your affairs are in order. Here is an overview of what you need to cover.
Should I Buy or Lease a Car?
After buying a home, one of the next major purchase decisions (and expenses) is a car. The latest headlines, including a recent article in The Wall Street Journal titled “Buying a Car Now Is Brutal,” talk about how the market for cars has been turned upside down due to lack of inventory and parts availability and the transaction price of used cars is up 24% from June 2020.
With minimal deals to be had, buying a car now appears to be more challenging than it was in the past.
Whether to lease or buy can depend on your circumstances and preferences. I made a rough calculation a few years ago while having a discussion with a co-worker (assuming the car market is behaving normally) and the conclusion was whether you bought or leased the exact same car, you would likely break even at about the three-year mark. Before that point, you may spend less on a lease, but after that, you’d tend to come out ahead by buying. Why? Because the lease payments take into account the big depreciation hit you experience with any new car, which is highest in the first two to three years. If you lease, you are still paying for the depreciation.
For example, if you buy a $50K car for cash, after three years you will be able to sell it for say $30K, which means you “spent” $20K owning the car for those three years. If you lease the car, your three years’ worth of lease payments will likely be very close to the same $20K, due to the depreciation factor. If you buy and keep the car longer than that, it continues to depreciate — but at a declining rate over time. So, owning the same car for six years is then cheaper than leasing for six years. The break-even point is around three years.
So one way to save is to buy a two- to three-year-old car that has already taken the initial depreciation hit, keep it for seven to 10 years, and hope the repairs are not expensive.
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It comes down to what type of owner you are. Do you like to hold onto your car for years or switch it out frequently? Do you drive a lot of miles? Do you dislike paying for comprehensive insurance? How you answer could help steer your decision.
11 Things You Don’t Need for College
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When it came time for her first child to go off to college, New Jersey mom Jill Tang went a little overboard with dorm shopping. “I was excited and overspent,” she concedes. “I would say that my daughter used about 70% of what we actually bought. The rest of the 30% we donated or tried to salvage in our own home.”
It’s easy for anxious families to let their guard down and fall victim to the back-to-college marketing ploys, especially after the disruption that COVID-19 had on learning. Deloitte estimates that in 2021, $26.7 billion will be spent this year on back-to-college purchases, with an average of $1,459 spent per child. But every “dorm essential” checklist has items that will still be unused or unopened at the end of the year. Here’s a college un-checklist: everything students do not need.
College sticker shock when you first see the bill for tuition, room and board (and all those nebulous activity fees) is bad enough.
Rebuilding Emergency Savings: Take a Realistic Approach
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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, 2020 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, last year 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.
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.
NYSUT NOTE: The NYSUT Member Benefits Corporation-endorsed Synchrony Bank Savings 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.
Financial Conversation Starters for Couples
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Instead of reaching for the remote and an evening of Netflix, why not get really intimate … and talk about money instead? Sharing the same financial goals and being open about how you’re doing can be great for your relationship.
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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.
Important Planning Considerations: Insurance & Long-Term Care
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When the topic of financial planning is raised, people’s thoughts tend to immediately focus on saving, investing and ultimately generating income in retirement. While these are certainly critical components of building a solid financial foundation, so too are strategies for protecting your income and assets from the unexpected.
The future is always an uncertainty. Therefore, you need to prepare as much as possible for the unexpected. Having the appropriate insurance protections in place — whether for your personal property, your family’s financial well-being if you should die or become disabled, or protecting your savings from being eroded by the costs of a major health care crisis — brings with it the peace of mind that your goals can still be achieved whatever the future may hold.
As you create your own plan, make sure you don’t overlook the following key income and asset protection strategies:
Your retirement plan isn’t complete until you’ve looked into getting the insurance you need, including life insurance, disability insurance and a plan 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. Click here for more information.
How Millennials Are Changing the Life Insurance Game
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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 this past year, 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 year.
The shift has been particularly significant among millennials, who now range from age 22 to 40, 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.
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.
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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.
Feeling Insecure About Social Security? You’re Not Alone.
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It probably comes as no surprise that ongoing economic fallout from the pandemic, including inflation, market volatility and the threat of a recession, have led millions of Americans to re-evaluate their retirement plans. New research from the Nationwide Retirement Institute® shows that two-thirds of Americans (66%) say they worry more now than they did before about their retirement income— that’s a 10-point increase from 2021!
In volatile moments like we’re experiencing, it’s easy to make emotional decisions with lifelong implications. Unfortunately, misconceptions about Social Security, which forms the foundation of almost every American’s retirement income strategy, are all too common, according to the survey. The good news is with the right advice from a trusted financial professional, you can avoid unintended consequences that may come with an uninformed decision.
New research reveals the crucial gaps in Americans’ Social Security knowledge that could make a big difference in your retirement income.
Grandparents: Now is the Time to Contribute to Your Grandkid's 529 Plans
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Did you know that Americans owe nearly $1.75 trillion in student loan debt? This staggering number is spread out among 48 million borrowers. But as a grandparent, you can help your children and grandchildren mitigate this by contributing to a 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs.
According to a recent survey by the College Savings Plans Network, the average 529 plan balance as of Dec. 31, 2021, was $30,652. But is that an adequate amount? Most student tuition and housing costs are going to run much higher than that for four years of college ($43,755/year for a private school and $11,631/year for state residents at public colleges), and many students will need to rely on a combination of savings and financial aid to pay for some or all of those costs.
If you are looking to save money for your grandchildren’s education without hurting their aid eligibility, some recent changes in 529 plans are going to make that easier.
What Retirees Must Know About Telehealth
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Don't Get Too Hung Up on a Retirement Savings Number
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The internet abounds with retirement calculators that will help you estimate the size of the nest egg you'll need so that you don't outlive your retirement savings. It makes sense. Business gurus tell us you can't improve what you don't measure.
We set other measurable goals in our lives so what's the problem with aiming for, say, $5 million in savings by age 65? It sets us up for complacency, says Vicki Bogan, associate professor of economics at Cornell University in Ithaca, N.Y. "Anchoring on a specific number -- and saying once you get [to] that number you're done — is not the best idea," she says. "The calculation of that number is predicated on a lot of assumptions."
Experts generally recommend having enough savings to generate about 80% of your preretirement income annually, after factoring in what you'll get from Social Security and any defined benefit pension. You'll need a larger amount if inflation increases, the stock market falters or your health care costs rise more than expected. Your savings goals can be scaled back if you move to a less expensive area or if inflation stays low.
Right now, a booming stock market is convincing people to retire early because they've already hit "the number," says Allison Schrager, senior fellow at the Manhattan Institute. "I can't blame them. The retirement industry has been really negligent in getting people overly focused on that number."
Meanwhile, that obsession has done nothing to improve retirement security. Only 36% of current retirees say they saved the right amount, compared with 45% who believe they saved too little and 18% who saved more than necessary, according to a 2020 survey by the Employee Benefit Research Institute.
Although having a retirement savings number is important, it's also a moving target and fixating on one number runs the risk that you won't adjust your savings goals to new circumstances, such as additional financial responsibilities, higher health care costs, inflation or the vagaries of the economy. Life isn't stationary and your retirement plan, including any target savings number, shouldn't be either.
There's tons of advice about how big your nest egg should be for retirement but focusing too much on a single figure can lead to complacency.
Instead of focusing exclusively on the size of your nest egg, create a comprehensive retirement plan that you'll refine and change over time. It should include your financial goals, a net worth statement, a working budget, debt management strategy, emergency funds and any insurance. "More than a number, every individual should have their own financial plan, which is based on data," says Aradhana Kejriwal, a chartered financial analyst and founder of Practical Investment Consulting in Atlanta. That data should incorporate estimated day-to-day living expenses in retirement, including medical costs based on your health, taxes and any large purchases you're likely to have, such as a new roof or car.
Any retirement plan also should reflect your expected retirement lifestyle, investing horizon, risk tolerance, savings goals and estate planning. You'll want to consider how your retirement savings hold up under different scenarios, simulating extreme market conditions or unexpected life events, to be sure your bases are covered. This is known as stress-testing a plan. A financial professional can help you do it, or use Microsoft's free online Retirement Financial Planner template to see how your savings and income are affected when you adjust for inflation, retirement age, health care costs or the rate of return. (At templates.office.com, type "Retirement Financial Planner" in the search bar.)
Revisit the plan every few years while you're accumulating assets and whenever you have a life change, such as switching jobs, losing a family member or moving. When you get into your 60s, revisit your plan more often "because you're in a spending phase, not an accumulation phase," Kejriwal says.
As retirement nears, the plan should factor in your required minimum distribution so that you match your income to your expenses and minimize your tax burden. You want an appropriate mix of taxable and nontaxable investments, such as a Roth IRA combined with a taxable brokerage account, as well as a balance of stocks, bonds, real estate and other assets.
This is not a competition. "You're not in a game to beat your neighbor. You're not collecting money for someone else's retirement," she says.
Consider the Big Picture
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Financial decisions often touch on underlying issues that trigger our deepest fears and dreams. Maybe you grew up financially insecure so that having a healthy savings account gives you peace of mind. Perhaps you don't really enjoy the city and would prefer to retire to a rural, low-cost community. Those feelings can be accounted for using dollars and cents with either a larger buffer of savings for someone who grew up financially insecure or a smaller nest egg for a lower cost of living. That way, you'll keep your emotions in perspective when making decisions.
Be careful with impulsive decisions, like opening a business that you're counting on to make up for a retirement savings shortfall. If you have amassed a healthy nest egg, you may feel hard-hearted turning down a plea for financial assistance from relatives down on their luck. But you worked hard for those funds, and you are relying on them to support you through your old age.
It's fine to overestimate the amount of savings you want if that helps you sleep at night. Similarly, you don't need to aim quite as high if you don't have children or other descendants to inherit your estate.
That brings us back to your retirement savings number because you'll still want one. In fact, if you're the kind of person who's motivated by a concrete and tangible goal, it's OK to set a number in your sights, Browning says. "Having a numerical target is helpful because it gives you something to aim for."
Curb Your Impulses
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NYSUT NOTE: Looking for some guidance in your retirement planning? The NYSUT Member Benefits Corporation-endorsed Financial Counseling Program offers access to a team of Certified Financial Planners® and Registered Investment Advisors to help you plan for retirement. Click here for more information about these fee-based financial counseling services.
6 Things You Can Do Right Now to Ensure Your Money Will Last in Retirement
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If you’re within six months or so of retirement, there are certain things you need to do now to help prepare yourself for the transition into retirement.
Throughout this retirement preparation process, there will be times when you feel as though you are making a series of rapid-fire micro decisions as you work through Social Security benefits, Medicare options, pension elections and retirement account distributions.
The decisions to be made are many, and understanding the long-term ramifications of those decisions is paramount, considering that your retirement years could be as many as those spent working.
The numerous options you will face can become a labyrinth of choices leading many people to attend YouTube university in search for answers, while leaning on friends and co-workers to fill in the missing pieces. The truth is, people underestimate the complexities that exist with preparing for retirement and find themselves over their head.
Unfortunately, without understanding the long-term effects of one decision over another, a retiree may be well into their retirement before problems begin to surface. For instance,
• Inflation will erode your income over time.
• Longevity may require your money to last longer than you thought.
• Market volatility can deplete your resources.
• Heath care expenses can potentially absorb most of what you have.
By the time these risks are exposed, retirees find themselves stuck. That is why retirement planning shouldn’t be viewed as a rapid-fire micro decision-making process but rather a time to design a master plan focused on what you can control and protecting yourself from what you can’t.
Think of it like building a home … you wouldn’t begin construction without first having blueprints drawn up. Your retirement plan is the blueprint for your retirement, while Social Security benefits, Medicare options, pension elections and retirement account distributions are your building materials.
Your retirement plan needs to take a holistic approach. Because there are so many decisions to make, it’s easy to get lost in the weeds. Follow these six signposts to find your way.
Going back to the home construction metaphor, to ensure you have your bases covered and are retirement ready, first consider the cost of the project. It is better to estimate the cost of your retirement now to uncover potential problems before actually retiring. Start by carefully evaluating your current thinking about your situation.
1. Develop an income plan detailing exactly how much income you will need each year to fund your retirement lifestyle
Now, before skipping over this you should consider that your lifestyle will change — along with your tax situation — which means that the amount you need now to live on will not be the same when you retire. You may need to budget even more for your early years of retirement, when you’ll be enjoying the good life. So, it is not a good idea to make general assumptions about your future income needs based on how things are while you’re working.
Carefully consider what will change and what will stay the same once you retire, adding into the mix such things as travel, health care costs and other variable expenses.
2. Identify your income sources and determine exactly how much income will be generated from each source to satisfy your annual income needs
No generalizations here … you should seek to know exactly how much you can expect from each resource you have.
This is where most people begin to struggle, because there is often a disconnect between their mindset around their assets and the need they have from them. There are generally two camps with this:
• Those who focus on protecting their principal by holding cash.
• And others who hold on to their investment portfolios in hopes for long-term growth.
Both camps are focused on growing or preserving their money, making it difficult for them to adjust for their need to receive consistent income from the assets.
3. Map your assets out and separate them by their purpose
What I find is that most people have money sitting in bank accounts, large amounts of equity in their home and money combined together in their investment portfolios.
And while this may seem an ideal arrangement, it is important to point out that cash in the bank is not earning anything, equity in a home is not earning anything and money in the stock market has varying levels of risk … none of which translates to having consistent income in retirement.
In most instances, the assets you have are either going to be spent or used for income now or in the future.
So, a good place to begin would be identifying which assets fall into these categories.
4. Have an income replacement plan in place for your spouse to cover the loss of Social Security or pension income if you were to predecease them
Developing an income strategy for retirement most often means you are relying on a husband and wife’s benefits, but those benefits are only received while both are living (in most cases).
Many people are misled into believing that as you get older your need for life insurance diminishes, and while this may be true for some, for others the need for it may actually rise.
It is a good idea to know the specifics for how benefits will adjust when a death occurs and have a plan in place to replace lost income if it is needed.
5. Have (updated) legal documents in place designating financial power of attorney, medical directives, wills and trusts
Most people kick this can down the road with the idea they will have time to get this done later. (Later meaning when they need it.)
Here is the deal: If you wait until you need these documents it will be too late to get them.
6 Things You Can Do for a Sustainable Retirement
Moving to Another State in Retirement? What You Need to Know
A pleasant retirement can mean staying put right where you are, chatting with the same neighbors, cheering the same local sports teams, and shopping at the same stores.
But plenty of Americans also get wanderlust when they reach their retirement years, trading freezing winters for subtropical environments, swapping prairies for mountains, or substituting city living for the country. In 2020, 400,000 retirees made a move, which was the highest number in five years, according to a study by the moving service company HireAHelper. Most of those retirees made their move within the confines of the state where they already lived, but 38% moved to another state.
If you guessed that traditional retirement mecca Florida was the No. 1 destination for those nomadic retirees in 2020 — you guessed wrong. Virginia topped the list, although Florida did come in a respectable second. Wyoming, Pennsylvania, and Idaho rounded out the top five.
Numerous factors can play into your decision to move to a new locale in retirement, from family considerations to weather to preferences about beaches, mountains, or culture. Finances are key as well. Let’s look at just some of the things you should keep in mind:
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Taxes: Is Your New State a Friend or Foe?
