Health Care Costs: The Retirement Planning Wildcard

Planning ahead for retirement income needs, we typically think about how much it will cost us to live day-to-day (food, clothing, shelter) and to do those things we want to do, like travel and helping grandkids pay for college.  The costs we don’t often think about, those that could potentially wreak havoc on retirement income planning, are health care costs.  According to an October 2012 article from the Employee Benefits Research Institute, an average 65 year-old couple will need $283,000 to have a 90% chance of having enough money to cover health care expenses over their remaining lifetimes (excluding long-term care).

Longevity is a critical factor driving health care costs.  According to the Social Security Administration’s 2020 study, for a couple, both 66 years of age, there is a 1 in 2 chance that one will live to age 90 and a 1 in 4 chance that one will live to age 95.  Add to these longevity statistics the fact that Medicare is now means-tested, so the more income you generate in retirement, the higher your Medicare premiums.

So, what can you do to proactively plan for this potential large retirement cost?

1. If you plan to retire early, plan on the costs of self-insuring from retirement to age 65.  Some employer’s may offer retiree healthcare, or you can purchase insurance on the Health Insurance Exchange through the Affordable Care Act (these are still dollars out of your pocket in retirement).

2. Consider taking advantage of Roth 401(k)s, Roth IRAs (if you qualify), or converting IRA dollars to ROTH IRAs in years that it makes sense from an income tax perspective.  This will give you tax-free dollars to use for potential retirement health care expenses that won’t increase your income for determining Medicare premiums in retirement.

3. Work with your financial planner to determine if a vehicle like a non-qualified deferred annuity might make sense for a portion of your investment portfolio, again dollars that can be tax advantaged when determining Medicare premiums.

4. Most importantly, work with your financial planner to simulate the need for future retirement income for health care expenses.  Although you will never know what your exact need will be, providing flexibility in your planning to accommodate for these expenses may help provide you confidence for future retirement.

Contact your financial planner to discuss how you can plan to pay for your retirement health care needs.

Sandra Adams, CFP®is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are this of Center for Financial Planning, Inc. and not necessarily those of Raymond James. Every investor’s situation is unique and you should consult with your financial advisor about your individual situation prior to making an investment decision. Please discuss any tax or legal matters with the appropriate professional. C14-005524

Back Door Roth IRA Conversion

A well-planned tax strategy has become increasingly important to investors, especially with overwhelming uncertainty of what tax rates could potentially increase to in the future. That’s why some investors look to Roth IRAs, a fairly new arrival to the investment world.  They were first released in 1997 and have become more and more popular.

A Quick Roth IRA Refresher

Contributions to a Roth IRA do not receive an immediate tax deduction like a 401(k) or deductible Traditional IRA.  However, earnings grow tax-deferred and if holding requirements are met, all withdrawals (including contributions and earnings) can be withdrawn 100% tax free.  Roth IRAs are an unbelievably attractive investment vehicle for those who believe they are currently in a lower tax bracket than they will be in retirement.  More specifically, young people, who are years away from their high earning years and wish to forego tax deductions (while most likely in the lowest tax bracket of their lifetime) now reap the benefits of tax-deferred growth and tax-free withdrawals upon retirement.  As a young person myself, I cannot stress enough how attractive the Roth IRA can be for investors if they fit the “Roth mold”.    

Who Is Right for a Roth?

There are income limitations on who can contribute to a Roth IRA.  For 2014, a married couple filing their taxes jointly must have an AGI less than $181,000 to be able to contribute the maximum to a Roth IRA. In 2014, individual contributions max out at $5,500, or $6,500 if you are over the age of 50.  The AGI limit for singles in 2014 is $114,000.  If you make over this income level, there is a tax “work around” in place that could still allow you to contribute to a Roth, depending on your personal situation.  Prior to 2010, there was an income limitation on who could convert Traditional IRA dollars to a Roth IRA.  Since 2010, theincome limitation has been completely lifted for conversions, meaning anyone, regardless of their income, can convert funds from a Traditional IRA to a Roth IRA.  This raised the eyebrows for number geeks like myself, who viewed this ruling as an excellent planning opportunity for clients. 

