Seven Summer Financial Planning Strategies

It is summer time! So, if you get a few minutes in between all of the outdoor activities here are 7 quick financial planning strategies to review.  As always, if we can help tailor any of these to your personal circumstances feel free to reach out.

By now you have heard there is a new tax law.  Because we will not experience the actual affects until next April, many of us are not sure how it applies to our specific circumstances.

1. Do a quick tax projection with your tax preparer and check your tax withholding. Many of us will have an overall tax decrease – but withholdings from our paychecks also went down. Do not get caught off-guard. More importantly, some folks will see higher taxes due to the new limitations on certain itemized deductions. Combine this with lower withholding and you have a double whammy (read: you will be writing a bigger check to the IRS).

2. Lump and clump itemized deductions. The standard deduction has increased to $24k for married couples filing jointly. In addition, miscellaneous itemized deductions have been removed completely. $10k cap. For some. Lumping charitable deductions in one year to take advantage of itemizing deductions and then taking the standard deduction for several years might be best.

3. Utilize QCD’s. If you are over age 70.5 and making charitable contributions, you should consider utilizing QCD. Don’t know what QCD stands for? Call us now.

4. Consider partial ROTH conversions to even out your tax liability. If you are retired, but not yet age 70.5 (when RMD’s start). Don’t know what an RMD is? Talk with us today! If you are in this group, multiyear tax planning may be beneficial.

5. Most estates are no longer subject to the estate tax given the current exemption equivalent of $11.2M (times 2 for married couples). However, income taxes remain an issue to plan around. One of my favorites: Transfer low basis securities to aging parents and then receive it back with a step up in basis. If you think you might be able to take advantage of this let us know.

6. Review your distribution scheme in your Will or Trust. Are you using the old A-B or marital/credit shelter trust format? Do you understand how the increased exemption affects this strategy?

7. How should high-income folks prioritize their savings?
   Are you in the new 37% marginal bracket? If so, consider contributing to a Health Savings Account IF eligible. Next, consider making Pretax or traditional IRA/401k contributions. However, if you reasonably believe that you will be in the highest marginal tax bracket now AND in retirement – then the ROTH may be suggested. Know that for the great majority of us this will not be the case. Meaning, we will be in a lower bracket during our retirement years than our current bracket. Next, use Backdoor ROTH IRA contributions. If your employer offers an after tax option to your 401k plan, take advantage of it. You can then roll these funds directly into a ROTH. Next, consider a non-qualified annuity that provides tax deferral of earnings growth followed by taxable brokerage account.

If you have not received a copy of our 2018 Key Financial Data and would like a copy let us know! 

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

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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 Tim Wyman and not necessarily those of Raymond James. Investments mentioned may not be suitable for all investors. Unless certain criteria are met, Roth IRA owners must be 591⁄2 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. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. A fixed annuity is a long-term, tax-deferred insurance contract designed for retirement. It allows you to create a fixed stream of income through a process called annuitization and also provides a fixed rate of return based on the terms of the contract. Fixed annuities have limitations. If you decide to take your money out early, you may face fees called surrender charges. Plus, if you're not yet 591⁄2, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. You should also know that a fixed annuity contains guarantees and protections that are subject to the issuing insurance company's ability to pay for them. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Can You Have a Purposeful Retirement?

Contributed by: Sandra Adams, CFP®

It is quite often we find ourselves as financial planners delivering the good news to clients that their financial plans are on solid footing and their retirement goals are on track, only to hear from the client that they still don’t feel that they are “ready” to retire.  These clients, while financially prepared, express that they don’t feel they have put enough planning into the practical side of retirement – what will we do every day that will give our lives meaning, purpose and joy?

A book I found recently gives guidance for clients struggling to design the next phase of their lives. Hyrum Smith, the author of Purposeful Retirement: How to Bring Happiness and Meaning to Your Retirement, provides tips, tools, and stories based on his journey through this very process.  In his words, “The rest of your life can be the best of your life” if you have the right attitude, embrace this stage, and bring enthusiasm to the process.  He finds that folks entering this phase are in one of two camps – those who can’t wait and those who will need to be dragged into it kicking and screaming.  It is important to identify which camp you are in and check your attitude at the door.

