Last Week’s Question of the Week: How many Americans currently collect Social Security benefits? Is it 30 million or 65 million people?
ANSWER: 65 million!
HOST: Your discussion today revolves around eight mistakes people need to avoid with their Retirement Planning.
KLAAS FINANCIAL: Being retirement planners, ideally, we help people avoid these mistakes. So hopefully when our listeners hear these potential mistakes, bells will go off and they will proceed with caution.
MISTAKE #1: Staying too aggressive in your portfolio
Talk about possible risks of staying too aggressive in your retirement plans as you approach retirement age. It important to consider age, risk, debt and your own situation. Many people try to time the market to make up for lost years. Never a good idea, managing for risk becomes even more important.
MISTAKE #2: Retiring without considering health insurance costs
Discuss COBRA insurance and covering the health insurance gap between retirement and 65 (Medicare eligibility age). Remember that you can begin Medicare at age 65. Does the spouse have health insurance benefits to carry the retiree? Here are some common options:
- COBRA: You may be eligible for COBRA continuation health coverage, which allows you to remain on your employer’s plan for a certain amount of time. You may be required to pay up to 102% of the plan cost (this includes the amount you and your employer paid for coverage plus 2% for administrative costs). Generally, COBRA applies to all group health plans maintained by private-sector employers with 20 or more employees. Speak with your employer for details, or learn more about COBRA at the Department of Labor website.
- Spouse health insurance: If your partner has access to job-based health insurance, you may want to find out if you’re eligible to be added to the plan and find out what the premium may cost.
- Veteran’s Health Insurance: If you’re a veteran who served with honor, you’re eligible to enroll for VA Health Care.
- Affordable Care Act: If you are retiring more than 1 year before age 65, you may be looking at purchasing Major Medical Insurance, or through the Affordable Care Act. You should go to HealthCare.gov to look into costs and if you qualify for income-based subsidies this could be a solution as this can lower your monthly premium. This health insurance is guaranteed issue regardless of your health history, and they must cover pre-existing conditions.
MISTAKE #3: Not being tax wise
Paying off a mortgage with all pre-tax money in the same year may crush you. Or not understanding RMDs and the choices you will have with these when you turn 72. Look at your specific situation, get some professional guidance from your accountant or financial advisor.
HOST: What about choices when it comes to how to take your pension, if you have one?
KLAAS FINANCIAL: For those people who will have a pension this is an important mistake to avoid.
MISTAKE #4: Not fully evaluating your pensions options:
Many times people are making hasty decisions when they fill out their forms. If you have any pensions coming to you, take these slowly. Really look at options that you have with regards to payout choices (single, joint or lump sum) as they are usually unchangeable/irrevocable once chosen.
MISTAKE #5: Drawing too much out every year from your portfolio:
Discuss generally appropriate withdrawal rates for retirees. 4-5% depending on age and circumstances.
MISTAKE #6: Not looking at Social Security income figures properly:
Discuss pros and cons of when people pull S.S. benefits such as taking it too early or not early enough. Remember that the earliest you can draw is age 62, but Full Retirement Age is probably 66-67 for most at this point.
HOST: What other mistakes should we avoid?
MISTAKE #7: Planning to work indefinitely
53% of workers expect to work beyond age 65 to make ends meet, according to the Transamerica Center for Retirement Studies. Yet, you can’t count on being able to bring in a paycheck if you need it. While more than half of today’s workers plan to continue working in retirement, just 1 in 5 Americans age 65 and over are actually employed, according to U.S. Department of Labor statistics.
You could be forced to stop working and retire early for any number of reasons. Health-related issues — either your own or those of a loved one — are a major factor.
Employer-related issues such as downsizing, layoffs and buyouts. Failing to keep skills up to date is another reason older workers can struggle to get hired. The actionable advice: Assume the worst and save early and often. Only 28% of baby boomers surveyed by Transamerica have a backup plan to replace retirement income if unable to continue working.
MISTAKE #8: Putting your kids first before your retirement!
Sure, you want your children to have the best — best education, best wedding, best everything. And if you can afford it, open your wallet. But footing the bill for large college bills or a very expensive wedding at the expense of your own retirement savings could come back to hurt you. Remember that you cannot borrow for your retirement living.
Instead, explore other avenues other than your 401(k) plan to help fund a child’s education. Parents and their kids should explore scholarships, grants, student loans and less expensive in-state schools in lieu of liquidating or borrowing from your retirement. No one plans to run out of money in retirement, but it can happen for many reasons. This is why being prudent now may prevent you from having to move into your kid’s basement later.
HOST: Darby from our Money in Motion Listener Corner asks:
“I am planning on retiring from my current job next year when I turn 65, after working for more than 30 years there. I have been offered the opportunity to come back and work as a consultant earning about $50,000. How will this affect my Medicare eligibility and also my Social Security income?”
KLAAS FINANCIAL: Thanks Darby for the question! Great to hear that your company wants to bring you back as a consultant! First of all your medicare eligibility is not affected. Three months before you turn 65 you can apply for medicare coverage. However, if you were thinking about beginning Social Security at 65, and your full retirement age (FRA) is not till 67, your Social Security benefit may be affected if you are working and making more than the allowable income. FRA refers to the age at which a person may first become entitled to full or unreduced retirement benefits.
What is your FRA? If you were born in or after 1960, then your FRA is 67. If your full retirement age is 67 and you start retirement benefits at age 65, your monthly benefit amount is reduced by about 13.3 percent.
The Social Security administration may reduce or postpone your benefits between the ages of 62 and full retirement age (66-67) since you are electing to collect benefits before your FRA. If you make over $18,240/year in 2020, your earnings are limited. Be careful of this! Social Security deducts $1 from benefits for each $2 earned over $18,240.
In the year you retire, the allowable earnings limit is $48,600 which means they will deduct $1 in benefits for every $3 if you go over the limit.
There is no limit on earnings for workers who are “full” retirement age or older for the entire year.
This Week’s Question of the Week: According to the U.S. Department of Labor, how many Americans over the age of 65 are currently employed? Is it 1 out of 5, or 4 out of 5?
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.