April 25, 2016 By

Q&A: Catching up on retirement savings

Dear Liz: I just found out I am cured of cancer. I thought I would be dead in three years and thus did not save very much. I’m 62, single, with no children and an annual salary of $85,000. I’m now contributing the maximum to my employer’s 403(b) retirement plan plus $6,500 to a Roth IRA. My mortgage balance is $380,000 on a 30-year loan fixed at 3.65%. I have about $380,000 in equity. I have about $30,000 saved outside of my $10,000 emergency fund. What should I do with it to get the highest return with minimal risk?

Answer: There’s no such thing as an investment that offers high returns with minimal risk. You get one or the other.

There’s also no such thing as “making up” for decades of not saving, short of an extremely unlikely windfall such as a lottery win or a big inheritance. This is why financial planners tell young people to start saving for retirement from their first paychecks and not to stop or touch those funds prematurely. Waiting until the last minute simply won’t work, and the longer you delay the tougher it will be to catch up — until catching up becomes impossible.

Still, at some point you won’t be able to keep working, so you need to save what you can. The more you save, the better off you’ll be.

Continue to take full advantage of your retirement savings options. Thanks to catch-up provisions, you can put up to $24,000 in your workplace retirement fund (the 2016 limit of $18,000 plus a $6,000 “catch up” for those 50 and over) and $6,500 into an IRA or Roth IRA (the 2016 limit of $5,500 plus a $1,000 catch-up). You’ve saving more than a third of your income, and several years of contributions like that will go a long way toward easing your final years. A balanced approach to your investments, with 50% to 60% in stocks, should give you the growth you’ll need to overcome inflation over the decades to come.

Your home could be another source of funds. Downsizing or moving to a lower-cost area could free up some of your equity to bolster your nest egg. Another option could be a reverse mortgage, but make sure you get objective, expert advice before you proceed.

Finally, it’s crucial to delay claiming Social Security as long as possible, since this benefit is likely to comprise most of your income in retirement and you want that check to be as large as possible. Try to put off claiming until age 70 when your benefit maxes out.

Filed Under: Q&A, Retirement, Saving Money Tagged With: , ,
April 18, 2016 By

Q&A: How much does a fee-only financial planner cost?

Dear Liz: You frequently suggest consulting a fee-only financial planner, such as those who are members of the Garrett Planning Network, which seems like great advice. Can you provide any guidance on how much one should expect to pay for the services of this type of planner? We are a couple living in Los Angeles looking for a pre-retirement evaluation. That would probably include evaluation of existing investments, insurance needs, Social Security, long-term care, etc. How should we evaluate a quote of $3,000 for a full review estimated at 10 hours or $300 an hour?

Answer: The cost for a comprehensive financial plan varies depending on where you live and the planner’s experience level, among other factors. Nationally, the range is typically from $150 to $300 an hour, so $3,000 for 10 hours in Los Angeles is at the high (but not unreasonable) end of the scale, assuming the planner has several years’ experience.

Another way to get a feel for going rates is by interviewing a couple of other fee-only planners in your area. If the cost you’re quoted is dramatically lower, though, make sure the planner isn’t accepting commissions as well. Some planners are “fee based,” which means they accept both fees from clients and commissions on the products they recommend. You can ask for the planner’s Form ADV, a form filed with the Securities and Exchange Commission. Part II of this form contains information about how the planner is compensated.

Filed Under: Q&A, Retirement Tagged With: , , ,
April 11, 2016 By

Q&A: Social Security vs. state pension

Dear Liz: I worked enough in private industry to qualify for Social Security benefits, but then worked for the state and did not contribute to Social Security for another 20 years. So, I will have a state pension at my current salary as well as Social Security representing my former salary, which was about one-third of what I’m making now. My question is, would it be of value to retire early and return to private industry for a few years?

Answer: Your Social Security benefit is likely to be reduced because you’re getting a pension from a job that didn’t pay into Social Security. This is known as the windfall elimination provision, and you can learn more about it on the Social Security website.

You can avoid the provision if you had 30 years or more of “substantial earnings” (which varies by year but was at least $22,050 in 2015) from jobs that paid into Social Security.
It probably wouldn’t make much sense to quit a well-paying job with a presumably generous pension to try to boost a much smaller Social Security payout. But a fee-only financial planner could run the numbers for you and explain your various options.

Filed Under: Q&A, Retirement Tagged With: , , , ,
April 4, 2016 By

Q&A: The pros and cons of converting life insurance to an annuity

Dear Liz: I have a life insurance policy that is worth $16,000 if I cash out. Our agent says if we convert this to an annuity, we would eliminate our monthly fee of $25. The policy is worth $35,000 if I should die with it still in effect. We purchased this only for the purpose to have me buried. Is converting this to an annuity a better option?

Answer: Possibly, but you’ll want to shop around to find the best one rather than just accepting whatever rate your current insurer offers. You can compare offers at www.immediateannuities.com.

Converting to an annuity through what’s known as a 1035 exchange means you’re giving up the death benefit offered by your current policy for a stream of payments that typically last the rest of your life. You don’t pay taxes on this conversion, but taxes will be due on a portion of each withdrawal to reflect your gains.

If you cash out, you’ll get money faster — in a lump sum — but will owe taxes on any gains above what you’ve paid in premiums.