The idea of retiring, packing up and starting fresh in a sunny spot or at the foot of some cool mountains may sound intriguing, but have you really thought it out? Some financial, practical and emotional issues to take into consideration first.
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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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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 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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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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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 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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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 Quartet of Medicare Enrollment Periods
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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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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Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits
For many Americans, Social Security benefits are the bedrock of retirement income so maximizing this stream of income is critical.
The rules for claiming Social Security benefits can be complex, but this guide will help you successfully navigate the details. Educating yourself can ensure that you claim the maximum amount to which you are entitled.
Here are 12 essential details you need to know.
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Know Your Social Security ‘Full Retirement Age’
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.
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For 529 Plans in a Bear Market, Timing Is Everything
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Here's a guide to everything from knowing your full retirement age to taking Social Security spousal benefits.
BASICS
Social Security Basics:
12 Things You Must
Know About Social Security Benefits
Finance Fundamentals
It comes down to what type of owner you are. Do you like to hold onto your car for years or switch it out frequently? How you answer could help steer your decision.
Should I Buy or Lease a Car?
College sticker shock when you first see the bill for tuition, room and board (and all those nebulous activity fees) is bad enough.
11 Things You Don’t Need for College
Sharing the same financial goals and being open about how you’re doing can be great for your relationship.
Financial Conversation Starters for Couples
CARS
COLLEGE
PERSONAL FINANCE
LIFE INSURANCE
HAPPY RETIREMENT
The idea of retiring, packing up and starting may sound intriguing, but have you really thought it out? Some issues to take into consideration first.
Moving to Another State in Retirement? What You Need to Know
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
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 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
Estate Planning During a Pandemic – Quit Stalling
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.
Important Planning Considerations: Insurance & Long-Term Care
RETIREMENT PLANNING
There's tons of advice about how big your nest egg should be for retirement but focusing too much on a single figure can lead to complacency.
Don't Get Too Hung Up on a Retirement Savings Number
REQUIRED MINIMUM DISTRIBUTIONS (RMDs)
When Is Your First RMD Due?
If you turn 72 in 2022, you still have plenty of time to take your first RMD. But you might be better off taking it now.
529 PLANS
With new changes to the FAFSA process, you can “superfund” their college savings – without affecting their financial aid status.
Grandparents: Now is the Time to Contribute to Your Grandkid's 529 Plans
When Is Your First RMD Due?
SOCIAL SECURITY
New research reveals the crucial gaps in Americans’ Social Security knowledge that could make a big difference in your retirement income.
Feeling Insecure About Social Security? You’re Not Alone.
Retirement Living
Your retirement plan needs to take a holistic approach. Follow these six signposts to find your way.
RETIREMENT Planning
6 Things You Can Do Right Now to Ensure Your Money Will Last in Retirement
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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
Financial Learning Center Resources
Need a Financial Planner?
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With new changes to the FAFSA process, you can “superfund” their college savings – without affecting their financial aid status.
Financial Learning Center
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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.
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
6 Retirement Wealth Strategies to Start Young, Finish Strong
The FAFSA: File Early to Get Aid for College
To build a nest egg that will see you through retirement, it helps to start young. Here are six steps to get going.
Even if you don’t think you’ll qualify, apply for federal student aid via the FAFSA. You may be surprised.
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If your child is close to college age and their college fund has taken a hit in the market, there’s one thing you should think about doing.
COLLEGE
RETIREMENT PLANNING
COLLEGE
For 529 Plans in a Bear Market, Timing Is Everything
Kiplinger Today
When Is Your First RMD Due?
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If there's one thing my father complains about every year, it's having to take required minimum distributions (RMDs) from his IRAs and 401(k) plan. He did a good job saving money for retirement when he was younger, so he doesn't really need to withdraw much from his retirement accounts each year. He has reluctantly been taking RMDs for several years now, but if you turned 72 in 2022 (or are about to turn 72 this year), you're just getting started. But there's good news if your 72nd birthday is this year – you have until April 3, 2023, to take the required withdrawals from your retirement accounts for 2022. So, while you don't want to forget about it, you still have plenty of time to take your first RMD.
And please take the deadline seriously. If you don't withdraw your first RMD by the April 3 due date, or if your distribution isn't large enough, you could be hit with a big IRS penalty. That's something you really want to avoid.
[NOTE: The due date is usually on April 1. However, since April 1 falls on a Saturday in 2023, it's moved to the next business day – which is April 3.]
If you turn 72 in 2022, you still have plenty of time to take your first RMD. But you might be better off taking it now.
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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.
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Do You Want to Pay Cash or Finance?
Depending on interest rates, it may make sense to pay cash if you have sufficient cash available. If you have $50K sitting in cash earning 1% but your loan would be at 6%, it may make financial sense to pay cash. If the $50K is all you have in emergency savings, you may not want to tie up funds in a depreciating asset and prefer to go the finance route, especially if you are still working. Another consideration would be the probability of you replacing that $50K with new savings once it has been used to buy the car. Some people psychologically have a harder time paying themselves back than paying the bank. Interest rates for new cars are usually lower than for used cars and often the dealer may offer very low-interest financing.
If your $50K is invested in the equity market and you expect a 7% return or more over time (although the market can go either way), you may prefer to finance and leave your money to grow.
Another important aspect for retired clients is if your money is all in an IRA or other retirement account — taking out a $50K lump sum to buy a car may actually be a $70K withdrawal once you factor in taxes and may push you into a higher tax bracket for that year.
Maintenance and Depreciation Costs
If you are buying a car, you would want to check into what is covered under warranty and for how long. Anything not covered would be your responsibility and an extra expense. Some warranties on new cars are not worth the paper they are printed on (expensive mechanical systems that tend to give trouble are sometimes not covered) and often the dealer will try and talk you into purchasing an extended warranty.
Should you buy an extended warranty? Well, it’s a gamble that works similar to insurance, but you would want to understand the types of repairs you are insuring against to make sure the coverage is worth it (they don’t cover everything). Some warranties are expensive, and it may make sense to just save the cash you would pay for the warranty in case the car needs repairs. If you cannot afford to repair the car if you had a costly problem, then it may make sense.
Another point to consider is if you have an accident with a car you own, when you try to resell it you are going to get a lower value for it. Some insurance policies offer coverage for this possibility. Before choosing a car, check out resale values for that type of car so when you are ready to sell, you will have an idea on the future valuation.
In order to get a sense of how much a car costs, TrueCar.com or Edmunds.com are great tools. TrueCar aggregates all the new or used cars in the area based upon factors you determine (make, year, model, etc.).
Most car dealers have some negotiating room, which can be up to a couple thousand dollars, especially if a new model is coming out, so do your research before negotiating.
Things to Consider When Buying a Car
Lease Commitment
If you tend to keep cars for a long time, purchasing may be the way to go, but if a shiny new toy every few years is your thing, you might want to look into leasing. If you believe your circumstances may change, such as a new baby on the way, elderly parents coming to live with you or a future move from a summer climate to a winter climate, leasing provides more flexibility since you are not committed to the car for more than two to four years. Also, you will likely be able to get more car for your money with a lease.
There is usually an upfront cost to leasing, which is an amount due at signing (tax, tag, title, down payment, delivery costs, etc.). This lump sum usually reduces your monthly payments and may be required depending on your credit. Some dealers offer $0 down, but all this does is increase your monthly payments; it is all a numbers game — a higher down payment means lower monthly payment and vice versa. To get an idea on what you are really paying each month on average, you may want to divide the down payment by the months of the lease.
Maintenance & Mileage
Some brands have scheduled maintenance included, which can be quite convenient. However, there are also several coverages, such as tire protection and dent and scratch insurance, that you can buy that will increase your lease payment. Most standard lease offers allow 10,000-mile limits per year. If you drive more than 10,000 miles, this will also increase your payments on the front end, or on the back end when you return the car you will be required to pay for the extra miles.
It is usually cheaper to pay for the miles before you return the car, and in some cases there is a time frame (you have to buy the extra miles three months before the end of the lease). Extra mileage can range from around $0.15 to $0.30 per mile and can add up fairly quickly. At $0.30 a mile 3,000 extra miles will cost you $900.
So, if you drive more than 15,000 miles annually, purchasing a car maybe cheaper for you — and if you are driving 25,000 miles a year this can get restrictive and expensive. Keep in mind even on a purchased car, the increased mileage will fetch you a lower sales price when you are ready to sell anyway.
Things to Consider When Leasing a Car
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NYSUT NOTE: Interested in buying or leasing a new vehicle? Take advantage of the NYSUT Member Benefits Corporation-endorsed Buyer's Edge, Inc. program. This unique buying service can be used to purchase a variety of major products and services, including new and used vehicles. Get more information on Buyers Edge, Inc. and how to save on your purchases by clicking here.
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
Roxanne Alexander, CFP®, CAIA, AIF®, ADPA®
Senior Financial Adviser, Evensky & Katz/Foldes Financial Wealth Management
Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.
Should I Buy or Lease a Car?
Insurance Costs
Leases also require full insurance coverage to protect you and the leasing company, so if you want to pay for less insurance, purchasing may be a better alternative. Additionally, leased cars usually have GAP insurance built in; this pays the difference between what you owe and what your car is worth if stolen or totaled in an accident. Loans do not usually have this coverage, so you would need to check with your insurance company to see if this is something they offer.
There are some companies/websites that will allow you to lease a car on a month-to-month basis, which may be beneficial depending on your circumstances. If you have to terminate your lease early, www.swapalease.com is a useful website that I have used several times in the past and found very efficient; however, not all car brands are supported.
Tax Benefits
Lastly, if you own your own business and can use lease payments or mileage allowance as a tax write-off, this may be another factor to consider.
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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.
Laptops have become the central workstation for students. Know which features are necessary, and which aren’t.
Students should strive for portability, long battery life, ample storage space, and powerful CPUs––the portion of a computer that retrieves and executes instructions. Premium features such as 4K displays are nice to have, but they drive up the cost and drive down battery life.
You can find a laptop that hits all the necessary requirements under $1,000. Here are three great examples.
The 2021 HP Envy 13 offers the best of both worlds: efficiency and affordability at $749.99 (retail). The powerful performance from the 11th Gen Core i5 CPU, coupled with the longevity of a 10-hour battery life, will power you through all-day studying (or gaming). At the feather’s weight of 2.9 pounds, HP Envy 13 also boasts a 13.3-inch screen with slim bezels (the framing around the laptop) and a wide and bright 1080p display. Download as many PDFs as you want––256GB allows you ample space.
If the student prefers MacOS over Windows10, then consider the Apple MacBook Air of late 2020, whose M1 chip makes it one of the fastest ultrathin laptops ever. At $849.99, you’ll enjoy a wide 13.3-inch display, an air-like weight at 2.8 pounds, and a 14-15-hour battery life that’s unrivaled by any Windows10 laptop. Several other features can come in clutch, such as the built-in 720p webcam for virtual sessions and the 256 GB of storage space.
If the student values touch-screen capabilities, then consider Microsoft’s Surface Pro 7 at $749.99. Combining the best features of a laptop and a tablet, this ultra-slim 2-in-1 runs all your favorite Windows applications while allowing you to draw and touch the 12.3” display. The built-in kickstand, keyboard add-on (an additional $270), and Surface Pen add-on (an additional $70) can quickly transform the tablet to a laptop that weighs less than two pounds. The 10.5 hours of battery life and 128GB storage space are impressive for a hybrid this size.
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Fancy Laptop
Parents may recall the satisfaction of handing in a nicely formatted and stapled packet of paper, but that’s a bygone. Universities use online submissions platforms, such as DropBox.com or Canvas, to lessen person-to-person contact while also making it easier for the professors to put each assignment through plagiarism and proofreading software.
If a class does require a hard copy of a paper, most libraries or computer labs have printers that charge pennies a page.
Still not convinced to forgo the printer? Consider the cost. Even the cheapest printers are $40. It’s another $70 or so to replace all four ink cartridges, and $4 per pack of paper.
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Printer
Bringing a car to college is more of a hassle than a convenience––on the student and on the wallet.
In a nine-month academic year, a new small sedan would rack up about $5,000 in expenses, including costs for gas, depreciation, standard maintenance and insurance, according to AAA (yes, a used car would cost less). Parking permits would add even more to the bill, at generally hundreds of dollars a year. Keeping the car parked at home could lower insurance premiums, too.
If you are concerned that your student’s residence is far away from the main campus, most universities have on-campus shuttle services that transport students around the campus and possibly nearby surrounding areas, which typically contain university-affiliated off-campus housing. And of course, there's always bicycles (or now, e-bikes).
If your student still needs to bring a car, consider offsetting the cost by putting it to use with rideshare or delivery work, always popular in college towns. For Uber, drivers must own a four-door vehicle, have a valid U.S. driver’s license, have at least one year of licensed experience in the U.S. (three years if they’re under age 23), and pass the driver screening online. To do DoorDash deliveries, you must have a valid domestic driver’s license, car insurance, and a clean driving record.
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Car
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11 Things You Don’t Need for College
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Kris Hui, a lifestyle Youtuber and San José State University Alumnus, recalls bringing 30 pairs of shoes for her first semester at college. Her side of the closet could only fit three pairs, leaving rain boots and flats sprawled across her room.
Colleges often provide only a dresser and a closet you’ll likely have to share with your roommate. Bulky apparel like jackets and boots can easily fill up most of this prime real estate. Pack light and consider changing out wardrobes during trips home from school. If you thrive on turnover, thrift stores (a college-town staple) can fill gaps. Just remember to sell as much as you buy.
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The Entire Wardrobe
Most freshmen eat the majority of their meals in dining halls or other on-campus food spots. So most kitchen appliances are expensive, bulky, and unnecessary for underclassmen. Exceptions include mini-fridges and microwave ovens, which might be available for rental. However, before making a purchase, check if your student’s setup includes community kitchens, which tend to offer a range of full-scale appliances. Also, check the building rules for restrictions on what appliances are even allowed.
The same thing goes for cleaning gadgets. Robotic vacuums, mops, or air purifiers are not the most cost- or space-efficient methods to stay clean and hygienic. Instead, consider arming students with antibacterial spray or wipes and help them do a deep-clean during visits. And while a hand-held vacuum might make the cut, don't rule out the 19th-century technology of dustpan and broom.
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Appliances
If you have family health coverage, your child likely won’t need campus health insurance because they’ll be covered under that plan until the age of 26. Make sure that your plan covers out-of-network costs or that healthcare providers near the campus are in-network.
If your plan does not cover out-of-network costs or local healthcare providers are not in-network, a campus health-insurance plan may be a more cost-effective option. Compare the price of campus insurance with the cost of keeping the student on your policy and paying extra for any out-of-network care or clinic visits. "Be aware that many schools require kids to show proof of insurance before they start, and some will automatically enroll students in the campus insurance if they don't actively opt out by showing proof of alternative insurance,” says Lisa Zamosky, senior director of consumer affairs for eHealth.inc.
Some college policies have low coverage maximums, which could leave you with thousands of dollars in uninsured expenses. Your child can also buy an individual policy through the local health insurance exchange (search by state at Healthcare.gov).
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Campus Health Insurance
We've seen those fancy dorm rooms on Pinterest, too. Chandeliers? Take a reality check. Outfitting your home away from home is expensive, a potential challenge to maintain, and potentially distracting.
