It was October 15, 2007 and the cameras were rolling. At a media event hosted by the Social Security Administration, Kathleen Casey-Kirschling applied online for her retirement benefits. Born January 1, 1946 at 12:01 a.m., she was officially America’s first Baby Boomer to file for Social Security.
Casey-Kirschling merrily pointed and clicked her way through the online application, saying: “It’s so easy! You can do this from home.”
And so launched the “silver tsunami” of retiring Baby Boomers filing for benefits at a clip of more than 10,000 per day for the next two decades.
Ask any financial planning professional, what we may have thought about this momentous occasion, and you would have probably heard a loud groan. The unintended message sent to the Baby Boomer generation by this short media clip was not a very good one.
First of all, Ms. Casey-Kirschling was 62 years old. Yes, this is the age Americans with a sufficient work history become eligible for retirement benefits from Social Security. But was Kathleen aware of how much she was forfeiting in benefits by not waiting until she reached her full retirement age (FRA) of 66? The answer is approximately 30 percent. And if she had waited an additional four years till age 70, her benefit would be 62 percent higher than what she got at age 62.
Next, as her hyphenated last name suggests, Kathleen was married. That fact alone opens up all sorts of possibilities for coordinating her claim with her spouse, to give her more in benefits than what she would receive based solely on her own work record. Figuring out which spousal claiming strategy makes the most financial sense is anything but something you can easily do in a few minutes from home. It takes some real analysis, yet it can lead to upwards of tens of thousands of additional dollars over retirement.
In all fairness, Ms. Casey-Kirschling may have been completely aware of what resulted in a penalty for taking benefits before full retirement age, and perhaps had done her homework on how she could coordinate her benefits with her husband’s. The reality, however, is that most Americans do not know that there are smart and not-so-smart ways to take Social Security. Too many believe that it’s best to take the money at the first opportunity and run.
How I wish we could have added 20 more seconds to that 2007 Social Security media clip with a consumer-friendly message of my own.
Before you point and click to get your Social Security retirement benefits, spend some time getting good advice about your options. Be aware that the Social Security Administration, while extremely helpful, efficient and high-tech, cannot give you advice about when and how to claim.
Better still is to work with a Financial Planning professional who can look at your whole financial picture, and has the expertise and specialized software to help you make a good decision. This could make all the difference between just getting by in retirement and truly enjoying life in your later years.
From Claiming Social Security Benefits: Think before you point and Click Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.
Properly drawn estate planning documents can protect finances, both during life and after death. Establishing an estate plan can also save your family from paying Federal and New Jersey estate taxes. Regardless of age or financial status, everyone should have a Will, Living Will, and General Durable Power of Attorney.
Often clients are surprised to learn that beneficiary designations can supersede the provisions of their Will. Many individuals spend a substantial amount of time and money to establish their estate plans. Those same individuals may spend only a few minutes designating the beneficiaries of their IRAs and life insurance policies. Sometimes the beneficiaries listed on a particular account are not consistent with the provisions spelled out in a Will. The result can be that your IRAs and life insurance policies pass in an undesirable manner.
Careful attention should be given as to whom you have listed as beneficiary on your IRAs. The IRS rules for determining when income tax has to be paid on an account holder’s death vary depending upon who is listed as the designated beneficiary.
There is not a standard beneficiary designation that applies to everyone. Instead, the proper beneficiary depends on the account holder’s goals and objectives.
If a spouse is a beneficiary then this provides the most flexibility. A spouse can “roll over” IRA proceeds into their own account or leave the IRA in the deceased account holder’s name as a beneficiary designated account. If a “roll over” is elected then distributions do not have to be made from the IRA until the spouse reaches their required distribution date (generally, April 1 of the calendar year after reaching the age of 70 ½ ). Income tax does not have to be paid until distributions are made.
If a deceased account holder has children from a prior marriage, they may not want their IRA passing directly to their spouse because they fear that the surviving spouse will exclude the children from the first marriage from receiving a portion of the account. Furthermore, if a trust was established by the deceased account holder they may prefer the funds be placed in the trust. If a trust is the beneficiary for retirement proceeds then different rules apply for determining minimum distributions. As long as the trust meets certain IRS requirements distributions can be taken over the lifetime of the oldest beneficiary of the trust. This will enable IRA proceeds to be placed into the trust with out triggering immediate income tax on the entire account value.
