Congress Kills File and Suspend Strategy for Social Security

Currently, individuals who are married can file for Social Security and then voluntarily suspend their application in order for their spouse (and dependents if they qualify) to file for benefits.

The purpose of this strategy is to:

  1. Allow their spouse to collect benefits under their record. In doing so, their spouse would then allow their own retirement benefit (if they have work experience) to earn delayed retirement credits resulting in an 8% increase per year after full retirement age up to age 70.
  2. Allow the individual who suspended to earn a delayed credit up to age 70.

Note that this strategy was ideal for those couples who both had a work history, particularly higher income households or couples with similar earnings.

Since this strategy allowed both spouses to take advantage of the delayed credit, it was a popular method to maximize Social Security benefits over the couples’ lifespan.

Under the Bipartisan Budget act of 2015, however, this file and suspend strategy will no longer be allowed.  Congress has decided to close this loophole.  Anyone who files for a retirement or spousal benefits will be deemed to have filed for any eligible benefits. Suspension of a benefit will affect other spousal and dependent benefits that were acquired under a restricted application.  To wit, the new law specifically states that “no otherindividual will be eligible for benefits based on the earnings record of the person who voluntarily suspends benefits.”

According to the bill, this change will be effective for individuals who attain age 62 after 2015.  The original bill implied that benefits would be ended for those who were currently receiving benefits, but the language is being revised to clarify that only new suspensions will be affected.

Note that the voluntary suspension is still allowed In order to qualify for delayed credits and claimants who file early can change their mind in the future and delay benefits.

Continue Reading

Retirement planning can be more complex for women for various reasons.  Women live longer, take time away from work to care for their parents or children, and are often paid less than their male counterparts. 

To compound matters further,  many married men are deciding to retire much earlier than originally anticipated.  A husband’s early retirement can have profound effects on a woman’s ability to fund her retirement throughout her lifetime.  With careful planning, however, these issues can be successfully navigated to provide peace of mind that the couple will have adequate funds.

Many baby boomers are burnt out from working 20+ years in their careers and feel a burning desire to quit and travel the world.  Many men and women are leaving their corporate jobs whether by choice or by design.  Retiring in your 50s, may mean that your spouse will need funds to last 40 or more years.   Unfortunately, women, due to their higher risk of longevity, bear the brunt of a husband’s desire to retire early.   The wife may continue to work after their husband retires to provide additional income, and thus feels increased stress due to suddenly being the sole breadwinner.  Ironically, she may feel as though she needs to retire later to offset the impact of her husband’s early retirement.  Financially, a wife, especially if she has been the lower earner or worked fewer overall years than her husband, will also have lower Social Security spousal and survivor payments, if her husband chooses to take benefits early.

How can women improve planning around her husband’s desire to retire early?

  • Discuss any early retirement decision as a couple and ensure that you are both ready for other emotional, financial, and psychological change.  Be supportive and see how you can make each other’s lives more enjoyable in the interim, to see if retirement can be delayed.  It may mean that you take more time off or even phase into retirement over time.  Most importantly, balance the short term benefits of leaving work with the long term tradeoffs.
  • Try to delay taking Social Security.  If you are both healthy, you should try to delay claiming until at least your full retirement age.  Work with a fee-only financial planner to determine the optimum strategy to maximize your lifetime income based on your age and life expectancy. You can go to livingtoo100.com to get an estimate of your life expectancy.
  • Create a life plan along with your financial plan.  Determine how your lifestyle will change after retirement and make sure to share household responsibilities.  Create an ideal day, week, month, year in retirement.  Write it on paper.  Create a Pinterest board or scrapbook of things you want to do or see in retirement.
  • Realize there are significant tradeoffs.  Early retirement may mean that you can’t gift to the kids as much as you wanted or fund lavish travel plans.  Discuss how that might affect your retirement satisfaction in the long run.
  • Maximize your pension payments through a “pension max” strategy.  If you want to choose a pension benefit that provides maximum yearly income and a small survivor benefit, you need to ensure that your spouse is able to support his or her lifestyle should something happen to you.  A “pension max” strategy using laddered insurance will be necessary to offset the impact of an early death of the person who receives the large pension.
  • Consider long term care insurance—this can ease the burden of taking care of a spouse and help protect assets so that the caregiver spouse can have sufficient funds for the balance of his or her life.