Lifting the Income Limit for Roth Conversions

The abolishment of the income limit on Roth conversions means that if you are over the income limit to contribute to a Roth IRA, you could open a Traditional IRA and immediately convert the funds to a Roth IRA.  There is, however, a catch to this “work around”.  The conversion would typically only make sense if the client did NOT have an existing Traditional IRA.  The tax calculation on the conversion gets very messy if the client does in fact already have a Traditional IRA and typically, it doesn’t make sense if they do.  One main point to also keep in mind is that employer sponsored plans such as a 401(k) or 403(b) are not taken into consideration like a Traditional IRA is when calculating tax due for completing the conversion.  

Back Door Roth Conversion Criteria

☑ If you are over the income limit to contribute to a Roth IRA ($181,00 for couples and $114,000 for singles)

☑ And you do not have an existing Traditional IRA because you are taking full advantage of employer retirement plans (401(k), 403(b), etc.)

☑ And you have additional funds to save

If you can check all three boxes above, the “back door” Roth IRA is something you may want to consider based on your individual situation and long-term goals. Since this is a fairly new planning opportunity, this type of conversion is something we are closely monitoring for our clients on an individual basis.  As with any financial decision, it won’t make sense for everyone.  But it is our job as your advisory team to walk you through your options and help you make a smart financial decision. 

Nick Defenthaler, CFP® is a Support Associate at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

Unless certain criteria are met, Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. C14-004799

Where Do I Take Cash From Next? The 72(t) Option

A longtime client, we will call her “Joan”, called last month needing to set aside money for her 2014 income needs. She had nothing left in the bank.  She had been through a life transition recently, out of work for over a year, and helping family with some health concerns.  Nearing retirement but not quite at the point at which she could access her retirement moneys without penalty (she was in her late 50’s, but not quite 59 1/2), she was concerned because her only choices were a Roth IRA and a traditional IRA.  So her normal reaction was to go for the Roth because it had fewer penalties or tax (she had established the Roth over 5 years ago and could access her contributed portion without penalty; she would likely experience a penalty if drawing on earnings portion). 

Penalty-free IRA Withdrawals

I offered a rarely used suggestion to establish a section 72(t) distribution (as authorized under the IRS tax code). This rule allows for penalty-free withdrawals from an IRA account. The rule requires that, in order for the IRA owner to take penalty-free early withdrawals, he or she must take at least five "substantially equal periodic payments" (SEPPs). The amount depends on the IRA owner's life expectancy calculated with various IRS-approved methods.

Rule 72(t) allows you to take advantage of your retirement savings before the age of 59 1/2, when there is otherwise a 10% penalty on early withdrawal. The withdrawals, however, are still taxed at your income rate.

How to Use Rule 72(t)

The substantially equal period payments must generally continue for at least five full years, or if later, until age 59 ½. For example, if you began taking payments at age 56 on December 1, 2006, you may not take a different distribution or alter the amount of the payment until December 1, 2011, even though your fifth payment was taken on December 1, 2010.

If you begin taking substantially equal periodic payments on December 1, 2005, and you turn 59 ½ on July 1, 2011, you may not take a different distribution or alter the amount of the payment until July 1, 2011.

This works well for Joan because she did not have any earned income in 2013 so we actually started her distribution in December for the 1st of 5 distributions.  We plan to take the next one immediately in January of 2014 and this should fulfill her income requirements needed for 2014.  She also does not plan on finding work in 2014 so the taxes on these dollars will be small since she had no other income.   The Roth arguably would also have fewer tax implications, but we suggested taking from the Roth IRA after this if additional income was needed in the year as she climbs the tax bracket wall.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. A 72(t) distribution may not be right for everyone. Investors should take into consideration the possibility of depleting their retirement account before the end of their life expectancy. In addition, any withdraws are taxed at the investor’s income rate and may raise their tax bracket. Please discuss any tax or financial matters with the appropriate professional before making a decision. #C14-001634

Ways to Maximize Social Security Benefits

 Recently I had the privilege of presenting at the Michigan Association of CPA’s continuing education conference on the topic of Maximizing Social Security benefits.  Social security is an important source of income for most of the estimated 58 million people who receive benefits.  Over my 22 years as a practitioner, I have tried to counsel clients to be sure to coordinate social security retirement benefits with their overall retirement plan.  As pensions (not just the City of Detroit) continue to become more obsolete, social security remains one of the few, if not only, guaranteed income sources for future retirees.

