Bet you didn’t realize you may have more than one Social Security benefit option. While you will have your own benefits, you may also end up with Social Security Survivor Benefits, should your spouse or significant other pass away while eligible for Social Security. Survivor benefits do not impact your own benefits and can actually help you by potentially allowing you to delay taking your own Social Security Benefits, which will increase their amount once you actually do start taking them. As you may well be aware, the longer you delay taking Social Security, the better as starting early will lower the amount you get later on. Therefore, if you find yourself in a situation where you have both Survivor Benefits and your own Benefits, you will want to coordinate when to take them. Ideally, you will take the Survivor Benefits first and then wait a few years to take your own cut. However, that may be impacted by how much the payments are and where you are financially. It should be noted that you can file for one benefit and switch to the other, but that can only be done once, so you will want to get it right the first time you file. If you have questions about taking Social Security Benefits or how to coordinate them, you will want to talk with a certified financial planner or wealth manager.
Many companies offer retirement benefits. Those benefits can range from simply offering 401(k)s to a wide range of financial resources that can include financial planning and multiple retirement account options. Furthermore, with legislation working it’s way through Congress that could allow small businesses to band together to offer retirement savings plans, more Americans could find themselves working for an employer that offers such benefits. Regardless of the size of the company you work for, if you are taking advantage of any employer offered retirement benefits, you need to make sure that you understand what those benefits entail and what their limitations are. There are many ways to go about that. One easy way to understand your retirement benefits is to read over any paperwork you received or filled out when you first entered the plan (which you should have kept in a safe place or be able to access online). That paperwork most likely will tell you what you can and cannot do. If you have questions beyond that, you should be able to reach out to the custodian of your retirement plan. If you work for a larger company, you may have a benefits manager that you can reach out to. While they may not know all the answers, they should at least be able to point you in the right direction or get you in touch with a plan custodian who can help. If your company offers retirement planning talks or events centered around planning for retirement, you should try to attend those if possible. If you are new to the retirement savings game, try to make sure that you understand as much as you can about your retirement savings plan, particularly what you can do with it should you choose to leave your employer as well as your ability to change contribution rates. If you are not new to the retirement savings game and have had a retirement plan through your employer for years (or decades), you will want to make sure that you stay abreast of any changes to those plans and how such changes could potentially impact your future distributions or ability to rollover the plan. As always, if you need help with deciding what to do with your employer retirement plans or you want to combine it with an IRA, you should speak with a certified financial planner.
I’ve written about the SECURE Act here many times in recent months as it is legislation that could open up a lot of retirement saving opportunities for a wide swath of Americans. Officially titled as “The Setting Every Community Up for Retirement Enhancement Act of 2019,” this bill could allow for small businesses to band together to offer retirement savings plan benefits, increase the age for required minimum distributions (RMDs), and allow IRA and 401(k) plan holders to purchase annuities with money in the accounts. While all those a good things, this post is really going to focus on the age for taking RMDs and how pushing it back could be a good thing–or something that doesn’t matter at all. For those who want to continue working into your 70s, the thought of delaying RMDs can be quite enticing. I mean, if you’re earning income, then why would you want to touch your retirement savings? However, according to some experts, that really may not matter as most Americans probably won’t work past 70 1/2. The SECURE Act is looking to push the required age for taking RMDs back by about 18 months to age 72. On average, that would save retirees about $33,500, but that really isn’t much, especially if your retirement lasts decades. This leads to my next question, will you need your RMDs at 70 1/2? If not, what do you plan on doing with the money? Will you invest it? Give to charity? These are things you should be thinking about as you move towards retirement, especially if you plan on retiring past the required RMD age. If you need ideas as to what to do with your RMDs, you should speak with a certified financial planner.