An overly decorated dorm room takes effort, space, money, and time that freshmen don’t have. The last thing a student wants during exam season is to be swamped amid unnecessary clutter. Colleges will provide, at minimum, a bed, mattress, desk, and chair for residential students. Everything beyond that is generally on you. Cheap personalization? Try string lights, plastic ivy, and DIY photo murals.
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Furniture and Decoration
We often counsel buying in bulk to save money, but that almost never breaks right for college students, who generally do not have the storage space for enough bath and shower products for a full school year. Instead, bring a normal set of toiletries and replenish when needed. Many campuses have Amazon Hub, a locker delivery service where products can be shipped and picked up by students.
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Toiletries for the Rest of the Year
Parents’ instinctual fear of under-nourishing their child often means that they’ll pick the biggest meal plan possible, or load up their new student’s meal account with enough money to feed the football team. Unfortunately, meal points or money added to a meal plan usually don’t roll over from year to year – if you don’t use the money, you lose it.
If the school gives first-years an option to choose their meal plan, it’s best to start low and see how much your student needs. Many colleges give you the opportunity to replenish meal-plan funds midyear. You could also supplement your kid’s meal plan with gift cards to local grocery stores or restaurants. You can buy gift cards at GiftCertificates.com.
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A Super-Size Meal Plan
Though borrowing money for the ever-rising cost of higher education is often unavoidable, try to steer clear of private student loans. They usually carry variable rates (as opposed to the fixed rates of federal loans), have fewer repayment options, and allow students to rack up high balances.
Start with the free money (scholarships and grants). Then max out federal loans (subsidized first, then unsubsidized) before even considering private debt. If you’ve maxed out on federal loans and are considering sizable private loans to fill the gap, there’s a decent chance you’re overborrowing.
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Private Loans
First things first: determine your Social Security full retirement age. For people born between 1943 and 1954, full retirement age is 66. If your birthday falls between 1955 and 1959, it gradually climbs to 67. If you are born in 1960 or later, your full retirement age is 67.
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. More on that in a moment.
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.
How Your Social Security Benefits Are Earned
Your Social Security benefits are based on the 35 calendar years in which your income was the highest. 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 2021, the maximum monthly benefit is $3,113. For someone filing at age 70, the maximum monthly amount is $3,895.
To estimate your benefits, use the Social Security's online Retirement Estimator.
How Your Social Security Benefits Are Calculated
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 quite valuable; 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. In 2021, Social Security beneficiaries saw a 1.3% COLA in their monthly Social Security benefits. The COLA for 2022 is 5.9%, which is the largest adjustment since 1982.
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)
You can collect Social Security benefits as soon as you turn 62, but taking benefits before your full retirement age means a permanent reduction in your payments — of as much as 25% to 30%, depending on your full retirement age.
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 also get a big bonus 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.
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
Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits
Marriage brings couples an advantage 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.
Another spousal-benefit tactic: In some cases, a spouse who is delaying his or her own benefit but still wants to bring some Social Security income into the household can restrict their application to a spousal benefit only. To use this strategy, the spouse restricting his or her application must be at full retirement age and he or she must have been born on or before January 1, 1954. So the lower-earning spouse, say the wife, applies for benefits on her own record. The husband then applies for a spousal benefit only, and he receives half of his wife's benefit while his own benefit continues to grow. When he's 70, he can switch to his own, higher benefit.
There’s a Social Security Spousal Benefit
Minor children of Social Security beneficiaries can be eligible for benefits. Children up to age 18 (or up to age 19 if they are full-time students who haven't graduated from high school) and disabled children older than 18 may be able to receive up to half of a parent's Social Security benefit. The disability must have occurred before the age of 22. The adult child can continue collecting the benefit even after the parent has died, as long as the disability prevents them from working.
Children Can Also Collect Social Security Benefits
Just because you're divorced doesn't mean you've lost the ability to get a Social Security benefit based on your former spouse's earnings. You can receive a benefit based on his or her record instead of a benefit based on your own work record if you were married at least 10 years, you are 62 or older, and you are single.
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.
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 regretted the decision and wished you had waited. Within the first 12 months of claiming Social Security benefits, you can withdraw the application. You will need to pay back all the benefits you received, including any spousal benefits based on your record. But you can later restart your Social Security benefits at the higher amount you’ll earn by waiting.
Early claimers have another opportunity for a do-over: They can choose to suspend their Social Security benefit at full retirement age. Say you took your benefit at age 62. Once you turn full retirement age, you can suspend your benefit. You don't have to pay back what you have received, and your benefit will earn delayed retirement credits of 8% a year. Wait to restart your benefit at age 70, and your monthly payment will get up to a 32% boost — which could erase much of the reduction from claiming early.
You Can Undo a Social Security Benefits Claiming Decision
Most people know that you pay tax into the Social Security Trust Fund throughout your career, but some retirees don't realize that you also have to pay tax on your Social Security benefits once you start taking 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. For example, a married couple with a combined income of more than $32,000 may have to pay income tax on up to 50% of their Social Security benefits. Higher earners may have to pay income tax on up to 85% of their benefits.
You may also have to pay state income taxes on your Social Security benefits.
You May Have to Pay Taxes on 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 2021 is $18,960. 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
© 2022 The Kiplinger Washington Editors Inc.
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:
• What do you like about your (and your partner's) approach to money today?
• What do you not like about each of your approaches?
• How would you like to improve your conversations about money?
Conversation Starter 1: Money talks pay off
Your finances go beyond your monthly cash flows, annual budget and retirement savings. Depending on the nature of your relationship with your partner, seemingly insignificant daily decisions — like whether to order in dinner or subscribe to that new streaming service — have the power to influence your quality of life now and your opportunities in the future.
Rather than getting overwhelmed by all your choices, focus on the big picture, i.e.: the six interdependent pieces that comprise your unique financial puzzle:
1. Income
2. Expenses
3. Insurance
4. Investments
5. Debt
6. Financial obligations to other people
Conversation Starter 2: Are we focusing on the big picture?
Six key financial planning factors
Caroline Wetzel, Procyon Partners White Paper; Source: Financial Planning: Building Your Personal Roadmap
As part of focusing on the big picture, for your next talking points, consider:
Do you understand the details for each of the six pieces of your own financial puzzle? For instance, how much of your current income are you saving and investing? What kinds of investment risk are you taking across your retirement and brokerage accounts? When it comes to your debt, what is your current payoff plan?
Does your partner understand the details for the six pieces of his/her financial puzzle?
Which pieces of your respective financial puzzles do you share as a couple? Keep separate? Why?
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Ready to do something special with your love? How about taking a little time out together and talking about something that really matters, like each other and your finances?
Here are three conversations starters for the two of you, as you ruminate over some rosé.
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If you share responsibility for any of the six pieces of your unique financial puzzle with your partner, it is essential to continuously clarify the “WHO”:
Conversation Starter 3: When did we last talk about ‘WHO’?
© 2022 The Kiplinger Washington Editors Inc.
Financial Conversation Starters for Couples
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Who is monitoring which piece of the big picture, and where are access details stored? Delegating responsibility for a piece of the financial puzzle is not abdicating responsibility for it. It's OK if your partner takes on responsibility for a piece of the puzzle; however, you have to understand how he/she is doing it. For instance, if you trust your partner to oversee your investments, and he/she engages a fiduciary financial team to manage them, it is essential that you have a relationship with that team, you know how to contact them, and you understand how to access your account information.
How is each piece of the big picture doing (now)? Keep each other accountable for monitoring your respective pieces of your shared financial picture. In the same way that having a membership to the gym doesn't make you physically fit, being responsible for a piece of your shared financial puzzle alone doesn't mean that the piece of the puzzle is being cared for like it should. For example, if you agree as a team that you will save 15% of your income to retirement and investment accounts, who is checking to make sure that you're doing it? How is this person keeping you both informed of your progress, and how are you as a team adjusting your approach in light of your progress?
Ownership: As far as your investments, insurance and the other pieces of your big picture goes, does the titling and do the terms of each piece (still) make sense? Life is constantly changing. Just because you and your partner agreed to structure a shared piece of your financial puzzle in a certain way in the past does not mean that it continues to make sense for you. Perhaps you purchased a life insurance policy to cover your children's education expenses and a large mortgage and now your kids have grown and you've downsized? Maybe you cited someone as a beneficiary on one of your accounts, and you have changed your mind?
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There are so many ways to express your love for your partner. Own your wealth and the power it presents you and your sweetheart every day. Have the courage to be vulnerable with each other, create a safe space to talk about your finances, and strategically use your individual and shared resources to realize your dreams.
NYSUT NOTE: Need help with financial planning? The NYSUT Member Benefits Corporation-endorsed Financial Counseling Program offers access to a team of Certified Financial Planners® and Registered Investment Advisors that provide you with fee-based financial counseling services. Click here for more information.
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
Caroline Wetzel, CFP®, CDFA®, AWMA®
Vice President, Private Wealth Adviser, Procyon Partners
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.
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Homeowners Insurance: A Bigger Factor Than You Might Think
Homeowners insurance is a stealth cost that could catch you off guard, depending on which state you are saying farewell to and which state is your destination. The average cost of annual premiums fluctuates wildly, from $376 in Hawaii to $1,353 in Florida to $3,519 in Oklahoma. The potential for local natural disasters (such as hurricanes, tornadoes, and earthquakes) plays a role in those premiums.
It’s worthwhile to research how much more — or less — you could pay for homeowners insurance depending on the direction of your move.
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House Size: Bigger Isn’t Better
When shopping for your new retirement dream home, remember this: Sometimes retirees move into a larger and more expensive house than necessary. Do you need three bedrooms and two bathrooms for two people, even if you expect visits from your children and grandchildren? They can always stay in a nearby hotel. Even if you spring for the hotel bill for their short stay, that likely would be cheaper than the extra money you would pay for a larger house.
Also, don’t forget that the larger the house, the higher the property tax, the higher the insurance bill and the costlier the upkeep.
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Community Personality and Location: Try It on for Size
Before you buy a house in your new location, give the area a trial run by renting first or at least by paying it an extended visit. A place that seems like nirvana may, in reality, be less than what you desire — so you don’t want to invest in a property before you’re certain. I had clients who longed to move from Florida to the mountains of North Carolina in retirement, so for three weeks, they rented a house that was at an elevation of 3,500 feet. It was beautiful, but for them, the downsides became apparent quickly. The drive from the house to the main road took 20 minutes. Then it was another 20 minutes to the nearest supermarket. So, running out for groceries required an 80-minute round trip. They gave up the idea of living on the mountain and found a place closer to town.
You also want to consider what kind of community is important to you. If you desire an active community, then a neighborhood where everyone sits in rocking chairs on the front porch may not be for you. Also, some places (Florida, for example) have strong homeowners associations and subdivisions with deed restrictions, so if you come from a state where you’re not used to such restrictions, it may require an adjustment.
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Family Considerations: Further Apart or Closer Together?
Don’t overlook the emotional impact of leaving your family and friends behind, and perhaps the expense of staying connected. Will you feel the need to travel back often? If so, are there direct flights from a nearby airport?
Sure, we interact these days through Zoom and similar platforms, and that’s a convenient way to see each other, speak with each other and share what’s happening in our lives. But still, is it the best way to feel connected?
On the other hand, some retirees move out of state to be closer to their children and grandchildren. While that can be great for some families, it could be a bumpy road for others. Maybe you leave your friends behind only to discover the family you’ve moved to be nearby are so busy with careers and school that you see much less of them than you’d hoped. Of maybe you see more of them than you’d like! It happens.
The good news is that many people create an enjoyable retirement for themselves by staying put in their home communities, and others create wonderful retirements by venturing out to new places.
You just need to figure out which of these is financially and emotionally best for you.
© 2022 The Kiplinger Washington Editors Inc.
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
Peter Blatt, Investment Adviser Representative, J.D.
President, Center for Asset Management
Medicare Basics: 11 Things You Need to Know
Medicare Basics: 11 Things You Need to Know
Medicare Basics: 11 Things You Need to Know
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6. Have a contingency plan in place to cover health care costs if you were to find yourself needing long-term nursing care
This is an area that so many people ignore, crossing their fingers and hoping nothing happens to them that would require this level of care. However, considering the cost of nursing care, it is not something to ignore. You need to know how this cost will be covered if you find yourself needing care.
The cheapest way to cover this risk is through insurance, but some may choose to spend down a portion of their assets to cover the costs. Either way, it is a good idea to have this mapped out and know how you plan to cover the cost if incurred.
Wherever you are in your thinking, there is an opportunity to improve your probability for a successful retirement. To get started, figure out where you are, know where you’re going and then identify what obstacles stand in your way.
© 2022 The Kiplinger Washington Editors Inc.
6 Things You Can Do Right Now to Ensure Your Money Will Last in Retirement
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NYSUT NOTE: Did you know that The NYSUT Member Benefits Trust-endorsed Legal Service Plan — provided by the law firm of Feldman, Kramer & Monaco, P.C. — offers expert legal assistance that can assist you with everything from preparing crucial estate planning documents to dealing with traffic violations? Get more information or enroll on the NYSUT member website.
NYSUT NOTE: Looking for assistance with long-term care planning? NYSUT members have access to the NYSUT Member Benefits Trust-endorsed New York Long-Term Care Brokers program. This team of dedicated long-term care planning specialists will provide, explain and compare the different long-term care insurance providers and products to help you choose the best coverage for you. Need more general financial assistance? Check out the NYSUT Member Benefits Corporation-endorsed Financial Counseling Program, which offers a team of Certified Financial Planners® and Registered Investment Advisors to provide you with fee-based financial counseling services. Click here for more information.
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
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.
One of the biggest dangers in retirement is losing buying power, not merely having inadequate wealth. "The average person invests to spend," Schrager says. "The number you should be worried about is 'How much can I spend each year?' That's not just a function of the stock market; it's a function of interest rates." Higher interest rates can undermine stocks and raise the costs of any variable-rate debt you owe. On the plus side, rising rates can improve returns on fixed-income investments like bonds. Your retirement savings and expenses must fit into any interest rate scenario.
Many retirement spending models use the 4% rule as the average percentage to withdraw each year from an investment portfolio without dipping into the principal. Just like "the number," these targets can also be deceptive as well as dependent on market conditions and life expectancy. The 4% rule originated from an exhaustive 1994 study of historical market conditions, which found that, under every scenario, the withdrawal rate wouldn't deplete a retirement fund for 30 years. But if someone retires at 65 and lives to 100, they could run out of funds under that same model.
These models also don't account for how your spending might change throughout retirement. "As much as we try to calculate what we'll need for retirement, at the end of the day, we don't really know," says Rich Jones, founder of personal finance podcast Paychecks and Balances in Mountain View, Calif. "A lot of people don't think about the cost of living" where they retire. For Jones, retiring in his current, expensive home city would look very different than hanging his hat in Albany, N.Y., where he grew up.
Similarly, your current spending may be nothing like your retirement expenses because when we have more leisure, we often spend more. "The bigger question you should ask is 'What type of life am I aiming for?'" says Chris Browning, host of the Popcorn Finance podcast. "Do you want to live a simpler life and move somewhere cheaper and slower paced than where you're living? Do you want the ability to give money to family and friends?" That clear vision -- backed up with a written budget -- can guide you in setting and adjusting savings targets as well as motivate you to build wealth.
