Retirement

Will You Work Past Retirement?

October 27, 2014 By Twila Van Leer

There’s a new term going around among economy experts. “Unretirement.” It has to do with Americans who have reached ordinary retirement age, but haven’t retired.

Chris Farrell of MarketPlace thinks it’s a good thing that will help in the country’s recovery from the recession that began in 2008. Not only does prolonged working benefit the “unretiree” but it is a boon to younger workers, he argues. Farrell even wrote a book about the phenomenon, titled “Unretirement.”

Geoffrey Norman of the Wall Street Journal is another who thinks working longer can have significant benefits. Too often, fresh retirees find there is too much time, too little money to support the retirement dream, he said.

One benefit of working past normal retirement is that Social Security pays more. The annual benefit increases by 8 percent for each year beyond age 65 until the beneficiary reaches 70.

Advocates of the longer work period also argue that there are health benefits, both physical and mental, for the “unretirees.” The majority (62 percent) of those who follow that path say they are motivated by a desire to stay mentally engaged, according to the research group Merrill Lynch and Age Wave, as reported in the Washington Post.

There is criticism from some younger workers who say the unemployment rate is affected when older folks don’t retire. But Farrell says that when older people are getting jobs, it stands to reason that younger people are too. “We’re all in it together. The pie will continue to grow.”

People who continue to work beyond normal retirement keep contributing to the FICA pool that supports Social Security and help keep the system running, he noted.

The Baby Boom phenomenon will have run its course by 2030, when all the Boomers will have reached 65. The huge bulge of retirees will taper off and a more gradual retirement wave be achieved, Farrell believes.

Not everyone agrees. A writer for the Financial Advisor says that “the retirement of massive numbers of Baby Boomers over the next decade or so will put a drag on the U.S. economy. The number of young people coming into the work place is going down at the same time, which will add to the effect.

Farrell remains optimistic. “We are on the verge of a broad, positive transformation of our economy and society,” he proclaims, partly due to the fact that many Americans are working longer.

Know the Rules About 401(k) and IRA Withdrawals

September 22, 2014 By Twila Van Leer

For millions of Americans, 401(K) and/or IRA accounts figure largely in their retirement plans. But the two methods of saving are regulated by different rules and knowing those rules is important when you are ready to take money out of the accounts.

A 401(k) may be involved in your employment compensation package and many employees want to take money from that savings when they leave the company.

The Internal Revenue Service imposes a 10 percent penalty for early withdrawal of IRA savings if you are under the age of 59.5, but the rule does not apply for 401(k) plans. For the latter, the rule does not apply if you are over 55 years of age, so you don’t have to wait until you have passed your 59.5 mark to take out the money.

However, if you do withdraw from your 401(k), you will have to pay taxes on whatever amount you take.

There are several categories of employment that qualify 401(k) holders to avoid the early withdrawal fee as early as 50 years of age. These include public safety employees such as policemen and firefighters, and emergency medical service providers for states or municipalities who leave the service in or after the year they turned 50.

There are publications that will help you determine how best to manage your retirement accounts. IRS Publication 575, titled Pension and Annuity Income, is one of these. It is online at www.irs.gov. It contains sections on separation from service and other specific elements of how to manage income from the retirement plans.

IRAS have different qualifying rules. You face an early withdrawal penalty if you take money from your IRA before you are 59.5. Any money you take out before then is subject to a 10 percent penalty and also is taxable. An exception may be possible under Section 72(t) of the Internal Revenue Code, but that requires that you commit to a series of substantially equal periodic payments.

Because the rules differ and are complex, financial experts advise that you involve an accountant at the outset. When you finally are serious about withdrawing IRA funds before you have reached the required age, you may need advice, because once you have chosen a formula, you are required to keep the same method.

A distribution form will ask you to choose among several formulas for receiving payments and whether or not it qualifies for an exception from the IRS penalty. Your chosen accountant or IRA custodian probably will have information, including a pamphlet that sets out the IRS requirements. The tax form that you may have to file in the process – Form 5329 – also outlines the guidelines for exclusions. Another resource is “Retirement Topics, Exceptions to Tax on Early Distributions” an IRS chart that shows exceptions to the 10 percent penalty. In addition, the IRS Publication 590 delves into individual retirement arrangements. It is free by calling 1-800—TAX-FORM.

Again, a word to the wise. Get expert help. Tax issues are not the category on which you want to do the do-it-yourself thing.

