Retirement Decisions in the Time of Coronavirus

As my last blog post mentioned, it’s a tough time to be making retirement decisions. That’s regardless of whether it’s changing your retirement saving goals, deciding to actually retire, or making financial decisions in retirement. Make no mistake, the current economic situation will impact retirement decisions for at least the next year and probably even longer. It’s already forcing many older and retired Americans to make decisions about whether they should consider taking money out of their retirement accounts earlier than anticipated as well as whether they should file for Social Security sooner than they want to. Keep in mind that during the last recession–back in 2008/2009–Americans over the age of 62 saw a noticeable uptick in those filing for Social Security. Furthermore, when it comes to Social Security, you’re monthly payments increase the longer you wait to file, which is why many retirees try to not receive Social Security benefits until they are closer to 70. In regards to other retirement finance sources, many retirees face a tough decision about which accounts to tap first if they have more than one. And if they’re forced into retirement a few years sooner than anticipated, the nest egg might not even be where it is supposed to be for a post-work life. These can be stressful decisions and need to be carefully thought out. If you need help with making retirement-related decisions during this day and age, you should speak with a certified financial planner or wealth manager.

Coordinating Social Security Benefits

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.

Will Policymakers Hurt or Help Your Retirement Plans in 2019?

Over the next 365 days, policymakers–at both the state and federal levels–have the potential to shape retirement for many for decades to come. Some such policy opportunities may be straightforward in impact while others may be more subtle and long-term. For example, how politicians and regulators go about handling any current economic issues could have affects on how people save currently as well as what future retirement costs may be. Another example might be whether a more liberal-leaning House of Representatives combined with similarly-situated state legislatures may turn their sights on programs such as Social Security and Medicare and look to shore up such programs so that they can continue to serve current and future generations. On the flip side, other legislatures with more conservative leanings may seek to cut into such programs, which may lead to higher future retirement costs and expenses. However, one area that there seems to be bipartisanship is expanding opportunities for American workers to save for retirement through the use of employer retirement accounts. Much of these efforts have focused on opening doors for small businesses to offer retirement savings accounts to employees that were in the past considered to costly for such employers. These are just a few of the ways that politicians and policymakers could impact retirement for you and those of younger generations. This post is also intended to encourage you to remain knowledgeable as to what is happening in both state and national legislatures and to understand how policies may impact you so that you can make the best decisions regarding your finances and retirement plans.

Will Social Security Be Part of Your Retirement Planning?

Social Security isn’t going anywhere anytime soon, but it’s also not what it used to be. Yes, it can still be a part of your retirement plans, but the days of such benefits being a large part of your retirement savings are long gone. Since Social Security won’t pay the bulk of your bills, you have an opportunity to be a bit strategic with what you do with that money. For example, you could earmark it in advance to be put towards particular bills or invest it and help grow your nest egg. What’s important is that you do something beneficial with it to help take some of the pressure off your other retirement savings. However, you still need to be careful that it doesn’t play too crucial of a role in your retirement plans as there is always the potential for Social Security benefits cuts in the future. Don’t forget too that your current earnings will determine the size of your Social Security payments, so you need to think about that as well. If you need help in determining just what role Social Security will play in funding your retirement, you should talk with a certified financial planner.

Do You Have an Income Plan for Retirement?

Running out of money is a legitimate fear for many retirees. No matter how much you have saved, there is no way to be certain as to what the future holds and whether something may happen that may devastate your savings (i.e. medical bills or a market downturn). Thus, it’s important that you have a income plan for retirement. Now you may be asking yourself, what exactly is an income plan and what is the purpose of one during a period when you theoretically won’t be earning any income? Well, it’s not really for retirement, but rather for the years leading up to retirement. With an income plan, you will essentially be mapping out how you will save your money as well as what strategies you will be taking in retirement to maximize your savings and benefits. This may include strategies to investing or how to maximize your Social Security benefits. An income plan should also include emergency funding sources for retirement and unexpected expenses. The best way to create a retirement income plan is to work with a certified financial planner who has the expertise required to help you get the most out of it.