In retirement, health care costs escalate dramatically. Working households spend about 6% of their annual budget on health expenses, versus 14% for retirees, according to the Kaiser Family Foundation. A heterosexual, 65-year-old married couple spends, on average, about $300,000 on medical expenses in retirement, up 88% since 2002, a Fidelity Investments report found. "You need to allow for flexibility because your life is going to change over time," Browning says. Although you may be perfectly healthy now, "things could happen, and there could be additional costs associated with your care."
Understand How Your Spending Might Change
Don't Get Too Hung Up on a Retirement Savings Number
Life insurance
More than 30 million Americans who own life insurance policies don’t have enough coverage, according to a recent LIMRA study. While the average shortfall in coverage is around $225,000, it’s even greater for high income earners.
Why such a large coverage gap? Often, it’s because people tend to treat life insurance as a “check the box” task. They’ll buy a $500,000 policy when they’re younger (figuring it’s more than enough coverage to replace lost income), and then put it aside and forget about it.
But your life and wealth are constantly evolving. A policy that would replace a decade’s worth of income when you were making $50,000/year, suddenly only covers two years when your salary has climbed to $250,000. In addition, you may now have a couple of children — meaning it’s not just a matter of replacing income but funding college educations.
There are no hard and fast rules when it comes to determining how much coverage is enough. The amount will vary greatly depending on your level of wealth, your liabilities and your personal circumstances. Often, the best place to start is by asking yourself the following four questions:
Disability insurance
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© 2022 The Kiplinger Washington Editors Inc.
How much would your spouse need to pay off any mortgages if something happens to you?
How much beyond what you’ve already saved will be needed to fund your children’s future educational costs?
Are you carrying any other debt or liabilities that will need to be paid off if you die?
And how much of an additional safety net would your family need to ensure they would be able to maintain their lifestyle?
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Keep in mind that the younger and healthier you are when you purchase a policy — whether term, universal or whole life — the easier the process will be and the more affordable the annual premiums.
Even as you get older and your income replacement needs diminish, life insurance can still play an important role in your financial plan. It can serve as an additional source of tax deferral if you’re already maxing out your 401(k) and IRA accounts but want to save more for retirement. It can enhance the value of wealth you place in trust to transfer to the next generation. And it can serve as a way to leverage your RMDs (if you don’t need them for income) to provide an additional legacy for your heirs.
You probably have some sort of group disability insurance through your employer to help replace your income if you ever get sick or injured and are unable to work. But did you know that the average employer policy only covers about 60% of your salary, with a cap on monthly benefits? And if you work in a profession where commissions and bonuses make up a major portion of your compensation, most employer disability policies don’t cover this income.
Take time to figure out just how much any existing disability coverage would provide you with each month. If it isn’t enough to cover your monthly expenses, you may want to consider a supplemental individual disability policy to cover that gap.
Not only will an individual policy travel with you if you switch employers, any monthly benefits you receive from the insurance won’t be taxed (unlike employer-paid policy benefits, which are usually taxable). Make sure, however, to carefully review each policy’s “definition of disability” when shopping for coverage, as they can vary greatly. Some policies might pay if you can’t perform your specific job, while others might only pay if you are completely unable to work. And one policy might only pay benefits for a few years, while another might provide coverage until you reach age 65.
Important Planning Considerations: Insurance & Long-Term Care
Long-term care insurance
According to the U.S. Department of Health and Human Services, 70% of adults who are turning 65 today will require some type of long-term care (e.g., home health care, a nursing home stay, or time in an assisted-living facility) during their lives. These are costs that are NOT covered by Medicare.
And the potential expenses associated with long-term care are so high (on average $55,000/year for a full-time home health aide; and $93,000/year for a semi-private room in a nursing home), that they can quickly drain a lifetime’s worth of savings — assets that might otherwise provide a legacy for your heirs.
Yet long-term care is one of the most challenging insurance needs to plan for. Firstly, none of us want to spend a lot of time contemplating our own physical or cognitive decline. In addition, traditional long-term care insurance carries a very real risk that you might pay years of premiums without ever needing any of the benefits (in which case your premiums are lost). But there are other alternatives such as hybrid life and long-term care insurance policies — where you can “tap into” the policy’s death benefit to pay long-term care expenses, with the remainder being passed on to your heirs when you die — as well as long-term care insurance riders that can be added to certain types of annuities.
The important thing is to not wait until you start experiencing a physical or cognitive decline before seeking out coverage. The underwriting/approval process can be rigorous, and you’ll likely be declined for coverage if a serious ailment or health issue has already arisen.
Typically, in order to be considered a “coverable” long-term care event, you must be unable to perform at least two activities of daily living (ADLs), or suffer a cognitive impairment. There are six common ADLs as defined by most medical professionals:
• Eating — maintaining the ability to feed yourself.
• Dressing — retaining the ability to dress and undress.
• Transferring — having the ability to sit, stand and move about (mobility).
• Bathing — having the ability to bathe/shower and groom yourself.
• Toileting — retaining the ability to safely use (on and off) and maintain proper hygiene.
• Continence — being able to control bodily functions.
Contrary to popular belief, however, you don’t have to be admitted into a nursing home to claim benefits. A typical long-term care policy can be used in a variety of situations, including in-home care, rehabilitation services, assisted living or nursing home care. So, “aging in place” in the comfort of your own home is still a viable option.
Don’t procrastinate
From managing cash flow to funding your children’s education, saving for retirement, and protecting future income and assets, a well-crafted financial plan gives structure and direction to your life. Having the right protections in place serves as your plan’s “safety net” — ready to catch you in the event of a mishap.
Planning, however, isn’t a one-and-done event. It’s a continuous process that needs to evolve as your life and circumstances evolve. Protection needs and coverage amounts will increase and decrease as you progress through various life stages. But the sooner you commit to planning, the easier it will be and the more options you’ll have available to you.
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax adviser.
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
Martin Schamis, CFP®
Vice President & Head of Wealth Planning, Janney Montgomery Scott
Martin Schamis is the head of wealth planning at Janney Montgomery Scott, a full-service financial services firm, providing comprehensive financial advice and service to individual, corporate and institutional investors. In his current role, he is responsible for the strategic direction of the Wealth Planning Team, supporting more than 850 financial advisers who advise Janney’s private retail client base. Martin is a Certified Financial Planner™ professional.
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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…
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.
Good news: You can have it your way!
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, 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.
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.
© 2022 The Kiplinger Washington Editors Inc.
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?
© 2022 The Kiplinger Washington Editors Inc.
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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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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. 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
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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.
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.
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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How to Know When You Can Retire
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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© 2022 The Kiplinger Washington Editors Inc.
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.
Learning Center Home
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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.
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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Learning Center Home
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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.
Learning Center Home
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How to Know When You Can Retire
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.
Learning Center Home
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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
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.
Learning Center Home
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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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Learning Center Home
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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
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
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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
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.
Learning Center Home
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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.
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Learning Center Home
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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
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.
Learning Center Home
1 2
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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.
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Learning Center Home
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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
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.
Calculate Your Income Need
Before you jump in and begin picking from the assorted list of investments that you found on the internet or that a broker recommended, you should understand that this is the very last step in the process. You would be well advised to set all of that aside for now and begin with your income needs. You cannot sidestep this, because you have to know this figure before you can do anything else.
To do this right, sort through and total up all your bank payments, then your insurance payments, then your tax payments, then your monthly living expenses, and don’t forget the irregular expenses throughout the year, like gifts and travel. You want to know how much money you spend over the course of a year.
Another point to make here, realize that this spending amount will be for when you are retired – not while you’re working. Things are going to look different for you in retirement, so be sure to think about how you will be spending your time in retirement. You’ll have a lot of time to fill!
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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.
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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Learning Center Home
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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
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.
Calculate Your Income Gap
Once you have this figure, subtract from it your Social Security or pension benefits. Any fixed income you have coming is already solved for, so we have to figure out what your “income gap” is between what you need and what income you already have coming in.
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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
When it came time for her first child to go off to college, New Jersey mom Jill Tang went a little overboard with dorm shopping. “I was excited and overspent,” she concedes. “I would say that my daughter used about 70% of what we actually bought. The rest of the 30% we donated or tried to salvage in our own home.”
It’s easy for anxious families to let their guard down and fall victim to the back-to-college marketing ploys, especially after the disruption that COVID-19 had on learning. Deloitte estimates that in 2021, $26.7 billion will be spent this year on back-to-college purchases, with an average of $1,459 spent per child. But every “dorm essential” checklist has items that will still be unused or unopened at the end of the year. Here’s a college un-checklist: everything students do not need.
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New Hardcopy Textbooks
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Fancy Laptop
Laptops have become the central workstation for students. Know which features are necessary, and which aren’t.
Students should strive for portability, long battery life, ample storage space, and powerful CPUs––the portion of a computer that retrieves and executes instructions. Premium features such as 4K displays are nice to have, but they drive up the cost and drive down battery life.
You can find a laptop that hits all the necessary requirements under $1,000. Here are three great examples.
The 2021 HP Envy 13 offers the best of both worlds: efficiency and affordability at $749.99 (retail). The powerful performance from the 11th Gen Core i5 CPU, coupled with the longevity of a 10-hour battery life, will power you through all-day studying (or gaming). At the feather’s weight of 2.9 pounds, HP Envy 13 also boasts a 13.3-inch screen with slim bezels (the framing around the laptop) and a wide and bright 1080p display. Download as many PDFs as you want––256GB allows you ample space.
If the student prefers MacOS over Windows10, then consider the Apple MacBook Air of late 2020, whose M1 chip makes it one of the fastest ultrathin laptops ever. At $849.99, you’ll enjoy a wide 13.3-inch display, an air-like weight at 2.8 pounds, and a 14-15-hour battery life that’s unrivaled by any Windows10 laptop. Several other features can come in clutch, such as the built-in 720p webcam for virtual sessions and the 256 GB of storage space.
If the student values touch-screen capabilities, then consider Microsoft’s Surface Pro 7 at $749.99. Combining the best features of a laptop and a tablet, this ultra-slim 2-in-1 runs all your favorite Windows applications while allowing you to draw and touch the 12.3” display. The built-in kickstand, keyboard add-on (an additional $270), and Surface Pen add-on (an additional $70) can quickly transform the tablet to a laptop that weighs less than two pounds. The 10.5 hours of battery life and 128GB storage space are impressive for a hybrid this size.
Laptops have become the central workstation for students. Know which features are necessary, and which aren’t.
Students should strive for portability, long battery life, ample storage space, and powerful CPUs––the portion of a computer that retrieves and executes instructions. Premium features such as 4K displays are nice to have, but they drive up the cost and drive down battery life.
You can find a laptop that hits all the necessary requirements under $1,000. Here are three great examples.
The 2021 HP Envy 13 offers the best of both worlds: efficiency and affordability at $749.99 (retail). The powerful performance from the 11th Gen Core i5 CPU, coupled with the longevity of a 10-hour battery life, will power you through all-day studying (or gaming). At the feather’s weight of 2.9 pounds, HP Envy 13 also boasts a 13.3-inch screen with slim bezels (the framing around the laptop) and a wide and bright 1080p display. Download as many PDFs as you want––256GB allows you ample space.
If the student prefers MacOS over Windows10, then consider the Apple MacBook Air of late 2020, whose M1 chip makes it one of the fastest ultrathin laptops ever. At $849.99, you’ll enjoy a wide 13.3-inch display, an air-like weight at 2.8 pounds, and a 14-15-hour battery life that’s unrivaled by any Windows10 laptop. Several other features can come in clutch, such as the built-in 720p webcam for virtual sessions and the 256 GB of storage space.
If the student values touch-screen capabilities, then consider Microsoft’s Surface Pro 7 at $749.99. Combining the best features of a laptop and a tablet, this ultra-slim 2-in-1 runs all your favorite Windows applications while allowing you to draw and touch the 12.3” display. The built-in kickstand, keyboard add-on (an additional $270), and Surface Pen add-on (an additional $70) can quickly transform the tablet to a laptop that weighs less than two pounds. The 10.5 hours of battery life and 128GB storage space are impressive for a hybrid this size.
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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.
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Car
Bringing a car to college is more of a hassle than a convenience––on the student and on the wallet.
In a nine-month academic year, a new small sedan would rack up about $5,000 in expenses, including costs for gas, depreciation, standard maintenance and insurance, according to AAA (yes, a used car would cost less). Parking permits would add even more to the bill, at generally hundreds of dollars a year. Keeping the car parked at home could lower insurance premiums, too.
If you are concerned that your student’s residence is far away from the main campus, most universities have on-campus shuttle services that transport students around the campus and possibly nearby surrounding areas, which typically contain university-affiliated off-campus housing. And of course, there's always bicycles (or now, e-bikes).
If your student still needs to bring a car, consider offsetting the cost by putting it to use with rideshare or delivery work, always popular in college towns. For Uber, drivers must own a four-door vehicle, have a valid U.S. driver’s license, have at least one year of licensed experience in the U.S. (three years if they’re under age 23), and pass the driver screening online. To do DoorDash deliveries, you must have a valid domestic driver’s license, car insurance, and a clean driving record.
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The Entire Wardrobe
Kris Hui, a lifestyle Youtuber and San José State University Alumnus, recalls bringing 30 pairs of shoes for her first semester at college. Her side of the closet could only fit three pairs, leaving rain boots and flats sprawled across her room.
Colleges often provide only a dresser and a closet you’ll likely have to share with your roommate. Bulky apparel like jackets and boots can easily fill up most of this prime real estate. Pack light and consider changing out wardrobes during trips home from school. If you thrive on turnover, thrift stores (a college-town staple) can fill gaps. Just remember to sell as much as you buy.
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Appliances
Most freshmen eat the majority of their meals in dining halls or other on-campus food spots. So most kitchen appliances are expensive, bulky, and unnecessary for underclassmen. Exceptions include mini-fridges and microwave ovens, which might be available for rental. However, before making a purchase, check if your student’s setup includes community kitchens, which tend to offer a range of full-scale appliances. Also, check the building rules for restrictions on what appliances are even allowed.
The same thing goes for cleaning gadgets. Robotic vacuums, mops, or air purifiers are not the most cost- or space-efficient methods to stay clean and hygienic. Instead, consider arming students with antibacterial spray or wipes and help them do a deep-clean during visits. And while a hand-held vacuum might make the cut, don't rule out the 19th-century technology of dustpan and broom.
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Campus Health Insurance
If you have family health coverage, your child likely won’t need campus health insurance because they’ll be covered under that plan until the age of 26. Make sure that your plan covers out-of-network costs or that healthcare providers near the campus are in-network.
If your plan does not cover out-of-network costs or local healthcare providers are not in-network, a campus health-insurance plan may be a more cost-effective option. Compare the price of campus insurance with the cost of keeping the student on your policy and paying extra for any out-of-network care or clinic visits. "Be aware that many schools require kids to show proof of insurance before they start, and some will automatically enroll students in the campus insurance if they don't actively opt out by showing proof of alternative insurance,” says Lisa Zamosky, senior director of consumer affairs for eHealth.inc.
Some college policies have low coverage maximums, which could leave you with thousands of dollars in uninsured expenses. Your child can also buy an individual policy through the local health insurance exchange (search by state at Healthcare.gov).
