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How Can I Rescue My Retirement?

A 2019 survey by Global Atlantic Financial Group, which sells annuities, asked more than 4,000 Americans, pre-retirees and retirees, about their retirement savings. Of those surveyed, 55% said they had regrets. The top three were that they:

  • Did not save enough.
  • Relied too much on Social Security.
  • Did not pay down debt before retiring.

However, you can avoid some of this remorse, by taking steps now. Let’s look at how you can avoid those major retirement regrets.

  1. Failing to save enough. A recent survey found that 62% of respondents were confident about their current financial health. However, when people looked ahead to their retirement finances, that changed. Part of the issue is planning. Only 18% of the Fidelity survey respondents had a financial plan for retirement. Without planning, it’s hard to know if you have enough saved. See how much you’ll be spending in retirement. Go through your expenses and increase your savings. The most common financial surprises for retirees are inflation and unexpected medical costs.
  2. Depending too much on Social Security. Rather than looking at Social Security as your main source of income in retirement, view it as one of several legs of a stool. Social Security isn’t designed to provide all the necessities of life. It is supplemental. It is not intended to be replacement income. Your planning should include other resources, including:
  • Tax-advantaged retirement plans
  • Pensions
  • Taxable investment accounts
  • Personal savings
  • A health savings account
  • Income from businesses or properties.
  1. Not paying off debt before you retire. For retirees on fixed incomes, debt makes it difficult to really enjoy retirement. Therefore, retire any debt you have before you stop working. You should systematically focus on one debt at a time, while making minimum payments on other debts. Get started by targeting the debt with the highest interest, or perhaps the one with the smallest balance. The goal is to be debt-free in retirement, so your financial resources can go toward helping you enjoy life. However, you shouldn’t concentrate too much on paying down debt and overlooking your retirement savings.

The best way to avoid retirement regret is planning. Start now and evaluate your situation. Then develop a retirement roadmap that helps you get from today to tomorrow.

Reference: Money Talks News (Oct. 13, 2019) “The 3 Biggest Regrets of Retirees — and How to Avoid Them”

What are Earnings Limits for Disability Retirees?

If you are 60 or older, there’s no restriction on the amount of income you can earn while receiving disability retirement.

However, if you’re under age 60, you can earn income from work while also receiving disability retirement benefits. Note that your disability annuity will cease, if the United States Office of Personnel Management determines that you’re able to earn an income that’s near to what your earnings would be if you’d continued working.

Fed Week’s recent article entitled “The Limits on Earnings for Disability Retirees” says that the retirement law has set an earnings limit of 80% for you to still keep getting your disability retirement. You reach the 80% earnings limit (or are “restored to earning capacity”) if, in any calendar year, your income from wages and self-employment is at least 80% of the current rate of basic pay for the position from which you retired.

All income from wages and self-employment that you actually get plus deferred income that you actually earned in the calendar year is considered “earnings.” Any money received before your retirement isn’t considered “earnings.”

The government says that income from wages includes any salary received while working for someone else (including overtime, vacation pay, etc.). Income from self-employment is any net profit you made from working or managing your own business—whether at home or elsewhere. Net profit is the amount that’s left after deducting business expenses and before the deduction of any personal expenses or exemptions as allowed by the IRS. Deferred income is any income you earned but didn’t receive in the calendar year for which you’re claiming income below the 80% earnings limitation.

If you’re reemployed in federal service, and your salary is reduced by the gross amount of your annuity, the gross amount of your salary before the reduction is considered “earnings” during the calendar year.

The following aren’t considered earnings:

  • Gifts
  • Pensions and annuities
  • Social Security benefits
  • Insurance proceeds
  • Unemployment compensation
  • Rents and royalties not involving or resulting from personal services
  • Interest and dividends not resulting from your own trade or business
  • Money earned prior to retirement
  • Inheritances
  • Capital gains
  • Prizes and awards
  • Fellowships and scholarships; and
  • Net business losses.

If you’re under age 60 and reemployed in a position equivalent to the position you held at retirement, the Office of Personnel Management will find you recovered from your disability and will cut off your annuity payments.

Reference: Fed Week (Nov. 4, 2021) “The Limits on Earnings for Disability Retirees”

What’s the VA Doing about the Backlog in Claims?