Be Cautious Including Social Security in Your Retirement Plans

Chances are, you’re probably planning on using Social Security benefits to help with funding your retirement. It’s not a bad idea. Furthermore, if you’ve been talking with a financial planner, you’re most likely well aware that Social Security benefits are not intended to be your sole source of income during retirement or even a large percentage of it. Rather, Social Security should be a way to help supplement you retirement savings and to help your savings go further after you stop working. There’s a chance you may not even be considering Social Security as a part of your retirement plans. Social Security benefits are getting harder to incorporate into retirement plans because of the unpredictability regarding its future. While such funds most likely won’t go completely dry, the amounts provided may become smaller and smaller in the future, especially if more workers are leaving the work force than are entering. This means that it’s hard to calculate what exactly one’s benefits will amount to in the future and how much of your retirement income that can provide. While you shouldn’t completely ignore Social Security benefits, you may be wise to not include them as a big part of your plans and instead look at them as an added benefit in retirement that could be factored in as you get close to retirement. Waiting will allow you to better track how Social Security benefits are looking and may help in better calculating how much it can help you in retirement. Instead of focusing on the benefits, focus more on maxing out contributions and putting as much away as possible. If you have questions about Social Security benefits and your retirement plans, you should speak with a certified financial planner.

How Does Social Security Fit In With Your Retirement Plans?

Even though I haven’t talked much about them on this blog, Social Security benefits can be an important part of retirement planning. Yes, there always seems to be uncertainty surrounding these benefits–particularly during budget season–but that still doesn’t mean you need to shy away from including Social Security as part of your retirement plans. You should be safe if you look at this government benefit as a way to sustain yourself financially should you either live longer than anticipated or as a way to prolong your savings as you grow older. Regardless of how you intend to use Social Security, you should make efforts to maximize them. The most effective way to do this is to delay taking your Social Security benefits. Don’t forget that Social Security benefits increase between ages 62 and 70, at which point they flatten out. Therefore, if you retire at 62 and immediately file for Social Security benefits, you will be getting a smaller benefit than you would had you waited until 70 to do so. Ideally, you have considered this and have saved enough money for retirement to live off of during those years between when you retire and reach age 70. You can probably calculate your monthly benefit in advance and make it a part of your retirement planning. Furthermore, Social Security should not be the focal point of your retirement savings and living plans. Instead, it should be a way to supplement your retirement savings and to help you during your later years when you may need to stretch your retirement savings further than intended (i.e. you are living longer than intended). If you have questions about Social Security benefits and your retirement plans, you should speak with a certified financial planner.

Understanding the Family Maximum Benefit

Are you planning on using Social Security benefits to help supplement your retirement savings? If so, don’t forget that those benefits have a limit and if you have family members receiving benefits that are based upon those retirement benefits (i.e. benefits for children, spousal benefits, etc.) that there is a maximum total amount that can be distributed to the family. That total amount is known as the “Family Maximum Benefit” (FMB). Once the FMB is calculated and if it is breached, certain benefits to people within the family can be reduced as a result of that breach.┬áThe Social Security Administration (SSA) uses a somewhat convoluted formula to compute the FMB with some base calculations still rooted in numbers from almost 40 years ago. I’m not going to break down the formula in this blog post as it is intricate and may lead to confusion, however, the SSA provides information regarding the computation of the formula on its website. Unfortunately there is nothing you can do to change the SSA’s methods. What you can do, though, is educate yourself on how the FMB works and to understand how it may impact your family and loved ones.

The Longevity Conundrum: Living Longer and Saving for Retirement

With each generation comes new medical breakthroughs and refinements that allow people to live longer, healthier lives. That longevity gives people more time to pursues interests, careers, education, and enjoyment that past generations may not have had. Longer lifespans also require more financial planning, especially if retirement age remains the same as past generations. Whereas past generations may have put little to no thought into retirement planning, current generations are planning on 20-30 year retirements due to the ability to live longer. This means that the amount that must be saved for retirement is increasing with each generation and that saving needs to start earlier and earlier in order for people to meet retirement’s financial requirements. Furthermore, the safety nets that helped to keep retirement costs down for past generations–social security, medicare, medicaid–are changing in the current political and social climates and will most likely either not exist or exist in a drastically different form when today’s younger generations (those under 40) retire. Those changes will only add to the burden of retirement saving. While living longer is a good thing for society and individuals, it also means that financial planning and retirement saving must start early (preferably when people reach their early 20s) in the lives of those who are a part of that society.

Who is Responsible for Your Retirement?

The answer to the question that is the title of this post is one that may vary by generation. For those currently in retirement, the answer might include a combination of themselves and maybe the retirement benefits offered by an employer (with maybe a little bit of government help thrown in). However, for the younger generations either just starting out on the working world or who are a ways away from retirement, the answer is whoever they see when they look in the mirror. With the prevalence of defined contribution plans and the likelihood that Social Security will be a non-factor in future retirement, the onus of retirement responsibility is (or has) shifted to the workers and individuals. While some employers will continue to offering benefits such as matching retirement plan contributions and pensions, individuals will still be fully responsible for their retirements. This means that those still working and those years away from retirement will need to think long and hard about the lifestyle they want to lead in retirement and how they will get there.