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Notes From the Fieldby Martin Weil

Posts Tagged ‘Retirement’

November 9, 2015

File and suspend SS couples claiming strategy to be phased out under new laws

For several years now, we (and many colleagues) have recommended an optimal Social Security claiming strategy for married couples where the older spouse “files and suspends” their own SS benefit at full retirement age (“FRA,” currently 66) and the younger spouse files for a spousal, not their own, benefit when they reach their own FRA. This approach allows each spouses’ own benefit to continue to increase for four more years until age 70 at c. 8% p.a., but provides a bonus for up to four years of spousal payments (1/2 the other spouse’s full benefit) to the younger spouse. For couples who do not have a pressing financial need for full benefits at age 66, this strategy has been shown to have the highest expected lifetime return.

No more. On November 2, the President signed into law changes to the regulations which eliminate this strategy forever. Critics in Congress had loudly complained that couples were taking unfair advantage of an unintended loophole in Social Security law changes that Congress enacted in 2000 in order to assist older workers forced to return to the workplace. What Congress giveth, Congress taketh away.

Going forward, the following couples will still be able to employ the strategy:

  • Couples who have already fully employed the strategy (one spouse has filed and suspended, the other claimed spousal benefits) will not be affected.
  • Couples where one spouse has already filed for benefits, or has filed and suspended, will not be affected so long as the other spouse was born in 1953 or before.
  • Any individual who will reach 66 years of age, and files and suspends, prior to April 30, 2016 will maintain the strategy for their spouse (born 1953 or before).

For everyone else:

  • The ability to file and suspend benefits will cease for everyone six months after the law was signed on November 2. Thus, starting May 2016, one spouse will have to fully claim their own benefit before a spouse can claim a spousal benefit.
  • However, either spouse, if born 1953 or before, will still retain the ability to file for spousal benefits and later switch to their own larger benefit at age 70, so long as their partner has filed for their benefit (or filed and suspended by the six month deadline, or about April 30, 2016.)
  • Anyone born after 1953 will have to choose either a spousal or their own benefit at the time of their initial SS claim and will not be able to switch benefits at a later time.
  • Divorced spouses born after 1954 who are not already receiving benefits also will have to choose spousal or their own benefit at the time of filing and will not have the option to switch at a later time.

This is my best grasp of these latest changes to the Social Security claiming regulations, pending any further modifications. For a another write up, see http://www.socialsecuritychoices.com/blog/

My prediction: Financial planners are going to be very busy this holiday season revisiting assumptions in their plans for those clients who will be affected by these changes.

June 15, 2015

A Client of Mine Just Announced He Is Retiring

It’s OK To Live A Little In Retirement is the first thing I sent him. Fortunately, he and his wife have been great savers and are in a position to enjoy the fruits of their labors. This can often be harder than you would expect as chronic savers can sometimes find it hard to shift gears and relax the purse strings on discretionary spending.

October 13, 2014

Retirement Solution Found, in The Netherlands

“The rest of the world sort of laughs at the United States — how can a great country like the United States get so many things wrong?” said Keith Ambachtsheer, a Dutch pension specialist

From the NY Times’ “No Smoke, No Mirrors” on the excellent Dutch pension system. At the end of the article is an interesting debate that is growing in the Netherlands, pitting younger workers who want growth from their pension assets vs. the retired who want safety. Not unlike mufti-generational family trusts, writ large

July 11, 2014

Someone Who Has Thought Through His Priorities

And as a result, he has attained a degree of financial freedom many would envy.

Doug Immel recently completed his custom-built dream home, sparing no expense on details like cherry-wood floors, cathedral ceilings and stained-glass windows — in just 164 square feet of living space including a loft.

The 57-year-old schoolteacher’s tiny house near Providence, Rhode Island, cost $28,000 — a seventh of the median price of single-family residences in his state.

