Weekly Newsletter

Here’s how to get your financial house in order

Forget cleaning out the closet, scrubbing the floors and washing the windows. The start of spring is an even better time to get your finances in order.

“One thing on many people’s minds is cleaning. But what if you put that cleaning energy to your financial house?” says consumer savings expert Andrea Woroch.  “Considering consumer credit card debt has reached a new record high of $1.13 trillion, it’s a good time to focus on refreshing your spending and saving habits.“ That’s particularly true of people nearing or entering retirement. Half of retirees live on less than 50 percent of their preretirement income, according to research from Goldman Sachs Asset Management. And 40 percent of older adults rely on Social Security alone, which averages $1,657 a month, the National Council on Aging reports.

Whether you’re on a fixed income, have cash in the bank or are still working, a financial spring cleaning can help you save money, reset your priorities and get you closer to your short- and long-term goals.

1. Spruce up your budget

Taxes are due, vacation planning is underway and the end of the year is in your sights. That makes springtime a great season to give your budget an overhaul.

“First and foremost, it’s a good time of year to take a fresh look at your budget and see how you’ve been doing during the first quarter,” says Emily Irwin, head of advice relations at Wells Fargo Bank. “Do you need to make any adjustments based on the economy?”  Assessing your budget means taking a realistic and detailed look at your spending patterns and identifying areas to cut expenses.

If you need help creating a budget, there are free resources available to older adults, including AARP’s Money Map digital tool which helps you create a budget; The National Foundation for Credit Counseling, which offers free access to NFCC Certified Counselors; and the Federal Trade Commission’s website, which has a budget sheet as well as free educational material covering different money matters.

2. Tackle your debt

The days of being flush with cash during the pandemic are long over. Thanks in part to inflation, many consumers rely on credit cards to cover spending shortfalls. That’s true of the nearly 3 in 4 Americans 50 and over who carry some form of debt, according to AARP’s Debt Survey. It also found 61 percent of the close to 7,400 surveyed who carry debt feel that their level of debt is a problem, including 16 percent who say it is a major problem.

To get out of a hole, experts say to throw any windfalls, such as a tax refund, to the debt. Also, try to pay more than the minimum whenever possible. Money experts say to tackle the highest interest rate debt first, but if you need a quick psychological win, paying off the one with a smaller balance may be the better option. “Know yourself a little bit to keep the path moving forward,” says Irwin.

If you can’t throw extra money at your credit debt, try negotiating your interest rate with the credit card provider. All it takes is a phone call, says Woroch. A recent Lending Tree study found that among credit cardholders who requested a lower interest rate, 76 percent got it.

Another option is to move your current debt to a card that offers a zero percent balance transfer. The longer the payback the better. Make sure you aren’t getting hit with a lot of fees that won’t make it worthwhile.

3. Tweak your taxes

If you were hit with a big tax bill or received a paltry refund this tax season, it may be a good time to check your tax status, says Irwin. You want to fix it now so you aren’t in for any shocks next year.

“Did you withhold too much?,” says Irwin. “If so, adjust it…. Did you withhold less  and now you are in a position where you owe money?”

If you want to adjust your W-4 filing status, you can complete this form and submit it to your employer. If you want to change the withholding from a pension, annuity or IRA, use this form.

If you need help with your taxes, AARP Foundation’s Tax-Aide program provides free advice to over 78 million taxpayers, with a focus on older adults with low to moderate income.

4. Check for hidden fees

From account maintenance to overdraft protection bank fees can add up. To ensure you aren’t on the hook for unexpected expenses, do a deep dive of your accounts. Look at the monthly and annual fees, the annual percentage rate and any other costs the financial institution may tack on.  If you spot any hidden fees, ask your bank to waive them or see if they offer a no-fee checking account. If not, Woroch suggests shopping around for a better deal.  “There are a variety of no-fee debit cards that provide free overdraft protection and free withdrawals,” says Woroch. Moving your savings also makes sense if you can get a better rate at a different financial institution, she says. The average annual percentage yield was 4.5 percent or more in March. Don’t forget to review your investment accounts. Fees are listed in quarterly statements. Irwin says it’s up to you to understand how they are being charged. If you are uncertain, speak up. Make sure you are getting what you pay for, she says.

5. Flush your points

Now is the time to take stock and see if you have accumulated credit card reward points that have gone unused.

You never know – it may be enough to pay for a trip. Even if you aren’t traveling, those points can be redeemed for cash, a statement balance, a gift card or a host of other rewards.  “This time of year I’m looking at my credit card points and my hotel points and thinking about what travel I’m going to do next year and how I can use these points to decrease out-of-pocket costs,” says Irwin.

6. Scrub your spending

If you are a shopper who can’t resist a sale, there are ways to scrub your bad spending habits and save. Out of sight out of mind is one, especially if you are prone to overspending online. Unsubscribe to your favorite store newsletters, delete retailer apps and avoid malls where you may be tempted to drop in on a favorite store, Woroch says. When it comes to the everyday items you have to buy, Woroch says to shop savvy: look for deals, use coupons, take advantage of cash-back tools and consider purchasing used items when it makes sense.

7. Trash your old paperwork

Take the time to get rid of old documents. It’s an easy way to get organized and prepare for a fresh start. But take care to hold on to real estate records for as long as you own your property and keep most tax records for up to three years from filing, Woroch says. When you do dispose of financial records, make sure to shred bank and credit card statements and anything with identifying information such as your Social Security number. Identity theft and financial fraud impacts millions of older adults per year and some of it stems from what fraudsters find in the mailbox and garbage. To put it in perspective, in 2022 412 US letter carriers were robbed and there were 38,500 reports of incidents involving mailboxes and mail theft.  “Anything that has your Social Security number, your date of birth or account number should be shredded,” says Irwin.  “Shredding is super necessary to protect from fraud and ID theft.”

https://www.aarp.org/money/budgeting-saving/info-2024/financial-spring-cleaning.html

Inflation adjustments and the phase-in of Secure 2.0 provisions have implications for retirement savers and retirees alike.

The dawning of 2024 will usher in more changes than usual on the retirement-planning front. As is typical with the turn of the calendar page, inflation will drive upward adjustments to tax brackets, retirement contribution limits, estate and gift tax exemption amounts, and more. In addition, the retirement legislation known as Secure 2.0 will continue to phase in, with implications for retirement savers and retirees alike.

Here’s a roundup of some of the key retirement-related changes to watch out for in 2024, as well as any planning-related moves to consider.

Higher Tax Brackets

Thanks to higher inflation, the income limits for tax brackets will be increasing in 2024. These changes affect the income thresholds for both income and capital gains taxes. The top marginal income tax rate is 37%, for example, but it applies to single filers with incomes of $609,350 or more and married couples filing jointly with $731,200 or more in income. (In 2023, those thresholds were $578,125 and $693,750, respectively.)

Potential Action Items

Realizing capital gains in the 0% range: Higher income thresholds may enhance the opportunity to sell appreciated securities without any capital gains taxes. For 2024, the 0% capital gains tax rate applies to single filers earning less than $47,025 and married couples filing jointly with incomes of less than $94,050.

Assessing the appropriateness of Roth conversions: You’ll owe ordinary income tax when you convert traditional IRA and 401(k) balances to Roth, but higher income thresholds provide additional headroom to convert without pushing yourself into a higher tax bracket. A series of smaller conversions can often make sense, especially in the postretirement, prerequired minimum distribution phase.

No Required Minimum Distributions on Roth 401(k)s

Owing to the legislation dubbed Secure 2.0, Roth 401(k)s will no longer be subject to required minimum distributions starting in 2024, which puts them on an equal footing with Roth IRAs.

Potential Action Item

It’s more like a nonaction item. In the past, an easy way to address that Roth 401(k)s were subject to required minimum distributions was to roll those assets into a Roth IRA upon retirement. (Roth IRAs don’t have RMDs.) Now, though, Roth 401(k) investors with particularly good plans (minimal costs, stellar investment options) shouldn’t feel any urgency to move assets out of their plans. This provision will become especially important to younger savers who have been able to contribute to Roth 401(k) plans for longer.

Higher Contribution Limits for Savers

Here’s another set of changes that relate to inflation: Contribution limits to retirement accounts are increasing slightly for 2024. Company retirement plan contributions—whether 401(k), 403(b), or 457—are going up to $23,000 for people under age 50 and $30,500 for savers who are 50-plus. Meanwhile, IRA contribution limits are going up to $7,000 for people under 50 and $8,000 for people who are 50-plus. The total 401(k) contribution limit—of particular interest to people contributing to aftertax 401(k)s—is $69,000, plus an additional $7,500 for savers over 50. Contributions to health savings accounts, which can be employed as stealth retirement accounts, are increasing as well, to $4,150 for people covered by an individual high-deductible health plan and $8,300 for people with family HDHP coverage. HSA savers who are 55 and older can contribute an additional $1,000. Note that the income limits that determine eligibility to make Roth IRA or deductible traditional IRA contributions have also increased to account for inflation.

Potential Action Item

If you haven’t revisited your company retirement plan and/or HSA contributions for a while, now is a good time to do so, especially if you’re in a position to make the maximum allowable contributions to your account(s). While you’re at it, make sure you’re maximizing any employer-matching contributions that you’re eligible to receive. And if you’ll turn 50 in 2024, remember that you don’t need to wait until your birthday to make catch-up contributions. I’m a big fan of putting IRA contributions on autopilot with your investment provider, making automatic monthly contributions, just as you do with your 401(k). To make the maximum allowable IRA contribution in 2024, you’d need to contribute $583 monthly if you’re under 50 and $666 a month if you’re 50 and over.

Higher Qualified Charitable Distribution Limit

People over age 70.5 can contribute $105,000 to charity via the qualified charitable distribution, or QCD, in 2024. While the QCD limit had been stuck at $100,000 for a number of years, Secure 2.0 indexed the limit to inflation. Secure 2.0 opened the door for people to use a charitable gift annuity.

Potential Action Item

Given that nearly 90% of taxpayers aren’t itemizing their deductions, the QCD is a gimme for charitably inclined people 70.5 and older who have IRAs. Contributed amounts skirt income taxes and also satisfy required minimum distributions for those who are age 73 or above. The QCD will tend to be a better deal, from a tax standpoint, than writing a check to charity and deducting it on your tax return.

Higher Estate, Gift Tax Thresholds

The amount of an estate that’s exempt from estate tax will increase to $13.61 million per person in 2024. That means that married couples can effectively shield more than $27 million from the federal estate tax. Meanwhile, the gift tax exclusion is increasing to $18,000 ($36,000 for couples) in 2024. That means that individuals can gift up to $18,000 to each recipient without having that amount count toward their gift-tax exclusion.

Potential Action Item

For people with very high levels of assets, it’s worth looking toward the end of 2025, when key provisions of the Tax Cuts and Jobs Act are set to expire. Among those provisions are the currently high levels of assets that are exempt from the federal estate tax. Barring congressional action, the estate tax exemption will snap back to pre-Tax Cuts and Jobs Act levels in 2026—approximately $7 million per person and $14 million for couples. And state estate tax thresholds are substantially lower in many cases. A qualified estate planner can help you determine the best strategies to reduce taxation on your estate (not to mention help with other crucial matters such as drafting powers of attorney).

529 Rollover to Roth IRA

Another provision of Secure 2.0 goes into effect starting in 2024: rollovers of unused 529 assets to a Roth IRA. Provided a 529 beneficiary has owned the 529 for at least 15 years, up to $35,000 can be rolled into a Roth IRA, subject to the beneficiary’s annual IRA income contribution limits. In 2024, that’s $7,000 for contributors under age 50. The $35,000 is a lifetime limit, meaning that someone with $35,000 in unused 529 assets could roll over $7,000 per year (today’s contribution limit) over a five-year period.

Potential Action Item

The ability to roll over unused 529 assets to a Roth IRA is an elegant solution in situations when the beneficiary received a scholarship or didn’t go to college. Moreover, the escape hatch can help allay parental worries about oversaving in a 529.

More Flexibility for 401(k) Savers

Several provisions related to retirement plans go into effect in 2024, all resulting from Secure 2.0. In particular, companies will be able to make matching retirement plan contributions for employees who are paying down their student loans. In other words, the employee’s dollars go toward debt paydown, whereas the employer’s match goes into the retirement plan. Secure 2.0 makes it possible for employers to earn a tax break on that type of match. The specific matching formula—and whether the employer matches at all—depends on the employer.

Additionally, Secure 2.0 allows plans to offer options to help employees deal with emergency expenses. Plans can now offer what’s called a “sidecar fund” to enable employees to save for unexpected expenses; contributions would be capped at $2,500 or even lower and must be parked in investments that offer principal protection. Another option would allow employees to withdraw up to $1,000 per year for emergency expenses without the usual 10% penalty that applies to early withdrawals.

Potential Action Item

Not all plans will add these features right out of the box, if at all. If they’re of interest to you, reach out to the person or team that handles benefits in your organization.

Prescription Drug Costs

Mark Miller outlined some of the key changes to prescription drug costs for seniors who are covered by Medicare. Specifically, some provisions of the Inflation Reduction Act of 2022 should reduce seniors’ out-of-pocket drug costs.

Long-Term-Care Premium Deductibility

Long-term-care insurance has declined in popularity, but there are still millions of policies in force. The amount of long-term-care insurance premium that one can deduct is actually going down a bit in 2024 relative to 2023. People who are age 40 or under can deduct $470 in long-term-care premiums in 2024; those aged 41 to 50 can deduct $880; people aged 51 to 60 can deduct $1,760; those aged 61 to 70 can deduct $4,710; and those 71 and older can deduct $5,880.

https://www.morningstar.com/retirement/whats-changing-retirement-2024

Don’t panic — but do pay the tax tab

Bills are a fact of life, though some require more urgent attention than others. Ignore your brother-in-law because you still owe him $50 from last year’s poker game, and you’ll get the cold shoulder. Ignore your debt to Uncle Sam, and the consequences will be much more costly.

According to a poll by the research firm Civic Science, 43 percent of U.S. adults anticipate owing the IRS this year; 57 percent expect a refund. Unfortunately, millions of Americans often fall behind with their bills. IRS data indicates that in 2022, taxpayers owed over $120 billion in back taxes, penalties and interest.

Some people avoid or delay filing because they find the process overwhelming. Others underreport the amount they owe in error, or they file their return late or not at all. Or they may be thrown off-kilter by the death of a spouse or other loved one, a serious illness, divorce or job loss.

The IRS points out that too often, taxpayers make simple common mistakes that might be easily avoided with more careful attention. Fortunately, help is available if you need it.

Avoiding big problems and more debt

Be sure to do whatever it takes to file your return properly, on time, and to pay what you owe. Taxpayers who do fall behind, or deliberately fail to report income, might be subject to the collection of back taxes, interest and stiff penalties such as a garnishment on their wages or a lien on their homes. They may also subject to penalties and interest until the tax is paid.

Make no mistake: The IRS will be in touch if there’s a question with your taxes. Remember, the IRS will never call and demand odd forms of payment, such as gift cards. The IRS typically sends a letter.

What if you’re expecting a refund, but owe instead? Would you go into debt? The results of a survey by Bankrate show that many people would. While 44 percent of the respondents said they would pay an emergency expense of $1,000 from their savings, nearly a quarter — 22 percent — said they had no emergency savings. More than a third — 35 percent — said they would borrow the money, including 21 percent who said they would cover it with a credit card and pay it off over time.

4 IRS payment options

Fortunately, there are ways to work with the IRS. You’ll want to file on time, pay as much as you can and get some expert advice as you explore these possibilities.

1. The short-term payment plan. You pay the amount you owe in 180 days or less, says Jose Sanchez, a Certified Financial Planner (CFP) in Albuquerque, New Mexico. “The cost of this plan is a zero setup fee to apply. However, you will be responsible for accrued penalties and interest until the balance is paid in full.” You can pay electronically via your bank account or by check. Use a credit card, and you’ll pay a fee charged by a third-party processor. Right now, it’s about 1.87 percent.

2. The long-term payment plan. This installment agreement requires a setup fee ranging from $31 to $107, which can be waived for low-income applicants. You can make automatic payments from your checking account. “In addition, similar to the short-term payment plan, you will be responsible for both accrued penalties and interest over the life of the payment plan,” Sanchez adds.

How changes in Social Security, Medicare, taxes and more will affect your finances

For most people, retirement finance is a delicate balance between income that’s likely less than what you made while working and expenses that may be lower in some areas (no more commuting) but considerably higher in others (more prescriptions and doctor visits).

Year-to-year changes in areas key to retiree life — Social Security benefits, Medicare premiums, tax and savings policies geared for older adults — can have a big impact on that balance, especially as they interact with economic shifts such as higher inflation or a market downturn. Here are seven things to know about your retirement money for the coming year.

1. Social Security payments

Social Security recipients will see their monthly payments rise by 3.2 percent as the 2024 cost-of-living adjustment (COLA) kicks in. The estimated average retirement benefit will go up by $59 a month, from $1,848 to $1,907.

The first retirement, disability and survivor benefit payments reflecting the increase go out in January. People receiving Supplemental Security Income (SSI), a Social Security–administered benefit for people who are age 65-plus, blind or have disabilities and have very limited income and assets, will get their first COLA-boosted payment Dec. 29.

The COLA is based on changes in prices for a set of consumer goods and services in the third quarter of 2023 compared to the same period the year before. Inflation slowed considerably over that time, producing a relatively modest COLA compared to 2022’s 8.7 percent increase, a 40-year high.

The 3.2 percent benefit boost should still provide a measure of protection against rising prices — particularly if the inflation rate continues inching down toward 2 percent in 2024, as the Congressional Budget Office projects — although for many beneficiaries its effectiveness could be slightly undercut by …

2. Medicare costs

After coming down by 3 percent in 2023,  standard premiums for Medicare Part B are going back up in 2024, from $164.90 to $174.70 per month, a 6 percent increase.

Most Medicare enrollees have their premium payments for Part B, the portion of original Medicare that covers doctor visits and other outpatient treatment, deducted directly from their Social Security payments.  For this group, the premium increase takes a $9.80-a-month bite out of the COLA benefit boost.

The annual deductible for Part B is also increasing, from $226 to $240.

Medicare enrollees who have Medicare Advantage (MA) coverage or Medicare Part D prescription drug plans are expected to see little change in what they pay. These plans are provided by private insurers so costs vary, but Medicare officials estimate that the average monthly premium for an MA plan will go up by 64 cents, from $17.86 to $18.50 (and that most enrollees will not see any increase);and Part D plans will cost an average of $55.50 a month, down from 2023’s $56.49.

3. Retirement plan contributions

If you are 50 or older, you can put up to $8,000 into an individual retirement account (IRA) for the 2024 tax year. That includes the $1,000 catch-up contribution available to older savers. The cap for people under 50 is $7,000. In both cases, the contribution limit has been bumped up by $500 from 2023.  (By the way, you can still make your contributions for the 2023 tax year — the deadline is April 15, 2024.)

The IRA catch-up limit is now pegged to inflation under a provision of the SECURE 2.0 Act of 2022, a federal law aimed at expanding Americans’ opportunities to save for retirement, but that did not produce an increase for 2024; the $1,000 cap is the same as in 2023.

Contribution limits also go up for people with workplace retirement plans. Those age 50-plus can contribute up to $30,500 this year to a 401(k), 403(b), and most 457 plans, or (for federal government workers) a Thrift Savings Plan. That’s $500 more than the 2023 cap. The contribution limit for younger adults goes up from $22,500 to $23,000.

Starting in 2025, there will be a new higher contribution cap for people ages 60 to 63.

4. RMDs

Required minimum distributions (RMDs) are a fact of later life for holders of most types of retirement savings accounts. (The notable exception is Roth IRAs, which are not subject to annual required withdrawals while the owner is alive. Starting with the 2024 tax year, this exception will also apply to Roth 401(k) and 403(b) accounts.)

The IRS uses a calculation based on the account balance and your life expectancy to determine the minimum you must take out each year. You’ll owe federal income taxes on the withdrawal, at your regular tax rate.

Most people subject to RMDs must make their withdrawal for the tax year by the last day of that year. In your first year of eligibility, however, you have until April 1 of the following year. SECURE 2.0 bumped the mandatory age for starting RMDs from 72 to 73, effective in 2023. (The minimum age will ultimately go up to 75, but not until Jan. 1, 2033.)

Thus, if you will turn 73 in 2024, you have until April 1, 2025, to make your first RMD. Anyone who is already 73 or older by the start of 2024 must make their withdrawal by the year’s end.

The penalty for failing to make your RMD in time is 25 percent of the amount by which your withdrawal fell short of the required minimum. That can be reduced 10 percent if you make good the full withdrawal and file a revised tax return in a timely manner.

5. Standard tax deduction

Most taxpayers take the standard deduction rather than itemizing on their tax returns. For the 2023 tax returns they must file by April 15, 2024, married couples in that majority can take $27,700 off their taxable income, up from $25,900 the year before. For individual taxpayers (single or married filing separately), the standard deduction increases from $12,950 to $13,850. Those filing as a head of household can deduct $20,800, up from $19,400 the previous year.

You get a bigger standard deduction if you or your spouse is 65 or older:

•  $1,850 more for a single filer or head of household (up from $1,750 for the 2022 tax year).
• $3,000 more for a couple filing jointly (up from $2,800).

6. Full retirement age

Congress voted in 1983 to gradually raise the Social Security full retirement age (FRA) from 65 to 67.  Four decades on, the change is nearly complete, with FRA reaching 66 and 8 months in the latter half of 2024.

For the past few years, FRA — the age when you become eligible to claim 100 percent of the retirement benefit calculated from your lifetime earnings — has been going up two months at a time, based on year of birth.

For people born in 1957, FRA is 66 years and 6 months. If you were born from July through December 1957, you will hit the milestone by the end of June 2024. The first children of 1958 will become eligible to claim their full retirement benefit in August. FRA settles at 67 for people born in 1960 or later.

You can start collecting retirement benefits before FRA — the minimum age is 62 — but your monthly payment will be permanently reduced, by as much as 30 percent.  You can also wait past FRA and reap Social Security’s bonus for delaying benefits: an extra 8 percent a year until age 70.

7. Social Security earnings test

If you claim Social Security retirement benefits before reaching FRA and continue to do paying work, your benefits may be temporarily reduced. That depends on whether your annual working income exceeds a set limit called the earnings test.

For 2024, that limit increases from $21,240 to $22,320 for beneficiaries who will not reach FRA until a future year. Social Security withholds $1 in benefits for every $2 in earnings above the cap.

If you will reach FRA this year, the income threshold is higher ($59,520, up by $3,000 from 2023) and the withholding lower ($1 less in benefits for every $3 above the limit).  When you reach FRA, the earnings test ends; there’s no withholding regardless of how much you earn, and Social Security recalculates your benefit amount to make up for the past reductions.

https://www.aarp.org/retirement/planning-for-retirement/info-2023/biggest-changes-impacting-retirement-finances-in-2024.html

Retirement is not just about what you should buy or invest in — it’s equally about decluttering and letting go of assets that may no longer serve a purpose or even cost you money. For baby boomers, the following are items worth considering selling in retirement to potentially simplify life and boost finances.

1. Extra Real Estate

Owning multiple properties might have been a status symbol or a wise investment in the past. But in retirement, the cost of maintaining extra homes or lands, including property taxes, insurance and upkeep, can be burdensome. Selling off extra property can provide a substantial boost to your retirement funds and reduce ongoing expenses.

2. Unused Vehicles

If you’ve downsized your daily routine or live in a community with good public transportation, you might find that you don’t need as many cars as you did before. Maintaining, insuring and registering multiple vehicles can be costly. Selling an extra car can provide a financial boost and cut down on yearly expenses.