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Furniture and Decoration
We've seen those fancy dorm rooms on Pinterest, too. Chandeliers? Take a reality check. Outfitting your home away from home is expensive, a potential challenge to maintain, and potentially distracting.
An overly decorated dorm room takes effort, space, money, and time that freshmen don’t have. The last thing a student wants during exam season is to be swamped amid unnecessary clutter. Colleges will provide, at minimum, a bed, mattress, desk, and chair for residential students. Everything beyond that is generally on you. Cheap personalization? Try string lights, plastic ivy, and DIY photo murals.
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11 Things You Don’t Need for College
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Car
Bringing a car to college is more of a hassle than a convenience––on the student and on the wallet.
In a nine-month academic year, a new small sedan would rack up about $5,000 in expenses, including costs for gas, depreciation, standard maintenance and insurance, according to AAA (yes, a used car would cost less). Parking permits would add even more to the bill, at generally hundreds of dollars a year. Keeping the car parked at home could lower insurance premiums, too.
If you are concerned that your student’s residence is far away from the main campus, most universities have on-campus shuttle services that transport students around the campus and possibly nearby surrounding areas, which typically contain university-affiliated off-campus housing. And of course, there's always bicycles (or now, e-bikes).
If your student still needs to bring a car, consider offsetting the cost by putting it to use with rideshare or delivery work, always popular in college towns. For Uber, drivers must own a four-door vehicle, have a valid U.S. driver’s license, have at least one year of licensed experience in the U.S. (three years if they’re under age 23), and pass the driver screening online. To do DoorDash deliveries, you must have a valid domestic driver’s license, car insurance, and a clean driving record.
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The Entire Wardrobe
Kris Hui, a lifestyle Youtuber and San José State University Alumnus, recalls bringing 30 pairs of shoes for her first semester at college. Her side of the closet could only fit three pairs, leaving rain boots and flats sprawled across her room.
Colleges often provide only a dresser and a closet you’ll likely have to share with your roommate. Bulky apparel like jackets and boots can easily fill up most of this prime real estate. Pack light and consider changing out wardrobes during trips home from school. If you thrive on turnover, thrift stores (a college-town staple) can fill gaps. Just remember to sell as much as you buy.
© 2022 The Kiplinger Washington Editors Inc.
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Know Your Social Security ‘Full Retirement Age’
First things first: determine your Social Security full retirement age. For people born between 1943 and 1954, full retirement age is 66. If your birthday falls between 1955 and 1959, it gradually climbs to 67. If you are born in 1960 or later, your full retirement age is 67.
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. More on that in a moment.
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.
How Your Social Security Benefits Are Calculated
Your Social Security benefits are based on the 35 calendar years in which your income was the highest. 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 2021, the maximum monthly benefit is $3,113. For someone filing at age 70, the maximum monthly amount is $3,895.
To estimate your benefits, use the Social Security's online Retirement Estimator.
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 quite valuable; 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. In 2021, Social Security beneficiaries saw a 1.3% COLA in their monthly Social Security benefits. The COLA for 2022 is 5.9%, which is the largest adjustment since 1982.
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%
Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits
There’s a Social Security Spousal Benefit
Marriage brings couples an advantage 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.
Another spousal-benefit tactic: In some cases, a spouse who is delaying his or her own benefit but still wants to bring some Social Security income into the household can restrict their application to a spousal benefit only. To use this strategy, the spouse restricting his or her application must be at full retirement age and he or she must have been born on or before January 1, 1954. So the lower-earning spouse, say the wife, applies for benefits on her own record. The husband then applies for a spousal benefit only, and he receives half of his wife's benefit while his own benefit continues to grow. When he's 70, he can switch to his own, higher benefit.
Children Can Also Collect Social Security Benefits
Minor children of Social Security beneficiaries can be eligible for benefits. Children up to age 18 (or up to age 19 if they are full-time students who haven't graduated from high school) and disabled children older than 18 may be able to receive up to half of a parent's Social Security benefit. The disability must have occurred before the age of 22. The adult child can continue collecting the benefit even after the parent has died, as long as the disability prevents them from working.
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. 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
Just because you're divorced doesn't mean you've lost the ability to get a Social Security benefit based on your former spouse's earnings. You can receive a benefit based on his or her record instead of a benefit based on your own work record if you were married at least 10 years, you are 62 or older, and you are single.
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.
You Can Claim Social Security Benefits Earned by Your Ex-Spouse
Just because you're divorced doesn't mean you've lost the ability to get a Social Security benefit based on your former spouse's earnings. You can receive a benefit based on his or her record instead of a benefit based on your own work record if you were married at least 10 years, you are 62 or older, and you are single.
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.
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Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits
There’s a Social Security Spousal Benefit
Marriage brings couples an advantage 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.
Another spousal-benefit tactic: In some cases, a spouse who is delaying his or her own benefit but still wants to bring some Social Security income into the household can restrict their application to a spousal benefit only. To use this strategy, the spouse restricting his or her application must be at full retirement age and he or she must have been born on or before January 1, 1954. So the lower-earning spouse, say the wife, applies for benefits on her own record. The husband then applies for a spousal benefit only, and he receives half of his wife's benefit while his own benefit continues to grow. When he's 70, he can switch to his own, higher benefit.
You May Have to Pay Taxes on Social Security Benefits
Most people know that you pay tax into the Social Security Trust Fund throughout your career, but some retirees don't realize that you also have to pay tax on your Social Security benefits once you start taking 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. For example, a married couple with a combined income of more than $32,000 may have to pay income tax on up to 50% of their Social Security benefits. Higher earners may have to pay income tax on up to 85% of their benefits.
You may also have to pay state income taxes on your Social Security benefits.
© 2022 The Kiplinger Washington Editors Inc.
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:
• What do you like about your (and your partner's) approach to money today?
• What do you not like about each of your approaches?
• How would you like to improve your conversations about money?
What do you like about your (and your partner's) approach to money today?
What do you not like about each of your approaches?
How would you like to improve your conversations about money?
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:
Conversation Starter 2: Are we focusing on the big picture?
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:
What do you like about your (and your partner's) approach to money today?
What do you not like about each of your approaches?
How would you like to improve your conversations about money?
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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:
What do you like about your (and your partner's) approach to money today?
What do you not like about each of your approaches?
How would you like to improve your conversations about money?
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Financial Conversation Starters for Couples
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.
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.
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Homeowners Insurance: A Bigger Factor Than You Might Think
Homeowners insurance is a stealth cost that could catch you off guard, depending on which state you are saying farewell to and which state is your destination. The average cost of annual premiums fluctuates wildly, from $376 in Hawaii to $1,353 in Florida to $3,519 in Oklahoma. The potential for local natural disasters (such as hurricanes, tornadoes, and earthquakes) plays a role in those premiums.
It’s worthwhile to research how much more — or less — you could pay for homeowners insurance depending on the direction of your move.
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House Size: Bigger Isn’t Better
When shopping for your new retirement dream home, remember this: Sometimes retirees move into a larger and more expensive house than necessary. Do you need three bedrooms and two bathrooms for two people, even if you expect visits from your children and grandchildren? They can always stay in a nearby hotel. Even if you spring for the hotel bill for their short stay, that likely would be cheaper than the extra money you would pay for a larger house.
Also, don’t forget that the larger the house, the higher the property tax, the higher the insurance bill and the costlier the upkeep.
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Moving to Another State in Retirement? What You Need to Know
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.
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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.
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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Consider Medicare Advantage for All-in-One Plans
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.
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.
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.
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.
Medicare Basics: 11 Things You
Need to Know
Medicare Basics: 11 Things You Need to Know
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.
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 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.
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.
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.
What do you like about your (and your partner's) approach to money today?
What do you not like about each of your approaches?
How would you like to improve your conversations about money?
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If you’re within six months or so of retirement, there are certain things you need to do now to help prepare yourself for the transition into retirement.
Throughout this retirement preparation process, there will be times when you feel as though you are making a series of rapid-fire micro decisions as you work through Social Security benefits, Medicare options, pension elections and retirement account distributions.
The decisions to be made are many, and understanding the long-term ramifications of those decisions is paramount, considering that your retirement years could be as many as those spent working.
The numerous options you will face can become a labyrinth of choices leading many people to attend YouTube university in search for answers, while leaning on friends and co-workers to fill in the missing pieces. The truth is, people underestimate the complexities that exist with preparing for retirement and find themselves over their head.
Unfortunately, without understanding the long-term effects of one decision over another, a retiree may be well into their retirement before problems begin to surface. For instance,
Inflation will erode your income over time.
Longevity may require your money to last longer than you thought.
Market volatility can deplete your resources.
Heath care expenses can potentially absorb most of what you have.
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Going back to the home construction metaphor, to ensure you have your bases covered and are retirement ready, first consider the cost of the project. It is better to estimate the cost of your retirement now to uncover potential problems before actually retiring. Start by carefully evaluating your current thinking about your situation.
1. Develop an income plan detailing exactly how much income you will need each year to fund your retirement lifestyle
Now, before skipping over this you should consider that your lifestyle will change — along with your tax situation — which means that the amount you need now to live on will not be the same when you retire. You may need to budget even more for your early years of retirement, when you’ll be enjoying the good life. So, it is not a good idea to make general assumptions about your future income needs based on how things are while you’re working.
Carefully consider what will change and what will stay the same once you retire, adding into the mix such things as travel, health care costs and other variable expenses.
2. Identify your income sources and determine exactly how much income will be generated from each source to satisfy your annual income needs
No generalizations here … you should seek to know exactly how much you can expect from each resource you have.
This is where most people begin to struggle, because there is often a disconnect between their mindset around their assets and the need they have from them. There are generally two camps with this:
6 Things You Can Do Right Now to Ensure Your Money Will Last in Retirement
4. Have an income replacement plan in place for your spouse to cover the loss of Social Security or pension income if you were to predecease them
Developing an income strategy for retirement most often means you are relying on a husband and wife’s benefits, but those benefits are only received while both are living (in most cases).
Many people are misled into believing that as you get older your need for life insurance diminishes, and while this may be true for some, for others the need for it may actually rise.
It is a good idea to know the specifics for how benefits will adjust when a death occurs and have a plan in place to replace lost income if it is needed.
5. Have (updated) legal documents in place designating financial power of attorney, medical directives, wills and trusts
Most people kick this can down the road with the idea they will have time to get this done later. (Later meaning when they need it.)
Here is the deal: If you wait until you need these documents it will be too late to get them.
NYSUT NOTE: Did you know that The NYSUT Member Benefits Trust-endorsed Legal Service Plan — provided by the law firm of Feldman, Kramer & Monaco, P.C. — offers expert legal assistance that can assist you with everything from preparing crucial estate planning documents to dealing with traffic violations? Get more information or enroll on the NYSUT member website.
Don't Get Too Hung Up on a Retirement Savings Number
Understand How Your Spending Might Change
One of the biggest dangers in retirement is losing buying power, not merely having inadequate wealth. "The average person invests to spend," Schrager says. "The number you should be worried about is 'How much can I spend each year?' That's not just a function of the stock market; it's a function of interest rates." Higher interest rates can undermine stocks and raise the costs of any variable-rate debt you owe. On the plus side, rising rates can improve returns on fixed-income investments like bonds. Your retirement savings and expenses must fit into any interest rate scenario.
Many retirement spending models use the 4% rule as the average percentage to withdraw each year from an investment portfolio without dipping into the principal. Just like "the number," these targets can also be deceptive as well as dependent on market conditions and life expectancy. The 4% rule originated from an exhaustive 1994 study of historical market conditions, which found that, under every scenario, the withdrawal rate wouldn't deplete a retirement fund for 30 years. But if someone retires at 65 and lives to 100, they could run out of funds under that same model.
These models also don't account for how your spending might change throughout retirement. "As much as we try to calculate what we'll need for retirement, at the end of the day, we don't really know," says Rich Jones, founder of personal finance podcast Paychecks and Balances in Mountain View, Calif. "A lot of people don't think about the cost of living" where they retire. For Jones, retiring in his current, expensive home city would look very different than hanging his hat in Albany, N.Y., where he grew up.
Similarly, your current spending may be nothing like your retirement expenses because when we have more leisure, we often spend more. "The bigger question you should ask is 'What type of life am I aiming for?'" says Chris Browning, host of the Popcorn Finance podcast. "Do you want to live a simpler life and move somewhere cheaper and slower paced than where you're living? Do you want the ability to give money to family and friends?" That clear vision -- backed up with a written budget -- can guide you in setting and adjusting savings targets as well as motivate you to build wealth.
In retirement, health care costs escalate dramatically. Working households spend about 6% of their annual budget on health expenses, versus 14% for retirees, according to the Kaiser Family Foundation. A heterosexual, 65-year-old married couple spends, on average, about $300,000 on medical expenses in retirement, up 88% since 2002, a Fidelity Investments report found. "You need to allow for flexibility because your life is going to change over time," Browning says. Although you may be perfectly healthy now, "things could happen, and there could be additional costs associated with your care."
What do you like about your (and your partner's) approach to money today?
What do you not like about each of your approaches?
How would you like to improve your conversations about money?
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More than 30 million Americans who own life insurance policies don’t have enough coverage, according to a recent LIMRA study. While the average shortfall in coverage is around $225,000, it’s even greater for high income earners.
Why such a large coverage gap? Often, it’s because people tend to treat life insurance as a “check the box” task. They’ll buy a $500,000 policy when they’re younger (figuring it’s more than enough coverage to replace lost income), and then put it aside and forget about it.
But your life and wealth are constantly evolving. A policy that would replace a decade’s worth of income when you were making $50,000/year, suddenly only covers two years when your salary has climbed to $250,000. In addition, you may now have a couple of children — meaning it’s not just a matter of replacing income but funding college educations.
There are no hard and fast rules when it comes to determining how much coverage is enough. The amount will vary greatly depending on your level of wealth, your liabilities and your personal circumstances. Often, the best place to start is by asking yourself the following four questions:
Life insurance
More than 30 million Americans who own life insurance policies don’t have enough coverage, according to a recent LIMRA study. While the average shortfall in coverage is around $225,000, it’s even greater for high income earners.
Why such a large coverage gap? Often, it’s because people tend to treat life insurance as a “check the box” task. They’ll buy a $500,000 policy when they’re younger (figuring it’s more than enough coverage to replace lost income), and then put it aside and forget about it.
But your life and wealth are constantly evolving. A policy that would replace a decade’s worth of income when you were making $50,000/year, suddenly only covers two years when your salary has climbed to $250,000. In addition, you may now have a couple of children — meaning it’s not just a matter of replacing income but funding college educations.
There are no hard and fast rules when it comes to determining how much coverage is enough. The amount will vary greatly depending on your level of wealth, your liabilities and your personal circumstances. Often, the best place to start is by asking yourself the following four questions:
Important Planning Considerations: Insurance & Long-Term Care
How much would your spouse need to pay off any mortgages if something happens to you?
How much beyond what you’ve already saved will be needed to fund your children’s future educational costs?
Are you carrying any other debt or liabilities that will need to be paid off if you die?
And how much of an additional safety net would your family need to ensure they would be able to maintain their lifestyle?
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According to the U.S. Department of Health and Human Services, 70% of adults who are turning 65 today will require some type of long-term care (e.g., home health care, a nursing home stay, or time in an assisted-living facility) during their lives. These are costs that are NOT covered by Medicare.