Following Ida Mae Fuller’s Lead

Before getting to how to maximize social security retirement benefits – how about a little fun social security history?  Do you know Ida Mae Fuller?  She is the first reported person to receive social security retirement benefits.  Apparently Ida went into the SS office after contributing a total of $24.75 over three years in payroll taxes and told the staff that she was retiring and didn’t expect to receive anything – but thought she might as well check. She ended up collecting $22.54/month and lived to age 100 – not a bad return on her contributions!

When to Begin Collecting Benefits

A traditional breakeven analysis works pretty well for single folks.  One of the best research articles that I have come across was in the Journal for Financial Planning and written by Doug Lemons.  Mr. Lemons outlined three main variables in the breakeven analysis: inflation/cost of living, income taxes, and time value of money. Mr. Lemons’ research addressed multiple variations and combinations.  The general rule based on his research is:

• The breakeven between taking at age 62 and 66 (assume full retirement age) is roughly age 78.  Meaning, you need to live past age 78 to be better off by waiting until age 66.
• The breakeven between taking at age 66 and 70 is roughly age 83.  Meaning, you need to live past age 83 to be better off. 

Social Security Analysis for Couples

The breakeven analysis breaks down a bit for couples (two life expectancies vs one). I have written about spousal benefits in the past.  In this post I’d like to provide two strategies for couples to consider.

File & Suspend Strategy

June Cleaver:  As you may know, June Cleaver of the “Leave it to Beaver” show was the classic stay-at-home mom.  Her husband Ward, who sometimes was known to be a “bit too hard” on their son the Beaver, was the sole income earner. If June and Ward were close to retirement today, their respective social security benefits at full retirement age might be $2,000/month for Ward and $0 for June.  How can they maximize benefits?  At full retirement age (assume 66) Ward files for social security retirement benefits but then immediately suspends.  This allows June to begin receiving a spousal benefit (assuming she is at full retirement age) which is $1,000/month or 50% of Ward’s benefit. Then, when Ward turns age 70, Ward may elect to begin receiving his own benefit ($2,640 in this example) that has increased 8% per year from age 66-70 thanks to “Delayed Retirement Credits”. Assuming average life expectancy, this combination will provide June and Ward the maximum benefit.  What if Ward passes away at age 75? June will receive the higher of her benefit or Ward’s as a survivorship benefit - $2,640 in this example.

Claim Now, Claim More Later

Elyse Keaton: Elyse Keaton of “Family Ties” was played by Meredith Baxter (and mother of Michael J. Fox in the show).  Elyse, unlike June Cleaver, had income of her own as an architect. Elyse and her husband Steven Keaton had similar earnings. If Elyse and Steven were close to retirement today, both of their social security benefits at full retirement age might be $2,000/month. Rather than “filing & suspending” like June and Ward, the Keatons might consider another strategy to maximize their total benefits.  At full retirement age Elyse should consider taking her own benefit or $2,000/month.  Steven, at full retirement age, may choose to restrict his benefit to a spousal benefit only (50% of Elyse’s benefit) or $1,000/month.  This allows Steven to collect some benefits now while allowing his own benefit to grow at 8% until age 70.  At age 70, Steven may elect to begin receiving benefits based on his own earnings – or $2,640/month.  Note that the survivor benefit for each of them now becomes $2,640.  The election to “restrict” to a spousal benefit can only be done at full retirement age or later. 