Retirement planning is far more complex than just your investment allocation and selection of funds.

The many moving parts of Social Security claiming strategies, pension strategies, budgeting, withdrawals, and planning for large expenditures all come into play.  Work with a fee only financial planner to ensure that you are making appropriate decisions.  A decision to take early benefits may reduce cash flow stress in the short term, but have longer term negative repercussions.

Sorting it all out with a map of your retirement landscape and how to navigate that map, can help you sleep better at night knowing that important decisions you make about retirement are sound.

Continue Reading
When it Comes to Finances, as Rodney Dangerfield Would Say, Women Still “Don’t Get No Respect”.

For years I have been the “CFO” of my household. Over twenty plus years of marriage, I have paid the bills, done all of the investing, monitored the family budget and net worth, negotiated mortgages, and even have power of attorney for my husband, so that I can execute trades on behalf of him. We both have charities that are near and dear to our hearts, but we normally write a check for all of our donations from our joint account. Often, the thank you card we receive from the charity is addressed only to my husband. Ouch!

Over the past year I have had two charities which responded to our charitable donations with thank you cards made out only to my husband. Meanwhile, my name is listed first on the top of the check and I have a different surname than his. In addition, we continued to get mail from one of the organizations and, you guessed it; my name wasn’t included on that mailing either! Meanwhile, my husband does not even have his own checking account nor was he the one who originally decided to give to the charity. I had been the one who starting contributing and asking for information.

When I complained to the charity, it took them over 6 months for them to include me in their subsequent mailings. Still, even though I am the one who signed up for ongoing electronic communication, they only address my husband in the salutation of the correspondence sent to my email address.

As a female CERTIFIED FINANCIAL PLANNER professional, I respect that not all women want to take charge of their finances to the extent I do, but I believe that it is extremely important for women to be aware of their financial situation. That is why I insist that each spouse (or partner) is involved in the financial planning process and that they both provide feedback on my questionnaires as well as participate in ongoing discussions. If anything, women have a greater need to feel secure about their finances as the majority of females become solely responsible for their finances due to death, divorce, or choosing to stay single. The financial services industry often is derided for their treatment of women, both toward employees as well as clients. I can totally understand how women can feel disenfranchised by these institutions and society at times. We need to think about the subtle and not so subtle messages we send out to them that may be turning them off.

We are no longer living in the 50s. More women than men are graduating from college and obtaining graduate degrees. We are choosing to work even after we have children, and we often make most of the buying decisions for our households. With the growth of internet communication, we need to ensure that our databases are capturing the correct client data and responding to both spouses. It is essential that women not only feel they are being acknowledged, but that their input is being solicited in a proactive way.

Continue Reading
Long Term Care- Know Your Costs and Options

Do you ever thought that your medical check up will change? I think, we all do and of course government has done it. They have tried to make some solutions. Health insurance has been made by government also private insurance company. And you can choose what is suit for you.

According to the Center for Medicare and Medicaid services, 70% of people over 65 will need long term care support at some point. Since health insurance and Medisupp policies do not pay for long term custodial care (Medicare only pays for up to 100 days of care in a skilled nursing facility), it is important that you have a plan to fund these costs, which can be exorbitant. You can choose to self-fund by spending your own assets or purchase a long term care policy. A less desirable option would be to rely on family members.

Is Medicaid The Solution?

Courtesy :s.marketwatch.com

Many people also incorrectly believe that they can rely on the government through Medicaid to take care of them should they require long term care. Unfortunately, this option is also not favorable. In order to qualify for Medicaid eligibility, a patient must demonstrate that they have very little income and limited assets.  This will occur once they spend down almost all of their cash and investments. If they have a spouse, he or she will be left destitute. In addition, the Medicare facilities that are available in your state, may not be ideally located cost to family members nor provide the quality care you desire.

In order to gain some insight into the potential cost for care, Genworth publishes an annual cost study.