The VA says that it’s planning to hire more people and use mandatory overtime for thousands of already-working claims staff and emergency coronavirus pandemic funding to help stem the problem.

Military Times’s recent article entitled “VA to hire 2,000 new processors to help with looming spike in claims backlog” says that despite that, Veterans Benefits Administration officials expect it to take two and a half years to bring the backlog back down to pre-pandemic levels. Moreover, they’re asking veterans to wait for their claims to be processed and not to panic.

“We don’t want people to worry when they see that number,” said Mike Frueh, VA’s Principal Deputy Under Secretary for Benefits. “We want veterans to keep filing their claims.”

As of the end of September, the claims backlog (the number of cases that have been pending for more than four months) was 208,000—nearly three times the typical monthly backlog total from before the start of the coronavirus pandemic in early 2020. The VA says that office closures caused by the pandemic steadily drove up the backlog total for much of last year. In addition, the issue grew due to several court decisions and new laws mandating additional benefits for troops exposed to Agent Orange during the Vietnam War. It’s also why VA officials know another backlog spike is coming.

About 70,000 claims related to new benefits rules for Parkinsonism, bladder cancer and hypothyroidism linked to poisoning from the chemical defoliant are due to hit the four-month mark at the end of October. Frueh said officials think the backlog will reach more than 260,000 by then. However, he said officials are processing cases at a record rate, and don’t expect the backlog to reach the same challenges as in 2013, when an influx of new benefits swelled the total to more than 600,000. Thousands of those cases lingered in the VA system for years without resolution.

“We are the front door to VA benefits and services,” he said. “This is a natural consequence of people filing more claims.”

The VA processed more than 1.5 million claims in fiscal 2021, the most ever. However, they also received about 1.7 million claims and expect the number to rise even higher with the recent benefits changes. The short-term hiring of new workers will provide long-term relief to the claims processing problems. However, it will take months before those staff are fully trained and able to handle standard workload amounts.

Since May, the benefits administration required 20 hours of mandatory overtime a month to deal with the backlog spikes. Those requirements will continue for the foreseeable future, Frueh said.

In a statement, VA Secretary Denis McDonough said the department remains “committed to ensuring timely access to benefits and services for all veterans.”

Reference: Military Times (Oct. 13, 2021) “VA to hire 2,000 new processors to help with looming spike in claims backlog”

Will Inflation Ruin My Retirement?

The 5.4% rise in the consumer price index in the last year is the highest inflation in almost 13 years. Kiplinger’s recent article entitled “How Big of a Threat Does Inflation Pose to Your Retirement?” explains that even moderate inflation can have a big effect on a retiree’s savings. The Federal Reserve’s target inflation rate is 2%. However, it said it will let inflation rise above that mark for some time. Here’s how an average annual inflation rate of 3% over the next 20 years would affect your finances.

If you needed $60,000 for your first year of retirement, in 20 years you’d need more than $108,000 to match today’s purchasing power of $60,000. Said another way to look at it: at a 3% annual inflation rate, that initial $60,000 would be worth only $33,000 in 20 years.

You have to take into account inflation in your retirement plan because you can expect that everyday items, travel and other expenses will continue to rise in cost. Inflation decreases the value of savings and will continue to do so after you retire. As a result, it’s important to look at your investment strategy and retirement income plan to determine if you’re protected against inflation for the long term.

The Senior Citizens League estimates that the average Social Security benefit has lost almost a third of its buying power since 2000 because benefit increases have failed to keep up with the increasing cost of prescription drugs, food and housing. This has happened even with yearly cost-of-living adjustments (COLAs) for Social Security benefits that are designed to make benefit amounts keep up with inflation.