“I wanted to have an edge against career vagaries,” said Immel, a former real estate appraiser. A dwelling with minimal financial burden “gives you a little attitude.” He invests the money he would have spent on a mortgage and related costs in a mutual fund, halving his retirement horizon to 10 years and maybe even as soon as three. “I am infinitely happier.”

Bloomberg

Not many people would be comfortable living in 200 sft.  But I wonder how many would have a happier life trading that unused 3rd, 4th or 5th bedroom for a greater degree of financial freedom.

May 23, 2014

What Happens When One Spouse Wants To Retire, The Other Doesn’t?

This is becoming a common challenge as boomers age and spouses find they have different trajectories imagined for their later years.  A client forwards this excellent discussion of the issues that arise from the NY Times. A short list:

  • Different daily schedules
  • Different abilities to travel
  • Different priorities around discretionary spending
  • Whose money is it when only one is still earning?
  • The “leap” when starting to dip into retirement assets can be a bit scary.

These are only some of the challenges and many couple do not even have the basic conversation about how they are going to cope. The situation can be unexpectedly stressful on a marriage. For anyone in, or considering, an extended period where one spouse has left work but the other has not, I strongly recommend the Times article. And making time to discuss and negotiate how to accommodate each person’s wishes.

January 31, 2014

Q: I am 54 with $1M. How long will my money last?

Martin's Answer:

The standard advice is that you can draw between 3-5% per year from an invested portfolio and have that portfolio last 30 years.  There is much debate over what is a “safe” sustainable withdrawal rate but most studies conclude that a 4% draw will survive whatever the markets throw at you over a 30 year period.  In your case that would mean $40K a year, increased annually only by inflation.

There are multiple calculators (search “How long will my money last”) that will give you a straight line estimate for different withdrawal rates.  These are helpful guides but are far from definitive.  The reality is that an investment portfolio of any sort will increase and decrease in value and these unpredictable fluctuations can have a dramatic impact on how long your money will actually last.  The more aggressive the investment portfolio, the more volatile your range of outcomes.  More upside to how long the money lasts, but also more downside.  Generally this is why individuals who are relying on a portfolio to support their current ongoing needs are best advised to invest in a low risk portfolio, one that minimizes the risks of major loss while protecting their savings against purchasing power erosion from inflation. This conservative approach may seem counter-intuitive to some who believe that taking more risk will allow them to earn more and thus take a higher annual % withdrawal.  When withdrawal rates are north of 5%, this is a temptation but it is in effect gambling with the odds against you.

Most people want to know whether their savings will last for their lifetimes because it is not much good if they spend money to last 30 years but they last 35.  To answer this broader question with any confidence requires two pieces of information:  How much you are routinely spending in total out savings and how long you will live.

As for how long you might live, we can only assume “the worst” and that is that you will outlive your expected median life expectancy of 84. Most with educations and some financial means in the US will.  Realistically that implies you will have expenses to support for perhaps 35 years from today.  Some of your present expenses may decrease in time.  Medical for example should decline when you are eligible for Medicare.  And you most likely will receive Social Security benefits at age 67 or after thus reducing the required draw from your assets. But other expenses may increase.

The best approach in my estimation is to have a rough plan for what the future holds financially for you and for this you may want to enlist the advice of a CFP in your area.

Originally posted on Nerdwallet

Have a question you'd like Martin to answer? Send to AskMartin@mwinvest.com and we'll let you know when it's been posted. To find answers to your specific and/or confidential questions, please call Martin at 1-877-442-8777 for a no obligation phone consultation.

October 11, 2013

Q: What is the right time for me and my husband to take social security retirement benefits?

Martin's Answer:

Generally, the highest lifetime return to be had from Social Security benefits is to wait until you are age 70 to begin taking distributions. This is due to the 8% automatic annual increase in benefit payments when the start is delayed to that age, and the fact that most of us will live past their early 80s when the amount received from taking benefits later outstrips that of taking them at the typical retirement age.

If you decide however to start SS benefits before age 70 for whatever reason, an individual should never take them before full retirement age (“FRA,” currently age 66) unless in serious financial need, or in cases where a normal life expectancy is not anticipated.