3. Expensive Collections

Many boomers have collections, whether it’s art, coins, stamps or memorabilia. While these items may have sentimental value, they could also represent a significant hidden wealth. If they’re just gathering dust, selling them can provide funds for your retirement activities.

4. Outdated Technology

With the rapid advancements in technology, many older devices become obsolete quickly. Selling old gadgets, computers or cameras can free up space in your home and provide a little extra cash. Plus, it reduces the clutter of items you no longer use.

5. Excess Furniture and Household Items

If you’ve downsized your living space or simply want to embrace a more minimalist lifestyle in retirement, selling off excess furniture and other household items can be both liberating and financially beneficial.

6. Timeshares

While timeshares might have been appealing for vacationing in the past, the annual maintenance fees can be a drain on your retirement budget. If you’re not using it as much, consider selling your timeshare or exploring options to get out of the contract.

7. Expensive Jewelry or Watches

Over the years, many accumulate jewelry or watches that they no longer wear. These items can have significant value. Selling them can provide extra security or fund new experiences in your retirement years.

8. Unused Sporting Goods

From golf clubs to kayaks, if you have sporting goods that you no longer use, they’re likely taking up space. Selling them can provide extra cash and declutter your storage areas.

9. Large, Gas-Guzzling Vehicles

Fuel-efficient or hybrid cars can save a lot on gas money, especially if you’re on a fixed retirement budget. Consider selling gas-guzzling vehicles for something more economical, both for your wallet and the environment.

10. Stocks That Don’t Fit Your Strategy

Your investment strategy might shift in retirement. If you have stocks or funds that no longer align with your retirement goals or risk tolerance, consider selling and reallocating the funds more appropriately.

Final Take

Retirement offers a fantastic opportunity to reevaluate what truly matters. By selling items or assets that no longer serve a purpose or even cost you money, you can simplify your life, reduce unnecessary expenses and redirect funds to activities and experiences that enhance your golden years. Always consider consulting with a financial advisor or expert when making significant financial decisions.

https://www.gobankingrates.com/retirement/planning/things-boomers-should-consider-selling-in-retirement/?utm_term=incontent_link_5&utm_campaign=1255141&utm_source=nasdaq.com&utm_content=8&utm_medium=rss

When setting up your financial retirement plan, you’ll likely consider various options for how you plan on covering the bills in your golden years. With soaring inflation and aggressive rate hikes from the Fed, annuities have become more popular recently, as those close to retirement try to figure out how to ensure they don’t outlive their savings. According to the New York Times, the sales of annuities surged 22% in 2022 to reach around $310 billion. As of the second quarter of 2023, the total retirement assets in annuities were around $2.29 trillion.

Even though annuities can be a confusing investment, there are many situations where they can be the right move, since you’re trading in a lump sum today for guaranteed income payments in the future. Here’s a look at why you may want to consider annuities in your retirement plan.

Annuities Offer a Reliable Income Stream

“Annuities offer a reliable and guaranteed income stream, providing financial stability during retirement,” said Cameron Burskey, senior partner at Cornerstone Financial Services. “This can be particularly valuable in a volatile economic environment, as it ensures a steady flow of income regardless of market fluctuations.”

In your golden years, you’ll likely not want to stress about the market. As demonstrated in the last few years, the stock market can have heavy swings, and this could be difficult to manage when you’re trying to set a budget. Even though the degrees of risk vary with different kinds of annuities, as a whole, they can handle most economic fluctuations.

Annuities will provide you with a reliable income stream so that you don’t have to worry about covering your bills, since you’ll still have expenses to worry about. Sometimes, it’s more important to have consistency in your financial plan than anything else.

You Don’t Have To Worry About Running Out of Money

“With increasing life expectancy, there’s a concern about outliving one’s savings,” Burskey stated. “Annuities, especially those that provide lifetime income options, help mitigate the risk of running out of money during a longer-than-expected retirement.”

With people living longer, planning for retirement can be challenging, since you’re not exactly sure how long you need your money to last. If you rely on an investment portfolio heavily exposed to the stock market, you could eventually run out of money as you dip into your funds.

There are different types of annuities, but the main advantage of most is that you won’t have to worry about running out of money in retirement. You can turn a lump sum of cash into guaranteed income with annuities, which could be the best option for some.

Annuities Diversify Your Retirement Portfolio

“Including annuities in a retirement portfolio also adds diversity, balancing risk exposure,” according to Burskey. “While other assets, like stocks and bonds, are subject to market fluctuations, annuities can offer a more stable and predictable component to the overall investment mix.”

If you’re a risk-averse investor, you may not want to deal with the stress of price fluctuations. Purchasing a type of annuity would diversify your retirement portfolio, so you’re not overexposed in one segment.

Annuities Can Help With Tax Planning

“Some annuities even provide tax advantages,” remarked Burskey. “For instance, certain types of annuities offer tax-deferred growth, meaning that the earnings on the investment are not taxed until withdrawals are made. This can be advantageous for individuals looking to optimize their tax strategy in retirement.”

With a deferred annuity, the interest that you earn won’t be subject to taxes until there’s a withdrawal. This option lets your investments grow faster.

You Don’t Want To Stress About Your Expenses

“The guaranteed income feature of many annuities can help eliminate the worry of funding a certain portion of these future expenses,” said Paul Tyler, a licensed insurance agent, lawyer and CMO of Nassau Financial Group.

One of the biggest struggles about financial planning for your retirement is figuring out how you’ll cover your expenses, since you no longer have a steady income from your employer. You also want to ensure that you have enough money to cover all your expenses.

“A good retirement plan addresses both sides of one’s personal balance sheet — both assets and liabilities,” shared Tyler. “Most advisors focus on growing assets through stocks, bonds and other types of investment vehicles. Annuities help address the future liabilities of retirement — like paying for health care and general living expenses.”

You’ll want to create your retirement budget based on your expected costs in your golden years. This will require you to look at the expenses associated with health care and basic living. Then, you want to ensure you have enough money to be in a strong financial position.

You Don’t Have a Pension

If you’re not going to have a pension coming in during retirement, you may want to look into an annuity for guaranteed income. Since you’re giving your insurance company a significant lump sum, they’ll provide you with a guaranteed monthly income for life.

As a self-employed person or someone who doesn’t have access to a pension, you could use an annuity to provide you with the peace of mind of guaranteed payments in your retirement.

Closing Thoughts

“Before incorporating annuities into a retirement plan, it’s important to carefully assess individual financial goals, risk tolerance and the specific terms of the annuity contract,” Burskey shared. “Consulting with a financial advisor can help tailor an annuity strategy that best suits an individual’s unique circumstances and retirement objectives.”

It’s essential to remember that annuities can be confusing investment products, so you’ll want to take the time to understand them better. You’ll also want to work with someone you trust regarding retirement planning, since everyone has a unique situation.

Annuities are often used to have the money you’ve saved guarantee you with a lifetime income stream, possibly on a tax-deferred basis. They could be a valuable part of your retirement plan if you decide that this is the direction you want to take.

https://www.nasdaq.com/articles/6-reasons-annuities-should-be-part-of-your-retirement-plan-in-2024

2024 will be a record-breaking year for retirement in the U.S., with an average of 11,000 Americans a day expected to celebrate their 65th birthday from now until December.

Approximately 4.1 million Americans are poised to turn 65 this year and every year through 2027, according to a report from the Alliance for Lifetime Income. Dubbed by experts as “peak 65” or the “silver tsunami,” the figure represents the largest surge of retirement-age Americans in history.

If you’re one of the many riding the retirement wave this year or next, here’s what you should know, according to one expert.

Enrolling in Medicare

The age of 65 is “a critical year,” Elizabeth O’Brien, senior personal finance reporter for Barron’s, told CBS News.

“That’s the year you become eligible for Medicare, so most people when they care 65 can sign up for that, unless you’re still working and still in a job with health insurance,” she said.

Asked whether everyone who turns 65 should enroll in Medicare, even if they receive health care through their employer, O’Brien says in part, yes, but full enrollment also depends on the situation.

“First of all, Medicare has two parts: Part A [hospital insurance] and Part B. Even if you are working, you should enroll in Part A because you don’t pay premiums for that,” she said.

Medicare Part B covers medical services including certain doctor’s appointments, outpatient care and preventive services. For those who already receive health coverage through an employer, Medicare may be your “secondary payer,” that is, the secondary insurance plan that covers costs not paid for by the primary insurance plan, or “primary payer.”

Whether or not Medicare is your primary or secondary payer depends on coordination of benefits rules which decide which insurance plan pays first.

“Part B is a different story,” O’Brien said. “If you’re still working, and if your company has 20 people or more, then that is primary. If you’re working for a very small company, Medicare does become primary so there’s a little bit of nuance there, but basically, you want to avoid late-enrollment penalties if you miss your sign-up window which is right around your 65th birthday.”

While late enrollment penalties exist for both Medicare parts A and B, those for Part B are an even more serious issue. For each full year you delay enrollment once you reach eligibility at the age of 65, an additional 10% is added to your Medicare Part B premium. Unlike late enrollment penalties for Medicare Part A, which are temporary, late penalties for Medicare Part B are permanent.

Retirement savings

In addition to health care decisions, there are also financial decisions that must be made at the pivotal age of 65, beginning with choosing whether or not to retire, O’Brien said.

“You’ve got to think about what you’re gonna do with your 401(k). If you’re still working and you’re retiring, are you gonna roll that over into an individual retirement account? Are you gonna leave that where it is with your company?” she said, adding that there are emotional factors to consider when deciding what’s right for you.

“If you leave your job, what are you going to be doing all day — it’s good to think of that before you get there,” she said.

“If you love what you do, there is no reason to stop at 65. You know there are financial benefits and cognitive benefits for continuing to work, so I would say absolutely keep working,” she added.

A recent Pew Research Center analysis finds that 1 in 5 people over 65 choose to continue working. And the Bureau of Labor Statistics projects that Americans over 65 will continue to rise in labor force participation over the next decade.

For those who have “had enough” of the daily grind, she suggests semi-retirement. “Maybe you’re ready to retire but you still want to do something, there’s a lot to be said about downshifting into a part-time job.”

Never too early to prepare

And to those for whom retirement still seems eons away, O’Brien says there are many advantages to starting on your savings sooner than later.

“One of the biggest mistakes is simply just to not start to save for retirement. And, you know, it’s understandable. When you are young there’s not a lot of extra money in your budget, you’re paying student loans, your rent is too high,” she said. “But that’s precisely when it’s important to start, because you really get more bang for your buck if you start young, do the compound interest.”

What’s more, while O’Brien assures young people that Social Security will most likely be around for them, she notes that it may pay out significantly less. That’s because the program’s trust funds are on track to be depleted in 2033, unless lawmakers shore up the program before then, and which could lead to benefits getting shaved by about 20%.

But that forecast is another reason for younger generations to get an early start on savings, O’Brien said.

Challenges to saving for retirement

Only 4 in 10 Americans say they have a retirement savings, according to a recent survey by New York Wealth Watch. When it it comes to their finances in 2024, 62% of adults point to inflation and 29% to rising interest rates as their top concern, the study which focuses on looming credit card debt reveals.

For 1 in 3 Americans, credit card debt outweighs emergency savings, a Bankrate report shows.

https://www.cbsnews.com/news/retirement-medicare-401k-what-to-know-peak-65/

2024 will be a record-breaking year for retirement in the U.S., with an average of 11,000 Americans a day expected to celebrate their 65th birthday from now until December.

Approximately 4.1 million Americans are poised to turn 65 this year and every year through 2027, according to a report from the Alliance for Lifetime Income. Dubbed by experts as “peak 65” or the “silver tsunami,” the figure represents the largest surge of retirement-age Americans in history.

If you’re one of the many riding the retirement wave this year or next, here’s what you should know, according to one expert.

Enrolling in Medicare

The age of 65 is “a critical year,” Elizabeth O’Brien, senior personal finance reporter for Barron’s, told CBS News.

“That’s the year you become eligible for Medicare, so most people when they care 65 can sign up for that, unless you’re still working and still in a job with health insurance,” she said.

Asked whether everyone who turns 65 should enroll in Medicare, even if they receive health care through their employer, O’Brien says in part, yes, but full enrollment also depends on the situation.

“First of all, Medicare has two parts: Part A [hospital insurance] and Part B. Even if you are working, you should enroll in Part A because you don’t pay premiums for that,” she said.

Medicare Part B covers medical services including certain doctor’s appointments, outpatient care and preventive services. For those who already receive health coverage through an employer, Medicare may be your “secondary payer,” that is, the secondary insurance plan that covers costs not paid for by the primary insurance plan, or “primary payer.”

Whether or not Medicare is your primary or secondary payer depends on coordination of benefits rules which decide which insurance plan pays first.

“Part B is a different story,” O’Brien said. “If you’re still working, and if your company has 20 people or more, then that is primary. If you’re working for a very small company, Medicare does become primary so there’s a little bit of nuance there, but basically, you want to avoid late-enrollment penalties if you miss your sign-up window which is right around your 65th birthday.”

While late enrollment penalties exist for both Medicare parts A and B, those for Part B are an even more serious issue. For each full year you delay enrollment once you reach eligibility at the age of 65, an additional 10% is added to your Medicare Part B premium. Unlike late enrollment penalties for Medicare Part A, which are temporary, late penalties for Medicare Part B are permanent.

Retirement savings

In addition to health care decisions, there are also financial decisions that must be made at the pivotal age of 65, beginning with choosing whether or not to retire, O’Brien said.

“You’ve got to think about what you’re gonna do with your 401(k). If you’re still working and you’re retiring, are you gonna roll that over into an individual retirement account? Are you gonna leave that where it is with your company?” she said, adding that there are emotional factors to consider when deciding what’s right for you.

“If you leave your job, what are you going to be doing all day — it’s good to think of that before you get there,” she said.

“If you love what you do, there is no reason to stop at 65. You know there are financial benefits and cognitive benefits for continuing to work, so I would say absolutely keep working,” she added.

A recent Pew Research Center analysis finds that 1 in 5 people over 65 choose to continue working. And the Bureau of Labor Statistics projects that Americans over 65 will continue to rise in labor force participation over the next decade.

For those who have “had enough” of the daily grind, she suggests semi-retirement. “Maybe you’re ready to retire but you still want to do something, there’s a lot to be said about downshifting into a part-time job.”

Never too early to prepare

And to those for whom retirement still seems eons away, O’Brien says there are many advantages to starting on your savings sooner than later.

“One of the biggest mistakes is simply just to not start to save for retirement. And, you know, it’s understandable. When you are young there’s not a lot of extra money in your budget, you’re paying student loans, your rent is too high,” she said. “But that’s precisely when it’s important to start, because you really get more bang for your buck if you start young, do the compound interest.”

What’s more, while O’Brien assures young people that Social Security will most likely be around for them, she notes that it may pay out significantly less. That’s because the program’s trust funds are on track to be depleted in 2033, unless lawmakers shore up the program before then, and which could lead to benefits getting shaved by about 20%.

But that forecast is another reason for younger generations to get an early start on savings, O’Brien said.

Challenges to saving for retirement

Only 4 in 10 Americans say they have a retirement savings, according to a recent survey by New York Wealth Watch. When it it comes to their finances in 2024, 62% of adults point to inflation and 29% to rising interest rates as their top concern, the study which focuses on looming credit card debt reveals.

For 1 in 3 Americans, credit card debt outweighs emergency savings, a Bankrate report shows.

https://www.cbsnews.com/news/retirement-medicare-401k-what-to-know-peak-65/

The reality of quitting work can be far different from the fantasy. Here’s what you need to know

Even if you love your job, there are times when you’d rather be alphabetizing the spice shelf than riding a packed train alongside hundreds of sniffling fellow commuters. And as you sway in the car next to a man who has biked four hours to the station, you might be thinking about early retirement.

Unfortunately, early retirement isn’t for everyone. In fact, it isn’t for most people. Just 13 percent of today’s workers plan to retire before age 60, according to an Employee Benefit Research Institute (EBRI) survey. For many of those who do take the plunge, the reality of early retirement can turn out to be far different than the fantasy. Here are a few things to consider before you decide to retire early.

1. Health care is expensive

Medicare, the federal program that provides health coverage for more than 61 million older Americans, doesn’t start until age 65. Until then, you’ll need an alternative — and it won’t come cheap.

“Private health insurance before Medicare kicks in costs an arm and a leg,” says Brian Schmehil, director of wealth management for the Mather Group in Chicago. Current law says your insurance costs can’t be more than 8.5 percent of your household income. For a single person with income of $54,360, for example, a mid-level silver plan would be $385 a month, or $4,620 per year.

2. Tapping your nest egg early can be costly

If you retire before 59 1/2, you’ll usually pay a 10 percent early withdrawal penalty from most tax-deferred accounts, such as traditional IRAs and 401(k) plans. “There are some options for getting IRA money before 59 1/2, but it’s tricky and can cause major penalties if done incorrectly,” says Matt Stephens, founder of AdvicePoint in Wilmington, North Carolina.

And unless you have a Roth IRA, which is funded with after-tax contributions, you’ll owe income taxes on the amount you withdraw from traditional accounts funded with pretax contributions. If, for example, you withdraw $20,000 from an IRA before age 59 1/2 and are in the 15 percent federal tax bracket, you’ll pay $5,000 in taxes and penalties, leaving you with $15,000.

3. You sacrifice the power of compounding interest

Time is your friend when you are saving for retirement, but not when you are spending. If you sock away $250 a month — $3,000 a year — from age 25 to age 55, you’ll have about $237,000 when you retire, assuming you make no withdrawals and earn an average 6 percent annually on your investments. Seemingly not a bad return on your $90,000 in contributions.

But let’s say you work 10 more years and retire at 65. In that scenario, you’ll have about $464,000, nearly double. Why? The extra decade’s worth of contributions helps, but that only adds up to $30,000. The real growth comes from another 10 years’ worth of interest earned not only on all the principal you contributed but also the interest earned on the interest that has compounded for four decades.

4. You may have a long, long life ahead of you

A woman who retires at 55 will have to make her savings last for 28.6 years, on average, compared to 20.4 years if she retires at 65. A man who retires at 55 will have to stretch his savings for 25.1 years, rather than 17.8. And for couples who make it to 65, there’s a 25 percent change that the surviving spouse lives to 98, according to the Society of Actuaries.

“With improved health care, many people are living longer than the national averages,” says Angela Dorsey, in Torrance, California.

5. You’ll spend more money than you think

A typical rule of thumb is that you’ll spend about 80 percent as much in retirement as you do when you work. After all, you won’t be shoveling money into your retirement account, commuting every day and, for that matter, paying Social Security payroll tax, assuming you have no more earned income. But at least in the early years of retirement, when you’re younger, healthier and newly freed from the constraints of work, you could very well spend as much as or more than you did before retirement. A J.P. Morgan Asset Management study found that there tends to be a “spending surge” by new retirees on travel, home renovations or relocation, and other retirement-related lifestyle changes that levels off after two or three years.

With inflation running at a hot 5 percent the past 12 months, your spending plans might need considerable revising. According to EBRI, 26 percent of retirees say their spending on housing, health and medical expenses are higher than expected.

“Every day is Saturday,” says Sean Pearson, in Conshohocken, Pennsylvania. “Once you don’t work, you wake up and look for things to do — basically, how we all feel on Saturday. Some things might be fun and social. Some things might be work around the house. Most things cost some money, which is why Saturday is often the most expensive day of your week.”

6. Housing expenses don’t retire when you do

Retiring without a mortgage is a common goal for would-be retirees, but it’s a goal that many fail to meet. According to an American Financing survey, 44 percent of retired homeowners between ages 60 and 70 still carry a mortgage.

Even if you have paid off your mortgage, other expenses don’t go away. “Home maintenance and increasing property taxes can take up a large chunk of your budget,” says Dorsey, the California financial planner. New Jersey, Illinois and New Hampshire have the highest property tax rates, according to Rocket Mortgage; Hawaii, Alabama and Colorado have the lowest. As a rule of thumb, homeowners should set aside 1 percent of a home’s purchase price annually to cover repairs and replacement. That’s $3,500 per year on a $350,000 house. Don’t forget that many states offer lower property tax rates for those 65 and older.

7. Extra income can be hard to come by

Working in retirement might not be as simple as you think. While 70 percent of workers plan to work for pay in retirement, according to the EBRI study, just 27 percent of actual retirees reported working for pay. Even part-time work can be a challenge. “One thing early retirees don’t seem to realize is that if they are planning on doing traditional part-time work while retired, those jobs require a commitment to a schedule that sometimes is not very flexible,” says Leslie Beck, in Rutherford, New Jersey. “This can cut into other retirement goals such as travel or visiting with family. I have had retirees surprised by the inflexibility of part-time work.”

If you figure you’ll instead fill the income void with Social Security, remember the earliest you can usually claim retirement benefits is age 62. Even then, you’ll only receive partial benefits. For anyone born in 1960 or later, the full retirement age, when you are entitled to 100 percent of your monthly benefit, is 67. By claiming early at 62, the benefit amount is reduced by 30 percent.

8. There’s a lot of time to kill

When you retire, you have a 40-hour gap in your week that you need to fill. “Are you sure you have enough activities to keep your body, mind and spirituality occupied for the many years you have ahead of you?” asks Catherine Valega, a in Winchester, Massachusetts.

How much time do you realistically see yourself spending going on long walks, lounging poolside or curling up on the couch with a good book, especially after the novelty wears off? Think hard and think long term before you retire. Do you want to volunteer? Go back to school? Pick up a new hobby or resume an old one? Come up with a plan in advance of retirement.

9. You may need to make new friends

If you retire in your 50s, you may find that your current friends aren’t around much — because they still have full-time jobs. While you have the luxury of catching a matinee or playing a round of golf midweek, those in your social circle who are working nine-to-five don’t.

If you find new friends, they are likely to be older, says Dennis Nolte, in Oviedo, Florida: “Many of my pre-60-year-old retirees, especially those who are active, lament that their new peer group is significantly older than they are — and thus have a different set of expectations about diet, sleep schedule, even cultural references.”

10. Retirement can be tough on couples

“Retirement is a major life transition, and you have to be patient with yourself and your spouse,” says Patti Black, in Birmingham, Alabama. “Most retired couples do not look like those pictured in ads and commercials.” You’ll have to decide how work around the house will change. Will you really share cooking, cleaning and yard work? And do you honestly want to be together 24-7, particularly if you downsize to a smaller home?

These decisions can have serious consequences for a marriage. “Gray divorce, or divorce after age 50, has doubled since 1990 while declining across all other age groups,” Black warns. “And it is most often the wife who asks for divorce after age 50.”

https://www.aarp.org/retirement/planning-for-retirement/info-2021/pre-early-retirement-reality-check.html

If you have a dream destination in mind, careful planning and a willing boss could help you make the move ahead of schedule

Rob Nehrbas was winding up his career as an executive at an Arizona-based laser device company he’d sold to a bigger competitor when he realized that he wanted to live somewhere else in retirement.

“I’ve got to get back to the ocean,” the Long Island native, who’d grown up racing sailboats, recalls telling his wife while they were out paddleboarding on a lake one day. Linda Nehrbas was taken by surprise, since they’d just done some renovations on their home, but she was OK with moving, provided it was to another warm climate.

After looking at several possible locales, they found a spot that seemed ideal — an active adult community near Charleston, South Carolina, where they would be a 35-minute drive from the beach. “It’s a much calmer lifestyle, a lot slower pace,” says Nehrbas, 67.

The couple were so enthralled by the place that they wanted to make the 2,000-plus-mile move right away, even though Rob wasn’t quite ready to leave his job. Fortunately, there was a solution: Rob proposed doing his job remotely from the couple’s retirement home.

His employer agreed, and Rob worked in South Carolina for his Arizona company for a year and a half before retiring.

The couple made their move before COVID-19 hit, but the growing acceptance of remote and flexible work arrangements in the pandemic’s wake makes following their example considerably more feasible than in the past. Nearly 3 in 10 U.S. workers ages 55 to 64 have been offered the option of working from home full-time, according to a June 2022 survey by business services firm McKinsey & Company.