If a child or grandchild is a beneficiary of an IRA then distributions can me made over the life expectancy of the child or grandchild. Usually this will provide the longest period of time to “stretch out” distributions from an IRA.
In summary, careful consideration should be given to whom you have designated on your accounts. Furthermore, contingent beneficiaries should be designated in case your initial beneficiary is not living. Both your primary and secondary beneficiaries should be reviewed periodically to verify that they are consistent with your Will.
Information provided by Guest Authors Douglas Fendrick and Jaime Shuster Morgan of Fendrick & Morgan, LLC, Voorhees, NJ
Learn more at www.fendrickmorganlaw.com
Every generation believes itself unique. Unfortunately for Baby Boomers, this may be especially true about their ability to retire.
Some sociologists argue that the Baby Boomer generation has taken historical uniqueness to the extreme, rewriting the rules on just about everything: sex, marriage, work ethic, consumption, faith, and even death. Now that Baby Boomers are in or entering their 60s, it’s ironic then that many lament they cannot retire as their parents did.
In a recent survey by AARP, 44 percent of Boomers said they believed their standard of living will be worse than that of the previous generation.
Despite this result, the first Baby Boomers are often declining to delay their retirement past the age that Social Security defines as their full retirement age, according to a 2013 MetLife study. Even though these Boomers enjoy approximately five more years of life expectancy than their parents did at age 65, 52 percent of these Boomers have retired at an average age of 59.5.
On the plus side for Boomers is the fact that one of the biggest threats to retiree security — inflation — is mercifully low. Older Americans will recall a time when annual inflation averaged between 6 percent and 10 percent a year, and how cumulative inflation from 1970 to 1989 ran a whopping 162 percent.
So what’s left to retirement for Baby Boomers to figure out? What rules should they break, and which should they keep?
Defiant Boomers have always done things their way, and navigating retirement will be no exception. They are, in fact, the first generation that has to look primarily to their own resources and management – rather than to government or corporations – to invest for retirement and create an income stream from these investments.
Fortunately, financial planning and the certification of competent, ethical professionals have come of age with the Boomers, to help them make the most of this uncharted territory. Boomers will no doubt continue to “do their own thing” in retirement, but with a CFP, they can do it prudently and successfully.
From Retirement for Baby Boomers when there isn’t one Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.
Here’s a warm-up exercise to get you ready for this important phase of your life.
Stand in front of a mirror, and spend a minute or two thinking about what you will spend in retirement. Now study your face and body language.
Your demeanor is probably telling one of two stories. Some of you may be wearing a complete blank, eyebrows raised, palms up, as if to say, “I haven’t got a clue what I’ll spend in retirement.” If you’re in this group, check in at the end of this blog where I recommend getting some professional advice to help you get a grip on your prospects in retirement.
Most of you, however, are looking worried or concerned – frown wrinkles between the eyes or clenched fists, ready to slug your way through the cloud of uncertainty that descends whenever you contemplate retirement. The fear of spending too much and/or living too long is written clearly on your face.
Probably not, but maybe you should. According to a recent article in the Journal of Financial Planning1 which looked at spending patterns of retiree households, there is some good news to smooth out those worry lines. The data show that retirement spending tends to decline by approximately 1 percent annually, in real terms. But here’s something just as encouraging: over a twenty-five year period from ages 60 to 85, the actual annual changes in spending trace a “retirement smile.” In other words, retirees tend to begin their retirement years at a higher-than-average level (one corner of the “smile”) and end their retirement period with another higher expenditure level (the other corner). Between the two is the curve of decreasing, then increasing spending, with the lowest levels coming between the ages of 70 and 75.
What’s the positive message here for retirees? For one, the study shows it’s normal to spend more liberally in early retirement – the time when healthy retirees travel, remain active and enjoy life. For another, the study indicates that the worry about having to spend a lot more – generally on medical expenses and personal care – late in retirement is indeed a reality, but does not result in overall overspending. Those middle years of lower spending still keep the average going down over the entire retirement span.