Takeaways from “Purposeful Retirement”:

• Being proactive is the key to transitioning well into retirement. If you simply let yourself drift into retirement, you can become lost without the purpose or structure that your work life provided.

• Take charge of planning your next phase by defining your mission, your purpose and core values which will help direct how you spend your time in retirement.

• The book offers options for how to take your purpose and translate it into action on a weekly and daily basis.

• Fear or losing your identity or role is a key fear for many entering retirements. For those folks, asking, “How will I make a difference?” will help fill that gap.

• For many, retirement is not a solo endeavor (we do it with our spouse). The book offers lessons on how to retire well as a couple and make adjustments that may need to be discussed and made to make retirement successful for both of you.

• Just because you are entering into the last phase of your life doesn’t mean you are dead yet! This can be your most successful, joyful, fulfilling phase of your life – if you are intentional and embrace it with enthusiasm.

Financially planning for your retirement is just the first step in the process.  Emotionally and psychologically planning for the last phase of your life may be the more challenging part for some – especially if you don’t want to coast to the end.  “Purposeful Retirement” may be a good place to start, and/or or have a conversation with your financial planner about other ways to help you plan your NEXT best phase of life.  We are always here to help!

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 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.

What Should I Do With My Old 401k Plan?

Contributed by: Josh Bitel

If you have recently retired or changed jobs, you may be wondering what will happen to the 401k you’ve been diligently contributing to over the years.  As with almost every financial decision, there is no “one size fits all” answer, it truly will depend on your own unique goals and desire to receive professional guidance on the account.  In most cases, however, there are three options that you will want to consider:

Leaving your 401k where it is

• Limited investment options

  • Especially in bonds/fixed income

  • 401k plans can be great for accumulating but when one is in distribution mode, in many cases, having access to a wider array of investment options is preferred

• Creditor protection

  • 401k plans can offer additional protection compared to IRAs in certain circumstances

• Self-directed in most cases aka you’re responsible for managing the account

  • In many cases, your 401k is your largest financial asset that will be used to support your retirement lifestyle; you should evaluate if you have the time and knowledge to adequately manage the account

*If you are changing jobs, some 401k plans offer you the ability to roll an old plan into your new one for consolidation.

• Some additional flexibility on distributions

  • As long as you are over age 55 and no longer working, or over 59 ½ regardless of employment status, you can avoid the additional penalty on this distribution.

Rolling your 401k to an IRA

• Access to a wider range of investment options

  • In many cases will allow you to better diversify your account and potentially reduce the overall risk level of your portfolio

• Professional management

  • Investing funds within an IRA will allow a financial advisor to actively manage and provide advice on your account

  • Our processes at The Center allow us to review your individual investments and accounts every single day to see if changes are warranted

  • Good option for those who would prefer to delegate the financial matters in their life

• Taxes

  • When rolling funds from a 401k to an IRA, it is typically recommended that you process the transfer as a direct rollover – this will make sure the transfer will not be a taxable event

Lump-sum distribution

• Taxable event

  • Simply put, this is a full liquidation of the account which will result in a taxable event

    • Could pay upwards of 40% in tax between federal and state and possibly a 10% penalty if funds are withdrawn before age 55

  • In most cases will push you into a higher bracket

• Bottom line, typically not recommended

  • In most cases, due to the severity of the tax implications, we would not recommend a total lump-sum distribution of funds

    • As always, be sure to consult your tax adviser when making decisions on large retirement plan distributions

Determining what to do with your old 401k plan is an important financial decision you won’t want to take lightly.  I can’t tell you how many times we have seen new clients come to us who left their employer years ago and the overall investment allocation of the 401k plan they still have is nowhere close to where it should be given their stage in life and other financial goals.  Please let us know how we can be a resource for you or those you care about when faced with the question, “what should I do with my old 401k plan?”