Think about what would happen if all your retirement income lost a third of its value over the course of 20 years. Would that scenario make it more likely that you’ll run out of money? How can you know how much income you will need in retirement, when inflation insists on complicating the situation? Here are some things to keep to consider

  1. Fixed-Income Sources. Look at any fixed-income sources in retirement that won’t keep pace with inflation. Consider the amount of interest you’re earning from money in a savings account or CD. It’s unlikely that we’ll see a substantial interest rate hike in the next few years, so be ready to continue earning little interest. Assess your investment strategy and retirement income plan to see if you’re protected against inflation for the future.
  2. Look at Your Nest Egg. See how much your nest egg is right now and factor in inflation over the next 10, 20, and 30 years. Know that while overall inflation rates may fall from what they are now, that might not be true for some of the specific goods and services that could take a large chunk of your income, like utilities, food, health care and long-term care costs.
  3. Will Your Strategy Need to Change? Think about whether your current investment strategy will need to be modified when you retire. You may want to contemplate a strategy that continues to grow your money in retirement, so when transitory events like inflation hit, you’re okay. A solid plan will make certain that your purchasing power needs are always satisfied. Some people may need to take on less investment risk when they are approaching and hit retirement. However, having the right risk asset allocations for your particular circumstances may help to thwart the eroding effects of inflation on your nest egg over the course of your retirement.

Reference: Kiplinger (Oct. 3, 2021) “How Big of a Threat Does Inflation Pose to Your Retirement?”

Learn about Estate Planning in Your New State

Did you know that a lot of states—especially the ones that have a state income tax—actively challenge claims by former residents that they’ve moved out of state and changed their tax domicile. These states may try to use any connection a former resident maintains with them to justify their continuing to tax the former resident.

J.P. Morgan’s recent article entitled “Changing your state of residence” says to have your move  respected, you really have to move. Half-measures don’t cut it and could leave you open to claims by your former home state that it should still be able to tax you. Domicile for tax purposes is a matter of intent, and that intent is implied by your actions.

Changing your residence is a legal issue, so consider this checklist of items. There’s no bright-line rul., However, the more of these you can check off, the more likely it is that you’ll be deemed to have changed your residence for tax purposes.

  • Change your driver’s license to your new state and cancel your old state’s driver’s license.
  • Register your vehicles in your new state and notify your insurance company of the move.
  • Register to vote in your new state and cancel your old state’s voter registration.
  • Move your membership to a local house of worship in your new state and make local contributions.
  • Purchase a home in your new state and if possible, sell your home in your old state. If you can’t buy right away, rent with a long-term lease.
  • Claim a homestead exemption in your new state (if applicable), and relinquish any homestead claim in your old state.
  • Revise your estate planning documents (wills, trusts, powers of attorney, health care powers of attorney, advance care directives, etc.) to indicate your new state of residence with a local estate planning attorney.
  • Change your financial accounts to your new state and don’t keep accounts in your former state.
  • Get a library card in your new state.
  • Use local medical professionals and send your medical records to them.
  • Change your address with the IRS and list your new address on your returns; and
  • Focus your activity (economic, social, and financial) in your new state.

As a general rule, you want to stay out of your former state more than 183 days in each calendar year (this number may vary by state). Therefore, the closer you are to this tally, the more likely your former state will want you to prove that you were outside of that state for more than 183 days. You should keep a daily calendar (with receipts) that demonstrates you were outside your former state for each day. In the first year you claim non-resident status in your former state, you may be more likely to experience a residency audit than in future years, no matter how close you are to the threshold.  While you don’t have to be in your new state for more than 183 days, your former state will look at how many days you spent in your new state as a factor in determining if you have established residency in the new state.

Reference: J.P. Morgan (July 22, 2021) “Changing your state of residence”

Has COVID Affected Baby Boomers’ Retirement Plans?

Baby boomers, who are either in retirement or very close to it, have had COVID-19 make an especially significant effect on post-work plans. That’s according to a recent survey from the Center for a Secure Retirement and CNO Financial Group. With the coronavirus, Boomers had to help family financially, which meant less for their own retirement.

Money Talks News’ recent article entitled “5 Impacts the Pandemic Had on Baby Boomers’ Retirement Plans” provides five important ways the pandemic has changed baby-boomer retirement dreams. The results are based on a survey of more than 2,500 middle-income boomers — defined as Americans who were born between 1946 and 1964, and who have an annual household income between $30,000 and $100,000 and less than $1 million in investable assets.