Given the above costs and the average length of a long term care event (3 years), a 65 year old couple from SC will need roughly $180,000 in extra assets now to fund the possibility that one of them will need nursing home care. This assumes 6% rate or return and 5% LTC inflation.

Baby Boomers Age Need More

Courtesy :www.tdameritrade.com

As the Baby Boomers age, we will see an epidemic of dementia patients. According to a recent article in Investment News, one out of ten men and one out of five women will suffer from some form of dementia. Furthermore, half of individuals over 85 are at risk of developing Alzheimer’s.  Future medical advances may help reduce the risk, but at this point, there is no cure for Alzheimer’s. It is also much harder to care for an Alzheimer’s patient and can require 24 hour nursing care in the latter stages of the disease.

Although we don’t want to talk about being old and fragile and we don’t believe we will ever be infirm, it is important to have this discussion with our spouse or family members in order to determine the best plan, if and when we do need care.

Continue Reading
Best Way for Couples to Prepare for Retirement – Talk it Out

It takes us years to build up our financial resources for retirement.  We target a monetary goal for retirement and invest accordingly, but what about our vision of retirement?  How do we make sure that we are on the same page with our spouse with regard to a common vision of our lifestyle in retirement?

study by Fidelity investments indicated that approximately 4 out of 10 couples not yet retired are in disagreement about their lifestyle in retirement.  One out of three disagreed about the overall vision of retirement.  

Establishing Common Goals

Upon retiring, many individuals experience depression and a sense of loss.  This can be overwhelming.  Action-packed days are suddenly replaced with leisurely weeks with nothing on the schedule.  Since we often derive our self-worth through our workplace accomplishments, we may experience a loss of identity.  Engaging socially with work peers is suddenly replaced with extra time with our spouse.   Conflicting goals between the two of you can result in additional stress and possibly harm your relationship.  Establishing common goals is essential to a fulfilling relationship during the retirement years.

Vision of Retirement

It is important to discuss your vision of retirement as a couple years prior to your anticipated retirement date. Schedule time to discuss your ideas about retirement and make this an ongoing conversation.  Be as specific as possible.  It is okay to change this vision over time.  Life is dynamic. Our hobbies, interests, and goals change with time.  This conversation, will at least help set expectations for retirement, so that there are no surprises.  You can both input and affect the ultimate decisions.   If you disagree, that is okay. You can negotiate issues over time in order to come up with a suitable workable solution that is amenable to both of you.

If couples don’t have these types of conversations, they may be suddenly thrust into the “second act” of their lives with conflicting opinions – which will only harbor resentment.

One helpful way to get started is to map out what a typical day, week, and month looks like during retirement.  Think about the following:

  • Will you both retire at the same time or stagger your retirement dates?
  • How much time will you allot to individual pursuits versus spending time together?
  • Will the two of you travel alone or will you schedule joint trips with friends?
  • How much time will spend with friends or hobbies and other activities that will not involve your partner?
  • Will you need “alone” time or time that is spent in solitude without your partner?
  • How active will you be?  How much time will you devote to exercise, kids and grandkids, travel, friends, volunteer work?
  • Will you consolidate homes or keep the vacation home and commute between both?
  • Do you want to downsize your homes and free up cash for traveling and renting homes for a month at a time around the world?
  • Do you want to live close to kids?
  • How much support will you be providing to kids and grandkids?
  • How do you plan on taking care of your spouse should he or she need long term care? How will you fund this?

Fleshing this out will have the added benefit of assisting you in determining your expenses in retirement. You can also work with a financial planner to address these softer, qualitative issues regarding your retirement lifestyle.  She can assist you in prioritizing goals as a couple as well as determining how it might impact your budget in retirement. Having a third party help you map out your future in a quantitative and qualitative fashion can be a valuable exercise.

The Result

Americans tend to procrastinate saving for the future and often avoid talking about the future. Planning for your retirement lifestyle will not only help motivate you to work hard to achieve your retirement goals – a clearer vision makes it seem more real – it will also result in improved harmony with your loved one.

Continue Reading
Five Steps to Healthier Finances

Achieve Your Financial Goals

It’s time for a fresh start! Don’t dwell on last year’s setbacks – it was a tough financial year for many. Instead, look at concrete steps to move into a fresh year of healthy finances with manageable goal-setting and simple steps that everyone can do and won’t overwhelm.