Know About Your Social Security Benefits

September 1, 2014 By Twila Van Leer

FICA is an acronym known to everyone who works for pay. It’s that little bit of money that disappears from your paycheck each time. Most people have a vague sense that this money is held back by the government to aid in your retirement. But not everyone knows how it works.

Don’t expect a lot of help from the Social Security Administration. They aren’t into the nitty gritty for each beneficiary. It’s up to you to learn where your FICA dollars go and when you can expect to draw on the accumulation as you retire. There are many ways and you need to analyze these and choose what’s best for you.

Married couples have a number of options, according to a Bankrate.com article. Alicia Munnell, director of the Center for Retirement research at Boston College, advises that the ultimate option is to wait until you are 70 to begin benefits. The payment then is 76 percent higher that it would be if you start at 62 and 32 percent higher than if you chose to start withdrawing at age 66.

If this is your choice, of course, you have to accept the fact that you are gambling on living far enough beyond 70 to make it worthwhile. If you have inklings that your health is not going to be that great, you probably should opt for the earlier benefits.

Some financial experts believe that the odds are against your making money by waiting until age 70 to claim benefits. They advocate the “take the money and run” position. It’s what Verton Bernstein, retired law professor and Social Security expert, advises.

Marital status can make a difference. Divorcing before you have been married 10 years will deprive you of the ability to claim a share of the ex-spouse’s Social Security benefits. If you are ready to bail out of the marriage at nine years and 11 months, hold on a month. Then you are eligible for Social Security benefits on up to half of the ex’s earnings or on the basis of your own earnings, whichever is greater.

If the ex-spouse dies, you’ll be treated as the widow or widower in this scenario. If the ex was a big earner, it would be wise, if possible, to delay collecting on this benefit until you are 70, when you would receive the maximum benefit. If the ex continues to live a long life, encourage him/her, if possible, to delay retirement until age 70. If you both survive beyond age 66, you might choose to collect half of the ex’s benefit while leaving your own intact until you are 70.

The intricacies of the shared benefits are baffling to some, and it may be wise to hire a lawyer or tax expert to help you make decisions.

The same holds true if you are applying for SSDI benefits related to health issues. An applicant is entitled to representation from the onset of the application process, but Social Security doesn’t always make that clear. Many applicants wait until a claim has been denied, then seek help. That slows the process considerably.

When you’re thinking about retirement, remember that Social Security bases your benefit on the 35 highest earnings years. The figures are adjusted for in If you have less than 35 years of work experience, they will use zeros to make up the difference. That seriously brings down the total that is the basis for your benefit. If you are in a reasonable reach of 35 years, make an effort to stick it out for the sake of a higher benefit.

Feeling Insecure About Social Security?

June 13, 2014 By Twila Van Leer

If you’re contemplating looking closely at your Social Security options, the first rule is: Don’t depend on the Social Security Administration to come running with individual advice. The administration makes the options (many and often confusing) available. You’re on your own to do the research and determine what approach is best for you.

William Meyer operates a website, Social Security Solutions, which, for a fee, looks at your data and suggests the best solutions. He advises, based on long experience, that if you are considering a less-common choice for receiving your SS benefits, that you go directly to the nearest SSA office. You can’t depend on the agency following electronic requests if they are out of the ordinary, he said.

The obvious choice for maximizing your SS payments is to begin collecting benefits after age 70. The monthly payment at that age is 76 percent higher than if you start getting checks at age 62; 32 percent higher than if you made your first claim at age 66. That means, of course, that you must bank on longevity, gambling that you’ll live long enough to collect the higher payments to more than break even. If you live until age 90, you will accumulate almost $162,000 more in benefits.

However, Merton Bernstein, retired law professor and SS expert, advises acting on the side of the odds. He says the longevity odds are so bad that it’s a rash bet. “Take the money and run,” he suggests.

Marital status has a large bearing on SS issues. If you choose to divorce after less than 10 years, you lose the opportunity to collect SS benefits based on up to half of your ex’s earnings or on the basis of your own earnings, whichever is greater.

The sad truth is that if you don’t remarry, your ex-spouse is worth more to you dead than alive, especially if he or she was a high earner, says Carol Thomas, who worked for the SSA for more than 28 years. She answers questions about SS at RetirementCommunity.com. When an ex-spouse dies, you will be treated just like a widow or widower, she said. If you are at least 60, you can collect your expired spouse’s benefit, allowing your own benefit to grow unclaimed until you reach age 70. Then you can switch if your own is higher.