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.®

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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 Josh Bitel and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.  For additional information and what is suitable for your particular situation, please consult us.

Is My Pension Subject to Michigan Income Tax?

Contributed by: Nick Defenthaler, CFP®

It’s hard to believe, but it’s been nearly seven years since Governor Snyder signed his budget balancing plan into law in 2011, which became effective January 1, 2012.  As a result, Michigan joined the majority of states in the country in taxing pension and retirement account income (401k, 403b, IRA, distributions) at the state income tax rate of 4.25%. 

As a refresher, here are the different age categories that will determine the taxability of your pension:

1)     IF YOU WERE BORN BEFORE 1946:

• Benefits are exempt from Michigan state tax up to $50,509 if filing single, or $101,019 if married filing jointly.

2)     IF YOU WERE BORN BETWEEN 1946 AND 1952:

• Benefits are exempt from Michigan state tax up to $20,000 if filing single, or $40,000 if married filing jointly.

3)     IF YOU WERE BORN AFTER 1952:

• Benefits are fully taxable in Michigan.

What happens when spouses have birth years in different age categories?  Great question!  The state has offered favorable treatment in this situation and uses the oldest spouse’s birthdate to determine the applicable age category.  For example, if Mark (age 65, born in 1953) and Tina (age 70, born in 1948) have combined pension and IRA income of $60,000, only $20,000 of it will be subject to Michigan state income tax ($60,000 – $40,000).  Tina’s birth year of 1948 is used to determine the applicable exemption amount – in this case, $40,000 because they file their taxes jointly. 

While this taxing benefits law angered many, I do think it’s important to note that it’s a very common practice for states to impose a tax on retirement income.  The following states are the only ones that do not tax retirement income (most of which do not carry any state tax at all) – Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, Illinois, Mississippi, Pennsylvania, and Wyoming.  Also, Michigan is 1 of 37 states that still does not tax Social Security benefits.

Here is a neat look at how the various states across the country match up against one another when it comes to the various forms of taxation:

Source: www.michigan.gov/taxes

Taxes, both federal and state, play a major role in one’s overall retirement income planning strategy.  Often, there are strategies that could potentially reduce your overall tax bill by being intentional on how you draw income once retired.  If you’d ever like to dig into your situation to see if there are planning opportunities you should be taking advantage of, please reach out to us for guidance. 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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The information contained in this blog 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 Nick Defenthaler and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The above is a hypothetical example for illustration purposes only.

Explaining the What is the “Restore” Option for Pensions, Part 3 of a 3 Part Series on Pensions

Contributed by: Nick Defenthaler, CFP®

Selecting your pension benefit option as you near retirement could quite possibly be the largest financial decision you ever make.  If you’ve received a breakdown of the various ways you can elect to have your pension benefits paid and you’re feeling overwhelmed, you are certainly not alone!  In many cases, employers give you the option to select from upwards of 30 different options that have various survivor benefits, lump-sum payouts, Social Security bridge payments and more.  Is your head spinning yet? 

One of the more appealing pension options that our team is seeing more and more of is the “restore” option.  The restore feature of a pension is a way to protect the person receiving the pension if their spouse dies before them.  If that were the case, the restore option allows the retiree to “step-up” to the higher single/straight life payment.  Similar to the survivor benefit, the restore option is another layer of “insurance” to protect the retiree from being locked into a permanently reduced pension benefit if their spouse pre-deceases them. 