  1. Their main ‘non-negotiable’ retirement priorities have changed. Before the pandemic, 56% of boomers said maintaining financial security and independence was their top “non-negotiable” retirement priority. However, it’s now back to the basics for more boomers. The top retirement priorities are now: spending time with grandchildren (43%); maintaining financial stability and independence (35%); staying active (34%); being able to travel (30%); and living close to family and friends (25%).
  2. They’ve supported other family members financially. Many middle-income boomers reported that they assisted family members financially during the pandemic, with 41% of those surveyed saying that was the case.
  3. They haven’t been able to save much for retirement. Among middle-income baby boomers who offered cash to support family during the pandemic, 75% say they haven’t been able to save as much for retirement as they wanted.
  4. They’ve delayed plans to move. Retiring by the beach or near the grandkids are common retirement destinations. However, the pandemic has thwarted those plans for many a baby boomer. Among middle-income baby boomers who helped support family during the pandemic, 65% say that they delayed their moving plans.
  5. They’ve re-evaluated retirement finances and expenses. Helping the kids in the pandemic has meant an adjustment for many baby boomers’ budgets. About half (51%) responded that they’ve re-evaluated finances and expenses for retirement.

Reference: Money Talks News (Aug. 2, 2021) “5 Impacts the Pandemic Had on Baby Boomers’ Retirement Plans”

Does My Social Security Increase If I Work Past 70?

Many seniors choose to work later in life. It will have an effect on their Social Security benefits, says nj.com’s recent article entitled, “If I work past age 70, can my Social Security benefits increase?”

You must pay FICA (Federal Insurance Contribution Act) taxes, commonly called Social Security and Medicare taxes, if you have income that’s covered by Social Security.

The tax is imposed on your earnings up to a maximum amount. For 2021, that maximum amount is $142,800.

Your Social Security benefit at full retirement age (FRA) is determined by taking your highest 35 years of earnings on which Social Security tax has been levied, indexed for inflation.

The maximum amount of your benefit is capped because of the maximum amount of income on which Social Security tax is levied.

If you continue to work while collecting Social Security at any age, your benefit could increase, if your earnings are one of the 35 highest years you have earned.

The increased benefit is automatically calculated by the Social Security Administration and is paid to you in the December of the next year.

However, working while collecting Social Security benefits has other complexities you should consider.

If you’re younger than full retirement age (FRA) and you earn more than a certain amount, your benefit will be reduced.

For example, for 2021, if you’re below YOUR FRA for the whole year, your benefit will be reduced $1 for every $2 you earn over $18,960.

However, the benefit isn’t actually lost. That’s because when you reach your full retirement age, your benefit will increase to reflect the amount withheld.

If you have substantial income — any and all income that must be reported on your tax return — other than your Social Security income, up to 85% of your Social Security income will be taxable.

Reference: nj.com (July 26, 2021) “If I work past age 70, can my Social Security benefits increase?”

What Should I Do in Retirement?

Some people think of retirement as not who you are or where you are in life, but instead as the transition of your time and money. Think of it as a process you go through, and not your identity.

The transition for money is a transition from accumulating money to using it. With time, it is also a transition of reallocating the many hours every week you spent working.

Kiplinger’s recent article entitled “Living a Life of Purpose after Retirement: 3 Action Steps to Take” explains that this distinction of what retirement means is an important one to make.

That’s because the default answer and mindset that “I’m retired” leaves people stuck. As a result, they don’t truly progress toward reinventing themselves. In effect, they’ve made retirement their new identity, which just seems odd considering when you say something is “retired” it often means that it’s no longer useful.

However, this may not be an accurate description for most successful people who’ve lived a life of purpose, who’ve gained valuable insight and wisdom from their life experiences and who’ve refined their talents and unique abilities over decades.

Therefore, the word “retirement” shouldn’t be a label used to describe who someone is. That’s because it’s not their identity. Instead, “retirement” is a term that is used to describe the transition a person is going through from one phase of life to another.

It’s significant because the success of your retirement transition is dependent upon the ease with which you understand this distinction and your ability to shift your mindset in the following three key areas.

Reinvent Yourself. Every day up until your retirement transition, you dedicated many hours each day to someone or something to earn a living. That manifested as a sense of purpose. However, when that time commitment goes away, so can that sense of purpose. Therefore, think about the transition of retirement as the transition to what’s next. It’s your chance to reinvent yourself and live out the second half of your life with purpose.

Reframe Your Mindset About Money. Many people envision a life of abundance for themselves or being able to leave a financial legacy for their children and grandchildren. However, measuring your financial success based solely on rate of return or how much money is in your bank account is the wrong measurement. Instead, it should be on how much income you can generate from your assets that’s consistent and predictable. This income from your assets gives you freedom to dedicate your talents to pursue your purpose.

