Month: November 2015

Retirement – Inconceivable!

We were recently talking about retirement with a client of ours that is in his late 40s. He said, “My retired parents are in an RV, towing their motorcycles down south so they can ride the twisty roads in the warm weather. But first, my father is stopping in DC to play a gig as a rock and roll drummer for a couple nights. Inconceivable!” To quote Mandy Patinkin’s character in the cult movie classic The Princess Bride, “You keep using that word, I do not think it means what you think it means.” His character was talking about the word “inconceivable”. We are talking about the word “retired.”

Let us consider the generation that is now in their 80s and 90s. Years ago, when it came time for them to retire, their generation’s idea of retirement was often different from today’s retirees. Twenty-five years ago, pensions were a big part of the equation; however today, 401k plans and IRAs have replaced them for the most part. The current concept of retirement can certainly be attributed in part to the shift in sources of income from an employer-funded pensions to retiree funded retirement accounts, but there is more to the story. A generation or two ago, expectations of retirement were different financially, but even more profound were the changes socially.

Those retiring now are living longer by a significant margin than those that retired 25, 35 or 50 years ago. Mobility and general health, far into retirement, is significantly better than retirees from generations before. Naturally, the working definition of retirement has changed too. For example, retirement used to be a point in time when you stopped working altogether; however, it is not uncommon for people to look at it as being the point at which they have the ability to go to work doing something they are passionate about. The driving force may no longer be strictly money; volunteerism and socialization are good examples of that.

In addition to a shift in the work paradigm, we hear about world travel, adventuring and having the time to live an active lifestyle as part of the modern retirement vision. The old picture of ‘Ma and ‘Pa sitting on the porch as the characterization of “retirement” is not very accurate in today’s day in age for those that have some wealth accumulated. From an economic standpoint, an active and adventure filled lifestyle certainly takes more money than sitting around on the porch. This, coupled with the fact that retirees are more likely to be very able-bodied for a long period of time, makes planning and financial management high on the importance list.

Retirement for many of our clients has included a spirited ride on their motorcycle, cruises on riverboats in Europe, kayaking in Micronesia, volunteering to be a part of saving an environmentally sensitive river in the southwest and snowboarding in Japan. To all of them we say that we are proud to have helped them make their kids say – Inconceivable!

Social Security and the Budget Act of 2015

On Monday, November 2, President Obama signed the Bipartisan Budget Act of 2015 into law. If you heard about this in the news, you likely know the law raises the debt limit, prevents a possible government shutdown, and ensures the United States won’t default on its debt.

But here’s something you may not have heard about: the changes to Social Security and the consequences the law has for retirees.

From a retiree’s point of view, Social Security is a guaranteed stream of income, something no one should ever neglect. And while Social Security alone often isn’t enough to help you reach your retirement goals, there are ways to maximize your benefits.

One of those ways, however, is coming to an end.

First, some context.

For a long time, one of the most popular strategies for increasing benefits is to simply delay collecting them. For example, even though people can technically start receiving benefits as early as age 62, their benefits would be greatly reduced. Waiting until your “full retirement age” (FRA)—the age at which a person first becomes entitled to “full” or “unreduced” benefits—is often a smarter option. In most cases, the year you were born determines your full retirement age.

Delaying your benefits even longer is possible, too. In fact, the latest you can begin collecting benefits is at age 70, and there’s good reason to hold off until then if you can afford it. You see, benefit payments go up 8% every year you wait up to age 70. In other words, the longer you can keep your hand out of the cookie jar, the more sweets you’ll eventually receive.

In addition, it has long been possible to maximize your benefits even further by coupling two options together: file-and-suspend and restricted application for spousal benefits.

Here’s how it works.

Imagine a married couple, John and Mary. Both are 66 years old. Both are eligible to receive Social Security benefits. Now imagine that John files for benefits and then suspends actually receiving them. John does this because he wants to take advantage of the 8% increase that comes from waiting. This is the file-and-suspend option.

Meanwhile, Mary files a restricted application for spousal benefits. Mary will receive 50% of John’s PIA (Primary Insurance Amount) assuming she files at her FRA. This means she can receive a benefit based on John’s earnings instead of collecting her own, even if her own benefits would be higher. The advantage to combining these options is that both John and Mary will receive larger benefits at age 70, while in the meantime, Mary still gets a regular spousal benefit to help pay for retirement. Some experts estimate this strategy can raise your retirement income by as much as $60,000 or more.1

Sounds like a smart move, right? Unfortunately, the Bipartisan Budget Act of 2015 has put an end to it. Starting April 2016, neither file-and-suspend nor restricted application will be an option.

To be clear, it’s still legal to delay collecting your benefits. It’s the concept of allowing a family member to collect benefits based on your earnings while you suspend them that’s being eliminated.

Some other things to know:

• Retirees who have already started using these strategies will not be affected
• Retirees 66 and older who have not used them still have a 6-month period to do so before the law goes into effect
• It’s still possible to apply for a spousal benefit, but under different conditions. For example, John would have to actually be receiving his benefits (instead of suspending them) for Mary to claim a spousal benefit.

Of course, there are lots of little details that can’t be covered in a single message, but at least now you understand the basics.

Social Security is a complex topic, and these changes certainly don’t make it any easier. If there’s anything about these changes you don’t understand or are concerned about, or if you simply want a frank appraisal of your options, let’s talk. We would be happy to discuss Social Security with you in more detail, something that’s not really possible to do in a message.

One of Johnny Carson’s most famous skits was “Carnac the Magnificent” in which he played a psychic that had a divine and mystical way of knowing answers to unseen questions. There was one instance in particular that required Johnny Carson to think fast while doing his famous skit “Carnac the Magnificent”.  The cue cards he rehearsed all morning were not the cue cards used on set during the show.  Always the consummate professional, Johnny adapted. Having studied and practiced improvisation, he used the skills he spent years perfecting and ended up delivering one of the funniest versions “Carnac the Magnificent” ever to air. The cards may not have been what he expected, but with practiced expertise in being adaptable, the outcome was.

Market Seasonality – Seasons’ They are-a Changin’

Relative strength of the S&P 500 back on top of money market and bonds. Déjà-vu?

Déjà-vu