“The shift to remote work options by some employers can facilitate a preretirement relocation,” says Barbara O’Neill, a retired Rutgers University professor and author of Flipping a Switch: Your Guide to Happiness and Financial Security in Later Life. “People don’t have to wait until they retire to live in their happy place, end the stress and cost of commuting, or keep living in a high-cost state.”

Early move can pay off

Relocating before retirement can have a positive impact on your cost of living as well as your quality of life, financial planners say.

O’Neill moved from New Jersey to a 55-plus community in Florida after leaving Rutgers in 2019, but she continues to work as the CEO of Money Talk, a company that offers financial planning seminars. She says Florida’s lower property taxes and lack of state income tax save her more than $10,000 a year.

Preretirees who relocate to lower-cost states may find substantially cheaper housing “and then take that money and put it into their portfolio,” stretching their retirement dollars, says Jeremy Kisner, a Phoenix-based financial planner whose clients include Rob and Linda Nehrbas.

Older remote workers may even be able to move outside the U.S., where living costs could be lower still.

Michael Cobb, CEO of Belize-based real estate firm ECI Development, envisions Latin America becoming an attractive spot for Americans in their 50s who want to get an early start on their chosen retirement lifestyle. He factors the need for Zoom-friendly spaces and fiber optics for fast internet connections into the designs of his company’s homes.

“Why wait to retire when you can move somewhere phenomenal right now?” Cobb says. “As long as you have high-speed internet and the type of work that allows you to work remotely, many of the benefits of retirement can start immediately.”

How to make a preretirement relocation work

Ensuring your dream locale has the amenities that enable you to keep working, including fast, reliable broadband access, is just one part of the careful advance planning such a move requires. Another is closely comparing costs to make sure savings in one area, such as lower property taxes, aren’t eaten up by, say, higher homeowners insurance.

And, of course, your employer must agree to let you telecommute full-time. Some may balk. Linda Nehrbas, 62, worked in supply chain management when she and her husband were planning their move. Her supervisor agreed she could do her job remotely in South Carolina, but the company’s human resources department vetoed the arrangement.

“I had a really good job, and it was a little hard to walk away from,” she says. “But quality of life won over that.”

Getting an employer to let you work remotely across state lines may take some persuading. It helps if you can demonstrate that you’ve been productive working from home, O’Neill says. She recommends proposing a fixed work schedule in which you’ll always be available for meetings or calls during certain hours, to ease concerns that collaboration could suffer if you’re not on-site.

Talk to your boss about the business or tax implications of you working elsewhere. For example, Rob Nehrbas’ employer had to set up a business entity in South Carolina, so his new home state could withhold taxes from his paycheck.

https://www.aarp.org/retirement/planning-for-retirement/info-2023/early-relocation-advantages.html

Get that 2023 refund fast and keep it safe from fraudsters

Financial advisers usually tell you that it’s bad to get a big tax refund. A refund, after all, is money you paid the government that you didn’t owe. You could have used that money during the tax year instead of giving it to Uncle Sam in the form of an interest-free loan.

If taxpayers have heard that advice, most have probably just nodded along and continued making plans for spending their tax refund. An estimated 75 percent of taxpayers will get a refund during the current tax year, and those refunds will average $2,700 apiece.

The IRS says the key to getting your tax refund fast is to file early — and file electronically. Typically, you can get a refund within 21 days after the IRS has accepted the return, provided there are no mistakes on the tax form.

Here are 10 things every taxpayer needs to know about filing taxes this year.

1. Taxes are due April 15

Believe it or not, federal income taxes haven’t been due on April 15 since the 2019 filing season, thanks to various holidays, quirks of the calendar and other unusual events, (think: pandemic). For the 2024 filing season, however, the deadline is April 15 — with a few exceptions.

If you lived in a declared disaster area, the IRS may have given you an extension. You can find the areas with extensions available through the IRS. Residents of Maine and Massachusetts have until April 17 due to respective state holidays.

2. It’s easy to get an extension

You can get an automatic filing extension for your 2023 tax return until Oct. 15. All you have to do is fill out and file IRS Form 4868 by April 15. The catch – and it’s a big one – is that you must pay your taxes by April 15, even if you have an extension. But you’ll dodge the failure to file penalty, which is much higher than the failure to pay penalty.

The penalty for late filing is 5 percent of the amount due each month, and the failure to pay is 0.5 percent a month, and maxes out at 25 percent. (When both penalties are levied in the same month, the total penalty is 5 percent a month: 4.5 percent for failure to file and 0.5 percent for failure to pay.) You’ll also owe 8 percent interest on the unpaid taxes.

3. There’s a special tax form for seniors

If you’re having trouble reading IRS Form 1040 — your main income tax form — consider IRS Form 1040 SR, U.S. Tax Return for Seniors, which is designed for older taxpayers with aging eyes. The form has larger type than the regular 1040. It also has a chart for calculating your standard deduction — a good way to ensure that taxpayers 65 and older take the larger standard deduction to which they are entitled.

4. You get a higher standard deduction if you’re 65 or older

The standard deduction reduces your taxable income — and by quite a lot. The standard exemption for single filers and for those who are married but filing separately is $13,850 in the 2023 tax year, up $900 from the 2022 tax year. For married filers, the standard exemption is $27,700, up $1,800 from 2022.

The standard deduction gets even better if you’re 65 or older. Each joint filer 65 and older can increase the standard deduction by $1,500, for a total of $3,000 if both joint filers are 65-plus. In total, a married couple 65 or older would have a standard deduction of $30,700. Single filers 65 or older get an extra $1,850 standard deduction.

5. Charitable contributions can be hard to deduct

One thing that’s not so swell about the standard deduction: It makes it harder to claim itemized deductions, such as charitable donations. A married couple who are both 65 or older would need $30,700 in deductions to make itemizing worthwhile.

In the 2021 tax year, a married couple could deduct $600 of charitable gifts without itemizing. Sadly, that deduction has vanished from the tax code.

6. You can deduct some items without itemizing

You can still take some deductions without itemizing, thanks to above-the-line deductions (known to the cognoscenti as “adjustments to income.”) The line in question is Line 12 on the 1040 form, where you would put itemized deductions if you had any. But if you look above Line 12, you’ll see a host of above-the-line deductions, such as:

• Unreimbursed expenses for teachers
• Business expenses of reservists, performing artists and fee-based government officials
• Contributions to a health savings account (HSA)
• Moving expenses for members of military.
• The deductible part of self-employment tax.
• Contributions to self-employed SEP, SIMPLE, and qualified retirement plans.
• Health insurance premiums for self-employed people
• Penalties on early withdrawal of savings
• Alimony payments (for divorce agreements dated before Dec. 31, 2018)
• Contributions to a traditional IRA
• Student loan interest

7. File electronically to get your tax return faster

The IRS says it usually takes three weeks to get your return if you file electronically. In these days when you can use your bank card in Siberia, three weeks might seem a bit slow. And it is. But you’ll have to wait at least four weeks to get your return if you file by paper. And if your return requires corrections, you might have to wait longer.

8. File early to guard against fraud

If someone has stolen your identity, they can steal your tax return too. All they have to do is file before you do, and your refund check will soon be winging its way over to them. Getting that corrected will take much longer than just filing a return.

If you’re worried about identity theft or tax fraud, ask the IRS for a personal identification number (PIN). It can help keep a fraudster from getting a new set of tires with your refund.

9. Track that refund

No more lonely treks to the mailbox every day to see whether your refund is there. (Or, in this modern world, forlornly refreshing the screen on your bank’s website every three minutes to check whether you’re suddenly richer.)

A better way: Use the IRS “Where’s My Refund?” tool online. Once you’ve signed up, you can virtually watch your tax return go through the tax system. You can use the time you’ve saved dreaming about what to spend your refund on.

10. Get free tax help

You can get free tax help in a number of places, including:

AARP Foundation Tax-Aide is targeted at older taxpayers with low to moderate income. The free service will be live in early February; you can find Tax-Aide locations through the IRS or through AARP.

The IRS Volunteer Income Tax Assistance (VITA) offers free tax help for taxpayers who qualify at thousands of sites across the country. Typically, those who qualify make $64,000 or less. You can also get free tax software from many different companies, provided your adjusted gross income is $79,000 or less. (Adjusted gross income is your income minus deductions, or “adjustments” to income that you are eligible to take). The companies guarantee accurate computations, and some also offer free state tax return software. You can find the free software through the IRS.

https://www.aarp.org/money/taxes/info-2024/filing-tax-return-tips.html

A few reasons to consider buying an annuity include the tax advantages, income for life and customization options for added benefits. The Annuity.org editorial team interviewed annuity buyers and financial experts to understand the best reasons to purchase one and how annuities can safeguard your financial present and future.

Key Takeaways

• Annuities grow tax-deferred and are known to offer competitive rates.
• If you choose a straightforward contract, annuities are a safe and secure investment option.
• Annuities offer a guaranteed lifetime of income with legacy options for your loved ones.
• Some annuities allow riders, which customize annuities with additional benefits, like long-term care and disability coverage.
• Annuities diversify your portfolio and can improve your potential returns.

Annuities Have Tax Benefits and Good Rates

Many investors buy annuities for their unique tax advantages. Annuities grow tax-deferred, meaning your dividends, interest and capital gains all remain untaxed while held in the annuity. Your funds will only be taxed when withdrawn. Moreover, if you drop to a lower tax bracket in your retirement years, you’ll be taxed less compared to what you’d be taxed today.

Michael M. purchased an annuity from Annuity.org because he found its tax benefits to be a standout feature.

“One thing about an annuity is that you don’t have to pay taxes until you actually get the interest dividend from the account. So, you can accumulate until you decide to withdraw, and then it will be taxed,” he said.

When asked if Michael feels he benefits from his annuity, he said, “Oh yeah, definitely. It fits what I was looking for with a good rate and tax benefits.”

Compared to other investments, annuities can offer higher rates. For example, at the time of his purchase, Michael found annuities to have a better rate than other investments. “Compared to certificates of deposit, annuities get a better rate with protection.”

This isn’t to say annuity rates always beat CD rates. It’s important to research current annuity rates and evaluate them, as well as their features, before making a purchase.

They’re a Safe Investment Option

Annuities are considered a safe investment for several reasons. Most prominently, they are state-protected, endorsed by financial professionals and offer principal protection.

All 50 states, the District of Columbia and Puerto Rico have state guaranty associations that protect annuity owners, if the issuing company goes bankrupt.

But this doesn’t mean you should purchase an annuity from any company. Research annuity companies with high ratings that have little to no risk of going bankrupt. Review our list of the best annuity companies to get a head start.

Annuities Allow You To Leave a Legacy

If structured correctly, annuities can provide guaranteed lifetime income and legacy options.

You can make a lump-sum payment or multiple smaller payments to receive income distributions for life.

Annuities have been projected as the best hedge against longevity risk, according to a Behavioral Case Study for Annuities by T. Rowe Price.

As for legacy purposes, you can purchase an annuity for a child or plan to transfer your own annuity to a child. This could be for your own child or a grandchild.

Our editorial team interviewed two annuity owners, Syble Solomon and Ronnie Zelek, who discussed the lifetime income and legacy benefits of their annuities.

Not every annuity contract is the same. It’s important to meet with a financial advisor to determine what annuity type will offer you the best level of income protection and legacy options.

They’re Highly Customizable

Annuities are customizable with options to include riders, negotiate contract details and select portfolio indexes. Annuity customization options vary, depending on the annuity type and issuer.

Riders can be added to your annuity contract to achieve extra benefits. Some riders provide additional income in the event you become disabled or require long-term care coverage. Other riders protect against inflation via adjustable payments. Some companies offer riders for free, but most charge additional fees.

Michael M. found the rider customization benefits useful.

“I have a couple of riders on an annuity. I’m happy with my decision. There are specific benefits you can select. It might cost you more, but it’s worth it,” Michael M. told Annuity.org.

You can determine how your annuity pays out and other important features of your contract details. For example, some annuities allow coverage for two people in a single contract. If one person passes away, the second will continue to receive their payments.

The other way annuities are customizable relates to selecting indexes. This feature only pertains to indexed annuities, which provide payments that can increase, depending on the performance of a specified market index. Some companies offer a wide range of indexes to choose from, while others only offer a few options.

Annuities Diversify Your Portfolio

Buying an annuity diversifies your portfolio, which usually reduces risk and leads to higher long-term returns.

Chris Magnussen, a licensed insurance agent, offered his take on the benefits of diversifying your portfolio with an annuity.

“Purchasing an annuity can have a very positive impact on your retirement portfolio. It can be seen as that foundation that you build upon. Purchasing an annuity will remove a lot of risk from your overall investments,” Magnussen said.

You may have heard of the phrase “Don’t place all your eggs in one basket.” In this case, the basket is your portfolio, and an annuity is one of the eggs. You can have many different eggs, such as money market accounts, certificates of deposit and stocks. However, to achieve the greatest diversification benefit, each of the eggs in your portfolio should exhibit a unique risk profile.

Michael M. purchased his annuity partially for diversification reasons. “I did some research. I read about the pros and cons based on my needs. I made a decision that I want a portfolio of different things, so it’s not all in one basket.”

Remember, not everyone has the same diversification goals. Think about how much you need to save for your retirement, how much risk you are comfortable assuming and how many investments you can simultaneously juggle.

If any of the reasons to purchase an annuity resonate with you, reach out to a licensed financial advisor to determine whether an annuity could fit in your portfolio.

https://www.annuity.org/annuities/buy/reasons-to-buy/

Not only can these insights save you a boatload of stress later in life, but they can help ensure that you have a happy retirement.

Planning for retirement is tricky. There can be a lot of uncertainty involved. You try to make good decisions with the information you have, save what you think you’ll need and hope for the best. But often, you don’t truly know if you’ve made the right calls until you’re actually retired.

Many Americans are feeling uncertain these days, according to the Employee Benefit Research Institute’s 2023 Retirement Confidence Survey. Only 18% of workers and 27% of retirees feel “very confident” they will have enough money to live comfortably throughout retirement.

In my years working with financial advisers and talking to those nearing retirement, I’ve learned a lot about what works and what doesn’t. Through these experiences, I’ve gathered insights that many find out too late.

As you prepare for retirement, here are the five crucial things I’ve learned that people wish they’d known sooner.

1. The value of good, trustworthy financial advice.

Selecting a financial adviser is a pivotal decision, yet many choose based on a friend’s tip or stick with their workplace’s 401(k) representative. These advisers, while knowledgeable, may prioritize their company’s interests over your financial health and offer limited advice confined to your employer’s plan.

The wiser course? Hire an independent, fee-only financial adviser who offers comprehensive services, including critical tax and cash flow planning. Plus, this person has no ties to specific funds or investment products and will offer strategies aligned with your unique goals, potentially saving you significant amounts in unnecessary fees.

For example, using low-cost, tax-efficient ETFs could keep over $100,000 in your pocket instead of lost to fees from pricier investments recommended by commission-based brokerage advisers. Wealthramp is a service I created specifically for consumers looking for fee-only advice.

A sound adviser relationship keeps you invested even when markets falter and, overall, helps guide you to make smarter money decisions. This is not just about immediate savings — it’s also about future cash flow and tax planning that fortifies your retirement security.

2. You don’t need a big income to start saving and investing.

A common roadblock many face is the belief that they don’t earn enough to start investing for retirement, or that a small amount doesn’t matter. This misconception can lead to missed opportunities that compound over time, just like the investments we forgo.

The truth is, waiting to save because you anticipate higher earnings in the future is a gamble on time you can’t afford. The power of compounding interest means that even small, consistent investments can snowball into significant sums over time. This is a certainty you can count on. For example, investing just $50 a month at a 7% annual return will grow to over $23,000 in 20 years. Now, imagine if you increase that amount as your income grows.

Furthermore, if you invest in a tax-advantaged account like a Roth IRA, which allows tax-free withdrawals in retirement, or a traditional IRA and 401(k), which invest pre-tax dollars, you’re effectively using tax savings to boost your retirement fund. In other words, money that would have gone to taxes is now working for you.

Let’s not forget the potential boost from employer matching in your 401(k), which is essentially free money. Even if your employer matches only 50% of your contributions up to a certain percentage of your salary, this can significantly increase the growth of your retirement savings.

3. How much catch-up contributions can be a game-changer.

Reaching your 50s can come with a jarring realization: Retirement is closer than you think, and your savings may not be on track. It’s at this stage that catch-up contributions can become a game-changer, potentially making the difference between an uncertain financial future and a comfortable retirement.

In 2023, the IRS permits those 50 and older to contribute an additional $1,000 to an IRA on top of the standard $6,500 limit, a modest increase that can have a substantial impact over time.

For self-employed individuals over 50 with a SIMPLE IRA, there’s an even greater opportunity: You can contribute an extra $3,500 above the $15,500 limit. As for 401(k) contributions, you can not only max out at $22,500 but also add an additional $7,500, allowing for a total of $30,000 per year in pre-tax savings.

Despite these incentives, according to Vanguard’s How America Saves report, only 16% of retirement savers make these additional contributions. If you start making the maximum catch-up contributions at age 50 and earn a 7% annual return, you could increase your retirement savings by about $97,000 by the time you turn 65.

For those with higher incomes — over $145,000 in 2024 — the advantage shifts in 2024 to Roth IRA catch-up contributions. While Roth contributions don’t offer an immediate tax break, they do promise tax-free growth, which can be significantly advantageous for those in higher tax brackets.

4. There really is a right amount of insurance coverage.

One of the less talked about aspects of financial planning is the balance of having just the right amount of insurance — not too much and not too little — at each stage of your life.

Throughout your working years, you could be paying for insurance that’s unnecessary, and these excess premiums can amount to a substantial sum over time. How can you tell if your coverage levels are appropriate? Unfortunately, you’re unlikely to get an unbiased evaluation from someone who profits from selling you more insurance.

As retirement nears, you’ll likely be bombarded with pitches for life insurance and annuities. The biggest mistake you can make is letting the fear of insufficient retirement savings drive a decision to buy an annuity that’s complex and truly not appropriate. Insurance offerings are not investments. They are dense legal contracts where the critical information buried in the fine print is easily overlooked or misunderstood due to the complexity.

To navigate the insurance landscape, seek the counsel of an independent fee-only financial adviser (who doesn’t sell insurance) to provide a comprehensive review of your family’s insurance needs. They can help you determine the precise level of protection you need, without the conflict of interest inherent in commission-based selling.

5. The importance of having your affairs in order at all ages.

Estate planning is crucial for everyone, not just the wealthy, and it’s best handled sooner rather than later. On some level, you may know this, but somehow people tend to ignore the task. These documents are not just for distributing your assets; they are essential tools for decision-making in times when you might not be able to express your wishes. Whether it’s a health care proxy, power of attorney or living will, these legal instruments are the only way your loved ones can possibly know your desires and can respect your wishes regarding life-or-death medical decisions and end-of-life care.

Furthermore, if you’re planning to leave money or property to loved ones, consider the benefits of doing so while you’re still alive. This can not only provide you with the joy of seeing them use and appreciate your gift but also can be a wise move for tax purposes.

Without these documents, you leave the distribution of your estate and the decision-making at critical moments to the state’s default laws. This abdication of control can lead to outcomes you never intended. Ultimately, having your affairs in order is a straightforward act of responsibility and kindness to your family.

Retirement planning is a multifaceted journey that demands attention to detail, a proactive mindset and a willingness to seek and follow expert advice. Take these lessons to heart, and you’ll be better equipped to navigate the road to retirement with confidence.

https://www.kiplinger.com/retirement/what-i-wish-id-known-before-i-retired

When setting up your financial retirement plan, you’ll likely consider various options for how you plan on covering the bills in your golden years. With soaring inflation and aggressive rate hikes from the Fed, annuities have become more popular recently, as those close to retirement try to figure out how to ensure they don’t outlive their savings. According to the New York Times, the sales of annuities surged 22% in 2022 to reach around $310 billion. As of the second quarter of 2023, the total retirement assets in annuities were around $2.29 trillion.

Even though annuities can be a confusing investment, there are many situations where they can be the right move, since you’re trading in a lump sum today for guaranteed income payments in the future. Here’s a look at why you may want to consider annuities in your retirement plan.

Annuities Offer a Reliable Income Stream

“Annuities offer a reliable and guaranteed income stream, providing financial stability during retirement,” said Cameron Burskey. “This can be particularly valuable in a volatile economic environment, as it ensures a steady flow of income regardless of market fluctuations.”

In your golden years, you’ll likely not want to stress about the market. As demonstrated in the last few years, the stock market can have heavy swings, and this could be difficult to manage when you’re trying to set a budget. Even though the degrees of risk vary with different kinds of annuities, as a whole, they can handle most economic fluctuations.

Annuities will provide you with a reliable income stream so that you don’t have to worry about covering your bills, since you’ll still have expenses to worry about. Sometimes, it’s more important to have consistency in your financial plan than anything else.

You Don’t Have To Worry About Running Out of Money

“With increasing life expectancy, there’s a concern about outliving one’s savings,” Burskey stated. “Annuities, especially those that provide lifetime income options, help mitigate the risk of running out of money during a longer-than-expected retirement.”

With people living longer, planning for retirement can be challenging, since you’re not exactly sure how long you need your money to last. If you rely on an investment portfolio heavily exposed to the stock market, you could eventually run out of money as you dip into your funds.

There are different types of annuities, but the main advantage of most is that you won’t have to worry about running out of money in retirement. You can turn a lump sum of cash into guaranteed income with annuities, which could be the best option for some.

Annuities Diversify Your Retirement Portfolio

“Including annuities in a retirement portfolio also adds diversity, balancing risk exposure,” according to Burskey. “While other assets, like stocks and bonds, are subject to market fluctuations, annuities can offer a more stable and predictable component to the overall investment mix.”

If you’re a risk-averse investor, you may not want to deal with the stress of price fluctuations. Purchasing a type of annuity would diversify your retirement portfolio, so you’re not overexposed in one segment.

Annuities Can Help With Tax Planning

“Some annuities even provide tax advantages,” remarked Burskey. “For instance, certain types of annuities offer tax-deferred growth, meaning that the earnings on the investment are not taxed until withdrawals are made. This can be advantageous for individuals looking to optimize their tax strategy in retirement.”

With a deferred annuity, the interest that you earn won’t be subject to taxes until there’s a withdrawal. This option lets your investments grow faster.

You Don’t Want To Stress About Your Expenses

“The guaranteed income feature of many annuities can help eliminate the worry of funding a certain portion of these future expenses,” said Paul Tyler.

One of the biggest struggles about financial planning for your retirement is figuring out how you’ll cover your expenses, since you no longer have a steady income from your employer. You also want to ensure that you have enough money to cover all your expenses.

“A good retirement plan addresses both sides of one’s personal balance sheet — both assets and liabilities,” shared Tyler. “Most advisors focus on growing assets through stocks, bonds and other types of investment vehicles. Annuities help address the future liabilities of retirement — like paying for health care and general living expenses.”

You’ll want to create your retirement budget based on your expected costs in your golden years. This will require you to look at the expenses associated with health care and basic living. Then, you want to ensure you have enough money to be in a strong financial position.

You Don’t Have a Pension

If you’re not going to have a pension coming in during retirement, you may want to look into an annuity for guaranteed income. Since you’re giving your insurance company a significant lump sum, they’ll provide you with a guaranteed monthly income for life.

As a self-employed person or someone who doesn’t have access to a pension, you could use an annuity to provide you with the peace of mind of guaranteed payments in your retirement.

Closing Thoughts

“Before incorporating annuities into a retirement plan, it’s important to carefully assess individual financial goals, risk tolerance and the specific terms of the annuity contract,” Burskey shared. “Consulting with a financial advisor can help tailor an annuity strategy that best suits an individual’s unique circumstances and retirement objectives.”