So, are you more like June or Elyse?  If your situation is more like June’s then consider the “File & Suspend” strategy.  If your circumstances are more like Elyse’s then consider the “Claim Now, Claim More Later” strategy. Do you have a social security question? Let us know – we love to research and help you maximize the benefits. 

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing information is accurate or complete. Any information is not a complete summary or statement of al available data necessary for making a decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of Raymond James. The examples provided are for illustrative purposes only. Every individual’s situation is unique and you should consult with the appropriate professional regarding your individual situation.  Every individual’s situation is unique and you should consult with the appropriate professional regarding your individual situation. Guarantees are based on the paying ability of the issuer. #C14-000038

Health Savings Account Basics

With the Affordable Care Act becoming effective in 2014, healthcare seems to be top of mind with a lot of people.  But there are still many kinks to be worked out and many questions left unanswered.  In a world of uncertainty, why not consider utilizing a savings vehicle to help with medical costs that you can control? 

Using an HSA

A Health Savings Account, or HSA, is a fairly new type of account that is available to those who are enrolled in a high deductible health care plan.  Many confuse an HSA with a Flex Spending Account or FSA – don’t make that mistake!  A Health Savings Account is typically much more flexible and allows you to roll any unused funds over year to year, something a Flex Spending Account does not offer – it is a “use it or lose it” plan. 

What an HSA Can Cover

Many employers who offer high deductible plans will often contribute a certain amount to the employee’s HSA each year as an added benefit, somewhat like a 401k match.  Dollars contributed to the account are pre-tax and earnings accumulate tax deferred.  Funds withdrawn, if used for qualified medical expenses (including earnings), are tax-free.  The list of qualified medical expenses can be found at irs.gov, however, just to give you an idea, a few include:  expenses to cover your deductible (not premiums), co-payments, prescription drugs, various dental and vision care expenses, etc.  As always, consult with your financial advisor, tax advisor and health savings account institution to verify what expenses are considered qualified.  If you make a withdrawal that is considered “non-qualified”, you will be subject to taxes and a 20% penalty on the withdrawal amount. 

Here are the details for 2014:

Individuals

• Must have a plan with a minimum deductible of $1,250

• $3,300 contribution limit ($1,000 catch-up contribution if 55 or older)

• Maximum out-of-pocket expenses cannot exceed $6,350

Family

• Must have a plan with a minimum deductible of $2,500

• $6,550 contribution limit ($1,000 catch-up contribution if 55 or older)

• Maximum out-of-pocket expenses cannot exceed $12,700

Withdrawing from an HSA

Once you reach age 65 and enroll in Medicare, you can no longer contribute to an HSA.  However, once you are 65, funds can be withdrawn for any purpose, medical related or not, and you will no longer be subject to the 20% penalty.  However, the withdrawal will be included in taxable income, like an IRA or 401k distribution. This can present a great planning opportunity for clients who may want to defer additional money but have already maximized their 401k plans or IRAs for the year.  Although you have to wait 5 ½ years longer to access the funds from a HSA than a traditional retirement plan (age 59 ½) to avoid penalty, this is just another investment vehicle that could reduce taxable income in the year contributions were made while earnings have the opportunity to grow tax-deferred and tax free.  

As you can see, a Health Savings Account can be a great addition to an overall financial plan and should be considered if you are covered under a high deductible health plan.  No one likes medical expenses; this can be a vehicle that can potentially soften of medical expenses. 

Nick Defenthaler, CFP® is a Support Associate at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  You should discuss any tax or legal matters with the appropriate professional. #C13-002464

2013/2014: Key Financial Planning Numbers

 As we approach year-end (yes, already!), it is time to determine what needs to be done to reach your 2013 financial goals AND start preparing for 2014.  The 2014 Contribution and Annual Gifting Limits were recently released, and they remain unchanged from 2013 limits.  Here is summary of the existing limits for your reference.

If you haven’t completed your retirement plan contributions or gifting for 2013, find time to connect with your financial planner to make sure you meet the appropriate deadlines.  And make plans now to coordinate with your planner to set your 2014 goals!