Of course, averages are one thing; your individual circumstances are quite another. Does this study of “normal” retirement spending still have any good news applicable to you?
It demonstrates that each of us has more control over our spending in retirement than we may think. It also reinforces the following empowering principles:
If, however, you’re still finding it tough to feel happy about retirement, try the warm-up exercise with this difference: step up to the mirror with a financial planning professional at your side. CFP Board studies have shown that those who do their financial planning, ideally with a trusted, competent professional, feel much more confident and in control of their futures. And that’s certainly something to smile about!
1David Blanchett, CFP®, CFA, “Exploring the Retirement Consumption Puzzle,” Journal of Financial Planning, May 2014.
From Smile your way through retirement Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.
If people want to be able to save more, there are basically three choices: spend less money, earn more money, or some combination of the two. There’s also another option – granted, a more aggressive option – of aggressive spending cuts to achieve aggressive savings goals.
But why? Simple. Americans need to save more if they want to achieve not just wealth, but enough money to live off of and not work forever.
According to the March 2016 Retirement Confidence Survey, 54% report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit (DB) plans, is less than $25,000. This includes 26% who say they have less than $1,000 in savings. That’s not good news.
So, how to kick start saving aggressively – cut spending. Here are some tips:
I have always said that spend, spend, spend may lead to the poorhouse and save, save, save may lead to resentment. But if it is crunch-time and you are serious about saving aggressively, in order to save, save, save, you have no choice but to spend less, less, less!
From Crunch Time…Strategies for Aggressive Saving Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.
At HFM we know many business owners that are great at what they do, (build houses, sell appliances, provide IT services) but need help managing their finances. We agree with this article that these are the areas where expertise is a necessity.
Who hasn’t dreamed about starting a business?
Becoming a successful entrepreneur has replaced home ownership as the new definition of the American Dream, thanks to the recent collapse of the real estate market and the made-for-Hollywood stories of folks like Steve Jobs or Mark Zuckerberg, of Apple and Facebook, respectively.
But while Jobs and Zuckerberg have become household names, fame ought to be the least of the attractions in owning a business. More compelling to the tens of thousands of individuals starting a small business every year is the allure of being master of one’s own professional success.
But there are also significant risks to going out on your own. Unfortunately, the failure rate of small business is high, with only 20 percent of new businesses surviving for five years. Another depressing statistic: fewer than 40 percent of self-employed persons working alone make more than $25,000 a year.
The old saying, “No one plans to fail, but many fail to plan,” has special applicability to the new business owner. Starting up can be deceptively simple: Facebook was launched with just an innovative idea, a laptop, and a dorm room. But from the very outset, business owners need to be aware that even the most basic business model entails considerable financial planning complexity.
Comprehensive financial planning for an individual or couple generally involves tax planning, risk management, investment planning, retirement planning and gift and estate planning.
One point should be clear when it comes to financial planning for the small business owner: the do-it-yourself drive that helped you start your business will not serve you well when it comes to managing the many financial issues created by that business. This is where professional expertise often becomes necessary.
Exercise your privileges as chief executive officer, and delegate these issues to qualified tax and financial planning professionals. Their advice can make all the difference in improving your chances of business success.
From Financial Planning for Small Business Owners Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.
Here is a great article that seems to apply to many of us as our children grow up, our parents become elderly and we are sandwiched in the middle.
Your college roommate arrives at your 25th reunion with a new wife not much older than your daughter. Your eminently sensible husband comes home with a Harley Davidson and a tattoo. You find yourself taking a sweet little red convertible for a test drive, when you had every intention of shopping for a family-sized van. Or that vow you once made never to consider plastic surgery now seems like something only a naïve 20 year-old would make.
What’s going on here? What is it about middle-age that brings on a full-blown identity crisis? Just at the time in life where most people are settled – in their jobs, their relationships, their lifestyles – an irrational urge to do something different strikes from nowhere. Maybe it is just the averageness of it all. Neither young nor old, middle-agers feel stuck in the middle, longing to bust out and do something outrageous.
There are other kinds of mid-life crises – more common, and less spectacular than changing partners, profiles, or preferences. Unfortunately, these crises can be just as expensive, if not more so. These are the financial squeezes that nearly everyone in their fifth and sixth decades experiences. Between sending kids to college, financing weddings, saving for retirement, or caring for an elderly or ailing family member, there is just not enough money to take care of it all.