It’s essential to remember that annuities can be confusing investment products, so you’ll want to take the time to understand them better. You’ll also want to work with someone you trust regarding retirement planning, since everyone has a unique situation.

https://www.nasdaq.com/articles/6-reasons-annuities-should-be-part-of-your-retirement-plan-in-2024

“The future ain’t what it used to be,” the inimitable Yogi Berra once said.

Yogi knew the future is unpredictable. No one in 2019 could have predicted a devastating worldwide pandemic in 2020.

Nevertheless, we can look to the past for hints on how the next year may play out. Today, history suggests that financial risk reduction is a sound strategy for 2024, especially if you’re within 10 years of planned retirement or are already retired or semiretired. It’s always a good strategy for this age group but is especially germane today.

The presidential election is the big event of 2024, and control of the House of Representatives and the Senate is up for grabs, too.

That doesn’t mean it will necessarily happen in 2024, but it’s worth considering. Elections bring uncertainty, and that typically causes volatility in the financial markets.

Why risk reduction is important

In your younger years, once you’ve put aside sufficient emergency funds, getting long-term growth should be your top priority. You can afford to weather the ups and downs of the stock market because retirement is decades away.

But as you approach retirement, your top priority normally shifts to principal preservation and securing future income to replace your salary or business earnings when you’re no longer working. You’ll want to have some growth, too, but it becomes secondary for most retirees.

Stock market risk

Securing dependable income is crucial. Some people think that when they need retirement income, they’ll just sell their stocks. That works out fine when the market is up, but if you’re forced to sell at just the wrong time when the market is down, you can take a bath and ultimately run the risk of running out of money entirely.

Just think if you needed to sell a lot of your equity holdings in the spring of 2020 when COVID-19 sent the market into a tailspin.

In recent years, the stock market recovered relatively quickly. If you were financially and psychologically able to weather the severe bear market starting in 2008 and stayed invested, you benefited from the long bull market that followed.

But while the stock market has always performed well over the very long term, weak markets sometimes have lasted for more than a decade. It could happen again.

Interest rate risk

This is a lesser-known risk. It’s the risk that when you reinvest your money in the future, you’ll get a substantially lower rate than today.

For instance, let’s say you’re getting 5.10% on a one-year bank certificate of deposit (CD) or a money market fund. But in December 2024, what rate will you get? No one knows, but it will probably be lower. Today’s historically high rates aren’t likely to last.

There will be a recession sooner or later. No one can predict when it will happen. But when it does, the Federal Reserve will slash rates, and savers will be stuck with very low rates on their money.

Solutions for both types of risk

Managing stock market risk is in one sense straightforward. First, find out your current asset allocation and then see how it compares with a recommended range for your age. For instance, if you’re 65 and have 70% in stocks, most experts would say you have too much in equities.

So let’s say you decide on a 50-50 allocation between stocks and fixed income, which includes bonds, annuities, CDs and money market funds. You’ll need to sell off some of your stock and stock funds to get to your target. Be tax-smart when you do, and if you’re not sure how to proceed, consult with a tax professional.

Once you’ve reduced your stock holding, you have a “good” problem: What do you do with that pile of cash? Admittedly, there’s not as much urgency to decide because money market funds now pay an appealing rate in the interim. But don’t wait too long. You could lose out on an opportunity.

And here’s how you can reduce interest rate risk: put some of your money in savings vehicles or investments that guarantee your rate for many years. Doing so will protect you from the risk of lower rates over at least the next few years.

Of course, by tying up your money, you do run the risk that interest rates may go up in the future. While that’s a possibility, today’s rates are higher than historical averages, so that risk is probably low. The 10-year Treasury note’s yield has fallen significantly in recent weeks, and that’s considered an indicator. And even if rates rise slightly, in the interim, you’ll be earning a great rate.

Getting a high guaranteed long-term rate

Let’s say you’re interested in guaranteeing an interest rate for 10 years. What are some of your main options?

One attractive option is a 10-year Treasury. As of January 2024, it was yielding around 4.00%. A Treasury is safe and exempt from state income taxes.

Most banks don’t offer 10-year CDs, but according to Investopedia, two banks were recently offering a 4.00% APY. CDs are covered by the FDIC up to $250,000. (For more information, see Kiplinger article Best CD Rates for January 2024.)

However, if you’re willing to consider a popular alternative, you can earn more with a fixed-rate annuity (also called a multi-year guarantee annuity) issued by a highly rated insurance company. The MYGA is the insurance industry’s version of a CD. It also guarantees a set rate for the term you choose, typically two to 10 years.

According to this table of annuity rates, as of January 2024, you can find a 10-year annuity paying 6.00%. If you’re not comfortable with 10 years, one insurer offers 5.95% on a five-year MYGA.

Another plus: All interest earned in a nonqualified annuity is tax-deferred until withdrawn. There are, however, tax penalties for taking interest out before age 59½.

If you’re looking to reduce your financial risk in 2024, start planning for it now. There are good ways to redeploy some of your savings and get a good, guaranteed rate for the long term.

https://www.nasdaq.com/articles/retired-or-nearly-retired-2024-is-the-time-to-focus-on-risk-reduction

Inflation adjustments and the phase-in of Secure 2.0 provisions have implications for retirement savers and retirees alike.

The dawning of 2024 will usher in more changes than usual on the retirement-planning front. As is typical with the turn of the calendar page, inflation will drive upward adjustments to tax brackets, retirement contribution limits, estate and gift tax exemption amounts, and more. In addition, the retirement legislation known as Secure 2.0 will continue to phase in, with implications for retirement savers and retirees alike.

Here’s a roundup of some of the key retirement-related changes to watch out for in 2024, as well as any planning-related moves to consider.

Higher Tax Brackets

Thanks to higher inflation, the income limits for tax brackets will be increasing in 2024. These changes affect the income thresholds for both income and capital gains taxes. The top marginal income tax rate is 37%, for example, but it applies to single filers with incomes of $609,350 or more and married couples filing jointly with $731,200 or more in income. (In 2023, those thresholds were $578,125 and $693,750, respectively.)

Potential Action Items

Realizing capital gains in the 0% range: Higher income thresholds may enhance the opportunity to sell appreciated securities without any capital gains taxes. For 2024, the 0% capital gains tax rate applies to single filers earning less than $47,025 and married couples filing jointly with incomes of less than $94,050.

Assessing the appropriateness of Roth conversions: You’ll owe ordinary income tax when you convert traditional IRA and 401(k) balances to Roth, but higher income thresholds provide additional headroom to convert without pushing yourself into a higher tax bracket. A series of smaller conversions can often make sense, especially in the postretirement, prerequired minimum distribution phase.

No Required Minimum Distributions on Roth 401(k)s

Owing to the legislation dubbed Secure 2.0, Roth 401(k)s will no longer be subject to required minimum distributions starting in 2024, which puts them on an equal footing with Roth IRAs.

Potential Action Item

It’s more like a nonaction item. In the past, an easy way to address that Roth 401(k)s were subject to required minimum distributions was to roll those assets into a Roth IRA upon retirement. (Roth IRAs don’t have RMDs.) Now, though, Roth 401(k) investors with particularly good plans (minimal costs, stellar investment options) shouldn’t feel any urgency to move assets out of their plans. This provision will become especially important to younger savers who have been able to contribute to Roth 401(k) plans for longer.

Higher Contribution Limits for Savers

Here’s another set of changes that relate to inflation: Contribution limits to retirement accounts are increasing slightly for 2024. Company retirement plan contributions—whether 401(k), 403(b), or 457—are going up to $23,000 for people under age 50 and $30,500 for savers who are 50-plus. Meanwhile, IRA contribution limits are going up to $7,000 for people under 50 and $8,000 for people who are 50-plus. The total 401(k) contribution limit—of particular interest to people contributing to aftertax 401(k)s—is $69,000, plus an additional $7,500 for savers over 50. Contributions to health savings accounts, which can be employed as stealth retirement accounts, are increasing as well, to $4,150 for people covered by an individual high-deductible health plan and $8,300 for people with family HDHP coverage. HSA savers who are 55 and older can contribute an additional $1,000. Note that the income limits that determine eligibility to make Roth IRA or deductible traditional IRA contributions have also increased to account for inflation.

Potential Action Item

If you haven’t revisited your company retirement plan and/or HSA contributions for a while, now is a good time to do so, especially if you’re in a position to make the maximum allowable contributions to your account(s). While you’re at it, make sure you’re maximizing any employer-matching contributions that you’re eligible to receive. And if you’ll turn 50 in 2024, remember that you don’t need to wait until your birthday to make catch-up contributions. I’m a big fan of putting IRA contributions on autopilot with your investment provider, making automatic monthly contributions, just as you do with your 401(k). To make the maximum allowable IRA contribution in 2024, you’d need to contribute $583 monthly if you’re under 50 and $666 a month if you’re 50 and over.

Higher Qualified Charitable Distribution Limit

People over age 70.5 can contribute $105,000 to charity via the qualified charitable distribution, or QCD, in 2024. While the QCD limit had been stuck at $100,000 for a number of years, Secure 2.0 indexed the limit to inflation. Secure 2.0 opened the door for people to use a charitable gift annuity.

Potential Action Item

Given that nearly 90% of taxpayers aren’t itemizing their deductions, the QCD is a gimme for charitably inclined people 70.5 and older who have IRAs. Contributed amounts skirt income taxes and also satisfy required minimum distributions for those who are age 73 or above. The QCD will tend to be a better deal, from a tax standpoint, than writing a check to charity and deducting it on your tax return.

Higher Estate, Gift Tax Thresholds

The amount of an estate that’s exempt from estate tax will increase to $13.61 million per person in 2024. That means that married couples can effectively shield more than $27 million from the federal estate tax. Meanwhile, the gift tax exclusion is increasing to $18,000 ($36,000 for couples) in 2024. That means that individuals can gift up to $18,000 to each recipient without having that amount count toward their gift-tax exclusion.

Potential Action Item

For people with very high levels of assets, it’s worth looking toward the end of 2025, when key provisions of the Tax Cuts and Jobs Act are set to expire. Among those provisions are the currently high levels of assets that are exempt from the federal estate tax. Barring congressional action, the estate tax exemption will snap back to pre-Tax Cuts and Jobs Act levels in 2026—approximately $7 million per person and $14 million for couples. And state estate tax thresholds are substantially lower in many cases. A qualified estate planner can help you determine the best strategies to reduce taxation on your estate (not to mention help with other crucial matters such as drafting powers of attorney).

529 Rollover to Roth IRA

Another provision of Secure 2.0 goes into effect starting in 2024: rollovers of unused 529 assets to a Roth IRA. Provided a 529 beneficiary has owned the 529 for at least 15 years, up to $35,000 can be rolled into a Roth IRA, subject to the beneficiary’s annual IRA income contribution limits. In 2024, that’s $7,000 for contributors under age 50. The $35,000 is a lifetime limit, meaning that someone with $35,000 in unused 529 assets could roll over $7,000 per year (today’s contribution limit) over a five-year period.

Potential Action Item

The ability to roll over unused 529 assets to a Roth IRA is an elegant solution in situations when the beneficiary received a scholarship or didn’t go to college. Moreover, the escape hatch can help allay parental worries about oversaving in a 529.

More Flexibility for 401(k) Savers

Several provisions related to retirement plans go into effect in 2024, all resulting from Secure 2.0. In particular, companies will be able to make matching retirement plan contributions for employees who are paying down their student loans. In other words, the employee’s dollars go toward debt paydown, whereas the employer’s match goes into the retirement plan. Secure 2.0 makes it possible for employers to earn a tax break on that type of match. The specific matching formula—and whether the employer matches at all—depends on the employer.

Additionally, Secure 2.0 allows plans to offer options to help employees deal with emergency expenses. Plans can now offer what’s called a “sidecar fund” to enable employees to save for unexpected expenses; contributions would be capped at $2,500 or even lower and must be parked in investments that offer principal protection. Another option would allow employees to withdraw up to $1,000 per year for emergency expenses without the usual 10% penalty that applies to early withdrawals.

Potential Action Item

Not all plans will add these features right out of the box, if at all. If they’re of interest to you, reach out to the person or team that handles benefits in your organization.

Prescription Drug Costs

Mark Miller outlined some of the key changes to prescription drug costs for seniors who are covered by Medicare. Specifically, some provisions of the Inflation Reduction Act of 2022 should reduce seniors’ out-of-pocket drug costs.

Long-Term-Care Premium Deductibility

Long-term-care insurance has declined in popularity, but there are still millions of policies in force. The amount of long-term-care insurance premium that one can deduct is actually going down a bit in 2024 relative to 2023. People who are age 40 or under can deduct $470 in long-term-care premiums in 2024; those aged 41 to 50 can deduct $880; people aged 51 to 60 can deduct $1,760; those aged 61 to 70 can deduct $4,710; and those 71 and older can deduct $5,880.

https://www.morningstar.com/retirement/whats-changing-retirement-2024

How changes in Social Security, Medicare, taxes and more will affect your finances

For most people, retirement finance is a delicate balance between income that’s likely less than what you made while working and expenses that may be lower in some areas (no more commuting) but considerably higher in others (more prescriptions and doctor visits).

Year-to-year changes in areas key to retiree life — Social Security benefits, Medicare premiums, tax and savings policies geared for older adults — can have a big impact on that balance, especially as they interact with economic shifts such as higher inflation or a market downturn. Here are seven things to know about your retirement money for the coming year.

1. Social Security payments

Social Security recipients will see their monthly payments rise by 3.2 percent as the 2024 cost-of-living adjustment (COLA) kicks in. The estimated average retirement benefit will go up by $59 a month, from $1,848 to $1,907.

The first retirement, disability and survivor benefit payments reflecting the increase go out in January. People receiving Supplemental Security Income (SSI), a Social Security–administered benefit for people who are age 65-plus, blind or have disabilities and have very limited income and assets, will get their first COLA-boosted payment Dec. 29.

The COLA is based on changes in prices for a set of consumer goods and services in the third quarter of 2023 compared to the same period the year before. Inflation slowed considerably over that time, producing a relatively modest COLA compared to 2022’s 8.7 percent increase, a 40-year high.

The 3.2 percent benefit boost should still provide a measure of protection against rising prices — particularly if the inflation rate continues inching down toward 2 percent in 2024, as the Congressional Budget Office projects — although for many beneficiaries its effectiveness could be slightly undercut by …

2. Medicare costs

After coming down by 3 percent in 2023,  standard premiums for Medicare Part B are going back up in 2024, from $164.90 to $174.70 per month, a 6 percent increase.

Most Medicare enrollees have their premium payments for Part B, the portion of original Medicare that covers doctor visits and other outpatient treatment, deducted directly from their Social Security payments.  For this group, the premium increase takes a $9.80-a-month bite out of the COLA benefit boost.

The annual deductible for Part B is also increasing, from $226 to $240.

Medicare enrollees who have Medicare Advantage (MA) coverage or Medicare Part D prescription drug plans are expected to see little change in what they pay. These plans are provided by private insurers so costs vary, but Medicare officials estimate that the average monthly premium for an MA plan will go up by 64 cents, from $17.86 to $18.50 (and that most enrollees will not see any increase);and Part D plans will cost an average of $55.50 a month, down from 2023’s $56.49.

3. Retirement plan contributions

If you are 50 or older, you can put up to $8,000 into an individual retirement account (IRA) for the 2024 tax year. That includes the $1,000 catch-up contribution available to older savers. The cap for people under 50 is $7,000. In both cases, the contribution limit has been bumped up by $500 from 2023.  (By the way, you can still make your contributions for the 2023 tax year — the deadline is April 15, 2024.)

The IRA catch-up limit is now pegged to inflation under a provision of the SECURE 2.0 Act of 2022, a federal law aimed at expanding Americans’ opportunities to save for retirement, but that did not produce an increase for 2024; the $1,000 cap is the same as in 2023.

Contribution limits also go up for people with workplace retirement plans. Those age 50-plus can contribute up to $30,500 this year to a 401(k), 403(b), and most 457 plans, or (for federal government workers) a Thrift Savings Plan. That’s $500 more than the 2023 cap. The contribution limit for younger adults goes up from $22,500 to $23,000.

Starting in 2025, there will be a new higher contribution cap for people ages 60 to 63.4. RMDs

Required minimum distributions (RMDs) are a fact of later life for holders of most types of retirement savings accounts. (The notable exception is Roth IRAs, which are not subject to annual required withdrawals while the owner is alive. Starting with the 2024 tax year, this exception will also apply to Roth 401(k) and 403(b) accounts.)

The IRS uses a calculation based on the account balance and your life expectancy to determine the minimum you must take out each year. You’ll owe federal income taxes on the withdrawal, at your regular tax rate.

Most people subject to RMDs must make their withdrawal for the tax year by the last day of that year. In your first year of eligibility, however, you have until April 1 of the following year. SECURE 2.0 bumped the mandatory age for starting RMDs from 72 to 73, effective in 2023. (The minimum age will ultimately go up to 75, but not until Jan. 1, 2033.)

Thus, if you will turn 73 in 2024, you have until April 1, 2025, to make your first RMD. Anyone who is already 73 or older by the start of 2024 must make their withdrawal by the year’s end.

The penalty for failing to make your RMD in time is 25 percent of the amount by which your withdrawal fell short of the required minimum. That can be reduced 10 percent if you make good the full withdrawal and file a revised tax return in a timely manner.

5. Standard tax deduction

Most taxpayers take the standard deduction rather than itemizing on their tax returns. For the 2023 tax returns they must file by April 15, 2024, married couples in that majority can take $27,700 off their taxable income, up from $25,900 the year before. For individual taxpayers (single or married filing separately), the standard deduction increases from $12,950 to $13,850. Those filing as a head of household can deduct $20,800, up from $19,400 the previous year.

You get a bigger standard deduction if you or your spouse is 65 or older:

•  $1,850 more for a single filer or head of household (up from $1,750 for the 2022 tax year).
• $3,000 more for a couple filing jointly (up from $2,800).

6. Full retirement age

Congress voted in 1983 to gradually raise the Social Security full retirement age (FRA) from 65 to 67.  Four decades on, the change is nearly complete, with FRA reaching 66 and 8 months in the latter half of 2024.

For the past few years, FRA — the age when you become eligible to claim 100 percent of the retirement benefit calculated from your lifetime earnings — has been going up two months at a time, based on year of birth.

For people born in 1957, FRA is 66 years and 6 months. If you were born from July through December 1957, you will hit the milestone by the end of June 2024. The first children of 1958 will become eligible to claim their full retirement benefit in August. FRA settles at 67 for people born in 1960 or later.

You can start collecting retirement benefits before FRA — the minimum age is 62 — but your monthly payment will be permanently reduced, by as much as 30 percent.  You can also wait past FRA and reap Social Security’s bonus for delaying benefits: an extra 8 percent a year until age 70.

7. Social Security earnings test

If you claim Social Security retirement benefits before reaching FRA and continue to do paying work, your benefits may be temporarily reduced. That depends on whether your annual working income exceeds a set limit called the earnings test.

For 2024, that limit increases from $21,240 to $22,320 for beneficiaries who will not reach FRA until a future year. Social Security withholds $1 in benefits for every $2 in earnings above the cap.

If you will reach FRA this year, the income threshold is higher ($59,520, up by $3,000 from 2023) and the withholding lower ($1 less in benefits for every $3 above the limit).  When you reach FRA, the earnings test ends; there’s no withholding regardless of how much you earn, and Social Security recalculates your benefit amount to make up for the past reductions.

https://www.aarp.org/retirement/planning-for-retirement/info-2023/biggest-changes-impacting-retirement-finances-in-2024.html

While inflation has been falling in recent months, seniors remain especially vulnerable to price increases, experts say.

Social Security recipients and others on fixed incomes will soon see a slight increase in their monthly benefit checks from the U.S. government.

Starting in January, the estimated average monthly retirement benefit will increase by 3.2%, or $59 a month, for 2024 — from $1,848 to $1,907.

The new amounts, the result of the agency’s annual cost-of-living adjustment (COLA), will kick in next month on a staggered, weekly basis, according to when a recipient’s birthday occurs.

The latest COLA increase pales in comparison to the 8.7% increase recipients saw for 2023. That’s because inflation has been falling over the past several months. The annual COLA is calculated based on inflation readings for July, August and September. In those months, the relevant measure of 12-month inflation clocked in at 2.6%, 3.4% and 3.5%, respectively.

Yet despite the more recent slowdown of price increases, many Americans on fixed incomes, especially seniors, will continue to struggle financially even as inflation slows into 2024, experts and economists say.

Since mid-2020, average prices in the U.S. have climbed more than 20%. Yet, the total Social Security cost-of-living adjustment has increased just 17.8% over the same period.

“There is some very sticky inflation,” said Mary Johnson, Social Security and Medicare policy analyst for the Senior Citizens League, a nonpartisan advocacy group.

Seniors are especially vulnerable to the rising cost of housing, with the average older person spending 49% of their household budget on shelter, Johnson said. Even as other categories of inflation have slowed or even reversed in recent months, shelter costs have continued to trend upward. In September, a key measure of shelter costs increased by 0.6%, the largest rise since February, after a 0.4% gain in August.

Mark Zandi, chief economist at Moody’s Analytics, said that while many higher-income seniors have likely weathered the recent inflationary period, many low- and middle-income seniors — especially those on fixed incomes — have not.

“It’s been a really tough three or four years, and that continues,” Zandi said of those cohorts.

Next year’s Medicare Part B premium adjustments will further erode savings from those monthly Social Security checks. Following a rare year in which the premium was reduced, the standard monthly Part B rate will increase by about $10 to $174.70.

The formula for setting the annual COLA increase was established some five decades ago. The Senior Citizens League has said that, over time, spending categories that more directly impact seniors, especially health care costs, have increased at a faster rate than others.

The league has calculated that, as a result, Social Security benefits have lost more than 30% of their purchasing power since 2000.

Government economists have created — but not implemented — an alternative index, called the Consumer Price Index for the Elderly (CPI-E), which puts greater weight on senior-focused categories. Currently, there is no active congressional legislation pushing a switch to CPI-E.

The Senior Citizens League nevertheless estimates that a senior who filed for Social Security with average benefits over 30 years ago would have received nearly $14,000 more in retirement if the CPI-E had been used.

However, the CPI-E has slightly trailed standard measures of inflation since the pandemic, climbing 18.4% since mid-2020 — meaning the cost-of-living adjustments seen in recent years would have been slightly smaller.

Still, Johnson and the league say many seniors remain vulnerable, especially since they are less likely to be able to take on additional work to boost income.

“Housing, motor vehicle insurance, the cost of hospitals and care of [disabled persons] at home — these are the savings-draining black holes even when inflation is low,” Johnson wrote in a recent Senior Citizens League report.

“Yet these are the very categories seeing the most persistent and painful inflation right now.”

https://www.nbcnews.com/business/economy/social-security-cola-2024-how-much-cost-of-living-adjustment-when-rcna130396

Yes. If you become disabled after filing early for retirement benefits, you may be able to change to Social Security Disability Insurance (SSDI). Similarly, if you retire early but belatedly discover that an existing condition might have qualified you for a higher disability benefit, you may be able claim it retroactively.

For the vast majority of disability recipients, who claim SSDI before retiring, the question is moot. If you file first for SSDI, at any age, the benefit is calculated as if you were at full retirement age (FRA) — the age at which you qualify for 100 percent of the benefit amount determined by your lifetime earnings. Once you reach FRA, your disability benefit automatically converts to a retirement benefit, in most cases at the same amount.