And the potential expenses associated with long-term care are so high (on average $55,000/year for a full-time home health aide; and $93,000/year for a semi-private room in a nursing home), that they can quickly drain a lifetime’s worth of savings — assets that might otherwise provide a legacy for your heirs.
Yet long-term care is one of the most challenging insurance needs to plan for. Firstly, none of us want to spend a lot of time contemplating our own physical or cognitive decline. In addition, traditional long-term care insurance carries a very real risk that you might pay years of premiums without ever needing any of the benefits (in which case your premiums are lost). But there are other alternatives such as hybrid life and long-term care insurance policies — where you can “tap into” the policy’s death benefit to pay long-term care expenses, with the remainder being passed on to your heirs when you die — as well as long-term care insurance riders that can be added to certain types of annuities.
The important thing is to not wait until you start experiencing a physical or cognitive decline before seeking out coverage. The underwriting/approval process can be rigorous, and you’ll likely be declined for coverage if a serious ailment or health issue has already arisen.
Typically, in order to be considered a “coverable” long-term care event, you must be unable to perform at least two activities of daily living (ADLs), or suffer a cognitive impairment. There are six common ADLs as defined by most medical professionals:
Long-term care insurance
According to the U.S. Department of Health and Human Services, 70% of adults who are turning 65 today will require some type of long-term care (e.g., home health care, a nursing home stay, or time in an assisted-living facility) during their lives. These are costs that are NOT covered by Medicare.
And the potential expenses associated with long-term care are so high (on average $55,000/year for a full-time home health aide; and $93,000/year for a semi-private room in a nursing home), that they can quickly drain a lifetime’s worth of savings — assets that might otherwise provide a legacy for your heirs.
Yet long-term care is one of the most challenging insurance needs to plan for. Firstly, none of us want to spend a lot of time contemplating our own physical or cognitive decline. In addition, traditional long-term care insurance carries a very real risk that you might pay years of premiums without ever needing any of the benefits (in which case your premiums are lost). But there are other alternatives such as hybrid life and long-term care insurance policies — where you can “tap into” the policy’s death benefit to pay long-term care expenses, with the remainder being passed on to your heirs when you die — as well as long-term care insurance riders that can be added to certain types of annuities.
The important thing is to not wait until you start experiencing a physical or cognitive decline before seeking out coverage. The underwriting/approval process can be rigorous, and you’ll likely be declined for coverage if a serious ailment or health issue has already arisen.
Typically, in order to be considered a “coverable” long-term care event, you must be unable to perform at least two activities of daily living (ADLs), or suffer a cognitive impairment. There are six common ADLs as defined by most medical professionals:
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.
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.
Good news: You can have it your way!
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.
How Millennials Are Changing the Life Insurance Game
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.
Estate Planning During a Pandemic – Quit Stalling
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.
If your child is close to college age and their college fund has taken a hit in the market, there’s one thing you should think about doing.
Good news: The government is working to streamline the FAFSA (Free Application for Federal Student Aid) application process, as part of a bill that was signed into law in December 2021.
Some of the changes are being phased in over multiple calendar years. We can expect to see a new streamlined FAFSA form in October of 2022. Some changes went into effect for the 2021-22 award year, while other changes won’t be completely implemented until the 2024-25 award year.
Simplifying the application process is in the works
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.
Distributions from your 529 will no longer reduce your grandchild’s financial aid
One advantage of 529 plans that many people aren’t aware of is that they allow a contributor to superfund five years’ worth of tax-free gifting into a single calendar for a beneficiary. Normally you can gift $16,000 per year using the annual gift tax exclusion amount. With a 529 you can gift $80,000 in one year (or $160,000 if married filing jointly) and avoid gift taxes. You can only do this every five years, but this strategy does offer some great planning opportunities.
An added benefit for wealthy families is that 529s can remove assets from your estate while allowing you to retain control over them. A 529 savings plan is a great vehicle for accelerating savings and maintaining tax efficiency.
529 college savings plans continue to be popular vehicles for college savings. Growth and earnings of assets in these plans are tax-free as long as future cash distributions are used for qualified educational purposes, including such things as tuition, textbooks and computers.
With the new FAFSA changes, it’s a great opportunity for grandparents to revisit their savings plan.
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
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
Shane W. Cummings, CFP®, AIF®
Wealth Adviser and Director of Technology/Cybersecurity, Halbert Hargrove
Shane W. Cummings is based in Halbert Hargrove’s Denver office and holds multiple roles with Halbert Hargrove. As Director of Technology/Cybersecurity, Shane’s overriding objective is to enable Halbert Hargrove associates to work efficiently and effectively, while safeguarding client data. As wealth adviser, he works with clients in helping them determine goals and identify financial risks, creating an allocation strategy for their investments.
Superfunding five years of gifting into one
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As the IRS tells us, "you cannot keep retirement funds in your account indefinitely." That's why you're generally required to start taking money out of your retirement accounts each year (except Roth IRAs) once you reach 72 years of age. (Distributions from a Roth IRA are not required until after the owner's death.)
Normally, you must take your annual RMD by December 31. However, you can delay your first RMD until April 1 of the year following the year in which you reach age 72 (or the next business day if April 1 falls on a weekend or holiday – like it does in 2023). You don't have to delay the RMD, but it's an option.
If you're still working and don't own at least 5% of the company, you can also delay taking RMDs from your current employer's 401(k) or 403(b) plan until April 1 of the year after the year you retire. Again, it's your choice.
Delaying your first RMD can work for you or against you. If you delay your first RMD to the following year, you'll have to take two RMDs in that year: One for the year you delayed the RMD (i.e., for the year you turned 72), plus the one you'd normally have to take by December 31 for the year. This could trigger unintended consequences that increase your tax bill. For example, two RMDs in one year might kick you into a higher tax bracket or affect the amount of Social Security benefits that are subject to tax. One the other hand, if you had a lot of income in the year you turned 72 or retired, it might make sense to delay your first RMD to avoid similar problems that year. It all depends on your circumstances.
Due Dates for Required Minimum Distributions
Generally, the minimum amount you're required to withdraw each year is calculated by dividing the account balance at the end of the previous year by a life expectancy factor that the IRS publishes in Publication 590-B for the previous tax year. (Note: For first-time RMDs that are due April 3, 2023, for people who turned 72 in 2022, use Publication 590-B for the 2021 tax year.) To help with the computation of RMDs from IRAs for 2022, we've created an easy-to-use tool that calculates RMDs for you.
If you have more than one traditional IRA, you need to determine a separate RMD for each IRA, but you can add up the RMD amounts and take the total from any one or more of your IRAs. However, if you have multiple 401(k) pr 403(b) accounts, you have to calculate and take the RMD from each plan separately. (Your 401(k) or 403(b) plan sponsor or administrator should calculate the RMD for you.)
Calculating Your RMD
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What People Are Getting Wrong About Social Security
About half (49%) of consumers believe if they file for Social Security early, their benefit will automatically go up once they reach their full retirement age — it won’t. A sizable number of boomers (39%) who are not currently receiving Social Security plan on drawing from their benefits before their full retirement age, a decision that may cost them in the long run and should only be done with eyes wide open about implications for the future.
Misperceptions like this could make a huge difference in maximizing your retirement income. That’s why I think it’s important that even the savviest retirement savers should involve an adviser or financial professional in their Social Security decision-making process.
While 91% of survey respondents said they’re at least somewhat confident in their Social Security knowledge, only 7% could identify the factors that determine a maximum benefit, including:
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Expenses as a Return on Investment
Even an expense can be viewed as an “investment” if that expense saves money in other ways. Take energy-efficient home upgrades, for example. If it costs $3,000 to insulate a home with new technology and that saves $50 per month on the power bill, then that $3,000 cost should not be viewed just as an expense. It should also be considered an investment. That $50 saving per month equates to annual savings of $600, which goes directly back into the homeowner’s pocket.
You can think about it like investing $3,000 in a bond or CD that pays interest of $600 per year, which is the same as earning a 20% return. It shouldn’t matter whether that $600 comes from interest on an investment or savings from an expense. At the end of the day, it’s money back in your pocket.
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.
Many college savers, like many retirement savers, use the age-based portfolio models for their investments. Age-based 529 investment funds are similar to target date retirement funds. The theory is that as your child ages, the 529 college savings investment portfolio becomes less aggressive, with the goal of reducing the risk the closer you get to needing the money.
That isn’t to say that once your child is ready for college that all the risk is gone from the portfolio. Depending on which investment provider’s plan you are using for your 529 plan, the amount of risk still in the portfolio can vary widely. So, this means that even when your child is ready to go to school, a down market can still have a substantial effect on your account values.
Saving for College Like You Save for Retirement
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The Free Application for Federal Student Aid (FAFSA) became available on October 1 for the 2023–24 academic year. Why should you care? If you or your child is attending college, the FAFSA determines eligibility for federal student aid, including grants and work-study.
The FAFSA is available at www.studentaid.gov. It typically takes from 30 to 60 minutes to complete, yet many students (or their parents) wait to file it or never file it at all.
The sooner you file, the more likely you are to qualify for a greater amount of aid. Students who apply for financial aid during the first three months tend to get twice as much grant money as students who file the FAFSA later, says Mark Kantrowitz, author of How to Appeal for More Financial Aid.
A total of 15 states award grants for their colleges and universities on a first-come, first-served basis, until the money runs out. And about a dozen states have early deadlines—as early as December in the year prior to the academic year in question, and some in January, February or March. Also, colleges themselves typically have early deadlines to apply for their own financial aid. Some colleges have a preferred deadline and a regular deadline, but both usually fall during the winter months. Colleges also typically award other types of aid, such as work-study or grants, early on.
Even if you don’t think you’ll qualify, apply for federal student aid via the FAFSA. You may be surprised.
The FAFSA: File Early to Get Aid for College
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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
Nobody likes a down market, though most investors probably should. Down markets are where most of the big future gains come from when you are contributing to your investments on a regular basis. Dollar-cost averaging your investments when markets are low is no different than buying anything else when it’s on sale. This is a great way to build wealth for retirement.
But what about when you’re investing to save for college? How do down markets affect those with 529 college savings plans? One way could involve changing the timing of when you decide to tap into the funds you’ve saved.
When you are just starting off, it is hard to envision retirement. I remember earlier on in my career, before I got into wealth management myself, my financial adviser insisted on doing a financial plan for me and my husband that had us set retirement goals. I was resistant because with so many unknowns and such a long time horizon, I felt that any projected numbers would, by definition, be inaccurate.
Her response was, “Of course the numbers are not going to be right! What we’re looking for are directional trends. Without a plan, how are we going to have the framework to have any meaning financial discussions?”
I realized then that while I was very tuned into my monthly cashflows and savings, I did not have a long-term view. I had to push my view out by at least 30 more years. This leads me to the first retirement lesson I’d share with my younger self:
To build a nest egg that will see you through retirement, it helps to start young. Here are six steps to get going.
6 Retirement Wealth Strategies to Start Young, Finish Strong
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What Went Wrong with Public Service Loan Forgiveness?
People with student loans who work in qualifying non-profit or government jobs may have their loans forgiven after ten years of qualifying payments to a qualifying loan program. These payments may be adjusted in consideration of the borrowers’ income level.
The first borrowers would have been eligible for forgiveness in October 2017 (remember, the program was launched in 2007). But four months before that, the Consumer Financial Protection Bureau reported problems: “Borrowers report that servicers delay or deny access to loan forgiveness through wrong information about their loans, flawed payment processing, and bungled job certifications.”
One major complication involves how federal student loans originated. Prior to 2010, federally backed student loans were issued by financial institutions and not directly by the federal government. PSLF applies only to direct student loans, or those issued by the federal government. Earlier loans could be consolidated into direct loans, and payments made after that consolidation would apply toward PSLF.
Financial accounts and bills
It’s important to remember that you do not have to take money out of a 529 college savings account just because your child is about to start college. If the market is down at the time your child enters college, then you could consider waiting until future years to use the funds inside of the 529 college savings accounts. Doing this would give the accounts time to recover from the market declines, especially if you are still contributing to them via dollar-cost averaging. This could give your investments up to three additional years to grow.
So how do I pay for college if I’m waiting to use my 529s?
Tap into your home: Home equity could be an option, especially with the inflated home prices we’ve seen over the past few years. We often suggest clients have a home equity line of credit (HELOC) for a variety of reasons. Paying for college is a potential use of that HELOC. Just be mindful of interest rates, especially if we continue to see rates climb.
Tap into your savings: Some clients are using savings or current earnings to fund the first year or two. While we don’t suggest tapping into your emergency fund, many investors have additional savings that are earning low rates of interest, so redirecting those low performing savings to help pay for college, particularly in your student’s early years, can help allow the 529 balances time to recover.
Take out a loan: Lastly, loans for early years may be an option. Both subsidized and unsubsidized federal loans are a great place to start because they can later be consolidated after graduation with favorable repayment options. Parents and students can explore both Parent PLUS and private loans as well. Some states have their own loan programs, which may have favorable interest rates. Thanks to the SECURE Act of 2019, you can now use 529 funds to repay student loans up to $10,000 per student. (Note that the $10,000 limit is a lifetime limit, not per year.) We have even had clients use a loan against their portfolio, known as a securities-backed line of credit, to pay for a year or two of college before tapping into the 529s.
Colleges may even be willing to work with you given the current state of the market. It doesn’t hurt to ask for additional financial aid, although don’t expect all schools to be receptive to your request.
Advice: Consider Holding Off on Tapping Your 529 Plan
As we have seen so far in 2022, markets go down and sometimes by a lot. While this certainly isn’t ideal, just remember that markets are up far more often than they are down, typically by a margin of more than 3-1.
Most times it makes sense to stay the course. If your children are still in grade school or just entering their freshman year of high school, then there is no need yet to start making their 529 college savings portfolio more conservative. You should have ample time to recover any market declines.
The Bottom Line When Markets Fall
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© 2022 Future US LLC
‘TRICK’ … ‘T’ Is for Taxes
Most people don't take taxes in retirement into consideration as much as they should. If they have sizable amounts of money in pre-tax accounts, as many do with traditional 401(k)s or Roth 403(b)s, that money is going to be taxed when withdrawn. Required minimum distributions (RMDs) at age 72 can cause tax problems if the issue is not addressed ahead of time.
Converting some of that pre-tax money to Roth IRAs, Roth 401(k)s or Roth 403(b)s can be an effective way to reduce the tax burden in retirement. The “trick” is doing the conversion strategically over a number of years and knowing how much to convert each time. The converted amount is taxable each year, but Roth IRAs, Roth 401(k)s and Roth 403(b)s are tax-free when withdrawn starting at age 59½, although the accounts also must be held for at least five years. There is no requirement to start taking RMDs from a Roth IRA, whereas there is with a Roth 401(k) or Roth 403(b), but account holders can roll that into a Roth IRA.
Qualified Charitable Distributions (QCDs) are another way to potentially reduce the tax burden of an RMD. You can make a QCD by having your IRA custodian pay part or all of your RMD to a qualified 501(c)(3) charity. The total yearly maximum contribution for QCD is $100,000, and to make a QCD you have to be at least 70½ years of age.