Reframe Your Mindset of Time. Have the choice to imagine your own future, and when you change the time frame you are operating in, you change the way you think. This gives you the freedom to reframe your future and reprogram your thinking about how to live the second half of your life.

The key to a successful retirement transition is to reframe your mindset about money, focus on maximizing cash flow, expand your concept of time and reinvent your purpose in life.

Reference: Kiplinger (May 26, 2021) “Living a Life of Purpose after Retirement: 3 Action Steps to Take”

What to do If Someone Wants to Buy Your Business

Forbes’ recent article entitled, “What Should You Do When You Receive An Unsolicited Offer For Your Company?” suggests that it’s important to follow a structured three-step process to make certain you make the right decision and get the most successful outcome.

Is it the right time to sell? You need to see if this is the right time to sell your business. Examine your company and your personal readiness. Determine if the business is performing at a high level and is poised for rapid future growth. Look for any unaddressed issues that might harm value. On the personal side, think about whether you know how much you need to receive to fulfill your financial obligations and secure your future. It is also important to make sure that you have done needed tax and estate planning, so that you do not overpay taxes.

Is it the right buyer? If you are still thinking about selling, next determine if this is the right buyer. Think about what they will do with your company after the acquisition, and whether they will retain your staff or combine it with other operations. Will you have an ongoing role? You must also determine if the buyer will pay the best price and whether it is all cash or if you will retain equity in your company or the buyer’s company.  You should also ask if there are earn-outs that depend on the future performance.

Do you have a strong advisory team? Some business owners prefer to use their business attorney but consider using an experienced mergers and acquisitions attorney who knows “market” terms, where to advocate strongly and when to agree to the other side’s requirements to move the deal ahead. An inexperienced deal lawyer may negotiate hard on terms to “prove value,” which may, in effect, only obstruct the deal. The deal might go south, if an inexperienced lawyer makes you hold fast on terms the buyer needs to get the deal done. An experienced M&A attorney can also frequently move to a good deal in less time, by clearly setting parameters and getting buy-in on early drafts rather than a continuing series of drafts back and forth.

Reference: Forbes (May 11, 2021) “What Should You Do When You Receive An Unsolicited Offer For Your Company?”

Are You Clueless about Social Security?

If you haven’t a clue about Social Security, it’s vital that you learn, so you can be ready to grow and maximize your benefits.

Lake Geneva Regional News’ recent article entitled “35% of Near-Retirees Failed a Basic Social Security Quiz. Here Are 3 Things You Need to Know About It” provides several important things you should know:

Your benefits are determined by your top 35 years of earnings. The monthly benefit you get in retirement is based on your specific earnings during your 35 highest-paid years in the workforce. If you don’t work a full 35 years, you’ll have $0 factored into that equation for each year you’re missing an income. So, you can see how important it is to try to fill in those gaps. If you lost your job during the pandemic and are thinking about early retirement, check your earnings history before you do.

You’re only entitled to your full monthly benefit when you hit full retirement age. You can claim your monthly retirement benefit in full once you hit your full retirement age (FRA). However, many people don’t know what that age is. About a quarter (26%) of those aged 60 to 65 couldn’t correctly identify their FRA on the quiz. Your FRA is based on your year of birth.

You can claim Social Security as early as age 62 or wait until age 70 and grow your benefits in the process. However, you’ll need to know your FRA first.

You can collect Social Security, even if you never worked. If you are or were married to someone who’s entitled to Social Security, you may be eligible for spousal benefits that amount to 50% of what your current or ex-spouse collects.

MassMutual found that 30% of older Americans didn’t know that a person who’s divorced may be able to collect Social Security benefits based on a former spouse’s earnings history. Thus, it pays to read up on spousal benefits as retirement nears, even if you never held a job.

Being ill-informed about Social Security could make it more difficult to file at the right time and make the most of your Social Security income

Stay up to date on how Social Security benefits work, so you’re able to make wise choices for your retirement.

Reference: Lake Geneva Regional News (April 10, 2021) “35% of Near-Retirees Failed a Basic Social Security Quiz. Here Are 3 Things You Need to Know About It”

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