But suppose you started Social Security at 62, for reasons unrelated to health, taking a reduction in benefits for filing before full retirement age (which is 66 and 6 months for people born in 1957, two months later for those born in 1958, and gradually rising to 67). Six months later, you are diagnosed with kidney disease. You can file for SSDI, and if the claim is approved, you will get a higher benefit, backdated to when you applied for disability. (You will still not get your full retirement benefit, but the “reduction factor” for early retirement will shrink from four-plus years to just the period when you were only eligible for retirement benefits.)

Or, say you claim Social Security retirement benefits at 62 because you can no longer work due to failing eyesight. Your doctor had already diagnosed macular degeneration, but you only learn later that this could have qualified you for SSDI. If you can prove your disability began before you took early retirement, Social Security will retroactively pay up to 12 months of the difference between what you’ve received so far and what you would have gotten under SSDI. (If you applied for disability within a year of starting Social Security, this could mean being restored to your full retirement benefit; after a year, there will be some reduction.)

Because disability claims take months, even years longer to process than retirement claims, some people who turn 62 with significant health issues apply for both benefits at once, so as to have some Social Security income while awaiting an SSDI decision. As above, if your disability application is approved, you will get a higher benefit (though not necessarily your full retirement benefit) and a retroactive payment.

But this is a risky strategy: Disability claims have a high standard of proof and are often rejected, in which case you’ll be stuck with the reduced retirement benefit for life. Consider consulting an attorney well-versed in disability law before pursuing this course.

In all these scenarios, if you switch from retirement benefits to SSDI, the disability amount you are getting when you reach full retirement age becomes your retirement benefit.

Keep in mind

• Retirement benefits are based on your 35 highest-earning years, but people on disability may have had much less time in the work force. In such cases, your SSDI benefit is determined by your inflation-adjusted average earnings from age 21 until the year you became disabled.
• Factors other than those noted in the simplified examples above can play into how Social Security calculates a retirement-to-disability benefit. You can call Social Security at 800-772-1213 or visit your local Social Security office to discuss how switching benefits could affect you.
• Local offices fully reopened after being closed to walk-in traffic for more than two years due to the COVID-19 pandemic, but Social Security recommends calling in advance and scheduling an appointment to avoid long waits.

https://www.aarp.org/retirement/social-security/questions-answers/retirement-to-disability.html

A few reasons to consider buying an annuity include the tax advantages, income for life and customization options for added benefits. The Annuity.org editorial team interviewed annuity buyers and financial experts to understand the best reasons to purchase one and how annuities can safeguard your financial present and future.

Key Takeaways

• Annuities grow tax-deferred and are known to offer competitive rates.
• If you choose a straightforward contract, annuities are a safe and secure investment option.
• Annuities offer a guaranteed lifetime of income with legacy options for your loved ones.
• Some annuities allow riders, which customize annuities with additional benefits, like long-term care and disability coverage.
• Annuities diversify your portfolio and can improve your potential returns.

Annuities Have Tax Benefits and Good Rates

Many investors buy annuities for their unique tax advantages. Annuities grow tax-deferred, meaning your dividends, interest and capital gains all remain untaxed while held in the annuity. Your funds will only be taxed when withdrawn. Moreover, if you drop to a lower tax bracket in your retirement years, you’ll be taxed less compared to what you’d be taxed today.

Michael M. purchased an annuity from Annuity.org because he found its tax benefits to be a standout feature.

“One thing about an annuity is that you don’t have to pay taxes until you actually get the interest dividend from the account. So, you can accumulate until you decide to withdraw, and then it will be taxed,” he said.

When asked if Michael feels he benefits from his annuity, he said, “Oh yeah, definitely. It fits what I was looking for with a good rate and tax benefits.”

Compared to other investments, annuities can offer higher rates. For example, at the time of his purchase, Michael found annuities to have a better rate than other investments. “Compared to certificates of deposit, annuities get a better rate with protection.”

This isn’t to say annuity rates always beat CD rates. It’s important to research current annuity rates and evaluate them, as well as their features, before making a purchase.

They’re a Safe Investment Option

Annuities are considered a safe investment for several reasons. Most prominently, they are state-protected, endorsed by financial professionals and offer principal protection.

All 50 states, the District of Columbia and Puerto Rico have state guaranty associations that protect annuity owners, if the issuing company goes bankrupt.

But this doesn’t mean you should purchase an annuity from any company. Research annuity companies with high ratings that have little to no risk of going bankrupt. Review our list of the best annuity companies to get a head start.

Remember that some annuities can be riskier than others. If you do not want to bear any market risk, a fixed annuity is appropriate. A fixed index annuity or a variable annuity will expose you to elevated levels of risk.

Be sure to compare all types of annuities to find one that exhibits an appropriate risk profile for you.

Annuities Allow You To Leave a Legacy

If structured correctly, annuities can provide guaranteed lifetime income and legacy options.

You can make a lump-sum payment or multiple smaller payments to receive income distributions for life.

Annuities have been projected as the best hedge against longevity risk, according to a Behavioral Case Study for Annuities by T. Rowe Price.

As for legacy purposes, you can purchase an annuity for a child or plan to transfer your own annuity to a child. This could be for your own child or a grandchild.

Our editorial team interviewed two annuity owners, Syble Solomon and Ronnie Zelek, who discussed the lifetime income and legacy benefits of their annuities.

Not every annuity contract is the same. It’s important to meet with a financial advisor to determine what annuity type will offer you the best level of income protection and legacy options.

They’re Highly Customizable

Annuities are customizable with options to include riders, negotiate contract details and select portfolio indexes. Annuity customization options vary, depending on the annuity type and issuer.

Riders can be added to your annuity contract to achieve extra benefits. Some riders provide additional income in the event you become disabled or require long-term care coverage. Other riders protect against inflation via adjustable payments. Some companies offer riders for free, but most charge additional fees.

Michael M. found the rider customization benefits useful.

“I have a couple of riders on an annuity. I’m happy with my decision. There are specific benefits you can select. It might cost you more, but it’s worth it,” Michael M. told Annuity.org.

You can determine how your annuity pays out and other important features of your contract details. For example, some annuities allow coverage for two people in a single contract. If one person passes away, the second will continue to receive their payments.

The other way annuities are customizable relates to selecting indexes. This feature only pertains to indexed annuities, which provide payments that can increase, depending on the performance of a specified market index. Some companies offer a wide range of indexes to choose from, while others only offer a few options.

Annuities Diversify Your Portfolio

Buying an annuity diversifies your portfolio, which usually reduces risk and leads to higher long-term returns.

Chris Magnussen, a licensed insurance agent, offered his take on the benefits of diversifying your portfolio with an annuity.

“Purchasing an annuity can have a very positive impact on your retirement portfolio. It can be seen as that foundation that you build upon. Purchasing an annuity will remove a lot of risk from your overall investments,” Magnussen said.

You may have heard of the phrase “Don’t place all your eggs in one basket.” In this case, the basket is your portfolio, and an annuity is one of the eggs. You can have many different eggs, such as money market accounts, certificates of deposit and stocks. However, to achieve the greatest diversification benefit, each of the eggs in your portfolio should exhibit a unique risk profile.

Michael M. purchased his annuity partially for diversification reasons. “I did some research. I read about the pros and cons based on my needs. I made a decision that I want a portfolio of different things, so it’s not all in one basket.”

Remember, not everyone has the same diversification goals. Think about how much you need to save for your retirement, how much risk you are comfortable assuming and how many investments you can simultaneously juggle.

If any of the reasons to purchase an annuity resonate with you, reach out to a licensed financial advisor to determine whether an annuity could fit in your portfolio.

https://www.annuity.org/annuities/buy/reasons-to-buy/

Get trusted annuities advice, news and features. Find annuities tips and insights to further your knowledge on kiplinger.com.

Rising interest rates are making annuities more attractive to investors, so much so that annuity sales are smashing records set in 2008 during the Great Recession. Annuities, which can provide retirement income, are also becoming an option for workers whose employers aren’t providing pensions.

Total U.S. annuity sales increased 22% to $77.5 billion in the second quarter of 2022, according to preliminary survey results from LIMRA, a financial services trade association. These numbers represent the highest quarterly sales since LIMRA began tracking annuity sales in 2014 — $9 billion above the previous record in the fourth quarter of 2008.

While they may be enjoying a new surge of popularity, the concept of annuities dates back to early Rome, when citizens would make a lump-sum payment to a contract called an annua in exchange for income payments received once a year for the rest of their lives.

Modern-day annuities are more complicated than that, even though they’ve kept the name, and they’re not for everyone. Before considering an annuity, there are some basics you should know, including what annuities are, what options they provide and how safe your money will be.

Read on for those answers and more.

What Is an Annuity?

An annuity is an insurance contract where you, the purchaser, pay an insurance company to invest your money, allowing it to grow tax deferred. In some instances, the annuity later provides a stream of income, according to the contract provisions, which could cover a set length of time or be for life. In this sense, annuities are insurance against outliving your savings because they pay for as long as the contract provides, even if the underlying principal and any earnings have been depleted.

If you have a lifetime annuity and live a long time, you could receive a total far more than whatever you originally put in. However, depending on the terms of the annuity, it’s also possible that you might die before recouping your investment.

Annuities are classified in several different ways, including how they are purchased and how the funds grow. They can also be customized with different contract provisions known as riders. For example, an annuity could include a long-term care rider that increases your payout should you require long-term care. Or a rider could provide for funds from an annuity to go to a beneficiary should the annuity holder die before receiving the funds.

You should keep in mind that these riders cost money, meaning if your annuity pays an income stream, the income payments will be smaller.

In other instances, an annuity may pay a lump sum at a specified date.

Annuities vs CDs: Which Pay More?

Annuity shoppers may be seeking the security of a certificate of deposit, but with a better return. These days, annuities are delivering that.

“Continued equity market declines and rising interest rates drove investors to purchase record-level fixed-rate deferred annuities in the second quarter,” said Todd Giesing, assistant vice president at LIMRA Annuity Research. “Our research shows fixed-rate deferred annuity manufacturers are, on average, offering interest rates more than four times that of a bank CD, which has made these products a tremendous value for investors looking for protection and growth potential.”

In June, according to LIMRA, the three-year average interest rate for a fixed-rate deferred annuity was 2.98%, compared to an average interest rate of 0.64% for a three-year CD. You can find current information on annuity rates online. One source is Annuityexpertasdvice.com. For rate information about CDs, you can go to https://www.depositaccounts.com/.

Immediate Annuities vs. Deferred Annuities

When it comes to how they are purchased, there are two types of annuities: immediate annuities and deferred annuities. Immediate annuities will begin paying a stream of income within a year of their purchase. They are best for retirees who want to receive payouts right away.

Deferred annuities are better for people who are still saving for a future retirement. The money they invest grows tax-deferred until it is withdrawn later.

A deferred annuity requires a smaller outlay of cash. You can also add to it before the payout. With this annuity, you get guaranteed payments or a lump sum when you reach a certain age. You might also elect to roll your deferred annuity over into another deferred annuity that pays out at a later time.

How Do Annuities Grow Your Money?

Beyond the distinction of when annuities start paying (immediate vs deferred), annuities also offer a range of flavors in what they pay out.

Different annuities grow at different rates:

• If your contract calls for a fixed-rate annuity, the funds will grow at a fixed rate of interest for a period of years specified in the contract. When the term is up, that rate can reset for the next period.
• Variable annuities allow you to invest your money in mutual-fund-like subaccounts, so the payout will follow the performance of the portfolios.
• And indexed annuities will have their rate of growth tied to an index, such as the S&P 500.

Sales of fixed and indexed annuities have benefitted the most from the current economy, while variable annuities have not done as well.

The second quarter of 2022, LIMRA says, was the best sales quarter for fixed-rate deferred annuities ever recorded. Their total sales were $28.2 billion in the second quarter, 76% higher than second quarter 2021 sales.

Fixed indexed annuity sales were $19.7 billion in the second quarter, up 19% from the prior year.

But variable annuity sales fell 32% to $15.4 billion, the lowest quarterly results since the fourth quarter of 1995. For the year, variable annuity sales were down 22% from the same period in 2021.

“Both FIAs and fixed-rate deferred products benefited from the significant interest rate increases in the second quarter,” Giesing said. “Coupled with a nearly 20% equity market decline, investors sought out principal protection and growth potential, which these products offer.”

Annuity Payouts: Single Life vs. Joint Life

If you buy an immediate annuity, you’ll get the highest annual payout if you buy a single-life version—one that stops payouts when you die, even if your spouse is still alive.

But if your spouse is counting on that income, it may be better to take a lower payout that will continue for his or her lifetime, too. (Some annuities are guaranteed to pay for a certain number of years, even if you and your spouse die during that period.).

Annuity Payouts: Men vs. Women

In general, if you have an annuity that pays income for life, the longer your life expectancy, the smaller your payments will be.

Consequently, the older you are when your annuity starts sending you payments, the higher your payments will be because your life expectancy is shorter. For this reason, some people ladder their annuities — investing some money early in retirement to cover expenses, then adding more when they get older to boost payouts. Plus, laddering can allow you to take advantage of rising interest rates: Each new contract will have the latest rate.

This is also why men receive higher payments from their life income annuities because men usually have a shorter life expectancy than women and, on average, will receive fewer payments.

given year.

You’ll Pay Fees for Cashing Out Your Annuity Early

Although deferred annuities let you cash out at any time, you may not get all your money back. You generally have to pay a surrender charge that starts at about 7% to 10% of the account balance in the first year, and gradually decreases every year until it disappears after seven to ten years. Also, if you take the money before age 59½, you generally have to pay an early-withdrawal penalty of 10%.

Your Annuity Is Protected Even If the Insurer Goes Bankrupt

It’s important that you purchase your annuity from an insurance company that is financially secure. Annuities are not regulated or insured by the federal government – but as an insurance product, are overseen by states. If you have a fixed deferred annuity or are receiving fixed immediate annuity payouts, then your payouts are protected by your state guaranty association. The level of protection varies by state. Find your state limits at the website of the National Organization of Life & Health Insurance Guaranty Associations.

You Could Buy an Annuity Within a 401(k)

A growing number of companies are giving employees the option of investing in an annuity in their 401(k) plans that can be converted into guaranteed income after they retire. And since federal retirement law requires 401(k) plan providers to vet annuity providers to make sure they’re in compliance with state laws and have healthy financial reserves, that could make this avenue more appealing than buying annuities on the open market. Plus, annuities bought through a retirement plan may also benefit from institutional pricing, which means they could come with lower fees,

The annuity offerings from big plan managers like TIAA-CREF and Fidelity are generally aimed at replacing the fixed-income holdings of 401(k) participants. But the greater complexities of annuities (over, say, a mutual fund or ETF) don’t go away just because they’re purchased in the more familiar confines of a 401(k). For example, if you add an annuity to your mix, you will still need to decide when (or whether) to annuitize — that is, convert it into a guaranteed income stream, a decision that’s usually irrevocable.

https://www.kiplinger.com/retirement/annuities

A budget is the best way to avoid running out of money in retirement

Too many online shopping sprees. Frequent dinners at your favorite steak house. Pricey vacation getaways. And, of course, high inflation. Houston, we have a problem: Many retirees are spending way more than they expected.

Those bigger bills are busting their budgets and draining their nest eggs quicker than planned. In fact, nearly half (49 percent) of retirees said their overall spending is higher than they expected when they first retired, up from 36 percent in 2022, according to the 2023 Retirement Confidence Survey conducted by the Employee Benefit Research Institute. Nearly four of 10 retirees said they’re spending more than they planned on health care. Thirty-three percent cited housing, and 29 percent are shelling out more than expected on travel and entertainment, the EBRI survey found.

Why the out-of-control spending? Stephanie Roberts, a partner, VP, and wealth manager at Haase Family Advisors at Steward Partners, ticks off three common causes of overspending: “Emotional spending,  or using spending to fill a void. Lifestyle creep. No plan.”

Big risks from overspending

Retirees who overspend risk making their retirement less secure.  That’s especially true if their life expectancy extends farther into the future than they anticipate and if they don’t have a well-funded emergency fund. “If you spend recklessly in retirement, you punch a hole in your retirement savings bucket that you can never fill,” says Steve Parrish, adjunct professor and codirector of the Center for Retirement Income at The American College of Financial Services. “You can’t work your way out of it, and you probably can’t invest your way out of it, either.”

The fallout from overspending could mean outliving your nest egg, having to cut back on your retirement dreams, not being able to pay for emergencies like a sudden medical bill and racking up credit card debt you can’t afford. It could also cause you to have to go back to work to make ends meet.

There’s also a potential psychological fallout to frittering away your nest egg too quickly, says Robert Peterson, senior wealth advisor at Crescent Grove Advisors. “Having adequate savings provides a feeling of security,” says Peterson. “If you are constantly running up credit card debt and barely making debt payments, you are adding a huge amount of stress to your life and diminishing your long-term health as well.”

Often, overspending before retirement foreshadows an inability for retirees to stick to a budget once they stop working. “In my experience, it is very hard to get off the hedonistic treadmill, so the event of retiring is not likely to change a person’s behavior,” says Peterson.

It’s not just retirees with modest nest eggs who can be upended by overspending. It’s not unusual for high-income earners to suddenly get a rude awakening when they shift to a fixed income in retirement and can’t cover spending with their next paycheck. “High earners can find it challenging, as it demands adapting to a more mindful expense approach that may differ from their accustomed lifestyle,” says Yosef Ghebray, a certified financial planner for digital investment firm Betterment.

Michael Berkhahn, a vice president  at Graham Capital Wealth, says overspending should be one of the top concerns of retirees, especially in the first few years after they stop working. The risk of burning through too much cash in the early years of retirement, he says, is that retirees might not comprehend how much damage it might cause years down the road.  “Retirees let the euphoria of recently retiring cause them to overspend,” says Berkhahn. “People dream of retiring for 30-plus years. And once they hit retirement, they are in the honeymoon phase. They dreamed of all the places they wanted to visit or things they couldn’t do while they were working. It’s important in this phase that new retirees have a real understanding of their finances and not let the enthusiasm of retirement cause them to overspend.”

How to stay on course

How do you rein in spending habits that are setting you up for financial failure later in retirement? Here are five ways to fix spending problems.

1. Identify the problem. Sure, coming up short each month when you go to pay the bills is a yellow flag. But you can’t fix the overspending problem until you know what’s causing it, says Catherine Irby Arnold, senior VP and market leader at U.S. Bank Private Wealth Management.

“How can you rein in your spending if you have no idea where it’s going?” says Arnold. There are plenty of budget-tracking apps, she says, that can help you isolate the main culprits without having to scrutinize your credit card bill when it arrives. “The apps help you identify repeat offenses,” says Arnold. “If you’re spending thousands of dollars a month on dinners out, that’s a real wake-up call.”

Once you know exactly where your money is disappearing to, it’s time to sit down and have an honest conversation with your spouse, partner or family to address the issue and come up with ways to fix it, such as coming up with a workable budget.

2. Peer into the crystal ball. Nothing gets retirees’ attention better than showing them exactly how uncontrolled spending will put their finances in a perilous state if they don’t change their ways. “You have to project how long this pot of money is going to last,” says Arnold. “And for some people it’s a big wake-up call (when they learn) that it’s not going to be there as long as they think it’s going to be.”

For example, a 67-year-old retiree who thinks her nest egg will last till 100 is likely to understand the severity of the spending problem once she finds out her money might not last past 80.

3. Create a budget. The days of going out to eat whenever you want or shopping online because you’re bored are over. It’s time for financial discipline. And that means creating a budget that forces you to spend within your means. The goal is to have less money going out each month than comes in.

A good way to get a complete picture of your spending is to analyze your spending in the previous year. “This will provide you with a perspective of where you spent your money and can show you spending trends and habits,” says Berkhahn. Having a better understanding of your discretionary and nondiscretionary spending habits will allow you to prioritize what’s important.”

Analyzing your expenses will also help you see areas where you’re wasting funds. One spending bucket is for so-called life essentials, such as rent, food, bills and transportation. The other bucket is things that you don’t necessarily have to spend on, such as eating out, traveling and picking up the bar tab after a night out. “There should be an accurate tracking of spending and staying within budget limits,” says Thomas Salvino, CEO at Performance Wealth Partners.

4. Wean yourself off spending. Cutting spending is no different than dieting or kicking off a new workout plan. Going gung ho at the beginning, such as cutting off all discretionary spending, is akin to running a marathon on your first day of training or fasting for a full week when you start a diet. In short, it won’t work, says Peterson. “Making drastic changes will make it less likely to stick to your new spending habits,” he says.

Make small changes instead. If you regularly eat out three days a week, skip eating out one night a week. Avoid the daily Starbucks run for a day or two. Change one of your shopping habits, such as not logging into Amazon when you’re bored. “No one change is going to save the day, but small changes along the way can help change your behavior, which is the real goal,” says Peterson.

To kick the spending habit, you also must separate things you want from things you need, says Peterson. “What you want to do is take a pause before spending to determine if you really need an item,” he says.

Delaying gratification is another way to minimize the temptation to make impulse purchases. “If you step back and decide to wait a week or more on the purchase, it is likely you will decide not to make the purchase,” says Peterson. And even if you end up buying the product, at least you gave it plenty of thought.

A simple way to spend less when you go shopping is to make a list. “And stick to it,” says Ghebray. “A few minutes of preplanning will help you avoid purchasing unnecessary items.” Another tip to keep you from taking the credit card out of your wallet is to practice mindfulness. “Remind yourself of your financial goals and the consequences of overspending,” says Ghebray.

Another technique to spend less is to use a debit card instead of a credit card, says Roberts. This way you make sure you can afford the purchase now and are not piling up debt and going the pay-it-later route.

5. Stop doing what you’ve been doing. Just as an overweight person can’t keep eating high-calorie foods if he expects to lose weight, people who overspend can’t keep managing their money the same way. You must change your behavior to get your finances in order. “You can’t say, ‘I’m just going to keep doing what I’ve been doing,” says Arnold. So, if you’ve never had a budget, make one. “It’s never too late,” he says.

https://www.aarp.org/money/budgeting-saving/info-2023/how-to-stop-overspending.html

A recent retiree shares lessons learned late about saving money and spending time

Everyone nearing retirement has a vision of what their road will be like once they clock out of the 9-to-5. Maybe that prophecy includes regular travel, longer trips to see the grandchildren, volunteering or finally having the time to work on that screenplay that’s been in your back pocket.

Retirement can be any or all of those things, but you’re going to have to season that stew with a heaping spoonful of reality. Other things are going to occupy your time, and your money.

Says who? Me. I recently retired after a 45-year career as a journalist. I’m still in the throes of trying to figure this thing out while, yes, traveling a bit more, making plans to see family more and getting a new house in order.

It hasn’t been too difficult, but with a little guidance, I could have had a softer landing. To that end, here are six things I wish I’d known in the years leading up to retirement.

1. Don’t borrow from your 401(k)

Yes, I made the classic bad financial move in my 40s. I borrowed from my 401(k). My money, my rules, right?

Technically, yes, and the IRS allows it. You can borrow up to $50,000, or 50 percent of the vested amount in the account, and it must be paid back within five years. Raising four kids, our family hit a wall of expensive credit card debt. That was my excuse when I borrowed $5,000 from my 401(k); retirement took a back seat as it seemed so far off.

Why is it a bad idea? Unless you aggressively pay back the loan, that’s $5,000 less sitting in your retirement pot, and $5,000 less earning investment returns, for years.

Rapid repayment wasn’t something I could afford at the time. I merely went through the required motions, paying back the loan on time but not increasing my contributions later, when I could afford it. I ended up putting less into my plan over time, costing me retirement funds that would come in handy now.

Even if you can afford to both contribute and pay back the loan, you might not be able to: Some retirement plans forbid contributions while you’re repaying. That’s more missed opportunities to generate gains — especially when you factor in lost employer matches — and more lost time growing your nest egg.