The face value of your policy is far beyond the median cost of a funeral and burial, which the National Funeral Directors Assn. said was $7,181. Before you dispose of the policy, though, you should make sure your survivors will have other resources to pay that cost and that they won’t otherwise need the money.

Filed Under: Insurance, Q&A, Retirement Tagged With: , ,
March 28, 2016 By

Q&A: Social Security divorced spousal benefits

Dear Liz: A friend was told by Social Security that she could not collect spousal benefits on her ex-husband’s work record because she did not have his Social Security number. How can I help her find it?

Answer: Your friend may have run into a new Social Security employee, or at least one who is not well-informed. Social Security says on its website that people who qualify for divorced spousal benefits do not need their exes’ Social Security number as long as they can provide enough identifying information for the agency to locate his record. She does need to have a marriage certificate and divorce decree along with her own birth certificate.

To qualify for divorced spousal benefits, the marriage must have lasted 10 years and your friend must currently be unmarried

Filed Under: Divorce & Money, Q&A, Retirement Tagged With: , , ,
March 7, 2016 By

Q&A: Taking Social Security at 70

Dear Liz: My husband will be turning 70 in August. Must he start taking Social Security at 70 or can he wait a little longer? He will still be earning money and if I understand correctly that will lower the amount he will receive. Does he have to do anything like apply for it or do they know he is turning 70?

Answer: He should apply for retirement benefits — online at www.ssa.gov, in person at a local office or by calling 800-772-1213 — three months before he turns 70. Benefits max out at that age, so there’s no reason to delay any longer.

The earnings test you fear only affects people who start benefits before their full retirement ages, which for your husband was 66. When you start benefits early, Social Security deducts $1 for every $2 you earn over a certain amount ($15,720 in 2016). After full retirement age, that penalty disappears.

Filed Under: Q&A, Retirement Tagged With: , ,
February 29, 2016 By

Q&A: Taking Social Security early

Dear Liz: My wife will be 62 in November and does not work. I am 55 and have a 401(k) for our retirement. I know you preach waiting to take Social Security. But what about if my wife takes it early and we invest all of the money? Would it then make sense to take early?

Answer: You would need to get returns well in excess of 7% to beat the guaranteed annual return you get from waiting to take Social Security. In today’s volatile markets, that would be quite a feat.

You can run the numbers yourself at a Social Security claiming calculator. AARP offers a free one, or you can pay $40 to use one of the more sophisticated options such as MaximizeMySocialSecurity.com.

Filed Under: Q&A, Retirement Tagged With: , ,
February 22, 2016 By

Q&A: Social Security survivor’s benefits

Dear Liz: I became a widow in my 40s. My children collected Social Security until reaching age 18. At age 60, I started collecting survivor’s benefits. Now that I’m 65, do I need to do anything to collect my late husband’s full Social Security amount at age 66?

Answer: Starting early means you won’t get his full Social Security benefit.

Survivor’s benefits are based on what your husband would have received at his full retirement age if he hadn’t started benefits when he died, or what he actually received if he had started benefits.

His benefit was reduced to reflect your early start, however. Only by starting at your own full retirement age of 66 would you have received 100% of his benefit.

Starting early with survivor’s benefits can be a good option if you had a solid work history and your own benefit eventually will be larger than the survivor’s benefit. If that’s the case, you can leave your own benefit to grow until it maxes out at age 70 while still receiving Social Security checks. If your own benefit won’t be larger, though, it may have been smarter to wait.

Filed Under: Q&A, Retirement Tagged With: , , ,
February 8, 2016 By

Q&A: Social Security survivor benefits

Dear Liz: I am 63 and retired but have not started to collect my Social Security. My husband will be 67 in March. He started his Social Security at 62. Our plan is to wait until I am 70 to start my benefit, which would make my monthly amount significantly larger than his. If I predecease my husband, would he be able to collect my benefit instead of his own? If I started benefits now, our checks would be relatively close in size, although mine would be a bit higher than his current amount.

Answer: If you had started benefits already, your husband’s survivor benefit would equal what you were receiving when you died. Since you didn’t start early, though, your husband will get more.

If you should die before your full retirement age of 66 without starting retirement benefits, he would receive a survivor benefit equal to what you would have received at 66.

If you continue to delay benefits past age 66, your retirement — and thus his survivor benefit — would accrue the “delayed retirement credits” that boost your Social Security check by 8% annually between age 66 and age 70, when your benefit maxes out. In other words, if you die between 66 and 70 without starting benefits, he would get the delayed retirement credits and larger check you’d earned even if your checks hadn’t started.

As you can see, delaying the start of benefits is a great way to maximize what a survivor receives. It’s particularly important for the higher earner in a couple to put off filing for retirement benefits for as long as possible.

Filed Under: Q&A, Retirement Tagged With: , ,
February 1, 2016 By

Q&A: Social Security survivor benefits

Dear Liz: My 90-year-old father recently passed away. My mother, who will be 90 in February, has a phone meeting with Social Security coming up. It is my understanding that she will have the opportunity to take my dad’s full benefit in place of hers since it is much higher. Is that correct? Is there anything else I should know to help her receive the maximum benefits?

Answer: Survivors get only one Social Security check, and it’s the larger of the two they received when their spouses were alive. So yes, she will get the amount your father got. At this point she can’t do much to maximize her Social Security benefit. What she gets depends on when your father started his benefit. The later he started, the more she’ll receive.

Filed Under: Q&A, Retirement Tagged With: , ,