For married couples, the higher earner should wait to age 70 to begin taking benefits. This is because they will earn that higher benefit both for their lifetime and for that of their surviving spouse. There is no further advantage to be had by waiting until after age 70 to start taking benefits.

An advantageous approach for spouses is for the younger of the couple to take spousal benefits at FRA. To make this possible, the older spouse will have to be over FRA him or herself and be receiving benefits already, or if not yet age 70, to “file and suspend” for their own benefit.  This arrangement allows one member of a married couple to take spousal benefits at FRA while allowing both of their primary benefits to continue to increase until age 70.

These are the general guidelines I use in my practice, though the reality is that the rules are complex and each situation needs to be evaluated individually. These guidelines do not necessarily apply to survivor benefits for spouses or children, benefits for divorced spouses or disability, all of which are beyond the scope of this outline. Also, note that you will need to enroll in Medicare at age 65, regardless of whether you start taking SS benefits.

Original question and answer posted at NerdWallet’s Ask An Advisor

Have a question you'd like Martin to answer? Send to AskMartin@mwinvest.com and we'll let you know when it's been posted. To find answers to your specific and/or confidential questions, please call Martin at 1-877-442-8777 for a no obligation phone consultation.

September 6, 2013

Reverse Mortgages Getting More Expensive at the End of September

Well it may have been too good to last. For the past two years or so, the costs of a reverse mortgage were at historical lows, both their interest rates and associated fees. The use of a reverse mortgage was increasingly recommend by planners, employed  as a standby line of credit for retirees living off savings and enabling them to smooth out the cash flows that were being drawn down from more volatile investment assets.

A colleague in the business, Tom MacDonald, emails me today that the costs of these loans are going up and their availability more restricted as of September 30.  Key points:

  • All fixed rate options eliminated.  The only choice will be an adjustable rate.
  • The amount of money the borrower qualifies for will be reduced by about 15%.  On top of this, interest rates are rising which also reduces the amount of money a borrower qualifies for.
  • There is a limit on how much can be taken out in the first year.
  • The Mortgage Insurance Premium charged by HUD is changing and could be higher.
  • Effective in January, 2014, there will be financial assessments for all borrowers to estimate if they will be willing and able to keep up on property taxes, homeowner’s insurance and standard maintenance. Anyone not passing the financial assessment will be required to have impounds for their life expectancy.

All in all, this sounds like reverse mortgages, for a time a very appealing option in the right situation, are going to become a lot less attractive.

September 3, 2013

Long Term Care Insurance Premiums for Women to Rise 30% or More

Because women represent most of the long term care claims, major insurance companies will be rolling out their new gender-based pricing. That means, by the end of the year, female premiums will increase by 30-40%. However, this does not affect premiums for women who apply before the increase takes effect.

According to the Department of Health Services, 70% of Americans will need long term care in their retirement years. As part of a strong financial safety net, every family should have a long term care protection strategy. Strategy options include: purchasing traditional long term care insurance and/or designating a specific asset(s) to cover the potential costs of long term care. Having a long term care plan in place helps to maintain quality of life, while minimizing the burden on the family.

by Guest Author Denise Michaud (deniseltc@yahoo.com) is an independent insurance broker specializing in Long Term Care Planning and a consultant for the California Partnership for Long Term Care.

July 29, 2013

Simple Investment Advice for Gen Y

If you do nothing else about your retirement, start saving early.  You should also save a lot and stay out of debt

This is the best advice possible from Above the Market and much the same as my own tax person told me when I was 20-something, a long time ago. The sooner you start, the easier it is to save a lot of money. The author’s simple demonstration shows that saving $2,000/yr starting at age 19 for just 7 years equals the sum a person would have accumulated by age 65 if they waited to start until 26 and made contributions for 40 years. Counterintuitive for sure, which is why of course, I knew better at the time, as I suspect many 20-somethings do today.

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