1. Set realistic goals!

If you haven’t yet set goals – set a few! But important – set yourself up for success rather than failure, by making sure they are manageable!

You don’t necessarily even need a calculator for this one, but be sure to think about 3 – 5 financial goals you’d like to accomplish over the next twelve months. Keep them real and manageable so that you won’t be easily thrown off-track or discouraged. Perhaps two more easily attainable and shorter term goals to give you an opportunity to check them off the list and feel success – followed with another two more challenging. Maybe they include buying a new car, paying off your credit card or finally making a meaningful contribution to your retirement savings. Be sure to attach a number to your goals. This makes them real and helps you figure out the game plan for setting those funds aside. If you are in a relationship, ask your spouse or partner to do the same, then sit down to compare your goals. If your main priority is to become debt-free next year while your partner’s focus is taking a 3-week trip to Bali , this is the time to understand what each of you want and jointly set some priorities.

2. Create some accountability for yourself.

Like many New Year’s resolutions, it’s easy to lose track of what you are striving for as soon as the calendar turns to February. So take the opportunity to set up some benchmarks and check-in points for yourself ASAP if you haven’t already. Set your computer to remind you about your goals on the last day of every month, or schedule a quarterly call with your financial planner, accountant or spouse — whoever can best help you stay on track throughout the year. Cut your goal into digestible quarterly achievements to stay focused and motivated. For example, if your goal is to have $5,000 cash in an emergency fund, you’ll probably want to have accumulated close to $2,500 by June 30th. If you need to do smaller amounts, spread it out – whatever is easy to manage!

3. Pay yourself first

If the financial roller coaster of the past year showed us anything, it’s that we all likely need more than we thought to retire. Regular, automated paycheck deductions for retirement savings are one of the very best financial habits you can create for yourself, and this is the perfect time to get started or see if you can increase how much you are saving. Even if it’s just $25 per paycheck, directing money towards your tax-advantaged retirement account (generally provided through your employer) will help you build substantial savings over the years to come and show you how painless and easy it can be to become a disciplined saver.

You can use this same concept to direct money to your Top 3 goals. Set up separate or subaccounts in advance and be sure to name them with their intention. Put a positive spin on your goals. Seeing an account named “New MommyMobile” is certainly more fun than “Savings” and clearly states when you are “allowed” to use it (a common problem when we have general savings…we get scared whenever we actually spend some). “House Surprises” instead of “Emergency Fund” lets you feel good when you have to pay the plumber. Determine the amount you want to save in advance and direct deposit into each fund. You may want to jumpstart each one with some cash from your current savings, in case the water heater breaks next month. Send the money to its goal before you even see it.

4. Lock yourself away for a mandatory afternoon of savings

We’ve all seen the commercials about how we could save hundreds on our auto insurance, and you may even suspect that it’s true, so why haven’t you called yet!?! Pick an afternoon to check how much you might be able to save on all of those pesky recurring charges that you haven’t bothered to check in on. Lock yourself in a room and call around to find out if you are getting the best and most appropriate rate on your auto insurance, cell phone plan, cable tv, gym membership and anything else that you pay for on a monthly basis. Be sure to scour your credit card statements for anything that you are still paying for, but stopped using long ago (like unread magazine subscriptions) and cancel those services, too. Find just $42 in monthly savings, and you’ll end the year with any extra $500 in your pocket, without making one single change to your lifestyle!

5. Understand your credit picture

With consumer credit still incredibly tight, it is more important than ever to actively manage your credit profile. Start with your credit reports, which you can get free once per year from Annualcreditreport.com. Scour them for inaccuracies and promptly write dispute letters for any errors that may be negatively impacting your credit. Next, check in on your credit scores. While you’ll need to pay for access to get precise numbers, a number of free websites, such as Credit Karma are offering increasingly accurate FICO score estimates. Be sure to check out the impressive free credit report card tool from Credit.com. It gives you a letter grade for each facet of your credit score and offers actionable tips on how you can improve.