THE SETTING EVERY COMMUNITY UP FOR RETIREMENT
ENHANCEMENT ACT OF 2019
If you work for a municipal or state government, you are probably well aware of the issues facing government pensions. Many states and cities are facing potentially huge shortfalls in pension plan funding that will most likely reach into the billions. While these shortfalls will have the biggest impact on workers who are far from retirement, they will also affect those already in retirement as well as those getting very close to retirement. The governments facing the biggest shortfalls are already discussing ways to make up for the shortfalls, including limiting benefit amounts, eliminating post-retirement health insurance, and cutting back on spousal benefits. So, if you are a state or municipal government employee, what can you do to protect yourself? Well, the easy answer is to save enough so that you don’t need to rely on a government pension. However, for many government employees, that’s not a possibility and furthermore, they’ve made contributions throughout their careers and thus should rightfully get some of that money back to help with retirement costs. If you are a government employee and unsure of whether your pension will be enough to help with retirement, you will want to strongly consider having a secondary source of income to help get you through retirement or balance out any changes that may occur with your pension in retirement. If you are years away from retirement, you will want to pay attention to any changes that occur to your pension and plan accordingly. Government pensions could be a big retirement talking point in the coming years and decade, so pay attention closely.
If you know anything about Medicare, then you are probably aware of the fact that there are choices to be made when it comes to selecting a plan that works for you. There’s a good chance that you, like many retirees, will rely on Medicare to help cover your medical costs in retirement, so you will want to know what your options are. If you are near retirement, you’re probably familiar with terms such as “Part B” or “Part D Prescription Coverage” already and, thus, know that you will have to make some decisions about your coverage. This means researching the plans that are offered and understanding what the advantages and disadvantages are to each choice. You will want to see what each option covers and doesn’t cover. Such things to pay attention to is whether a choice allows you options when it comes to choosing a doctor, whether certain treatments are covered, and what potential gaps in coverage may exist. Regardless of what option you choose for Medicare, keep in mind that Medicare changes fairly regularly, so you will want to review your coverage each time you enroll (most likely yearly). I understand that choosing a proper Medicare plan can be a bit overwhelming, however, it’s something you may have to do because you will need medical insurance in retirement. The good news is that there are lots of resources online that can help you break down the coverage options and which you can use to educate yourself about what your options are.
In recent years, you may have noticed your employer offering “financial wellness” services as part of their benefits package. These services are usually centered around retirement benefits, life insurance plans, and–more commonly among big companies–wealth management tools/resources. Financial wellness resources can include a number of offerings, including: retirement planning advice, financial planning services, debt management, and banking services (usually in the form of a credit union). You will most likely find that the bigger the employer, the more diverse the offerings. However, thanks to advancements in financial planning and modeling technology over the past decade, more and more employers are finding it feasible to offer financial wellness services, even if only on a limited basis. Furthermore, retirement advisory firms that service corporate clients are working these technologies into their services, which in turn is available to corporate clients and their employees. Now, some may be wary about involving employer resources in the managing of their finances, but that doesn’t mean you should write off such services. They can be very helpful, especially if you are working on a budget and don’t want to hire a certified financial planner or if you know what you want to do, but have a few questions. Most financial wellness offerings are not required and you can pick and choose what you want to use. Employers realize that they need to do more to help employees plan for the future and save for retirement and now they can. Does your employer offer financial wellness benefits and do you take advantage of them?
There is obviously more than one way to save for retirement. There are different strategies and accounts that you can use when building up your nest egg. Chances are, you probably have more than one retirement account. Those odds increase if you’ve worked at more than one company throughout your career or if you’ve inherited a retirement account from a relative. While I’ve mentioned on here the efficiency of streamlining your retirement accounts (i.e. converting or rolling over accounts), that doesn’t mean that you have to have only one retirement account. In fact, it’s probably a good thing that you have more than one such account while you are working and saving for your post-career life. Given that different retirement accounts have different advantages–and disadvantages–it can be beneficial to be diversified with your retirement accounts so that you are prepared to make use of the advantages. This means that it’s perfectly fine to have both an IRA and an employer-sponsored 401(k), just to name two common retirement accounts, while you are working and saving. This will allow you to take advantage of either account should you find yourself in a situation where it would be incredibly beneficial. Such situations may arise based on the tax bracket you are likely to fall into in retirement, when you plan on taking distributions from your retirement accounts, expenses that may arise both before and during retirement, and any other things that could impact your retirement finances. If you already have more than one retirement account and want to understand what you should do with them or you want to open a retirement account in addition to one you already have, you should speak with a certified financial planner.