2. Pay down credit card debt before retirement

One thing you don’t want to carry into retirement is a lot of debt. Generally, you’re on a fixed income. Siphoning off some of it to pay high-interest credit card debt, for example, is not a burden worth cramping your retirement lifestyle for, especially as credit card interest rates continue to skyrocket.

To be fair, I did pay off my credit card debt before I retired, but that’s because I was self-motivated. I didn’t get a lot of guidance. I just knew I’d better clean up that debt before the full-time paychecks stopped coming.

3. Consider a health savings account

Unfortunately, by the time I fully understood how powerful a health savings account (HSA) could be in retirement, it was too late for me to build one. Maybe it’s not too late for you: More than two in five people still working with household income of less than $50,000 are not saving for health care expenses in retirement, according to a 2021 report from the Transamerica Center for Retirement Studies.

You can open an HSA if you have a high-deductible health plan and no other coverage. While you’re working, you can contribute on a tax-free basis, and unlike a flexible spending account (FSA) — earnings you set aside for medical costs but must use or lose annually — HSAs can be built up and carried over, year-to-year, into retirement.

You can take that money out, tax-free, to pay qualified health care costs not covered by private insurance or Medicare, including deductibles and copays (although if you have Medicare, you can no longer contribute to your HSA). After age 65, you can make withdrawals for nonmedical expenses, too, although in that case you’ll pay regular taxes on the money.

It’s no secret that as we age, health care becomes increasingly important and increasingly expensive. Having a well-funded HSA can be a powerful tool.

4. Get the lowdown on anywhere you’re thinking of moving

It’s always a good idea to spend some time in the place where you might want to retire. Get to know the ins and outs. My wife and I managed to do this, but more by happenstance than wisdom, landing in our “retirement home” of Staunton, Virginia, two years before we retired.

We had visited this small town in the Shenandoah Valley numerous times while living in Northern Virginia, close to our workplaces in the Washington area. Working remotely amid the pandemic lockdown in 2020, we decided to look at homes there. We fell in love with the first one we saw and, with our employers’ blessings, made the move.

Know what you’re getting into before you settle on a destination — not just what checks your boxes (in our case, mountain scenery, and lower property taxes and auto insurance than in the crowded Northern Virginia market) but what you might miss and what trade-offs are involved.

For example: Do you regularly dine out? Beware of meal taxes in your new hometown, particularly if it’s in a touristed area. Looking for good pizza or Italian food? You might not find it in your retirement town (we haven’t yet). Do you rely on close access to a Wegmans, Walmart, Costco or other major retailer? Your new town might not have one. Swore you would never live in a community with a homeowners association? Me too – until I did.

5. Don’t assume everyone will have time for you

Spending time with family and friends looms large in most people’s plans for their post-work years: About three in five list it among their top “retirement dreams,” according to the Transamerica Center study. Only traveling ranked (slightly) higher.

That’s all well and good. But not everyone’s going to jump to your tune. Those old friends you haven’t seen in a while might already have retirement routines that are important to them. The kids have jobs and families, and they’re locked into the same rituals you went through when you were working and raising them.

We found this out when we planned a lengthy post-retirement trip to our hometown and wrongly guessed everyone from old pals to close family would have some time for us now that we had time for them. That didn’t work out so well.

The lesson? Plans and schedules don’t disappear when you retire. Factor that into your retirement goal of spending more time with the ones you love.

6. You might still need (or want) to work

We carefully planned for our retirement, utilizing the guidance of a certified financial planner who gave us the “go” signal. Like 68 percent of the U.S. adults polled by the Transamerica Center, we considered ourselves to be building a decent retirement nest egg.

We weren’t counting on staggering increases in grocery prices. According to a 2022 Goldman Sachs survey, 51 percent of retirees say their current income is less than half of their preretirement income. That’s a hit, and soaring inflation only makes it worse. Inflation and generating sufficient income were the top concerns among retirees polled by Goldman Sachs.

Such financial pressures can put work, at least part-time, back on the table. Forty-four percent of retirees surveyed in 2022 by investment management firm Schroders said their expenses in retirement were higher than expected; only 8 percent were spending less than they thought they would.

Inflation panic notwithstanding, my wife and I have (mostly) stayed the course, staying focused on nonwork activities (while staying on top of things with our financial planner). But even if you don’t need to work, you may find you want to. That’s the case for me, as evident here. I can’t turn away from being a writer, ever. So that I will continue to do.

Back to the Schroders poll: More than two-thirds of workers ages 45-plus say they plan to work in retirement, and about half say a primary reason is to stay busy or keep active. That could mean keeping a hand in the same field, like me; it could mean starting a business or pursuing an encore career. One in four workers surveyed by the Transamerica Center said they dream of spending their retirement years doing volunteer work.

Working in retirement because you want to instead of need to, I’ve found, is a great pressure valve for what could be perceived as the, well, boredom of retirement. We’re not used to having so much time on our hands, away from the 40-hour grind.

https://www.aarp.org/retirement/planning-for-retirement/info-2023/what-to-learn-from-my-experience.html

A recent survey of Americans who have yet to retire found that just 10% have made plans to receive the biggest possible Social Security payout.

And it’s not because people don’t know that Social Security pays bigger benefits the longer you wait to claim. More than 90% of participants in the Schroders survey said they are well aware that if they wait until age 70 to start claiming they will receive the biggest possible monthly payment. A benefit that starts at age 70 is 76% higher than if you start receiving your payout at age 62.

What seems to be gnawing most at near-retirees is a fear that the Social Security program is going to run out of money and stop making payments.

Okay now, I share everyone’s concern and frustration that Congress has yet to take steps to put Social Security on firmer financial footing. But I want to be clear: payments will not stop. And it is highly, highly unlikely that any changes to the program will impact anyone at least 55 today.

Let’s separate fear from fact:

Fact 1: Beginning in 2034 Social Security will not be collecting enough money from current workers to pay out 100% of the benefits owed to retirees. If that were to happen, payments would not stop completely. The worst-case scenario is that earned benefits would need to be cut by around 25% to deal with the cash shortfall. Now I am not suggesting a payout of just 75% is acceptable, but 75% is a lot more than zero. So let’s keep that in mind.

Fact 2: Social Security had a similar problem forty years ago and fixed it without impacting near-retirees. Yep, in 1983 major changes to Social Security were made to deal with a financial shortfall. One of the biggest changes made back then was to gradually raise the full retirement age—when you are entitled to 100% of your benefit—from 65 to 67. But that change was only made for people who were younger than 43 at the time. The new rule didn’t apply to people in their late 40s, 50s or 60s. There is no reason to expect that the needed changes this go-around would hit near-retirees.

Fact 3: If you are in decent health, there is no better financial move to consider than waiting as long as possible to claim your Social Security benefit. A 65-year-old, non-smoking woman in average health today has a 50% probability she will still be alive at age 88. For a male, it is age 85. A Social Security payout that will be 76% higher if you wait until age 70 to start can be awfully helpful if you indeed have a longer life. (For those of you stuck on the notion of a “break-even” point where total payouts from waiting will be more than what you collected if you started at age 62, it’s around age 81. That is, if you start at 70, by age 81 you will have collected more from Social Security than if you had started receiving a reduced benefit at age 62.)

Fact 4: It’s most important for the highest earner to delay starting as long as possible. For married couples, it’s so important to realize that when one spouse dies, the surviving spouse is only entitled to one benefit: her own, or the benefit of the deceased spouse. At a minimum, I would strongly encourage married couples to consider a strategy that allows the highest earner to wait to start Social Security until age 70. That ensures that the surviving spouse will have the largest possible benefit. It’s less important when the other spouse chooses to start payment.

Fact 5: It’s not an either/or of 62 or 70. You can claim any time between age 62 and age 70. And every month that you delay earns you a slightly higher payout. Your Full Retirement Age (FRA) is when your payout is 100% of your entitled benefit. For anyone born in 1960 or later, your FRA is 67. If you claim before 67 you will get less than 100%, but claiming at say, 66 and five months is going to get you close to 100%, whereas claiming at 62 will entitle you to 70% of your FRA benefit.

The key takeaway I want you to understand is that every month you wait will pay off. If waiting until 70 seems too daunting, why not reframe this as an annual choice? At 62 choose to wait. Then ask yourself at 63 if you want to wait until 64. Keep doing this, and you may find it much easier to see how you can afford to wait another year and another year…

And this doesn’t mean you need to keep working a full-time job. Part-time work, and maybe beginning to tap some of your retirement savings can enable you to be patient and wait past your early 60s to start collecting Social Security.

https://www.suzeorman.com/blog/Dont-Make-This-Big-Retirement-Mistake?search=

The S&P 500 represents about 80% of the total market capitalization of large-cap U.S. stocks (market price per common share multiplied by the number of common shares outstanding). As it is so widespread, many market analysts use it as an indicator of the overall health and performance of the entire U.S. stock market. Although the S&P 500 may be one of the most popular market indexes, there are thousands of other market indexes, such as the Russell 2000 and the Dow Jones Industrial Average.

Fixed index annuities link their performance to market indexes like these are designed to offer greater upside potential than what can be found with a traditional fixed annuity. It is essential to understand how this type of annuity works to determine whether it will complement your overall retirement strategy.

Definition of a fixed index annuity

A fixed index annuity is a type of annuity that combines the security of a fixed annuity with some of the potential upside of a variable annuity. This kind of annuity offers principal protection and the option to receive guaranteed income in the future. However, a fixed index annuity’s interest fluctuates depending on the performance of the linked market index during the interest crediting period.

Understanding the basics of annuities

An annuity is a financial product that’s designed to provide guaranteed income payments over a certain period. We can break down an annuity into two simple phases. The first phase is the accumulation phase, where you make contributions toward the annuity. If paid with after-tax dollars, these contributions grow tax-deferred. This can allow your annuity to grow faster over the long term than a comparable investment whose interest is taxed every year.

You will then owe tax later when you receive payments from the annuity during the payout phase. The payout phase can be structured in different ways, such as paying over a certain period or for the remainder of your life, but other options may be available depending on your particular contract.

Different types of annuities offer different ways to grow your contributions and provide income payouts after the accumulation phase.

What distinguishes a fixed index annuity from other annuities?

Fixed annuities offer principal protection and interest that is credited based, in part, on the performance of a market index.

How does a fixed index annuity work?

Overview of the mechanics of a fixed index annuity

There are a few key mechanics that you need to know to understand how this relationship works. Here’s a quick breakdown of the essentials:

Participation rate

The participation rate is a key factor in describing the relationship between the market index and the interest credited to your fixed index annuity. This rate represents the portion of market gains that your annuity is credited with. If the participation rate is 70%, your annuity rate will be credited with 70% of any increase in the market index to which your annuity is linked. If the market index were to increase by 10%, your annuity interest rate would increase by 7%.

Cap rate

The cap rate is the maximum interest rate that you can achieve with your fixed index annuity. If the cap rate is 10% but the market goes up 12%, your annuity will be credited with 10% interest.

How do the interest rates and returns work?

A fixed index annuity is linked to a market index. When the market index rises, your annuity interest rate will accrue, subject to any participation limits, caps or spreads. However, many fixed index annuities have protection from loss where your account value isn’t drawn down due to poor market performance. When the market is down, your account is credited with the guaranteed minimum rate (e.g., 0% or 1%), but never below that rate.

Benefits of a fixed index annuity

Fixed index annuities open up a wide range of benefits for you during your retirement. These benefits range from potentially higher returns than fixed annuities to principal protection. Here’s a quick rundown of these benefits:

Potential for higher returns than traditional fixed annuities

Fixed indexed annuities offer more upside potential by linking the interest rate to the performance of a market index. This makes it ideal for those that want the protection of a fixed annuity with more upside potential from the market. When the market is up, you could benefit from higher earnings potential.

Principal protection

Just like fixed annuities, fixed index annuities come with principal protection. This allows you to guarantee an income during your retirement without putting your assets at risk. Some fixed index annuities also have minimum interest crediting rates (e.g., 1%) that apply if the market index’s performance is less than those rates.

Lifetime income options

You can structure the income paid by your fixed index annuity in a variety of ways. This includes securing an income for a fixed period or for the remainder of your life. An annuity could also pay out as “life with period certain” where a beneficiary could receive a specified number of payments if the owner dies before the minimum payment period.

Tax deferral

Fixed index annuities offer a tax-deferred savings opportunity for your retirement. This way, contributions can grow tax-deferred, and taxes are only a concern when receiving payments during the payout phase or otherwise withdrawn. A portion of these payments will then be taxed as ordinary income during your retirement.

Benefits at death

There are a few options for inheritance when it comes to fixed index annuities during the accumulation phase. The death benefit is the simplest option that pays out the annuitant’s remaining account value to the designated beneficiaries. Some fixed index annuities also allow you to opt, for a fee, for an enhanced death benefit that increases the benefit by a certain percentage every year.

Who should consider a fixed index annuity?

Fixed index annuities are ideal for those who want to balance guaranteed income with potential growth. In this way, fixed index annuities can help protect your contributions, grow your funds, and guarantee an income for you during retirement.

Before you choose an annuity to contribute to, it’s vital that you ensure it aligns with your personal and financial goals. Here’s a quick checklist to highlight who stands to benefit the most from a fixed index annuity:

• You have money that you want to invest for at least five years.
• You want to ensure that you have a guaranteed income during retirement.
• You want to protect your principal but also expose your annuity to market growth.
• You value security but want to balance capital guarantees with upside potential.

Factors to consider when evaluating if a fixed index annuity is right for you

Fixed index annuities offer more upside potential compared to fixed annuities. However, there’s also more risk involved since the interest rate is not fixed but rather linked to the market. If the market is down, your crediting rate could be the minimum interest rate for your annuity.

The second factor to consider is the surrender charges that are associated with your fixed index annuity. These charges can vary depending on the insurance company that you buy your annuity from. Pay careful attention to them as they apply to any withdrawals during the annuity’s early years.

Why you may want a fixed index annuity

A fixed index annuity is a great way to protect your capital and guarantee an income for yourself during retirement. However, the credited interest rate fluctuates depending on the performance of the market index to which it is linked during the interest crediting period. This provides you with more upside potential compared to a standard fixed annuity.

This is the key benefit of a fixed index annuity and is what can make it a good choice for those who want to protect and grow their portfolio for retirement.

Key takeaways

• A fixed index annuity is a tax-deferred retirement savings vehicle.
• Unlike a fixed annuity, fixed index annuities are credited with interest that is based on the performance of a market index like the S&P 500.
• Fixed index annuities can help protect and grow your money while also protecting your capital.
• Fixed index annuities are ideal for those who want to protect and grow their money during retirement.

https://www.blueprintincome.com/resources/what-is-a-fixed-indexed-annuity

A recent retiree shares lessons learned late about saving money and spending time

Everyone nearing retirement has a vision of what their road will be like once they clock out of the 9-to-5. Maybe that prophecy includes regular travel, longer trips to see the grandchildren, volunteering or finally having the time to work on that screenplay that’s been in your back pocket.

Retirement can be any or all of those things, but you’re going to have to season that stew with a heaping spoonful of reality. Other things are going to occupy your time, and your money.

Says who? Me. I recently retired after a 45-year career as a journalist. I’m still in the throes of trying to figure this thing out while, yes, traveling a bit more, making plans to see family more and getting a new house in order.

It hasn’t been too difficult, but with a little guidance, I could have had a softer landing. To that end, here are six things I wish I’d known in the years leading up to retirement.

1. Don’t borrow from your 401(k)

Yes, I made the classic bad financial move in my 40s. I borrowed from my 401(k). My money, my rules, right?

Technically, yes, and the IRS allows it. You can borrow up to $50,000, or 50 percent of the vested amount in the account, and it must be paid back within five years. Raising four kids, our family hit a wall of expensive credit card debt. That was my excuse when I borrowed $5,000 from my 401(k); retirement took a back seat as it seemed so far off.

Why is it a bad idea? Unless you aggressively pay back the loan, that’s $5,000 less sitting in your retirement pot, and $5,000 less earning investment returns, for years.

Rapid repayment wasn’t something I could afford at the time. I merely went through the required motions, paying back the loan on time but not increasing my contributions later, when I could afford it. I ended up putting less into my plan over time, costing me retirement funds that would come in handy now.

Even if you can afford to both contribute and pay back the loan, you might not be able to: Some retirement plans forbid contributions while you’re repaying. That’s more missed opportunities to generate gains — especially when you factor in lost employer matches — and more lost time growing your nest egg.

2. Pay down credit card debt before retirement

One thing you don’t want to carry into retirement is a lot of debt. Generally, you’re on a fixed income. Siphoning off some of it to pay high-interest credit card debt, for example, is not a burden worth cramping your retirement lifestyle for, especially as credit card interest rates continue to skyrocket.

To be fair, I did pay off my credit card debt before I retired, but that’s because I was self-motivated. I didn’t get a lot of guidance. I just knew I’d better clean up that debt before the full-time paychecks stopped coming.

3. Consider a health savings account

Unfortunately, by the time I fully understood how powerful a health savings account (HSA) could be in retirement, it was too late for me to build one. Maybe it’s not too late for you: More than two in five people still working with household income of less than $50,000 are not saving for health care expenses in retirement, according to a 2021 report from the Transamerica Center for Retirement Studies.

You can open an HSA if you have a high-deductible health plan and no other coverage. While you’re working, you can contribute on a tax-free basis, and unlike a flexible spending account (FSA) — earnings you set aside for medical costs but must use or lose annually — HSAs can be built up and carried over, year-to-year, into retirement.

You can take that money out, tax-free, to pay qualified health care costs not covered by private insurance or Medicare, including deductibles and copays (although if you have Medicare, you can no longer contribute to your HSA). After age 65, you can make withdrawals for nonmedical expenses, too, although in that case you’ll pay regular taxes on the money.

It’s no secret that as we age, health care becomes increasingly important and increasingly expensive. Having a well-funded HSA can be a powerful tool.

4. Get the lowdown on anywhere you’re thinking of moving

It’s always a good idea to spend some time in the place where you might want to retire. Get to know the ins and outs. My wife and I managed to do this, but more by happenstance than wisdom, landing in our “retirement home” of Staunton, Virginia, two years before we retired.

We had visited this small town in the Shenandoah Valley numerous times while living in Northern Virginia, close to our workplaces in the Washington area. Working remotely amid the pandemic lockdown in 2020, we decided to look at homes there. We fell in love with the first one we saw and, with our employers’ blessings, made the move.

Know what you’re getting into before you settle on a destination — not just what checks your boxes (in our case, mountain scenery, and lower property taxes and auto insurance than in the crowded Northern Virginia market) but what you might miss and what trade-offs are involved.

For example: Do you regularly dine out? Beware of meal taxes in your new hometown, particularly if it’s in a touristed area. Looking for good pizza or Italian food? You might not find it in your retirement town (we haven’t yet). Do you rely on close access to a Wegmans, Walmart, Costco or other major retailer? Your new town might not have one. Swore you would never live in a community with a homeowners association? Me too – until I did.

5. Don’t assume everyone will have time for you

Spending time with family and friends looms large in most people’s plans for their post-work years: About three in five list it among their top “retirement dreams,” according to the Transamerica Center study. Only traveling ranked (slightly) higher.

That’s all well and good. But not everyone’s going to jump to your tune. Those old friends you haven’t seen in a while might already have retirement routines that are important to them. The kids have jobs and families, and they’re locked into the same rituals you went through when you were working and raising them.

We found this out when we planned a lengthy post-retirement trip to our hometown and wrongly guessed everyone from old pals to close family would have some time for us now that we had time for them. That didn’t work out so well.

The lesson? Plans and schedules don’t disappear when you retire. Factor that into your retirement goal of spending more time with the ones you love.

6. You might still need (or want) to work

We carefully planned for our retirement, utilizing the guidance of a certified financial planner who gave us the “go” signal. Like 68 percent of the U.S. adults polled by the Transamerica Center, we considered ourselves to be building a decent retirement nest egg.

We weren’t counting on staggering increases in grocery prices. According to a 2022 Goldman Sachs survey, 51 percent of retirees say their current income is less than half of their preretirement income. That’s a hit, and soaring inflation only makes it worse. Inflation and generating sufficient income were the top concerns among retirees polled by Goldman Sachs.

Such financial pressures can put work, at least part-time, back on the table. Forty-four percent of retirees surveyed in 2022 by investment management firm Schroders said their expenses in retirement were higher than expected; only 8 percent were spending less than they thought they would.

Inflation panic notwithstanding, my wife and I have (mostly) stayed the course, staying focused on nonwork activities (while staying on top of things with our financial planner). But even if you don’t need to work, you may find you want to. That’s the case for me, as evident here. I can’t turn away from being a writer, ever. So that I will continue to do.

Back to the Schroders poll: More than two-thirds of workers ages 45-plus say they plan to work in retirement, and about half say a primary reason is to stay busy or keep active. That could mean keeping a hand in the same field, like me; it could mean starting a business or pursuing an encore career. One in four workers surveyed by the Transamerica Center said they dream of spending their retirement years doing volunteer work.

Working in retirement because you want to instead of need to, I’ve found, is a great pressure valve for what could be perceived as the, well, boredom of retirement. We’re not used to having so much time on our hands, away from the 40-hour grind.

https://www.aarp.org/retirement/planning-for-retirement/info-2023/what-to-learn-from-my-experience.html

Take inventory of your assets and your strategy, or you could regret it later

Reaching age 50 is a milestone that most of us celebrate. Still, after you’ve blown out the candles and bid farewell to your guests, you may have a headache from too much champagne, but otherwise feel the same as before.

Wake up! This is the time to reassess and make sure that your financial plan is in order. If you push it off until later, you may make serious mistakes that will jeopardize your future financial security.

After acknowledging this momentous birthday, Austin Frye, in Florida, invites prospective clients to a financial review. With those who have done little budgeting or saving, he’s direct.

“You have one last chance to put yourself on course to achieve a successful retirement,” Frye tells them. “It’s time to talk about saving more, spending less or both.”

Some folks listen, but others don’t. Following are 10 errors that Frye and other financial planners see 50-year-olds make that may, indeed, have serious consequences down the road.

1.  Expecting to work past retirement age

First, how much time do you really have? Are you planning to work until age 65 or 70?

Think again, says Scott Stratton in Little Rock, Arkansas. Layoffs, health issues or family matters can abruptly alter expectations. A 2022 survey by the Employee Benefits Research Institute (EBRI) found that 47 percent of people retire sooner than planned.

“Lose your job in your 60s and it may be incredibly difficult to find a new one, especially with the same pay and benefits,” Stratton warns.

Likewise, Andrew Houte in Wisconsin, advises his clients to plan for an earlier retirement date. “If you work well into your 60s, it should be because you want to and not because you have to.’ ”

2.  Taking too much risk — or too little

At this point, some people realize that time is running out, says Mackenzie Richards in Rhode Island. “They may do one of two things: take too much risk, often with speculative investments, or sell everything and move into cash, CDs or fixed annuities. The latter strategy could deprive them of decades of growth.” And the former could result in big losses when they can least afford them.

He recommends finding a CFP who can help you create an investment strategy based on your goals, aspirations and concerns. If you prefer to control your own portfolio, then look for a planner who will work with you to create that plan, while you manage your investments.

“This can be a cost-effective way to get a second opinion on your financial situation and prepare an investment strategy that keeps you from going to extremes,” Richards says.

3.  Ignoring the 50-plus catch-up provisions

What if you are behind in your saving? Fortunately, as a 50-year-old, you can catch up.

For 2023, the IRS is allowing older savers to contribute an additional $1,000 to an IRA on top of the standard $6,500 limit. Self-employed people 50 and older with a SIMPLE IRA can add $3,500 to the $15,500 limit.

If you have an employer-sponsored plan such as a 401(k) you can max out your contributions by adding $7,500 over the $22,500 limit. “And while you are still gainfully employed, you can start a Roth IRA,” suggestsRafael Rubio in Michigan. “The contribution for this year is up to $7,500 for those 50-plus.”

