Last Week’s Question of the Week: According to a 2017 study by Fidelity Investments, on average a retiring 65-year-old couple will need WHAT AMOUNT of MONEY to pay medical expenses during retirement? ANSWER: They will likely need $275,000 to pay medical expenses during retirement.
HOST: Today’s discussion carry’s over from last week’s show, with the top ten mistakes people make with their retirement planning and also once they are in retirement… last week we stopped with Mistake #6… can you first recap the ones from last week?
KLAAS FINANCIAL: Quick review from last week, we covered the first 6. So, being retirement planners, ideally we are helping people avoid these mistakes, so hopefully when our listeners hear these potential mistakes, bells will go off and they will proceed with caution.
Mistakes:
- Not fully evaluating pensions options – Take these slowly. Really look at options that you have with regards to payout choices as they are usually unchangeable/irrevocable once chosen.
- Staying too aggressive in your portfolio – Talk about possible risks of staying too aggressive in your retirement plans as you approach retirement age.
- Retiring without considering health insurance costs
- Not looking at S.S. income figures properly
- Trying to time the market to make up for lost years. Never a good idea, managing for risk becomes even more important.
- Drawing too much out every year from your portfolio – Discuss generally appropriate withdrawal rates for retirees. 4-5 % depending on age and circumstances.
HOST: Finishing up our list…
KLAAS FINANCIAL: Quick review from last week, we covered the first 6. So, being retirement planners, ideally we are helping people avoid these mistakes, so hopefully when our listeners hear these potential mistakes, bells will go off and they will proceed with caution.
- Not being tax-wise in retirement. Paying off a mortgage with all pre-tax money in the same year may crush you. Look at situations slowly and get some professional guidance
- Failure to be aware of frauds and scams – consult your trusted advisor vs. falling prey to scammers who will prey upon your desire to grow your savings supposedly quicker and safer.
- Supporting your adult children – This can seriously take a dent out of your retirement. Keep in mind they have many years ahead to work and save for their future retirements. Don’t borrow off your portfolio to pay off their loans.
- Not staying active socially, mentally and physically.
HOST: When it comes to figuring out social security, I suppose people sometimes need help with this too so they don’t make a mistake in planning for income?
KLAAS FINANCIAL: Yes, we always come back to this topic because for many people planning for retirement, this will definitely be an important part of their future income, and for some perhaps their only income.
www.ssa.gov – Wonderful resource for people regarding social security. You can set up a login to view your own account at any time.
Everyone wants to know when they can take their benefit. So there is a difference from when you can first take it… to when it is actually your full retirement age. For anyone born between 1943-1954, your full retirement age is age 66, for those born between 1955 and 1959 your full retirement age is 66 plus some months. After 1960, it is age 67.
Of course, you can choose to take your benefit as early as 62, but you need to remember that your benefit will be reduced.
If you start receiving retirement benefits at age 62, you will get 75% of the monthly benefit because you will be getting benefits for an additional 48 months. If you start receiving retirement benefits at age 65, you will get 93.3% of the monthly benefit because you will be getting benefits for an additional 12 months.
An interesting fact to note is that based on a study from 2013 (Center for Retirement Research at Boston College), at least 60% of retirees sign up for benefits before reaching their full retirement age.
HOST: How will my social security benefit be determined?
KLAAS FINANCIAL: Excellent question.
Social Security takes a look at your lifetime earnings, adjusting them for inflation, and then calculates your average indexed monthly earnings during the highest 35 years of employment to determine your benefit.
You’re eligible for cost-of-living benefit increases starting with the year you become age 62. This is true even if you don’t get benefits until your full retirement age or even age 70. Cost-of-living increases to your benefit beginning with the year you reach 62, and up to the year you start receiving benefits.
When you delay your retirement past your full retirement age, Social Security benefits are increased a certain percentage (depending on your date of birth) if you delay receiving benefits until after your full retirement age. DRC- Delayed Retirement Credits. Your benefit can increase up to 8% per year until you start taking benefits, or until you reach age 70. Therefore, almost NO reason to NOT pull once reach age 70.
If you’re a government worker with a pension, a different formula is applied to your average indexed monthly earnings. To find out how the Windfall Elimination Provision (WEP) affects your benefits, go to www.socialsecurity.gov/gpo-wep and use the WEP online calculator.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.