As the government shutdown moves into it’s fourth week, it’s a sobering reminder for many about the importance of having an emergency fund. No doubt that some of the 800,000 federal employees are learning about the importance of having an emergency fund the hard way. Furthermore, there are thousands of lower paid workers in that group who most likely don’t even make enough to have an emergency fund and may have to turn to unemployment benefits or look for new jobs altogether. Before going further, I’d like to be clear that when I saw “emergency fund,” I mean a stash of money that you could live off of for a few months should you find yourself in a situation in which you either couldn’t work or you don’t have income. This savings should be enough to keep a roof over your head, the utilities on, and food on the table. While it can be supplemented with things such as unemployment benefits, it should be enough to get through at least three or four months without any government assistance. Along with your emergency fund, you may also want to consider having a list of assets that you could tap into should you need more money (i.e. stocks you could sell or maybe a luxury item you’re willing to part with). These assets can extend your emergency fund and help you should you find yourself running low on your emergency stash. Now, it’s important to remember that an emergency fund is different from your savings and should be kept separately. Your savings are meant for the long-term and are intended to meet a particular goal, which an emergency fund is meant to be available at any moment for any need. Also, if you find yourself in a situation where you are tapping into your emergency savings, you will need to work on your budgeting skills and strive to keep expenditures to a minimum. An emergency fund is an important part of any financial plans and something that you should take serious both in saving and using.
There’s a good chance that you either have or will change jobs multiple times throughout your career. Those job changes may be in the form of promotions within a corporation or jumping to a new company to take a higher position with increased pay and responsibility. Your job change may even involve a career change! However the inevitable job change occurs, don’t forget about your retirement funds and savings when you do so. With many employers offering retirement benefits–and with potential legislation allowing for more smaller companies to offer them in the future–chances are you have (or had) an employer plan; most likely a 401(k). You will need to think about what you want to do with such plans when you leave an employer. Will you want to roll it over into another plan? Can you maintain that plan even though you no longer work for that employer and does doing so make sense? What are the costs and fees associated with taking the money and running? These are all important questions that you may need to answer and consider. You will also want to make sure that you understand any deadlines or limitations involved with whatever you decide. You don’t want to miss a deadline–or worse, forget about the account altogether (yes, this does happen). You also want to make sure that any moves you make with that retirement money is done as efficiently and in as cost-effective a manner as possible. You would be wise to discuss any such moves with a financial planner before making them so as to make sure you are making the decision that’s right for you.
Regardless of the outcomes of yesterday’s elections, it appears that Congress could be poised to expand retirement options in the near future. The Retirement Enhancement and Savings Act (RESA), which appears to have bipartisan support, could expand retirement plan access for many workers as well as allow more employers to offer such plans. The biggest selling point of the legislation is that it will allow small businesses to band together–pooling resources and increasing buying power–and offer multi-employer retirement plans (MEPs) to employees similar to those offered by larger businesses and corporations. This can be an enticing offer for small businesses and could be a recruiting and hiring advantage in the future for them. While MEPs are currently available for some small business, RESA would do away with some of the current restrictions, making it easier for small employers to band together. RESA also looks to repeal the prohibition on workers over 70 1/2 making contributions to IRAs. This could be an advantage for younger generations who may have to work longer–but will also live longer–to save enough for retirement in the future. As with any legislation, there’s always the possibility that it could hit a snag somewhere in the process, but for now, it looks like it has a good chance of passing with support from both sides of the aisle. If you are looking to make some changes to your retirement plans or are an employer interested in offering more retirement benefits to your employees, you may want to pay attention to RESA and brush up on what it offers.