The longer the ex-spouse works, the better your associated benefits will be, so if it is feasible, encourage him or her to stay employed at least until age 70. Then at the death of the ex-partner, you can claim half of his or her maximum SS.

There are key differences between spousal and widow/widower benefits that can be very confusing, said Dan Keady, director of financial planning tor TIAA-CREF Financial Services. A widow or widower can begin benefits based on his or her own earning record and later switch to survivors benefits. Or he/she can begin with survivors benefits and later switch to benefits based on his/her own earnings, even if the surviving spouse is filing before full retirement age. That is not possible with spousal benefits.

Applying for disability insurance, the first step should be to hire a lawyer or other expert adviser, according to the experts. Representatives of the administration won’t tell you that, but it is important to have representation from the outset. An application for disability benefits should be accurate and precise. Small mistakes can interminably slow the process or result in denials. A better explanation of benefits might be found at MyRetirementPaycheck.org, sponsored by the National Endowment for Financial Education.

It’s a long and often complicated process. The answers are available and you should consider all your options. But it may take time and the involvement of others who have expertise.

Don’t Let Mistakes Sabotage Your Retirement

April 11, 2012 By Twila Van Leer

The time to start planning for retirement is long before retirement becomes an immediate issue. And avoiding the pitfalls that trip up many Americans in their pursuit of financially healthy retirement years is essential. A recent Wall Street Journal column by Veronica Dagher posted five such mistakes.

Watch Your IRA Accounts

Don’t be complacent about your 401(k). Many employees who simply have their employer deduct the maximum possible amount to a 401(k) without asking any questions may be missing out on more productive alternatives, according to financial experts. In some instances, the fees charged by an investor’s 401(k) may be excessive. Investing in another alternative, such as a Roth individual retirement account could offer more choices and lower fees. Look at the entire financial picture before making decisions.

Careful Planning

Have a plan. Random decisions on retirement maybe counterproductive. There is the temptation to live in the moment, making decisions “on the fly.” Over the course of the usual working career, that could result in savings that will fall short when the job is done and retirement income has to cover all the bases. Start with small goals, if necessary, such as putting 5 percent of gross income into savings each month, then increase gradually until you are saving 15 percent, and do it within a year if possible. A pattern of constantly shorting the savings cushion seldom can be reversed as retirement looms.

Cut Back Expenditures

Think seriously of scaling back now. Downsizing your home and boosting savings often are two sides of the same coin, the experts suggest. Putting on blinders and delaying such moves until suddenly the 60s are upon you is a sure-fire way to ensure unpleasant surprises when the time comes. Thinking you still have time to reduce spending when retirement is just a few years away may result in too-tight budgets that complicate retirement for too many. As age inevitably takes a toll, you could be unpleasantly surprised to find that illness or other complications end your working days prematurely. Such seemingly small things as eating out less often and reducing optional spending will help you be prepared for living on less.

Consider Who You Are Bank Rolling

Resist the temptation to sacrifice your retirement security to pay for your kids’ college. When the offspring walk off with a diploma, you may find yourselves in the mid-50s. In some instances, the kids go into careers debt-free, but Mom and Pop suddenly find they are facing retirement without an adequate cushion. Although the urge to help the children get a higher education is hard to resist, if it isn’t financially feasible it may mean that those children will be called on to help you make it through retirement. Alternatives are paying only a pre-determined portion of the higher education costs or encouraging your students to get their education at a state or community college, if possible. Look ahead when they are still in public school. Save if you can while children are small to help alleviate the stress when you are suddenly faced with tuition and other costs. Encourage the kind of scholastic achievement that can lead to scholarships and other assistance.

Recognize Your Limitations

Don’t be fooled into thinking you will live forever. The plans you made for retirement can quickly go awry if one of the partners dies before you expected he or she would. Many a widow, particularly if there are still children at home, has been forced to sell the family home and retrench spending to the point of penury. Term life insurance for both partners is the most feasible way to avoid this kind of financial shock. Finding out the hard way that you are under-insured is a double-whammy for a surviving partner mourning a loss. A will should be prepared well before anything but a tragic accident could be expected to take either of the partners. Both spouses should be well informed about family financial realities and decisions should be made, as nearly as possible, well in advance.

Charting a course for something as tenuous as retirement is tricky, but those who are realistically preparing for the eventuality will be least likely to find themselves swamped when it comes.

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