Let’s take a look at an example of the restore feature:

Tom (age 61) is retiring from XYZ Company in several months.  Tom would like to evaluate his pension options to see which payment would be best for him and his wife Judy (age 60).  Tom has narrowed it down to 3 options:

Option 1:

• $45,000/yr single/straight life (no survivor benefit)

  • Payment would cease upon Tom’s passing – $0 to Judy

Option 2:

• $41,000/yr 50% survivor option

  • Judy would receive a $20,500/yr benefit during her lifetime if Tom pre-deceases her

 Option 3:

• $40,200/yr 50% survivor option with “restore” feature

  • Judy would receive a $20,500/yr benefit during her lifetime if Tom pre-deceases her

  • Tom would step-up to a $45,000/yr benefit (straight/single life benefit figure) if Judy pre-deceases him

The more Tom and Judy have discussed their overall financial plan; they are not comfortable selecting the single/straight life option and risking Judy not receiving a continuation of benefits if Tom pre-deceases her.  However, because Judy has had some health issues in the past, they feel the 50% restore payment option makes more sense for their situation because it is very possible that Judy will die before Tom.  They are comfortable with an $800/yr reduction in payment to have the “insurance” of Tom stepping up to the higher single/straight life option if he survives Judy. 

While the restore option for Tom and Judy seems to make perfect sense, there truly is no a “one size fits all” pension option that works for everyone.  Every situation is very unique and it’s important that you evaluate your entire financial picture and other sources of retirement income to determine which pension option is right for you and your family.

Click to see part 1 of pension blogs How to Choose a Survivor Benefit for Your Pension and part 2 What You Need to Know About Pension Benefit Guaranty Corporation or PBGC

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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The information contained in this blog 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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Nick Defenthaler, CFP© and not necessarily those of Raymond James. This is a hypothetical example for illustration purpose only and does not represent an actual investment. This is a hypothetical example for illustration purpose only and does not represent an actual investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. 

WEBINAR IN REVIEW: Retirement Income Planning: How Will You Get Paid in Retirement?

Contributed by: Nick Defenthaler, CFP®

One of most common questions I hear from clients as they approach retirement is, “How do I actually get paid when I’m no longer working?” It’s a question that I feel we as planners can sometimes take for granted.  Because we are helping hundreds of clients throughout the year with their retirement income strategy, we can sometimes forget that this simple question is often the cause of many sleepless nights for soon-to-be retirees.   

Saving money throughout your career can be simple, but certainly not easy. Prudent and consistent saving requires a tremendous amount of discipline. However, if you elect the proper asset allocation in your 401k and you’re a quality saver, in most cases, accumulating really doesn’t have to be all that difficult.  However, when it comes time to take money out of the various accounts you’ve accumulated over time or have to make monumental financial decisions surrounding items such as Social Security or which pension option to elect, the conversation changes. In many cases, this is a stage in life where we frequently see those who have been “do it yourselfers” reach out to us for professional guidance. 

The first step in crafting a retirement income strategy is having a firm grip on your own personal spending goal in retirement. From there, we’ll sit down together and evaluate the fixed income sources that you have at your disposal. Most often these sources include your pension, Social Security, annuity income or even part-time employment income. Once we have a better sense of the fixed payments you’ll be receiving throughout the year, we’ll take a look at the various investable assets you’ve accumulated to determine where the “gap” needs to be filled from an income standpoint and determine if that figure is reasonable considering your own projected retirement time horizon. Finally, we need to dive into the tax ramifications of your income sources and portfolio income. If you have multiple investment or retirement accounts, it’s critical to evaluate the tax ramifications each account possesses. 

Make sure you listen to the replay of our webinar “Retirement Income Planning: How Much Will You Get Paid In Retirement?” for additional tips and information on how you might consider structuring your own tax-efficient retirement income strategy.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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The information contained in this blog 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 Nick Defenthaler and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. 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. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. You should discuss any tax or legal matters with the appropriate professional.

What You Need to Know About Pension Benefit Guaranty Corporation or PBGC, Part 2 of a 3 Part Series on Pensions

Contributed by: Nick Defenthaler, CFP®

In many cases, the decision you make surrounding your pension could be the largest financial choice you’ll make in your entire life.  As such, the potential risk of your pension plan should be on your radar and factored in when ultimately deciding which payment option to elect.  This is where the Pension Benefit Guaranty Corporation comes into play.