At a time when household income is generally rising as individuals enter their prime professional years, the demands on that income can often make 40 or 50 year-olds feel more strapped and stressed than when they were just starting out. It’s no wonder then that mid-lifers sometimes resort to the antics of their youth.
So what can be done to ease middle-aged financial squeeze?
PLAN, and plan holistically
It’s human nature to deal with things one at a time and as they come. In other words, we cope with the present and thereby risk shortchanging the future. Your daughter’s wedding is next year, while retirement is still two to three decades in the offing. How likely is it that you, as a 50+ year-old, will opt to make a catch up contribution to your 401(k) rather than adding just a few more family and friends to the guest list?
The financial planning process helps us become aware of these consequences by putting the future on the table right next to the present. It allows us to see the “opportunity costs” of each financial decision we make. For this reason, it’s particularly important the mid-lifers take a holistic approach in their planning process. Rather than doing “spot” planning, which takes one objective, such as education planning or retirement, to determine what funding may be needed, a comprehensive plan will take into account all of an individual’s or family’s goals.
One of the first and most important steps of financial planning is to identify these goals, and to determine which are more important. When shortfalls are identified in the financial plan, these priorities help determine where trade-offs may be necessary. When it becomes apparent in the plan’s projections that the goal of paying full freight for a child’s education entails a significantly reduced standard of living in retirement, it may become easier to modify the college funding goal to consider a greater role for student loan financing, or to investigate less expensive colleges.
Our life goals can put the financial squeeze on in middle-age, but an unexpected crisis can wipe us out. Addressing the potential financial costs of these sudden or catastrophic events – an early death, property loss, liability claim, need for ongoing care, or even a major meltdown in the market – is a fundamental part of a comprehensive financial plan. Getting the proper insurance coverages and employing prudent risk management techniques should, in fact, be one of a mid-lifers’ first and non-negotiable priorities. Without these steps, all other life goals may become just wishful thinking.
PUT a Financial Planner in the middle, rather than yourself
One of the hallmarks of mid-life is that we feel responsible for the financial obligations of family members older and younger than ourselves. The squeeze comes when we fully and uncritically assume those obligations, because it is just too hard to say no to our loved ones.
In such situations, the role of a facilitator in a conversation involving the entire family can be invaluable. Consider having a Financial Planner to be that facilitator, to explore how family needs can be met and what each member can do or contribute to mitigate the financial burden that might otherwise fall solely to the mid-lifer.
When all is said and done, being in the middle of life can put us at the top of our game, financially and otherwise. Rather than being sandwiched between generations, we can see ourselves embraced by the full range of life experiences, and in a position now to make confident, informed choices, with the guidance of a financial fiduciary.
From Easing the Mid-Life Squeeze Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.
At HFM, we realize planning for your future is about much more than your money.
Some of the best advice that financial planners are giving to their clients today is not about their wallets – it’s about their overall lifestyle and family considerations.
Increased longevity, coupled with slower economic growth and investment returns, is leading the most effective advisors to counsel their clients on a variety of topics not traditionally covered in a financial planning relationship.
Recognizing that 75 has become the new 62, financial planners are getting their clients to engage in new and different planning to live a successful, long life. Here are some tips:
Take into account you and your family’s mental and physical health, balance the needs of multiple generations, plan for your second act: all of this can be discussed with a Financial Planner. They can help you understand the financial impact of these decisions and formulate a plan for success.
From Planning for Retirement Outside the Wallet Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.
…many people do.
Even if you have an investment strategy it may not bring you true investing peace of mind. The vast majority of investment choices are driven by emotional and psychological factors rather than on logic and rational thought.
Our Investors Dilemma Report outlines the process investors go through when facing important financial decisions and how your emotions could trip you up along the way.
Read about how uncertainty plays a large role in dictating how investors feel as well as how they behave. Bonus: Learn the three simple rules of investing and much more.
At HFM we believe the difference–maker to helping clients have a successful investing experience is sensible investor coaching from a experienced Advisor. Coaching can help guide you to make non-emotional financial decisions.