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
Dollar-cost averaging does not assure a profit and does not protect against a loss in declining markets. This strategy involves continuous investing; you should consider your financial ability to continue purchases no matter how prices fluctuate. Securities offered through Kestra Investment Services LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services or Kestra Advisory Services. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax adviser with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
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
T. Eric Reich, CIMA®, CFP®, CLU®, ChFC®
President and Founder, Reich Asset Management, LLC
T. Eric Reich, President of Reich Asset Management, LLC is a Certified Financial Planner™ professional, holds his Certified Investment Management Analyst certification, and holds Chartered Life Underwriter® and Chartered Financial Consultant® designations.
Even for students who think they won’t qualify for much need-based aid, it’s generally still worth filling out and submitting the FAFSA. At a minimum, you can borrow unsubsidized direct student loans, which are federal loans that do not require any demonstrated financial need or a cosigner, such as a parent, and have generous forgiveness provisions. Federal student loans offer the most protections and benefits and should be the first resource you turn to, says Michael Kitchen, managing editor at Student Loan Hero, a subsidiary of Lending Tree.
Ultimately, filing the FAFSA isn’t binding, and for the most part it can only help. Students don’t need to take out all—or any—of the loans that are offered. “They might offer you somewhat more than you need, so you don’t have to borrow that whole amount,” says Kitchen. And you want to borrow as little as you can, he says. Despite recent loan forgiveness, new debt is still debt; it will likely have to be repaid eventually. The more a student can cover now, the smaller the financial burden later on.
Fill Out a FAFSA No Matter What
Some students avoid the FAFSA because they worry that applying for aid will reduce their chance of admission. Here’s the reality: Your finances won’t affect your admissions odds at the hundreds of “need blind” schools, which include all in-state public colleges and universities and approximately 100 (mostly elite) private colleges. Admissions at dozens of other private colleges are “need sensitive,” but that should not deter you from applying for aid—especially for the first academic year. “Because many of these colleges that are ‘need sensitive’ don’t want students and their parents to game the system,” Kantrowitz says, “if you don’t apply for financial aid for your freshman year, you will be ineligible for the college’s own grants in subsequent years unless you demonstrate that your financial circumstances have changed drastically.”
If filling out the FAFSA early means you get rejected from a dream college because you couldn’t afford it, refocus on schools that take a holistic approach to admissions, are need-blind and, preferably, give you the aid you need to avoid crushing debt.
Filing the FAFSA Won’t Hurt Admissions Chances (Usually)
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Any discussion about retirement has to come with a long view, where you set long-term goals with intermittent smaller goals in between. Without a financial plan, even at broad strokes, we make significant financial decisions based on a qualitative “gut” feel rather a quantitative analysis.
My advice: Work with a financial planner to put a retirement plan in place, even if it is full of estimates and assumptions. It will help you put a framework around where you are now and where you would like to end up. It will become your financial compass.
1. Never think you’re too young to need a financial plan
There's a stiff penalty for failing to follow the RMD rules. If your retirement plan distributions are less than the RMD for the year, you may have to pay an excise tax equal to 50% of the RMD amount that was not distributed.
You may, however, be able to get out of paying the penalty tax. You can request a waiver if your failure to take the RMD is due to a reasonable error and take whatever steps are necessary to increase your distribution to the required level. To request a waiver, submit Form 5329 with a statement explaining the error and the steps you're taking make things right.
Penalty for Failing to Take RMD
Will changes be made to the RMD rules this year? Two big retirement bills are in Congress that would do just that – the SECURE Act 2.0 and the EARN Act. (The SECURE Act 2.0 has already been passed by the House of Representatives.) It's too early to tell if any of the RMD changes in the two bills will eventually be enacted into law, but many experts believe that a bipartisan retirement bill has a good chance of getting to President Biden's desk this year.
RMD revisions included in the bill would:
RMD Changes Ahead?
• Raise the age for taking your first RMD to 75;
• Reducing RMD penalties;
• Exempt Roth 401(k) accounts from the RMD rules;
• Easy the RMD rules with respect to annuities in retirement plans;
• Push back the RMD start date for certain surviving spouses; and
• Expand the scope of qualified charitable distributions, which count towards RMDs.
Work history. Your benefits are based on average indexed monthly earnings during the 35 years in which you earned the most.
Age. While you can start receiving benefits as early as age 62, you are not entitled to your full benefit until you reach your full retirement age, which varies based on birth year, and to get the maximum benefit you would have to wait until age 70.
Benefit break-even age. If you begin receiving benefits before your full retirement age, you’ll receive a smaller benefit for a longer period; if you wait until your full retirement age or later, you’ll receive a larger monthly benefit for a shorter period. For those who wait to take benefits, if you live long enough, there comes a point when your total benefits will surpass the total you’d get by starting them earlier. That’s the Social Security break-even age.
Marital status. The maximum individual retirement benefit is based on the worker’s 35 highest years of earnings subject to Social Security taxes. Both spouses in a married couple may be eligible to receive the maximum individual retirement benefit, depending on their individual earnings history. In 2022, the maximum monthly benefit ranges from $2,364 for those retiring at 62, to $4,194 for those who wait until 70. It’s also worth noting that deciding to take benefits early can have massive implications for surviving spouses. When a spouse claims before full retirement age (FRA), they are potentially locking in a lower survivor’s benefit for the other spouse.
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Almost half of adults (49%) don’t know or aren’t sure what percentage of their income is or will be replaced in retirement by Social Security. That makes it hard to build a plan to help ensure your income in retirement will be enough to help you maintain the standard of living you may expect.
A financial professional can help you estimate the income you’ll receive from Social Security and identify additional income sources to either supplement your Social Security benefits or provide income that allows you to delay claiming until full retirement age. This could include potential solutions like annuities, life insurance, mutual funds or exchange-traded funds (ETFs).
There was one widely held misconception from our survey that may come as good news to many retirement savers – particularly at a time when inflation is top of mind for almost everyone. More than two-thirds of Americans don’t realize that Social Security is protected against inflation. Recent estimates say the cost-of-living adjustment (COLA) in 2023 could reach 10.5% or higher, providing a potentially crucial buffer for many against rising interest rates and decades-high inflation.
With financial news headlines continuing to provide daily reminders that few of us are on a straight line to retirement security, remember that you don’t have to navigate this challenging landscape on your own. Working with a trusted and qualified financial professional can help you feel more informed, prepared and secure in making the best decisions for your unique circumstances.
A Little Help Goes a Long Way
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© 2022 Future US LLC
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.
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.
To request a refund for federal student loan payments made during the pandemic pause, you have to contact your loan servicer. (Your servicer is the company that the Department of Education assigned to handle the billing and other services on your federal student loan.) They likely have information about student loan refunds on their website and should be able to help you determine whether your loan payments are eligible for refund.
When you contact your loan servicer, you may be asked to provide information about the payments that you made during the pandemic pause and the amount that you want refunded.
Once you request a student loan refund, there will be a wait before you receive your money. The refunds aren’t automatic because loan servicers need to process refund requests through the Department of Education. That can take anywhere from six to twelve weeks for some servicers and borrowers, and from 90 to 120 days for others.
Generally, though, if you are eligible for a refund, your payments can be refunded to you in the same way that you made them. For example, if you made your payments electronically, your refunds can usually be sent to the same bank account that you used to make the original payments. Additionally, the Department of Education has clarified that auto-debited payments are eligible to be refunded.
Will You Pay Taxes on Your Student Loan Refund?
Normally, the IRS considers forgiven debts to be taxable income. So, that has been the cause of some confusion about student loans and taxes. But the White House has indicated that under the American Rescue Plan Act, which was enacted during the COVID-19 pandemic, student loan relief is not considered taxable income for federal income tax purposes through 2025. That means that for now, you shouldn’t be taxed on refunds of federal student loan payments made during the pandemic, or on cancelled amounts from federal student loan forgiveness.
A note on state taxes: However, it is unclear right now whether some states will still tax student loan forgiveness. The Tax Foundation has reported that at least thirteen states might ultimately tax cancelled student loan debt. So, keep an eye out for information on this from your state.
3. Avoid naming multiple agents, when possible
A lot of my clients want to make sure none of their children feels left out, so they want to appoint all their children to every position possible. This, more often than not, leads to deadlock or discourse once decisive action is necessary.
For example, I had a client who recently came back to me to change his documents after he had appointed his three children all as co-agents and trustees. He realized that such action would lead to great disagreement among them, and as a result, timely action would be difficult. Three “Type A” personalities made it hard for them to agree, as each of them wanted to lead.
Therefore, avoid multiple agents when you can, unless you are sure everything will run smoothly.
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© 2022 Future US LLC
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What is the Tax Write Off for EV Chargers?
The federal tax credit for electric vehicle chargers originally expired on December 31, 2021. However, the Inflation Reduction Act’s Alternative Fuel Refueling Property tax credit extends the EV charger tax incentive ten years—through December 31, 2032.
So, what does that mean for you? Essentially, if you install a home EV charging station, the tax credit under the Inflation Reduction Act is 30% of the cost of hardware and installation, up to $1,000. Also, beginning in 2023, the tax credit for business and home installations, will apply to other EV charging equipment like bidirectional (i.e., two-way) chargers.
Businesses that install new EV chargers or EV charging equipment can also benefit from a tax incentive of up to 30% of the total cost of equipment and installation. But they will have to meet certain labor and construction requirements to be eligible to claim the full incentive.
Before the Inflation Reduction Act, the limit on the amount of the EV charger tax credit for businesses was $30,000 (which still applies to projects completed before the end of 2022). However, under the new law, if you complete the business installation project after 2022, the tax credit per property item, is up to $100,000 per EV charger.
All of this means that while electric vehicle chargers are not entirely tax deductible, you might benefit, to some degree, from the tax incentives in the Inflation Reduction Act that apply for refueling property.
Simplifying the application process is in the works
Good news: The government is working to streamline the FAFSA (Free Application for Federal Student Aid) application process, as part of a bill that was signed into law in December 2021.
Some of the changes are being phased in over multiple calendar years. We can expect to see a new streamlined FAFSA form in October of 2022. Some changes went into effect for the 2021-22 award year, while other changes won’t be completely implemented until the 2024-25 award year.
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.
One advantage of 529 plans that many people aren’t aware of is that they allow a contributor to superfund five years’ worth of tax-free gifting into a single calendar for a beneficiary. Normally you can gift $16,000 per year using the annual gift tax exclusion amount. With a 529 you can gift $80,000 in one year (or $160,000 if married filing jointly) and avoid gift taxes. You can only do this every five years, but this strategy does offer some great planning opportunities.
An added benefit for wealthy families is that 529s can remove assets from your estate while allowing you to retain control over them. A 529 savings plan is a great vehicle for accelerating savings and maintaining tax efficiency.
529 college savings plans continue to be popular vehicles for college savings. Growth and earnings of assets in these plans are tax-free as long as future cash distributions are used for qualified educational purposes, including such things as tuition, textbooks and computers.
With the new FAFSA changes, it’s a great opportunity for grandparents to revisit their savings plan.
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© 2022 Future US LLC
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.
Calculating Your RMD
Generally, the minimum amount you're required to withdraw each year is calculated by dividing the account balance at the end of the previous year by a life expectancy factor that the IRS publishes in Publication 590-B for the previous tax year. (Note: For first-time RMDs that are due April 3, 2023, for people who turned 72 in 2022, use Publication 590-B for the 2021 tax year.) To help with the computation of RMDs from IRAs for 2022, we've created an easy-to-use tool that calculates RMDs for you.
If you have more than one traditional IRA, you need to determine a separate RMD for each IRA, but you can add up the RMD amounts and take the total from any one or more of your IRAs. However, if you have multiple 401(k) pr 403(b) accounts, you have to calculate and take the RMD from each plan separately. (Your 401(k) or 403(b) plan sponsor or administrator should calculate the RMD for you.)
Penalty for Failing to Take RMD
There's a stiff penalty for failing to follow the RMD rules. If your retirement plan distributions are less than the RMD for the year, you may have to pay an excise tax equal to 50% of the RMD amount that was not distributed.
You may, however, be able to get out of paying the penalty tax. You can request a waiver if your failure to take the RMD is due to a reasonable error and take whatever steps are necessary to increase your distribution to the required level. To request a waiver, submit Form 5329 with a statement explaining the error and the steps you're taking make things right.
Will changes be made to the RMD rules this year? Two big retirement bills are in Congress that would do just that – the SECURE Act 2.0 and the EARN Act. (The SECURE Act 2.0 has already been passed by the House of Representatives.) It's too early to tell if any of the RMD changes in the two bills will eventually be enacted into law, but many experts believe that a bipartisan retirement bill has a good chance of getting to President Biden's desk this year.
RMD revisions included in the bill would:
Will changes be made to the RMD rules this year? Two big retirement bills are in Congress that would do just that – the SECURE Act 2.0 and the EARN Act. (The SECURE Act 2.0 has already been passed by the House of Representatives.) It's too early to tell if any of the RMD changes in the two bills will eventually be enacted into law, but many experts believe that a bipartisan retirement bill has a good chance of getting to President Biden's desk this year.
RMD revisions included in the bill would:
Raise the age for taking your first RMD to 75;
Reducing RMD penalties;
Exempt Roth 401(k) accounts from the RMD rules;
Easy the RMD rules with respect to annuities in retirement plans;
Push back the RMD start date for certain surviving spouses; and
Expand the scope of qualified charitable distributions, which count towards RMDs.
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About half (49%) of consumers believe if they file for Social Security early, their benefit will automatically go up once they reach their full retirement age — it won’t. A sizable number of boomers (39%) who are not currently receiving Social Security plan on drawing from their benefits before their full retirement age, a decision that may cost them in the long run and should only be done with eyes wide open about implications for the future.
Misperceptions like this could make a huge difference in maximizing your retirement income. That’s why I think it’s important that even the savviest retirement savers should involve an adviser or financial professional in their Social Security decision-making process.
While 91% of survey respondents said they’re at least somewhat confident in their Social Security knowledge, only 7% could identify the factors that determine a maximum benefit, including:
What People Are Getting Wrong About Social Security
About half (49%) of consumers believe if they file for Social Security early, their benefit will automatically go up once they reach their full retirement age — it won’t. A sizable number of boomers (39%) who are not currently receiving Social Security plan on drawing from their benefits before their full retirement age, a decision that may cost them in the long run and should only be done with eyes wide open about implications for the future.
Misperceptions like this could make a huge difference in maximizing your retirement income. That’s why I think it’s important that even the savviest retirement savers should involve an adviser or financial professional in their Social Security decision-making process.
While 91% of survey respondents said they’re at least somewhat confident in their Social Security knowledge, only 7% could identify the factors that determine a maximum benefit, including:
© 2022 The Kiplinger Washington Editors Inc.
NYSUT NOTE: Interested in more information on reverse mortgages? Check out the NYSUT Member Benefits Corporation-endorsed Cambridge Credit Counseling program –an HUD-approved counselor for reverse mortgages. All NYSUT members are eligible to receive a free, no-obligation, debt consultation with one of Cambridge's certified counselors. For additional information or to get started check out the NYSUT member website.
A financial professional can help you estimate the income you’ll receive from Social Security and identify additional income sources to either supplement your Social Security benefits or provide income that allows you to delay claiming until full retirement age. This could include potential solutions like annuities, life insurance, mutual funds or exchange-traded funds (ETFs).