The Pension Benefit Guaranty Corporation or “PBGC” is an independent agency that was established by the Employee Retirement Income Security Act (ERISA) of 1974 to give pension participants in plans covered by the PBGC guaranteed “basic” benefits in the event their employer-sponsored defined benefit plans becomes insolvent.  Today, the PBGC protects the retirement incomes of nearly 40 million American workers in nearly 24,000 private-sector pension plans. 

Municipalities, unions and public sector professions are almost never covered by the PBGC.  Private companies, especially larger ones, are usually covered (click here to see if your company plan is).  Each year, companies pay insurance premiums to the PBGC to protect retirees.  Think of the PBCG essentially as FDIC insurance for pensions.  Similar to FDIC coverage ($250,000) that banks offer, there are limits on how much the PBCG will cover if a pension plan fails.  It's important to note that in most cases, the age you happen to be when your company’s pension fails is the age the PBGC uses to determine your protected monthly benefit. 

For example, if you start receiving a pension at age 60 from XYZ company and 5 years later, XYZ goes under when you’re 65, your protected monthly benefit with the PBGC would be $5,2420.45 – assuming you are receiving a straight life payment (see table below).  As we would expect, the older you are, the higher the protected monthly benefit will be due to life expectancy assumptions.    

*chart is from Pension Benefit Guaranty Corporation website

When advising you on which pension option to choose, one of the first things we'll want to work together to determine is whether or not your pension is covered by the PBGC.  If your pension is covered, this is a wonderful protection for your retirement income if the unexpected occurs and the company you worked for ends up failing.  If you think it will never happen, let’s not forget 2009 when many unexpected things occurred in the world such as General Motors filing for bankruptcy and Ford nearly doing the same.  If your pension is not covered, we'll want to take this risk into consideration when comparing the monthly income stream options to a lump sum rollover option (if offered). 

While PBCG coverage is one very important element when evaluating a pension, we’ll also want to analyze other aspects of your pension as well, such as the pension’s internal rate of return or "hurdle rate" and various survivor options offered. 

As mentioned previously, the decision surrounding your pension could quite possibly be the largest financial decision you ever make.  When making a financial decision of such magnitude, we’d strongly recommend consulting with a professional to ensure you’re making the best decision possible for your own unique situation.  Let us know if we can help!   

Be sure to check out our pension part 1 blog How to Choose a Survivor Benefit for Your Pension posted April 5th and our next blog Explaining What the “Restore” Option is for Pensions posted May 10.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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The information contained in this blog 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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Nick Defenthaler, CFP© and not necessarily those of Raymond James. This is a hypothetical example for illustration purpose only and does not represent an actual investment. This is a hypothetical example for illustration purpose only and does not represent an actual investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

How to Choose a Survivor Benefit for Your Pension, Part 1 of a 3 Part Series on Pensions

Contributed by: Nick Defenthaler, CFP®

If you’re married and eligible to receive a pension upon retirement, chances are you will be making an election for a survivor benefit before you start collecting. What should you choose when it’s time to elect your payment option?

As a quick refresher, when a pension has a survivor benefit attached to it, the income stream the pension provides goes through the lifetime of you and your spouse. Depending on the level of the survivor benefit, you could see a large discrepancy in the payment amount that the pension ultimately provides while both spouses are still alive. 

For example, the monthly payment a 100% survivor benefit provides will be much lower than the monthly payment a 25% survivor benefit would provide. This is because the 100% survivor option offers a guaranteed continuation of full benefits to the surviving spouse as compared to only a 25% continuation of benefits. In reality, a survivor benefit is an “insurance policy” on your pension! The reduction in monthly benefits by having a survivor option is like the “monthly premium” on that insurance policy.