Significant new credit card laws are also taking effect in February, so check in with each of your lenders to confirm any rate or fee changes that may effect you — some lenders have increased interest rates by more than 10% on millions of Americans in anticipation of the new laws taking effect. While you have them on the phone, this is the perfect time to ask for a rate reduction no matter what interest rate you are currently being charged. Rate reduction = instant savings!

Continue Reading
No More Budgets: Spend with Intention!

When parents contact me, they often wearily confess, “We have never had to worry about our money before, but I think we need a Budget now.” Couple the addition of child care expenses or the lost income of one spouse staying home with the added pressure of education funding and desires for a larger home and you have a recipe for anxiety around daily spending decisions. Hence, a monthly “Budget” rises to the top of many new parents’ priority list.

First things first—-I do not like the word Budget. It conjures up revisions upon revisions of corporate spreadsheets and words like “cutbacks” and “tightening.” Talk about negative energy! I prefer to call the process of managing your monthly outflow of money Intentional Spending. This positive outlook puts you back in control, and you are the
decision-maker. A much more powerful position to be in!

How does Intentional Spending work?

With Intentional Spending, you consciously choose where your money goes each month. And, yes, sometimes this means you choose to pay for a new water heater or car repairs, but that is all part of the plan.

1. Know where you are now.

Assessing your current state of affairs may be the most time-consuming part of this process. Whether you analyze past statements or track your spending diligently for a month, knowing how much you usually spend and invest monthly is the first step. From here, you can break that amount down into the specific spending categories if you choose.
Many online banking and credit card accounts have features to categorize your expenses for you. Or, you can use a pencil and paper or your PDA to track daily spending and/or tally your receipts in Quicken or a spreadsheet.

2. Create what you want.

Now that you have a starting place, create your plan! Sit down with your spouse/partner and make intentional spending and investing decisions. Intention Spending encompasses knowing and planning for three areas:

Goal funding amounts: What amount and to which account(s) are you contributing each month to realize your goals? If these contributions are after thoughts, they will not happen. Pay yourself first through direct deposits. You’re probably used to it for your 401k, so try it for other goals too.

Fixed Spending: These are committed expenses such as the mortgage or health insurance. In your initial review, if you see a line item that feels out of alignment for you (such as a ridiculous car payment), consider making a change: refinance, pay off the balance, or trade in for a car that fits better with your values.

Variable Spending: Since they are always changing, these expenses such as groceries or lunches are harder to track. You do not have to plan your spending for each expense line item, especially in this category. For example, if saying “We have $20/week for coffee and $65/week for clothing purchases” is too stifling then set your spending plan at a higher level. Maybe you decide that you’ll allow for $4,000/month in variable spending and you don’t need to know specifically where that money goes.

Tips for Variable Spending: Allow for whimsical purchases without judgment so you do not feel trapped. Either set up a different account or give yourselves a monthly amount that is for “whatever you want!”

Make sure you do allow room for paying the plumber or the mechanic. This will eliminate the stress of these unexpected events.

3. Determine your family’s system.

The goal with Intentional Spending is to create a system that works for you so you achieve success in reaching your goals and feel the calmness of being in control of your money.

Alternatives ways of keeping a pulse on your spending include:

  • Tracking the monthly outflow of cash at a high level: Know the total cash spent, total credit card bills paid, and total checks written. All of these items are backed up by statements from the bank or issuer.
  • Tracking monthly outflow of cash (as above) and subtract out the named fixed/periodic expenses as they occur so you can see the everyday expenses.
  • Keeping track of everything you spend in Quicken or Quickbooks, or just a simple excel spreadsheet or word document.
  • Hiring a bookkeeper and having that person track your expenses (you provide receipts and/or just statements). For a small monthly investment, you can have the bookkeeper report to you how you spend your money and keep you on top of your cash flow.

Remember, if you have your own business, track your business expenses separately from your personal expenses.

4. Check-in and revise as needed.

No decisions are set in stone. Set a quarterly check-in meeting with your spouse to see if your system is working and you are comfortable with the parameters you have selected. Make any adjustments that will fit your family better.

While intentional spending takes some upfront effort, you will reap the benefits of feeling relief, knowing where your money flows, and successfully fulfilling those important family goals.

Continue Reading