There was one widely held misconception from our survey that may come as good news to many retirement savers – particularly at a time when inflation is top of mind for almost everyone. More than two-thirds of Americans don’t realize that Social Security is protected against inflation. Recent estimates say the cost-of-living adjustment (COLA) in 2023 could reach 10.5% or higher, providing a potentially crucial buffer for many against rising interest rates and decades-high inflation.
With financial news headlines continuing to provide daily reminders that few of us are on a straight line to retirement security, remember that you don’t have to navigate this challenging landscape on your own. Working with a trusted and qualified financial professional can help you feel more informed, prepared and secure in making the best decisions for your unique circumstances.
Now Is the Time to Protect Your
Health Care Decision-Making Rights
I cannot emphasize enough the power of investing early and the value of compounding. This may seem obvious, but you would be surprised how many people don’t do this. Common roadblocks I hear are, “I don’t know anything about the markets,” “I don’t have time,” or “I would just have to pay taxes anyway.” Yes, all of these are legitimate concerns, but they are not legitimate reasons to incur the opportunity cost associated with doing nothing.
Let’s take a very simple example: Assume you have $100 each month that you can either save in an interest-bearing account or invest in a balanced equity portfolio. Under the current interest rate environment, and assuming modest portfolio growth, that $100/month over 30 years could yield $41,963 in a savings account or $83,226 in a balanced investment equity portfolio.*
Of course, there are always risks associated with investments and the returns may not be what you expect or there could be a market downturn. That is why it is important to get educated early on with investing. The answer to the unknown cannot be that you don’t even try or avoid it altogether. Instead, the answer should be to get to a comfort zone by educating yourself and working with professionals who can guide you.
2. Cash in on the compounding effect of early investment
The Roth IRA, named after Sen. William Roth, who sponsored the creation of the program in 1997, is a retirement savings strategy often overlooked by those while they are eligible. Unlike a traditional IRA, where you could get a tax deduction for the contribution to the account, contributions to a Roth IRA are not tax deductible. This is the key difference that allows for the back-end tax benefit of a Roth IRA, because while money distributed from a traditional IRA is taxable, money distributed from a Roth IRA can be tax free.
In essence, you are choosing the tax benefit on the back end when withdrawals are made during your retirement years. The important lesson here is that you may contribute to a Roth IRA only if your income level is under a certain threshold. In 2022, that limit is $144,000 for a single filer or $214,000 for those married filing jointly (contributions begin to phase out with lower income limits). Therefore, this is the type of tax-advantaged savings vehicle that you may be able to take advantage of earlier in your career, assuming that your income level may exceed the threshold amount later in life.
The common objection I hear is that you’d rather contribute to a traditional IRA and get the income tax deduction today, rather than waiting for a tax benefit many years from now. While I can certainly understand and appreciate the value of saving tax dollars currently, note that the tax rate is often lower for those at this lower income level and therefore, forgoing the income tax deduction today may be beneficial in the long run considering the years of compound growth that will ultimately be tax free, coupled with the fact that you may not be eligible for this program later on in life when your income is higher.
Also, you may contribute to both types of accounts! Even though the IRS’ annual contribution limit for IRAs is an aggregate one (for both traditional and Roth IRAs). You can contribute a maximum total of $6,000 per year total (or $7,000 if you’re 50 or older). So, if you have the liquidity, you can split up that $6,000 and contribute a portion to a traditional IRA (and get the tax deduction for that contribution) AND the rest a Roth IRA (and get the income tax benefits later in life).
I did that for a number of years earlier in my career and I am glad I did, as I now have both a traditional IRA and a Roth IRA. I not only diversified my investments, I have also diversified my tax-advantaged accounts. When deciding which type of IRA and how much to contribute, do be mindful of the rules around early withdrawals (for example, before age 59½, within first five years for Roth IRA) as it may result in taxes and penalties depending on the individual circumstances.
3. Contribute to a Roth IRA while you still can
If you’re fortunate enough to work with an employer that provides a retirement savings plan, or better yet, one that matches your contributions, take full advantage of it. My first company had an employer match program and I ensured that, at the minimum, I contributed enough every month to my 401(k) plan so that I qualified for the match. Think of this as extra compensation that your employer gives you.
The company match is not taxable to you at the time the employer makes the contribution. It is taxable only upon withdrawal from the retirement account. Until that point, the money can be earning tax-deferred interest and growth for many years. Again, that investment compounding effect is significant over time.
Another thing to be mindful of is to revisit your contribution amount every year. Many people set their contribution rates and forget about them, but as IRS contribution limits for 401(k)s, 403(b)s, and other savings plans can change and the same with your earnings, it is important to check every year that the numbers are still working out as they should be. For example, many people set their contribution to a certain percentage of their salary each month. When the contribution limits increase, you may want to adjust your percentage contribution depending on whether your salary has changed as well.
Finally, many employers are now offering a Roth 401(k) option in their company retirement plans. The taxation of a Roth 401(k) is similar to that of a Roth IRA as discussed earlier. For younger, and even some experienced professionals, this option may be beneficial in the long term. While there is no current income tax benefit for contributions into a Roth 401(k), there can be significant tax benefits in your retirement years.
4. Maximize your employer-sponsored retirement benefits
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6 Retirement Wealth Strategies to Start Young, Finish Strong
Another popular employer-offered vehicle that can be used during retirement is the health savings account (HSA), a type of savings account that’s offered for those with a qualifying high-deductible health plan. Contributions to an HSA are tax deductible. The money grows inside the HSA tax-free. In addition, when distributions are made for qualifying medical expenses, there is no tax either. In essence, you are able save with pre-tax dollars, invest with tax-free growth, and use it later on in life to pay for medical expenses without any taxes.** The way I think about it is that the HSA is in essence a 401(k) for your medical expenses, except better because there is no tax upon withdrawal for qualified medical expenses.
Another flexibility is that you may withdraw out of an HSA after you turn 65 for any reason (not just medical ones) with no penalty. If it’s for a non-medical expense, you will have to pay taxes on this withdrawal, but that’s the same tax treatment with a 401(k) or traditional IRA. You would have still gotten the benefit of years of tax-free growth.
Note that this is different than a flexible spending account (FSA), a type of savings account whereby you make a contribution to it during the year, and by the end of the year, you may use that money for certain medical expenses. The money contributed and ultimately used for qualifying medical expenses will not be part of your taxable income. However, any money not used by the end of the year, and not eligible for any rollovers, would be lost. Therefore, while the FSA is a good income management vehicle related to yearly medical expenses, it is not a long-term retirement vehicle like the HSA.
5. Consider HSAs – the ‘hidden’ retirement saving strategy
The road to retirement can be a long one, with many bumps in between. While executing on your financial plan, I would encourage you to resist the urge to make hasty decisions based on headline news or impulsive needs. Slow and steady wins the race.
That does not mean that you set your plan and forget it. I recommend that you recalibrate and revisit your financial plan at least once a year to account for any changes and whenever you experience a life event, like marriage or the birth of a child.
Your financial plan may be your compass, but that does not mean the journey is always a straight one. Periodic adjustments are needed to help ensure that your plan is fresh and up to date.
*Assumes savings account earning 1% annually, and investment portfolio earning 5% annually, with no sales or withdrawal and pre-taxed.
**Note that taxation rules may vary at the state level.
There is no assurance that any investment strategy will be successful. 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
6. Have a steady hand and recalibrate as needed
NYSUT NOTE: It’s never too early to start saving for retirement and the NYSUT Member Benefits Corporation-endorsed Financial Counseling Program can help you get on track. This is your opportunity to talk to a Certified Financial Planner® who will provide personalized advice based on your situation. For more information or to take advantage of this program, visit the website or enroll today.
About the Author
Alvina Lo
Chief Wealth Strategist, Wilmington Trust
Alvina Lo is responsible for family office and strategic wealth planning at Wilmington Trust, part of M&T Bank. Alvina was previously with Citi Private Bank, Credit Suisse Private Wealth and a practicing attorney at Milbank, Tweed, Hadley & McCloy, LLC. She holds a B.S. in civil engineering from the University of Virginia and a JD from the University of Pennsylvania. She is a published author, frequent lecturer and has been quoted in major outlets such as "The New York Times."
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© 2022 Future US LLC
1. Never think you’re too young to need a financial plan
Any discussion about retirement has to come with a long view, where you set long-term goals with intermittent smaller goals in between. Without a financial plan, even at broad strokes, we make significant financial decisions based on a qualitative “gut” feel rather a quantitative analysis.
My advice: Work with a financial planner to put a retirement plan in place, even if it is full of estimates and assumptions. It will help you put a framework around where you are now and where you would like to end up. It will become your financial compass.
2. Cash in on the compounding effect of early investment
I cannot emphasize enough the power of investing early and the value of compounding. This may seem obvious, but you would be surprised how many people don’t do this. Common roadblocks I hear are, “I don’t know anything about the markets,” “I don’t have time,” or “I would just have to pay taxes anyway.” Yes, all of these are legitimate concerns, but they are not legitimate reasons to incur the opportunity cost associated with doing nothing.
Let’s take a very simple example: Assume you have $100 each month that you can either save in an interest-bearing account or invest in a balanced equity portfolio. Under the current interest rate environment, and assuming modest portfolio growth, that $100/month over 30 years could yield $41,963 in a savings account or $83,226 in a balanced investment equity portfolio.*
Of course, there are always risks associated with investments and the returns may not be what you expect or there could be a market downturn. That is why it is important to get educated early on with investing. The answer to the unknown cannot be that you don’t even try or avoid it altogether. Instead, the answer should be to get to a comfort zone by educating yourself and working with professionals who can guide you.
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Things to Consider When Leasing a Car
Lease Commitment
If you tend to keep cars for a long time, purchasing may be the way to go, but if a shiny new toy every few years is your thing, you might want to look into leasing. If you believe your circumstances may change, such as a new baby on the way, elderly parents coming to live with you or a future move from a summer climate to a winter climate, leasing provides more flexibility since you are not committed to the car for more than two to four years. Also, you will likely be able to get more car for your money with a lease.
There is usually an upfront cost to leasing, which is an amount due at signing (tax, tag, title, down payment, delivery costs, etc.). This lump sum usually reduces your monthly payments and may be required depending on your credit. Some dealers offer $0 down, but all this does is increase your monthly payments; it is all a numbers game — a higher down payment means lower monthly payment and vice versa. To get an idea on what you are really paying each month on average, you may want to divide the down payment by the months of the lease.
Maintenance & Mileage
Some brands have scheduled maintenance included, which can be quite convenient. However, there are also several coverages, such as tire protection and dent and scratch insurance, that you can buy that will increase your lease payment. Most standard lease offers allow 10,000-mile limits per year. If you drive more than 10,000 miles, this will also increase your payments on the front end, or on the back end when you return the car you will be required to pay for the extra miles.
It is usually cheaper to pay for the miles before you return the car, and in some cases there is a time frame (you have to buy the extra miles three months before the end of the lease). Extra mileage can range from around $0.15 to $0.30 per mile and can add up fairly quickly. At $0.30 a mile 3,000 extra miles will cost you $900.
So, if you drive more than 15,000 miles annually, purchasing a car maybe cheaper for you — and if you are driving 25,000 miles a year this can get restrictive and expensive. Keep in mind even on a purchased car, the increased mileage will fetch you a lower sales price when you are ready to sell anyway.
Insurance Costs
Leases also require full insurance coverage to protect you and the leasing company, so if you want to pay for less insurance, purchasing may be a better alternative. Additionally, leased cars usually have GAP insurance built in; this pays the difference between what you owe and what your car is worth if stolen or totaled in an accident. Loans do not usually have this coverage, so you would need to check with your insurance company to see if this is something they offer.
There are some companies/websites that will allow you to lease a car on a month-to-month basis, which may be beneficial depending on your circumstances. If you have to terminate your lease early, www.swapalease.com is a useful website that I have used several times in the past and found very efficient; however, not all car brands are supported.
Tax Benefits
Lastly, if you own your own business and can use lease payments or mileage allowance as a tax write-off, this may be another factor to consider.
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
Roxanne Alexander, CFP®, CAIA, AIF®, ADPA®
Senior Financial Adviser, Evensky & Katz/Foldes Financial Wealth Management
Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.
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NYSUT NOTE: Interested in buying or leasing a new vehicle? Take advantage of the NYSUT Member Benefits Corporation-endorsed Buyer's Edge, Inc. program. This unique buying service can be used to purchase a variety of major products and services, including new and used vehicles. Get more information on Buyers Edge, Inc. and how to save on your purchases by clicking here.
© 2022 The Kiplinger Washington Editors Inc.
6 Retirement Wealth Strategies to Start Young, Finish Strong
5. Consider HSAs – the ‘hidden’ retirement saving strategy
Another popular employer-offered vehicle that can be used during retirement is the health savings account (HSA), a type of savings account that’s offered for those with a qualifying high-deductible health plan. Contributions to an HSA are tax deductible. The money grows inside the HSA tax-free. In addition, when distributions are made for qualifying medical expenses, there is no tax either. In essence, you are able save with pre-tax dollars, invest with tax-free growth, and use it later on in life to pay for medical expenses without any taxes.** The way I think about it is that the HSA is in essence a 401(k) for your medical expenses, except better because there is no tax upon withdrawal for qualified medical expenses.
Another flexibility is that you may withdraw out of an HSA after you turn 65 for any reason (not just medical ones) with no penalty. If it’s for a non-medical expense, you will have to pay taxes on this withdrawal, but that’s the same tax treatment with a 401(k) or traditional IRA. You would have still gotten the benefit of years of tax-free growth.
Note that this is different than a flexible spending account (FSA), a type of savings account whereby you make a contribution to it during the year, and by the end of the year, you may use that money for certain medical expenses. The money contributed and ultimately used for qualifying medical expenses will not be part of your taxable income. However, any money not used by the end of the year, and not eligible for any rollovers, would be lost. Therefore, while the FSA is a good income management vehicle related to yearly medical expenses, it is not a long-term retirement vehicle like the HSA.
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5. Consider HSAs – the ‘hidden’ retirement saving strategy
Another popular employer-offered vehicle that can be used during retirement is the health savings account (HSA), a type of savings account that’s offered for those with a qualifying high-deductible health plan. Contributions to an HSA are tax deductible. The money grows inside the HSA tax-free. In addition, when distributions are made for qualifying medical expenses, there is no tax either. In essence, you are able save with pre-tax dollars, invest with tax-free growth, and use it later on in life to pay for medical expenses without any taxes.** The way I think about it is that the HSA is in essence a 401(k) for your medical expenses, except better because there is no tax upon withdrawal for qualified medical expenses.
Another flexibility is that you may withdraw out of an HSA after you turn 65 for any reason (not just medical ones) with no penalty. If it’s for a non-medical expense, you will have to pay taxes on this withdrawal, but that’s the same tax treatment with a 401(k) or traditional IRA. You would have still gotten the benefit of years of tax-free growth.
Note that this is different than a flexible spending account (FSA), a type of savings account whereby you make a contribution to it during the year, and by the end of the year, you may use that money for certain medical expenses. The money contributed and ultimately used for qualifying medical expenses will not be part of your taxable income. However, any money not used by the end of the year, and not eligible for any rollovers, would be lost. Therefore, while the FSA is a good income management vehicle related to yearly medical expenses, it is not a long-term retirement vehicle like the HSA.