Case Study

Let’s take a look at an example of how selecting a survivor option could vary depending on your family’s unique, personal situation:

Nancy (age 65) and Steve (age 64) are evaluating Nancy’s pension options as she approaches retirement in a few months. Unfortunately, Nancy has had heart issues over the years and does not have longevity in her family. Steve on the other hand, is in great shape and plans on living into his nineties.  Below are the pension options Nancy has to choose from:

• 100% Survivor Option

  • $42,000/year to Nancy: Steve would receive $42,000/year if Nancy dies first

• 50% Survivor Option

  • $46,000/year to Nancy: Steve would receive $23,000/year if Nancy dies first

• 25% Survivor Option

  • $48,000/year to Nancy: Steve would receive $12,000/year if Nancy dies first

• Straight-Life Option (No Survivor Benefit)

  • $50,000/yr to Nancy: No continuation of payments for Steve when Nancy dies

Due to Nancy’s health issues, the straight-life option would likely not be advisable. There is a very high likelihood that Nancy pre-deceases Steve so they would not want to select an option that would provide zero continuation of benefits, especially considering the size of the pension payment. In a similar vein, Nancy and Steve are not comfortable with Steve only receiving 25% of Nancy’s pension if she passes before him, primarily due to Nancy’s health issues.  At this point, they have narrowed their options down to the 100% survivor or 50% survivor benefit election.  

Because Nancy is a number cruncher, we created a spreadsheet to analyze the value of maintaining a larger survivor benefit, assuming she pre-dececeases Steve at various ages:

While it’s all well and good that Steve would receive a higher continuation of benefits if Nancy passes before him under the 100% survivor option, we have to remember that there is a “cost” to this pension option ($4,000/yr lower payout compared to the 50% survivor option). However, as the table above shows, it does not take long at all for Steve to “break even” on the cost of the $4,000/yr “insurance premium”. 

After reviewing the numbers in detail, Steve and Nancy decided to elect the 100% survivor option.  They arrived at this decision primarily because of Nancy’s reduced life expectancy. In addition, if she does die before Steve within the first 15 years of retirement (a very likely possibility), it only takes several years for the larger survivor benefit to make up for the lower pension payment Nancy would have received during her life, especially taking into consideration Steve’s good health.  

As you can see from our example, many factors come into play when selecting a pension benefit and survivor option. While it might be human nature to ask which option is best, unless we have the proverbial crystal ball to look into the future and see what life has in store for us over the next 30+ years, it’s impossible to provide a concrete answer.

When evaluating pension options, my number one goal as a fiduciary advisor is to provide a sound recommendation that aligns with your own personal situation and retirement goals. If our team can be a resource for you in evaluating your pension decision, please feel free to reach out to us.  

See Part 2 of the series, What You Need to Know About Pension Benefit Guaranty Corporation or PBGC. Part 3 Explaining the What is "Restore" Option for Pensions I invite you to listen to a replay of my webinar from April 24th at 1:00 pm on Retirement Income Planning: How Will You Get Paid in Retirement?  

The case study and accompanying chart have been provided for illustrative purposes only. Individual cases will vary

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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Finding Your Social Security Information and Social Security Widow Benefits

Contributed by: Josh Bitel

There are many ins and outs of Social Security and I want to help you stay on top of them (without boring you with a pile of information). Here are easy explanations of two topics that can help you make the most of your benefits:

Where’s my Social Security statement?  

Remember when you used to get a statement each year a few months before your birthday from the Social Security Administration (SSA)?  Well if you haven’t seen it in a while that’s because the SSA stopped mailing to most folks back in 2011 (at a savings of $70M). 

The SSA will begin mailing benefit statements every 5 years to those who haven’t signed up for online statements (those already receiving benefits get an annual statement).  Paper statements are also mailed to workers age 60 and older three months before their birthday if they don’t receive Social Security benefits and don’t yet have a ‘My Social Security’ account.  If you haven’t checked out the SSA website, I suggest doing so: www.ssa.gov.  You may receive your statement, project future benefit amounts, as well as learn more about one of the nation’s largest expenditures.

Widowed? Research suggests that you might not be getting your fair share.