Starting next year, the catch-up limits for IRAs will be indexed to inflation, meaning they will be adjusted annually in line with increases in the cost living. The same will apply to most workplace plans come 2025. The changes are part of SECURE 2.0, a federal measure passed by Congress in late 2022 that aims to make it easier for Americans to save for retirement.

4. Carrying credit card debt

Paying down debt is also essential, though many people don’t do it aggressively enough, says Christopher Lyman in Newtown, Pennsylvania. Ideally, you should work toward having no debt except your mortgage. Once other debts are paid off, and you are funding your retirement, then focus on paying down your mortgage.

“There’s nothing like being financially independent in retirement,” Lyman adds.

5. Taking on college debt

What about the kids? Arthur Ebersole in Massachusetts, sees parents take on too much debt to fund their children’s college because they did not save enough in their 529 plans. They take out home equity loans or other debt that they may be unable to pay off before retirement.

“Mortgages and college loans put a significant drag on monthly cash flow, especially for those on a fixed budget,” Ebersole says. “Instead, have your kids take loans in their names, and help them with payments as much as you can or wish to.”

Marguerita Cheng, mother of three and in Gaithersburg, Maryland, concurs. “Some parents are afraid to have the conversation with their student and school about the right financial fit. But you don’t want to compromise your own financial security.”

6. Overlooking health maintenance

At this point, if you still have not established a regular exercise habit, it’s not too late, experts agree. Investing time, energy and money in your health now will help to reduce health-related expenses later, says Sarah Carlson in Spokane, Washington. “And you’ll enjoy the journey more because you feel good.”

7. Leaving out insurance

Robust 50-year-olds may not think much about insurance. But at 60, buying a long-term care policy may prove difficult, says Benjamin Offit in Maryland “Health can worsen from 50 to 60, making a policy harder and more expensive to obtain.”

And, while people may assume they’re too old for disability insurance, their peak earning years may still be ahead. “If you were to lose your income, or have a significant reduction, would it cripple your retirement plan?” Offit asks.

Life insurance is also important, says Chen. “You don’t want loved ones to experience emotional and financial stress in the event of your untimely and premature death.”

8. Living the same lifestyle post-divorce

Divorce. It will always be the number one risk to retirement, says Stratton. Dividing assets and assuming individual expenses can be financially devastating. He urges his clients to envision their financial plan as a single person and consider how divorce will affect their long-term goals.

“Holding on to your past lifestyle and budget is a common mistake,” he says. “If you need to downsize post-divorce, do it sooner rather than later.”

9. Failing to update important documents

Do you have an estate plan, and is it current? “These plans help divide assets upon your death,“ says Rubio. “They determine who takes care of you and your estate should you become incapacitated or deceased, and who will care for your minor children.”

Because things change, Daniel Flanagan in Massachusetts, asks clients when their plan was last updated. “The frequent response is, ‘When our daughter was 2, and I was 30.  Now she is 22, and I am 50.’ ”

In addition, Joyce Streithorst in New York, prompts her clients to review their wills, trusts, health care proxies, living wills, powers of attorney and beneficiary designations.

10. Letting the market spook you

Finally, do not make the mistake of trying to time the market, warns Joshua Hargrove inTexas.

By now, you may have amassed substantial assets. But whenever the market plunges, you lose sleep. Try to filter out the noise, Hargrove advises. “People can suffer massive setbacks by making bad decisions at just the wrong time. Stick with your strategy!”

https://www.aarp.org/retirement/planning-for-retirement/info-2021/avoid-10-mistakes-at-50-years-old.html

Take these write-offs on your 1040, even if you don’t itemize your return

Doing your taxes is a hunt for ways to minimize your income: The lower your income, the less tax you pay. For most retirees and pre-retirees, this means taking the standard deduction and moving on to computing the tax you owe. But there are a handful of deductions that you may be able to claim even if you don’t itemize your deductions. They’re called above-the-line deductions, and they can be your friends at tax time.

What’s “the line”? That would be line 11 on IRS Form 1040, which is where you put your adjusted gross income (AGI). The first line below that, line 12, is where you would put your itemized deductions from Schedule A. But most people don’t itemize their deductions: About 15.5 million taxpayers itemized in 2020, down from 45 million in 2016, according to the Internal Revenue Service (IRS).

The big drop in itemized returns can be attributed to the Tax Cuts and Jobs Act of 2017, which raised the standard deduction dramatically starting in tax year 2018. Today, individuals can claim a $12,950 standard deduction, and married couples can claim $25,900. It’s $19,400 for heads of households. For each taxpayer 65 and older or blind, the standard deductions goes up another $1,400 ($1,750 for single filers and heads of households). Unless you have more itemized deductions than the standard deduction, it makes no sense to itemize.

But if you are eligible for above-the-line deductions, you can deduct them before you calculate your adjusted gross income, no matter how small those deductions are. And many people have at least one above-the-line deduction that fits them. Many of these above-the-line deductions are calculated using the Schedule 1 — Additional Income and Adjustments to Income — worksheet included in the 1040 instructions and reported on line 10 of your tax return — one line above your adjusted gross income.

Common above-the-line deductions

1. Alimony paid

If you divorced before 2019 and are still paying alimony, your payments are an above-the-line deduction. (For the recipient, that alimony is taxable income.) If you were divorced on or after Jan. 1, 2019, you can’t deduct your alimony payments, and the recipient doesn’t have to pay taxes on them.

If you alter your divorce agreement to say that the new rules apply, then the new rules will apply to your payments.

2. Early withdrawal penalties

Did you have to crack open a bank certificate of deposit last year? Did you get dinged with a penalty? You can deduct the danged ding above the line.

3. Health savings accounts (HSAs)

If you have a high-deductible medical plan, you can cover some of your out-of-pocket expenses with an HSA. If you paid for your HSA with after-tax money, you can deduct up to $7,300 for families and $3,650 for individuals this tax year. If you’re 55 or over at any time in the year, you can contribute and deduct another $1,000. You’ll need to file Form 8889 — Health Savings Accounts (HSAs) — with your return. And if you paid for your HSA with pretax money, you don’t get the deduction.

4. Individual retirement accounts (IRAs)

If you contributed to a traditional IRA, and neither you nor your spouse had a retirement plan available to you during the year, the contributions are tax deductible. You can each contribute $6,000 — $7,000 if you’re 50 or older. If you did have a retirement plan available at work, you still may be able to deduct some or all of your IRA contribution, depending on your income.

5. Military moving expenses

If you have a permanent change of station — either from your home to your military base, from one base to another, or a move from your last post back home — you can deduct reasonable moving expenses. Those expenses include the cost of moving household goods, personal effects, storage and traveling expenses (including lodging) to your new home. That burger you bought at a rest area on the Ohio Turnpike? Nope. Meals aren’t included.

You must take the deduction within one year of ending your active duty.

6. Self-employment costs

One of the shocks for many people who become self-employed is the payroll tax for Social Security and Medicare. It’s a combined 15.3 percent of your gross income on top of ordinary income taxes. Fortunately, you can take half of that in an above-the-line deduction. (You’ll have to file Form 1040 Schedule SE — Self-Employment Tax — to claim it, but if you have self-employment income, you’ll have to file it anyway.)

But those aren’t the only self-employment costs eligible for an above-the-line deduction. If you have a self-directed retirement plan, such as a SIMPLE IRA or a Simplified Employee Pension (SEP), that’s an above-the-line deduction, too. And if you’re paying for your own health insurance (including Medicare), you can deduct those premiums, as well.

7. Student loan interest payments

Although most student loan payments were suspended in 2022 due to the COVID-19 pandemic, no one was forbidden to make payments. And if you did make payments, the interest portion is an above-the-line deduction, which may soften the impact of making those payments. There’s a limit to this deduction: $2,500.

8. Teacher expenses

If you’re a teacher and have to pay some expenses out of your own pocket — think books, organizational containers, toys or musical instruments — you can deduct up to $300. If you’re married to another teacher, you can jointly deduct $600.

Other less common deductions. Are you an Olympic (or Paralympic) champion? You can deduct your winnings. Did you give your pay from your jury duty to your employer because it was paying you? You can deduct that as well. Did you have supplemental unemployment benefit repayments? You can deduct those. All of the less-common deductions are outlined in IRS Publication 529 — Miscellaneous Deductions.

https://www.aarp.org/money/taxes/info-2023/above-the-line-deductions.html

You don’t have to tell them some things, but others are very important

You’ve probably taught your kids a whole bunch about money over the years, like how to stretch an allowance through an entire week and how to balance a debit account — or, most challenging of all, how to save enough money to buy tickets to a Taylor Swift concert.

Now it may be time to tell your adult kids something else: how your finances work.

Not to worry. You absolutely don’t have to tell them financial details that reveal how much money you have socked away, the innards of your brokerage account or even the value of your home. In most cases — unless you are suffering substantial health or financial problems — that’s probably your business and not theirs. But there are certain things about your personal finances that it may greatly behoove you to share with your adult children.

“It’s important that your children understand your finances in the event something happens and you’re not able to manage them yourself,” says Kerry Hannon, a best-selling author and personal finance expert.

AARP reached out to several financial experts who offer these tips about what you should — and shouldn’t — divulge to your adult kids about your finances.

1. Share password access

You probably don’t remember all your passwords and usernames, so just imagine your adult kids trying to figure them out in an emergency. No, don’t hand them the list now. But it’s critical that they know where the list is — and have easy and instant access to it in an emergency, says Patti Black, a certified financial planner in Birmingham, Alabama. Also, it’s a good idea that the password list be typed, not handwritten, to avoid any confusion.

2. Give access to key documents

You’ve likely assembled a number of important original documents through the years, ranging from your will to your birth certificate to your car title to your most recent tax filings. These documents should be kept in a super safe place — like a safe deposit box at the bank or a fireproof lockbox at home. Your kids need to know exactly where you store them and how to quickly get access to them, says Jeremy Hutzel, a certified financial planner in Brentwood, Tennessee.

3. Explain how you pay bills

Each of us has our own favorite ways of paying the monthly bills. Your spouse and your adult children all need to know precisely how you do it, says Black. Are most of the bills automatically paid monthly and, if so, from which of your accounts? Providing this information in advance — in a simple, clean way — can eliminate lots of financial discomfort if you get laid up.

4. Disclose your digital footprint

These days, so much of our financial information isn’t on paper or in file cabinets but online. If you receive financial information electronically, make triple sure that your trustworthy adult kids know this, says Karen E. Van Voorhis, a certified financial planner in Norwell, Massachusetts. They will need to know what the financial information is, where it is stored digitally and how to get to it.

5. Introduce your team

You may or may not have a team of professionals who help you directly or indirectly with your finances. This might include a financial planner, an accountant or an estate attorney. If you work with any of these, it’s critical that your adult children at the very least know who they are and how to reach them, says Frank Summers, a certified financial planner in Charlotte, North Carolina. Equally important, he says, is to provide these advisers with your children’s names and contact information — along with specifying what information is authorized to be discussed. A copy of your power of attorney should be on file, too.

The best-case scenario is for your adult children to meet your financial adviser in person, ideally with you present, says Hannon. “It demystifies money and helps to make it part of family conversations,” she says.

6. Review your income sources

While your adult children don’t need to know exactly what your income is, they do need to know where it comes from. That’s why it’s important to review all your income sources with them, says Kimberly Palmer, personal finance expert at NerdWallet, a personal finance app aimed at simplifying money management. By at least making your kids aware of the sources of your income stream, you give them early insight into how financially stable you are and whether you’re likely to need financial assistance from them.

7. Talk about it before you need to

Don’t wait until there’s an emergency to discuss your finances with your kids. Do it well before then and try to involve all your children in the meeting. Schedule the meeting for a time that works comfortably for everyone, says Palmer. The meeting, which can be in-person or on Zoom, should not take place during anyone’s vacation, if possible. Weekends are usually best. Before the meeting, give your kids a general overview of exactly what you want to share with them. And before the meeting ends, it’s smart to schedule recurring meetings, as needed.

8. Explain whether you have enough set aside

Your adult children deserve to know if they will need to help financially support you later in your life. This should not be a mystery, says Stephen Maggard, a certified financial planner in Columbia, South Carolina. Again, you don’t have to open all your books to them, but it’s important to give them plenty of advance notice. Telling them that you have a sound financial plan in place, for example, “will go a long way to calming their anxieties,” he says. On the other hand, telling them well in advance that you might need financial help gives them time to plan for that.

9. Specify advanced health plans

There’s no better favor you can do for yourself or your kids than to be very clear about any plans you have made for advanced health care, long-term care or assisted living, says Summers. What’s more, they need to know if you have any funds set aside to pay for this and how to access the funds.

10. Set up a fraud alert

This can ultimately save you lots of stress and money, says Hannon. It can be as simple as letting your kids and your financial adviser know exactly whom to contact if something appears to be erratic in any of your accounts or investments. Elderly people are often victims of financial fraud, and taking a precautionary step like this can help stop fraud in its tracks.

11. Consider tax implications

This is something that many folks fail to do, and it is typically more relevant for the well-to-do. But considering and explaining the tax implications of your spending in your later years can have a huge impact on your estate and whatever you leave to your kids. You might want to give them a basic understanding of this, says Paul Monax, a certified financial planner in Littleton, Colorado.

12. Let them know your wishes — but listen to theirs

Whether you call it philanthropy or legacy, this is about how you want your money to help others. Your kids need to know this. What’s more, says Hannon, this discussion could elicit further discussions that show how the money you might have planned to leave them through your estate could be even more useful to your kids today by helping them purchase a home or pay for college tuition.

https://www.aarp.org/money/investing/info-2023/sharing-financial-information-with-adult-children.html

And 7 ways to make things easier for yours

Have you found an executor (also known as a personal representative) to handle your affairs should you become incapacitated or die?

Planning for death-related events isn’t fun, so you may be procrastinating. Or you may be unclear about what’s involved — what you’ll be asking the person to do. Your executor must possess the stamina, patience and persistence required to get the job done. If not, the process may become very difficult, if not impossible, to complete when the time comes.

“Being an executor can be harder than you think,” says David Frisch, of Melville, New York. ”Often, loved ones are chosen, as in many instances they should be, but frankly, they are usually unprepared and then overwhelmed.”

Still, it’s important to name an executor so you have a say about what happens to your estate. You can change your mind and choose someone else later, says Adam Wojtkowski, in Mansfield, Massachusetts. If you fail to choose one, the court will do it for you. “It’s usually a surviving spouse or an adult child, but it depends on the situation and state laws.”

A real-life example

Right now, Jan Valecka and her husband are finding settling an estate for a relative a rigorous process — even though she’s a CFP. After the death of an uncle who lived in Chicago, the couple planned the funeral and then found the will. Valecka’s husband was named executor for the estate, as well as trustee, and has power of attorney for the uncle’s widow, who has Alzheimer’s disease.

Unfortunately, the uncle left no other instructions, and many decisions had to be made quickly. The Valeckas had to find care for the widow before flying back to Texas, secure the house and cars, and figure out bank and credit card information — with no passwords. They’ve sold the main home, but a lake home still needs to be maintained.

“We, of course, are doing everything for the widow and the memory of the family,” Valecka says. “But I’m not sure what will happen if you don’t have someone you trust to be the executor of your estate. All the photos, collectibles, cars . . . it really is overwhelming.”

As this story illustrates, things can become more complicated than they need to be if you don’t leave clear instructions, including where to find your most important documents, the keys to your home and car, and the usernames and passwords to your various accounts. Everything becomes harder, just as the people in your life are grieving your loss.

7 tasks an executor must complete

Like Valecka and her husband, your executor may start by helping to plan your funeral. You can make that easier by expressing your wishes to others and leaving that information among your documents.

Here are some of the other things that must be done. For a complete list, consult a financial planner or attorney if you can.

1. Obtain a death certificate, find the will and hire a lawyer, if needed. A death certificate will be required in the process of settling your estate. It is issued by your county of residence and signed by the physician who verified your death.

If you’ve left a valid will, then your stuff will be divided among the individuals designated, as well as in any trusts that you may have established. Be advised that the beneficiaries you’ve named on your insurance policies and retirement and other financial accounts will supersede those in your will. Because lives and circumstances change, you’ll want to review all beneficiary designations periodically, and update them as needed.

Will a lawyer be required? That depends on the size of your estate, the state you live in, and the quality of the relationships you have with your family. Keep in mind that the executor has a fiduciary obligation to the estate, says Nicholas Bunio, in Downingtown, Pennsylvania: “If [executors] don’t know what they’re doing, they must find an attorney who does. Otherwise, the beneficiaries of the estate could sue the executor!”

2. Notify the probate court. Probate is the distribution of your assets after you die. Your executor will need to petition the probate court in the area where you lived. They’ll do so by filling out a form to obtain a letter of administration or testamentary they’ll need to access your accounts and other assets. Both that form and directories of probate courts in different states can be found online.

3. Inform all interested parties. Your employer, work colleagues and friends might already know that you’ve died if they’ve seen an online obituary or attended your funeral. However, your death must be reported to Social Security and to the banks and other financial institutions where you have accounts.

4. Pay all debts and file all taxes. Your executor must settle all of your obligations with your creditors, and file your income taxes and inheritance or estate taxes if applicable.

5. Inventory your assets and plan for their distribution. Your executor must determine not only your probate assets but also non-probate assets — that is, property, financial accounts or investments that are not required to pass through probate because they are jointly owned or held in a trust that you established. Next, your executor will determine what will be sold, kept or discarded, according to the will you left.

6. Distribute your assets among your beneficiaries. Once all bills and taxes have been paid, your executor will divide your assets as stipulated by your will.

7. Complete the final accounting, and all required forms. Finally, your executor will dissolve any of your existing accounts and check that the court has everything it needs to complete your estate settlement.

7 ways to make things easier

If you’re like most folks, you don’t want to be a burden to anyone while you’re alive or when you’re gone. Following these steps will make things go as smoothly as possible for your executor and your loved ones, while eliminating unnecessary costs.

1. Make sure to leave a legal will or estate plan. Otherwise, you will die “intestate,” and your assets will be frozen until the court carefully reviews the estate and decides how your assets will be distributed. This can make the process very hard and long for your family members.

“Surveys show that somewhere between 60 and 70 percent of Americans don’t even have a will,” says Patti Black, a in Birmingham, Alabama. “The surviving family members may end up spending more money to clean up the lack of planning than if the deceased person hired an attorney to prepare a will, power of attorney and advanced health care directive.”

Who will get what from your estate? Every state follows different rules for dividing property when there’s no will. Most often, your spouse will be the first priority, followed by children, grandchildren, parents and siblings.

2. Include clear instructions. Executors do not necessarily know about brokerage accounts, life insurance policies, online passwords, etc., Frisch says. Being organized and leaving detailed instructions will make it easier for your executor.

3. Make sure your executor is up to the job. Look for someone who’s honest, trustworthy, organized, responsible, and able to handle the potential stress and time commitment, Wojtkowski says. “They don’t need specific legal or financial expertise, but it’s helpful. More important is communicating effectively, making tough decisions, and keeping precise records.”

Frisch says, “In some instances, it may be better to have coexecutors, or professional help.”

4. Get the prospective executor’s consent and make the responsibilities clear. “Since settling an estate can be a long and involved process, probably the most important thing is to choose someone willing to perform all the various duties involved,” says Peter Palion, in East Norwich, New York.

Valecka says she may write a book about being executor to help her clients understand how much time and effort may be involved. For example, she needed to obtain an original marriage certificate to present to Social Security so the widow could switch to her late husband’s higher benefit. “Small things like original paperwork having to be ordered takes time.”

5. Consider the size of your estate. If you have $500,000 in total assets, naming a family member may be fine, perhaps with the help of an attorney, Bunio says. “But if we are talking $1 million or more, I would not name a family member as executor, but a lawyer/law firm. Or, name a family member with the stipulation that a lawyer must be hired.”

6. Suggest how to get help if hiring a lawyer is too costly. “Your executor could ask the court to find one for you or seek assistance from the state,” Bunio says. “I have heard of charities that help with this, as well as pro-bono firms.”

7. Finally, name an alternate, if you can. “It’s usually best to name a second individual as an alternate in case the first one cannot act due to disability or death,” Palion says.

https://www.aarp.org/money/investing/info-2023/how-to-choose-an-estate-executor.html

These stealthy cash drainers could be costing you big bucks

Yes, you can save a lot by cutting out the little pleasures in life. Nonessentials like caffe lattes and premium channels can really add up. But life is too short for mediocre coffee! The good news is that not all money wasters bring you joy. Here are seven painless ways to stop throwing away hundreds of dollars a year.

Landline phones

You could save: $560 a year

Most U.S. households now rely on mobile phones only. But fewer than one-quarter of homes with people 65 and older have made the switch. If you want to keep your landline, don’t overpay. Until recently, my mother-in-law paid $84.54 a month for plain old telephone service. By replacing her copper-wire connection with phone service delivered through the same cable as her TV and internet, I trimmed her telecom bill by $565.32 a year. Bonus: The static in her phone is gone.

Greeting cards

You could save: $100 a year

With cards getting ever costlier, finance and consumer writer Anthony Giorgianni buys boxes of blank greeting cards and personalizes them for each occasion. It’s easy to find beautiful cards, sold in quantities of 24 or more, at prices that work out to well under 50 cents per card. Send them out instead of birthday and holiday cards often priced at more than $4 a piece.

Credit card late fees

You could save: $28 or more

The top penalty for missing a payment is now $28 for a first-timer, rising to as much as $39 for subsequent late payments. But you might not have to pay. Ted Rossman, an industry analyst at creditcards.com, says 84 percent of people who ask for a break on late fees get it.

Food waste

You could save: More than $600 a year

The average American tosses out almost a pound of food per day. (One survey found American households waste $640 every year.) My favorite tool for reducing waste — and my food bill — is the freezer. Leftovers and iffy produce turned into soups and casseroles, for example, last just a few days in the fridge but can be stashed for months in the freezer. For more info, consult the cold food storage chart at foodsafety.gov.

Bank fees

You could save: More than $144 a year

Monthly fees, ATM charges and overdraft penalties can eat up your cash. But Greg McBride at bankrate.com says you shouldn’t have to pay for a checking account: More than 40 percent of banks and 80 percent of credit unions offer free checking with no balance requirement, averting maintenance fees that regularly total $144 per year. Avoid ATM withdrawal fees, which can top $4 a pop, by using any cash-back option when making purchases with a debit card, Rossman says. Dodge overdraft fees, which can easily hit $30, by declining overdraft protection service; instead, track spending to avoid going over your balance.

Full-price toiletries and cosmetics

You could save: 40 percent or more

Rather than shopping at drugstores or specialty stores, hit discounters like TJ Maxx and Marshalls. Since they added beauty departments a few years ago, discount stores have been my go-to source for brand-name moisturizer, face wash, cosmetics, hair spray and shampoo. My savings easily exceed 40 percent.

Amazon Prime

You could save: $120 a year

If you signed up for Prime just for the fast free shipping (and not for the streaming video and music), you might be better off dropping out and saving the $119 annual fee. Any Amazon customer can get free shipping by spending $25 or more on qualifying items per order. Or you can shop at walmart.com, which just rolled out free next-day delivery on eligible orders of at least $35. But if you love Prime, you can save big by signing up for the Amazon Prime Rewards Visa Signature card, which offers a generous 5 percent back on Amazon and Whole Foods purchases.

Lisa Lee Freeman, cohost of the Hot Shopping Tips podcast, was founder and editor in chief of ShopSmart magazine from Consumer Reports and an investigative reporter for The Dr. Oz Show.

https://www.aarp.org/money/budgeting-saving/info-2019/money-leaks.html

Facing an insecure financial future, America’s ‘neglected middle child’ may have to chart a different path to post-work life

For years, Mike Cundall Jr. thought he was on the proper path to retirement.