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The Ideal Age to Start Social Security

 I recently had an opportunity to travel to Chicago to meet with a group of retired airline pilots.  We had a great conversation on areas such as estate planning, investment planning and income tax planning given changes that occurred in January 2013.  However, it was Social Security that garnered the most interest and questions for this group of retirees between the ages of 60 and 70.  Specifically, the question at hand was, “When is the ideal time to start receiving social security retirement benefits?” 

If you think that the IRS Code is complex, then Social Security claiming rules are a close second.  Unfortunately there is a lot of confusion and misinformation.  Moreover, the stakes are quite high.  Perhaps at age 40 social security benefits are a distant thought, but for those aged 60+ the issue is quite ripe. 

Deciding When to Claim

As with most financial planning decisions, general rules get you only so far.  The key is to structure your decision, when to claim in this case, based on your individual goals and circumstances. The reason that most Americans choose to start social security retirement benefits as early as possible is because frankly they need the money now.  However, for those with flexibility in timing, there are strategies that can be employed to maximize benefits, especially for married couples. 

Social Security Simple Math

All kidding aside, if you know the day you will die then the decision is straightforward and is a “simple” math equation.  Barring certainty on that “day” however, certain assumptions must be made.  You see, social security benefits are designed to be actuarially fair or equal. Meaning, if you collect a reduced benefit starting early at age 62 you will have smaller payments lasting for a longer period of time, but if you elect to postpone receiving benefits you will collect a larger amount for a shorter period of time. If you live to normal life expectancy the math is the same.

There are a variety of software programs designed to assist in making the most-educated decision about the optimal time to claim social security retirement benefits.  Please feel free to contact us if you would like assistance in making this important decision.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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The information contained in this report does not purport to be a complete description of the subjects referred to in this material.  Any information is not a complete summary or statement of all available data necessary for making a decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Social Security Planning for Divorcees

 Today’s longer life expectancies, especially for women have increased the importance and complexity of retirement income planning.  What used to be a 20-year retirement period has progressed to 30+ years for many baby boomers.  One common concern I hear expressed from women thinking about leaving the workforce and transitioning into retirement is "can I enjoy my desired lifestyle and have enough money to last through my retirement years."  Discussing retirement income and what part Social Security will play often leads to this question, “If I continue working, can I draw on my ex-husband's earning record at my full retirement age and defer my own Social Security benefit until age 70?"

The answer is “yes” and “it depends!”  In a special rule that applies only to divorced spouses, you can claim benefits on your ex even if he has not yet filed for retirement benefits.  The key is he must be at least 62 years old with sufficient Social Security credits.

Here is how this strategy works:

• At your Full Retirement Age (FRA) file a restricted claim for spousal benefits only
• You begin to collect 50% of your ex-husbands FRA benefit from age 66 to 70
• The Social Security benefit based on your earnings record increases by 8% per year with the delayed benefit credit from age 66 to age 70

Additional requirements:

• You are single and were married for more than 10 years
• You have been divorced more than 2 years (If divorced less than 2 and your ex-spouse is not collecting you must wait for the 2 year mark to receive benefit) 

Crunching the numbers:

• If you are less than FRA, drawing an ex-spouse benefit to delay yours may not be allowed because the decision is impacted by the amount of your own benefit.  If your benefit is greater (prior to reaching FRA) than ex-spouse you must take your own benefit.
• This strategy makes sense if your retirement benefit at full retirement age, plus a 32% increase due to delayed retirement credits would be worth more than the spousal benefit.

Settling on a Social Security strategy is one piece of the retirement income puzzle.  This strategy is not meant to be a one size fits all solution; rather an example of how Social Security planning can be customized to meet your individual income needs.

Laurie Renchik, CFP®, MBA is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  You should discuss any tax or legal matters with the appropriate professional.