According to a recent report from the Social Security Administration Office of the Inspector General, as many as one-third of spouses age 70 and older are not getting the maximum social security benefit. The issue arises when a spouse initially receives “widow” benefits as early as age 60 (benefits based on your spouse’s earnings) and then later is eligible based on their own earnings record for a higher amount. As an example, Jan’s husband Paul passed away and Jan decided to begin receiving a widow’s benefit at age 60.  At age 62-70, Jan may want to switch to benefits based on her earnings record if they are higher.  Jan will need to be proactive as the SSA will not inform Jan if she is eligible for a higher amount.  When in doubt – call the SSA and give them your social security number and the social security number of your spouse to learn about all of your options. That way, you can be sure you are receiving the maximum amount allowed.

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.®

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Helping Older Relatives? How to Help Without Jeopardizing Your Own Finances

Contributed by: Matthew E. Chope, CFP®

Helping elderly family members with financial issues can be tricky.  In many cases, you may feel an obligation to assist, especially if the older adult is on a fixed budget and has limited financial resources. In fact, a recent MetLife study found that 68% of American caregivers have been found to spend their own money to support the needs of their older adult relatives, which drained funds that they had planned to use for their own financial independence. If you sense that an elder you care about is on a trajectory for financial ruin, what can you do to help? 

How do you step in and assist without putting your own financial security in jeopardy? 

The first thing to do is to gather some information to get a better sense of your loved one’s financial picture.  You’ll want to have an understanding of their assets and debts, and their budget:  their sources of income and their expenses. With the understanding of what income and what bills and expenses the older adult is dealing with, you can better connect with resources that may be able to assist them.

A client (let us call him John) told me a story recently about how he helped his older sister in-law (let us call her Bonnie) make some difficult decisions.  Bonnie was not a high-income earner in her working years. Although she was able to purchase her home and pay off her mortgage; she didn’t save much, and she had now depleted her savings.  At age 75, the reverse mortgage that Bonnie had put in place, in addition to her minimal Social Security income were not enough to keep up with her rising costs for health care (Medicare premiums and prescription drug co-pays), property taxes, insurances and utilities.

Here are the actions John took to help Bonnie with her situation:

1. John discovered that the county would allow her to apply for a reduced or total removal of real estate taxes through the property tax poverty exemption. As a result, Bonnie received a full exemption from her property taxes. Each county has a program for low-income folks - you need to complete an application and appear before a board of review annually. Here is a link with more information: https://www.michigan.gov/documents/treasury/Bulletin7of2010_322157_7.pdf

2. John contacted low-income home energy assistance (LIHEAP) and received a reduction in electricity and heating costs for Bonnie. https://www.benefits.gov/benefits/benefit-details/1545

3. John contacted Human ARC Premium Assist about receiving a significant reduction in Medicare Part B premiums; as an added bonus, they also provided assistance with Bonnie’s prescription drug costs. https://screening.humanarc.com/PremiumAssist

4. While online at the premium assistance site, John found more information about special coverages for things like medical alert, ambulance/transportation assistance, and a 1.25% copay for prescriptions.

5. John contacted Social Services about food stamps and Bonnie is now receiving about $97 more a month through a program called SNAP. http://www.feedingamerica.org/need-help-find-food/

6. For Bonnie’s auto insurance, John pays the whole year upfront and Bonnie pays John back monthly so she can take advantage of the discount for paying the premium annually.

7. John pays Bonnie’s utility bills via automatic payments from his account to avoid late fees, which in the past were a wasteful and unnecessary expense. Bonnie also reimburses John monthly for this.

8. To save money on her cell phone bill, John added Bonnie’s phone line to his plan as an additional line.

9. Bonnie was willing to give up cable TV – John found that an inexpensive antenna works fine and they were able to rid Bonnie of her monthly cable bill.

With a little bit of creativity and resourcefulness, John was able to assist Bonnie while also preserving his own financial resources.  If you or someone you know is in the position of assisting an older adult and needs help putting together a strategy, please let us know.  We are here to help!

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.

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