Ladies – Don’t be left out of the Retirement Income Discussion

 We know that statistically women outlive men.  By age 85, there are approximately five women alive for every three men.  By age 95, the ratio of women to men doubles.  (Source: 2010 U.S. Census Bureau).  We also know that income disparities over time can have significant implications on the amount women are able to save for retirement.  Ultimately this means women need to fund a longer retirement with fewer financial resources.  

To help frame the retirement income decisions women have to make when approaching retirement, use the following suggestions as general guidelines:

• Establishing a target age is important because when you retire will affect how much you need to save.  For example, if you retire early at age 55 the number of years you have to save is lessened and the number of years that you will be living off retirement savings is longer.
• Medicare generally doesn’t start until you reach age 65.  Retiring prior to eligibility for Medicare means you may have to look into COBRA or a private individual policy, which can be expensive.
• You can begin receiving your Social Security benefit as early as age 62.  However, your benefit is then reduced 25% to 30% if you do not waiting to collect until full retirement age.
• Working part time during retirement will allow you to rely less on retirement savings in the beginning and you may also have access to affordable health care while waiting for Medicare.
• If you are married, and your spouse is still working too, it may pay to think about staggering retirements to ease the financial transition into retirement.

Creating a retirement income roadmap is a practical suggestion for managing and overcoming the unique challenges women face in retirement.  Don't sit this one out.  Join the discussion and learn along the way if necessary.  A financial professional can help sort through the options to develop a plan that is right for you.   One of my favorite quotes by Henry David Thoreau provides a timeless message for looking to the future; "Go confidently in the direction of your dreams. Live the life you have imagined."

Laurie Renchik, CFP® is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

File & Suspend: The Best Kept Social Security Secret?

 The other day, one of our associates was on the phone with the Social Security Administration (SSA). When asked about the “File & Suspend” strategy, the SSA staffer said he hadn’t heard about it “yet”. Not exactly encouraging since “File & Suspend” has been around since about 2000. More than a decade later, this highly effective social security retirement benefit strategy is still considered new and obviously causing confusion.

To recap, this strategy is designed to help a married couple maximize their combined social security retirement benefits.  One of the spouses, the higher earner, will “file & suspend” at full retirement age which allows the lower earner (or one with no earnings record) to begin receiving spousal benefits.  Additionally, the higher wage earner will receive delayed retirement credits from full retirement age until the age of 70, which can have a significant impact in maximizing the couple’s combined benefits. (See Julie Hall’s October 31, 2012 blog post One Social Security Strategy Too Many Married Couples Miss).

Once a couple decides to implement this strategy

It's time to deal with the Social Security Administration. 

We have not had a client file and suspend using the SSA’s online process.  While this may be possible, because of the importance on getting this correct and the apparent confusion involved, we suggest visiting the SSA in person if possible.  Obviously this requires more of a time commitment on your behalf, but may ensure that the application gets processed correctly. Additionally, both couples can attend together to take care of both their applications. A client recently shared their experience and stated that they were glad that they went in person. The visit took an hour and a half with their cooperative SSA staffer (even though this was the staffers first time completing a “file & suspend” request). 

What needs to be communicated to the Social Security Administration at your meeting? 

It is important to note that there is nothing on the application that asks if you want to suspend your benefits to earn delayed retirement credits, thus the general confusion even for SSA staffers. It is important to put a statement in the “remarks” section of the application stating, "I want to voluntary suspend all benefits in order to earn delayed retirement credits”. This is critical because voluntary suspension can only be requested if benefits have not yet been paid for the month. 

What might the conversation actually sound like?  Let’s use Bob and Mary Smith as an example: 

Bob: “I have reached full retirement age.  I would like to file for social security and suspend my benefits immediately so that I do not receive any payments and earn delayed retirement credits.”

Mary: “Once my husband Bob files and suspends his benefits, I would like to file for my spousal benefits, please,” (while using “please” may or may not help, I trust you agree that is a good thing). 

Last, but certainly not least, ask to get a photocopy of the application for your own records. 

Please use us a resource for all of your social security retirement needs.  Social security retirement benefits can play an important role in your overall retirement success and we’d enjoy helping you maximize your benefits.

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