A professor of philosophy at North Carolina A&T University, Cundall, 49, and his wife, Amy Werner, 48, did everything right. They started saving for retirement when they entered the workforce and faithfully put money from every paycheck into 401(k) plans and Roth IRAs. Their goal: to save enough to have a monthly income of $5,000 in retirement.

But now Cundall is beginning to feel apprehensive. He wonders whether he’ll be able to reach that $5,000-a-month goal and, if he does, whether it will be enough.

One reason for the Greensboro, North Carolina, resident’s anxiety: the unpredictability of the stock market. When the financial crisis hit in 2008, he recalls, “our savings essentially got halved in a matter of weeks.”

Then there’s inflation and rising health care costs. Financial advisers have counseled the couple to save more, but the costs of raising their three children — now 22, 20 and 13 — have made that impossible, Cundall says.

“All this has led me to believe that no matter how much we’ve saved, we’re not going to be able to retire and simply enjoy the golden years,” he says.

Cundall’s pessimism is widely shared among his peers in Generation X — or “Generation anXious,” as a recent Northwestern Mutual report dubbed them.

The insurance and financial planning firm’s 2023 Planning & Progress Study found Xers, the cohort born from 1965 through 1980, to be the only generation in which a majority — 55 percent — believe they won’t be financially prepared for retirement.

According to the report, based on a February-March Harris Poll survey, Gen Xers are less likely than the general adult population to believe they have had or will have a successful career or that they will achieve long-term financial security. They are considerably more likely than boomers to predict they will outlive their savings, and on a 10-point scale, they rate their sense of financial security at 5.6, markedly lower than other generations.

Those worries appear to be well founded. Thirty-five percent of the Gen Xers surveyed by Prudential in March and April reported having less than $10,000 in retirement savings, and 18 percent have nothing at all saved for retirement.

“The anxiety is real, and I think it’s probably somewhat well placed,” says Brian Ream, a member of Gen X and managing principal at accounting and wealth advisory firm CliftonLarsonAllen in New Bedford, Massachusetts. In many respects, he says, “Gen X is woefully unprepared for the traditional sense of retirement.”

America’s ‘middle child’

To some degree, Gen X’s anxiety has a straightforward explanation: Its members — numbering about 65 million, nearly 20 percent of the U.S. population — now range in age from 43 to 58, and retirement is no longer some event in the distant future.

But many reasons for their “pretirement” jitters are more complicated, rooted in past collective experiences and present economic challenges.

Growing up, Gen Xers were referred to as latchkey kids because, with both parents working, many came home from school to an empty house. Falling between two larger and more attention-getting age groups, boomers and millennials, they’d come to be called the forgotten generation — or, as a Pew Research Center study memorably put it, “America’s neglected ‘middle child.’ ”

“In my experience with clients, Gen Xers have been spending a lot of time trying to find identity,” says Thomas Jensen, a Portland, Oregon–based wealth management adviser with Northwestern Mutual. Now they are trying to figure out how retirement might change their identity.

“On the financial side, our retirement’s going to look different than that of our parents,” Jensen says. “There’s some anxiety with that.”

Compared to their predecessors, Gen Xers married and had families later, says Ream. That helped earn them another nickname: the sandwich generation, with many caring for aging parents while still raising their kids.

“You’ve got these competing goals of ‘I want to save for retirement’ but, at the same time, ‘I’ve got two kids in college and my parents are getting to the point where I am being required to either help out financially or spend more of my time on their care and well-being,’ ” he says.

Amid these challenges, Gen X is feeling whipsawed by rising prices and growing debt. More than two-thirds of Gen Xers worry about inflation short-circuiting their savings goals, according to the Prudential survey. A June 2023 analysis by Credit Karma found that Gen Xers owed the most among adult generations, with an average debt load of $61,036, and shell out the most per month ($599 on average) in repayments.

As a result, Jensen says, many simply don’t “have the privilege or the luxury to say, ‘Hey, I’m going to put money aside for retirement.’ ”

Losing the pension parachute

As sandwiched or saddled with debt as Gen Xers may be, their lack of retirement readiness can partly be attributed to circumstances beyond their control — most notably, the shift by private-sector employers from offering guaranteed pension benefits to savings-based plans such as 401(k)s, which accelerated as Xers were moving into the workforce.

“From my perspective, the biggest thing that is different for Gen X is that they no longer have the ability to rely, as previous generations did, on traditional pensions,” says Dylan Tyson, president of Prudential Retirement Strategies.

In 1975, there were 27.2 million active  participants in traditional private-employer pensions, also called “defined benefit” plans, which provide retirees with a guaranteed monthly income for life, according to the Congressional Research Service. Pension participation remained stable into the mid-‘80s, when the oldest Gen Xers were starting their careers, but then began a steady decline, falling to 12.6 million by 2019.

As pensions waned, “defined contribution” plans such as 401(k)s — which require workers to save on their own and figure out how to manage withdrawals in retirement to ensure the money lasts — became the dominant form of retirement benefit, growing from 11.2 million active participants in 1975 to 85.5 million in 2019.

Gretchen Elhassani, 47, a freelance writer in Cary, North Carolina, has seen that sea change play out firsthand. “My grandparents got a job, and they kept that job for 40 years, and then they retired and they were able to just live off their pension without any worries,” she says. Her parents had multiple employers over the course of their careers, but “each place that they went to had a pension plan.”

For Elhassani, things were different. Her first workplace, a nonprofit organization, offered a 403(b) plan she could contribute to, but there was no employer match. Still, she socked away $100 per month. After leaving that job, however, she changed workplaces frequently and “didn’t stick with one company long enough to accrue any meaningful savings.”

“I’ve always said that my retirement plan is just not to retire,” she says.

Gen X workers are three times more likely to have a defined-contribution plan than a defined-benefit plan, according to a July 2023 report by the National Institute on Retirement Security. Only 20 percent expect a pension to be part of their retirement income, the Prudential survey found.

Concerns about the future of Social Security compound Xers’ anxiety about having a reliable income stream in later life. Just 45 percent believe Social Security will be there when they need it, the Northwestern Mutual study found, compared to 55 percent for the general adult population.

Social Security is not in danger of running out of money, as long as the government keeps collecting payroll taxes on almost all U.S. workers’ wages. However, retirement benefits could be reduced by more than 20 percent by 2033 if Congress does not take steps to shore up the program’s finances, an unsettling prospect for the nearly 3 in 5 Gen Xers who told Prudential’s pollsters they expect to rely on Social Security as a source of retirement income.

A new vision of retirement

Add it all up, and “Gen X faces one of the most complex landscapes for retirement readiness in decades,” one that requires “a new set of retirement strategies,” says Rob Falzon, Prudential vice chair, in a statement on the company’s findings.

For example, thanks to the security of pensions, not to mention much lower tuition costs, their parents and grandparents may have been better situated to pay for a child to go to college. Gen Xers might need to rethink that, Ream says.

“You can always finance an education” with student loans, he notes. “You can’t finance your retirement.”

Ironically, Elhassani says her college-bound sons, Youssef and Mehdi, are more proactive about saving for retirement than she is. The 18-year-old twins plan to start a business cleaning dorm rooms and frat houses. Mehdi aims to retire in his 40s or 50s, while Youssef has already opened a retirement account and makes stock trades on his iPhone.

Gen Xers may also need to think differently about spending than did their parents, or even their boomer older siblings. Let’s say they want to travel in retirement. “Travel could be, ‘I’m going to get a pop-up camper and see the national parks,’ or it could be, ‘I’m going on safari in South Africa,’ ” Ream says.

That might mean adjusting their dreams to fit their budget — or adjusting their budget to fit their dreams.

Tyson advises worried Gen Xers to think in terms of monthly income. Some of his recommendations: Keep tabs on what you can expect to get from Social Security, retirement-account withdrawals and other income sources (such as pensions or annuities). Will that cover your monthly needs? How much more would you need for travel and other lifestyle plans? Finding ways to cut spending now may put Gen Xers in a better position to enjoy some of those luxuries later, he says.

Changes from the SECURE 2.0 Act — a 2022 federal law that affects 401(k) plans, individual retirement accounts (IRAs) and other savings vehicles — could also help Gen Xers achieve their goals, Tyson adds.

For example, SECURE 2.0 creates a mechanism for employers to add an emergency savings component to most workers’ retirement plans. Starting in 2024, up to 3 percent of a qualifying employee’s after-tax earnings can be set aside to build a rainy-day fund of up to $2,500, providing an alternative to tapping retirement accounts for emergencies.

Many Gen Xers are also coming to realize that retirement may not necessarily mean leaving work behind. Nearly half — 47 percent — expect to retire later than they’d planned, and 40 percent anticipate working part-time in retirement, the Prudential study found.

Cundall expects to be one of them. The author of the 2022 book The Humor Hack: Using Humor to Feel Better, Increase Resilience, and (Yes) Enjoy Your Work hopes his “retirement” years will include doing consulting work on how people can use humor to increase engagement.

While he’s concerned about having enough to retire on, his plan to keep working is driven more by passion than money: “I don’t want to feel like I have to be there.”

Ream also believes that many members of Gen X will create a new vision of retirement by finding ways to bring in income through entrepreneurship or part-time work they want rather than need to do.

“I think there’s going to be the opportunity to still maintain employment but do it on slightly more favorable terms,” he says, summing up his cohort’s view this way: “I can work until 67 or 68, but I’m going to work differently.”

“All of these societal changes have been kind of thrust upon [Gen Xers],” he adds. “It’s up to us now to say we’re going to take control. Don’t let the tide take you out. It’s just time to maybe swim a little harder.”

https://www.aarp.org/retirement/planning-for-retirement/info-2023/generation-x-anxiety.html

A little planning can ease the financial hardship

You may not think a disaster can hit you, but a disaster of some sort can occur just about any place, at any time, with little or no warning. Garrett Sorensen knows that. His car was totaled when a powerful tornado hit Covington, Tennessee, on March 31: “The building I was in was destroyed and vehicles were moved up to 50 feet by the F3 [storm] that hit us directly. Luckily, we were all safe, but the damage is devastating.”

According to the NOAA National Centers for Environmental Information (NCEI), as of June 21 — just three weeks into hurricane season — nine confirmed weather/climate disaster events costing at least $1 billion each have hit the U.S. this year. Last year, there were 18 such occurrences, including winter storms, cold waves, droughts, heat waves, wildfires, tornadoes, floods, as well as hurricanes Fiona, Ian and Nicole.

Sorensen, in Old Hickory, Tennessee, advises planning for disasters so your finances can recover as quickly as possible should a catastrophe strike. Also, if you’re badly injured, incapacitated or die unexpectedly, your preparations will enable your loved ones to respond.

Consider the following tips. A little planning may render some peace of mind, especially if weather-related events are common in your area.

1. Safeguard your vital documents

First, if you haven’t done so, assemble all of your financial, medical and legal documents. The Federal Emergency Management Agency (FEMA) offers the Emergency Financial First Aid Kit (EFFAK) to help you get organized. EFFAK offers a handy checklist and helpful suggestions for gathering these items, as well as medical information and forms. You’ll also find advice about managing finances, what to expect in a disaster, how to prevent identity theft and pet preparedness.

Be sure to place these materials in a waterproof and fireproof grab-and-go bag or backpack you can easily access, should you need to evacuate your home. Then, look for a safe place to store these materials outside of the affected area, such as the home of a friend or relative.

“If a disaster or other emergency strikes your community, you may only have seconds or minutes to react,” the agency writes in the kit’s introduction. “Once the threat of harm has passed, having your homeowner’s or renter’s insurance policy, bank account information, and other household records and contacts will be very important as you begin the recovery process.”

FEMA also offers an app (called FEMA, naturally) that you can download at Google Play or the Apple Store. You can use it to apply for individual assistance, check your application status, find emergency shelter, visit a disaster recovery center and find out what to expect when you apply for assistance. In addition, ready.gov and disasterassistance.gov offer helpful information.

2. Redundancy pays: Keep digital and paper files

Also, consider saving your EFFAK at a secure financial portal online. One example is Easeenet.com. There’s a free version, which offers secure encryption; a password manager with up to five logins; document storage and sharing; a legacy worksheet where you list important details you want others to know; and a legacy contact who may access your account in your absence. You can also store important documents securely with Google Drive, Microsoft OneDrive and Dropbox, among others.

Like most of us, you probably have numerous usernames and passwords to manage. In that case, consider signing up now for a dedicated password manager for all of your digital assets, such as Last Pass, NordPass or Bitwarden, so you can access them from your phone, tablet or laptop easily.

Those assets include email, financial, utility, insurance, e-commerce, subscription and social media accounts; personal websites, blogs and file-sharing accounts; and cloud storage, which may contain your treasured music and photos. Don’t forget your physician, dentist, Social Security, Medicare and tax preparation accounts. In an emergency, the ability to access these important sites via your laptop, tablet or smartphone may be essential.

3. Kept abreast of your insurance

Make sure you’re clear about the insurance coverage you have, and the deductibles. Sorensen recommends reviewing your coverage at least twice a year. Include your health, auto, home and flood insurance, if you have it. “Knowing what you are covered for and how to go through the process will help ease the stress you feel after a disaster strikes,” he says. “I was in a rental vehicle less than 12 hours after the tornado hit because I knew the process I needed to go through because I stayed aware of what my insurance provided.”

Kevin Lum, a CFP at Foundry Financial in Los Angeles, says aid from FEMA and other agencies is typically available only for major disasters and may not cover all, if any, of your expenses. “So, you want to make sure you have proper insurance coverage.”

Another reason to review your coverage is the effect inflation has had on the cost of materials and repairs, says Mike Martinez, president and CEO of M Martinez & Associates in Metairie, Louisiana, who has been through several natural disasters. Otherwise, you may come up short when you file a claim. “You could be left paying out-of-pocket expenses that could’ve been covered by insurance,” he says.

4. Take an inventory of your possessions

Next, create proof of your possessions. For your home and its contents, insurance carriers recommend using a video camera or your phone or tablet to document each room, zooming in closely, and adding narration to describe items of the highest value. You can also make a list on a spreadsheet, if you wish. Or use an inventory app such as Itemtopia or the NAIC Home Inventory.

Whichever method you use, be sure to review and revise it every year, or anytime you do a significant remodel to your home or make a major purchase. You might also want to register expensive products such as electronics and appliances for any insurance or warranty claims. Don’t forget to include this inventory in your grab-and-go bag.

5. List phone numbers of local officials and insurers

When a storm or flood hits, what should you do first? Assuming that you don’t need first aid or more extensive medical attention, you’ll want to quickly let local officials know the damage you’ve incurred and what immediate assistance you need. Make sure you have these important numbers on your phone and in your grab-and-go bag.

Unfortunately, some people will take advantage of those who need help, so be alert to scammers and price gougers, says Chuck Czajka, a certified estate planner and founder of Macro Money Concepts in Stuart, Florida. “Also, document everything and communicate with your insurance providers to understand what they will cover and what you will need to pay out of pocket,” he says. “Be patient, as a natural disaster typically impacts many people. Recovery and repair times may take days, weeks or even months.”

6. Have a rainy day fund to tide you over

It’s always important to have a cash stash to cover unexpected bills so you’re not forced to raid your retirement fund to cover living expenses. But that’s especially true in the event of a calamity, Martinez says. If your home is damaged or gone, you’ll need money for a place to live, among other things. “After a disaster, the cost of water, food, hotel stays, transportation, etc., will need to come out of an emergency fund.”

Insurance companies can take weeks to help, Sorensen says: “Having the funds available to cover that waiting period will feel like a lifesaver at a terrible time.” The same is true for FEMA and other government agencies, Lum says: “While aid is available, it may take time to receive it. People should be prepared to rely on their own resources in the meantime.”

7. Be ready with a stash of essentials

Are there disaster preparation efforts in your area? If so, Czajka recommends participating. Florida, for example, has Hurricane Preparedness Week, which encourages residents to plan for a hurricane or other disaster.

“When it comes to food and water, anticipate needing at least a week’s worth,” Czajka says. Medications should be up to date and refilled. You should also have flashlights and batteries, a backup battery for your phone, and some cash in case there’s a power outage. Credit cards and ATMs may not be usable. “Your home may be unlivable in the event of a natural disaster, so having a backup plan for shelter and food is critical.”

8. Take care of yourself and your loved ones

Finally, Lum says to prioritize self-care and seek emotional support as needed, in a time of great distress: “Recovering from a disaster can be stressful and overwhelming, and it’s important to take care of oneself during the process. Maybe take some time and visit family.”

https://www.aarp.org/money/budgeting-saving/info-2023/recover-financially-from-natural-disasters.html

You may think that your big expenses in retirement will be for greens fees at golf clubs, spa charges at that resort in Crete, and taking the kids out for avocado toast on weekends. And that may well be true. But some of your biggest expenses may surprise you — because you pay them already. The combination of everyday expenses and extraordinary expenses are what people find difficult to balance in retirement.

“Lifestyle creep in retirement is a real thing,” says Nick Covyeau, in Costa Mesa, California. The spending that most folks rack up during their working years does not suddenly change in retirement, he says. Planning years in advance to try to maintain a reasonable style of living in retirement requires a keen sense of how much you’ll need to save and accumulate.

critical to your financial future. So we reached out to four certified financial planners and asked them for their thoughts on the obvious — and not so obvious — things that retirees are most likely to spend their money on. We also asked them why — and how — to best plan for this spending.

Here are the 10 top things for which retirees are most likely to dig into their portfolios.

1. Health care

Of all the spending categories in your retirement, this one — over time — will likely be the big tamale. If you’re in reasonably good health, health care spending will typically be relatively low when you retire, then jump as you age into your 80s and beyond, says Eric Ross, in Cincinnati. These expenses are often less for the husband, he says, because the husband typically dies first and sometimes relies on his spouse to take on many caregiving duties. That means the surviving spouse will often have to pay for their own caregiving costs, which tend to vary in different areas of the country.

At the same time, health care costs have seen — and will continue to see — faster inflation rates than any other spending category, says Craig Toberman, in St. Louis. That’s why he projects that health care costs will climb about 5 percent annually over the next 30 years — about twice the rate of other expenses. He encourages clients to be mindful of their “lifestyle” retirement spending (like restaurant meals, travel and online shopping) in their 60s and 70s so that the money is still there to pay for increasing medical costs in their 80s and 90s.

2. Home maintenance

If you plan to stay in your home through at least a good chunk of your retirement, you’ll likely see your home maintenance costs jump considerably, says Ross. That’s because you’ll probably have to hire services to take over some of the tasks you’ve been doing for years. This includes hiring pros to do everything from lawn mowing and gutter cleaning to window washing and home cleaning. “Something as simple as using a ladder as you age often isn’t a good idea,” he says.

3. Travel

Travel costs in retirement will vary not only based on where you go and where you stay but on whom you bring along with you, says Ross. “Do your adult children join you on these trips, and are you paying the way for everyone?” he poses.

Typically, you should plan to travel much more in early retirement and much less — to not at all — in the later years of retirement, says Toberman. That’s why, he suggests, folks who have set aside money for travel throughout their retirement but then cut back on trips due to health reasons might find a small “safety net” they can dip into for medical costs.

4. Transportation

This is one of the most important areas of retirement spending but one of the least considered. As they age, retired folks often increasingly rely upon others to help them get from place to place, says Ralph Bender, California. This might be an Uber ride to a doctor’s appointment or a cab ride to the grocery store and back. “Transportation is always going to be an expense,” he says.

Even folks who purchase a new car before retirement will be faced with multiple transportation costs, ranging from payments on the car to maintenance to gasoline and insurance, says Bender. And if you choose to retire to a remote area, he says, your transportation costs will likely be that much higher — and you need to factor this in.

5. Utilities

Your utility costs are one of the few expenses that should head south in retirement. For one thing, you typically no longer have to pay for children taking long showers or cooking at all hours of the day and night, says Toberman. Also, folks tend to downsize their homes, which would require less heat and air conditioning, he says. Even then, the rates that utilities charge all customers will continue to increase annually. That’s why Bender notes that installing solar panels with batteries can reduce rising electricity bills.

6. Fitness and wellness

It there’s one area where financial planners agree retirees will get the most bang for their investment, this is it. People who invest in health and wellness typically have lower medical costs, says Ross. This can be anything from gym memberships to yoga classes to Peleton bikes to quality sneakers.

The more retirees spend on fitness and wellness, the less they spend on medical costs, says Toberman. He recommends that retirees allocate up to 10 percent of their total monthly spending for health and wellness, which he says can include anything from personal trainers to nutritional supplements to home exercise equipment. “It’s not hard to spend $500 per month on this, and there are a lot worse ways to spend money,” he says.

7. Kids and grandkids

Spending on kids and grandkids can be as simple as a Starbucks gift certificate, as lavish as a trip to Disney World, or as lofty as a fat contribution to your grandkid’s 529 college savings plan. In almost every case, it’s going to be more than you think, says Ross.

It can also be unpredictable, says Toberman, because folks tend to overspend on their first grandchild. Then, when the next grandchild comes along, or perhaps several more, they are likely to try to match that same amount even if they can no longer afford it. So, Toberman advises, be particularly mindful of spending on that first grandchild.

8. Taxes

Even though it seems like taxes might decline when you’re retired, that’s not always the case, says Toberman. The key, he says, is to try to plan for taxes before you retire. What’s more, he says, as the federal government looks for ways to reduce the federal deficit, that will likely result in higher taxes.

It’s wise for retirees to keep their retirement funds in IRAs, Roth IRAs and brokerage accounts so that they have the flexibility to respond by paying taxes each year in the most tax-efficient way, says Ross.

9. Charitable giving

Some folks who consistently give to charity when they’re working tend to pull back from charitable giving once they retire, says Ross. Then, when they feel more secure in their retirement, they might pick up again and give more.

But others actually increase their charitable giving in retirement because with proper planning, after age 72, they can give directly to charities from IRAs on a pretax basis, which essentially allows them to give more, says Toberman.

10. Professional help

Then there are the pricey financial pros. These are the financial advisers, estate planning attorneys and accountants whose mission is to help retirees with their finances as they age. Yes, they are expensive, but it’s critical to piece these relationships together well before you retire, says Ross.

3 ways to ensure you’ll be able to afford your essential retirement expenses

When you’re young, you can’t be too aggressive when buying mutual funds that invest in stocks.

But by the time you reach an older age and your paycheck stops, you need reliable sources of income to pay your bills. This transition from aggressive to conservative investing starts around age 50.

How do you navigate this turn in middle age? That’s the trickiest question in personal finance.

To begin, you need to figure out how much money you’ll need each year when you retire. In one pot, put essential expenses, such as food, housing, clothing, auto, utilities, medical and taxes. That’s your floor. In the other pot, put your lifestyle expenses — hobbies, gifts, entertainment and travel.

Option 1: Safety 1

Planners have two broad ways of funding these two parts of your retirement. Some take a safety-first approach, as outlined by economist Zvi Bodie, coauthor of Risk Less and Prosper. He advises you to cover all your essential expenses with guaranteed sources of money, including Social Security, a pension, lifetime-payout annuities, I-bonds (inflation-adjusted U.S. savings bonds), short-term bond funds and certificates of deposit. If you’re married, your safe investments should cover you and your spouse.

If your safe investments won’t produce enough income to cover your “floor” expenses, the answer is to rethink and reduce your expenses, Bodie says. You can’t afford to gamble on stocks for growth. You might lose capital or run out of money. If you hold enough safe investments to more than cover your essential bills, however, you can afford to risk some money in stocks or stock mutual funds, to cover lifestyle expenses. This part of your budget can rise or fall, depending on how the market performs.

Option 2: Total Return Investing

The second and more traditional approach — known as “total return investing” — uses the famous 4 percent rule. You own a portfolio of diversified stock and bond funds, with roughly half in stocks. At retirement, you withdraw 4 percent of your assets in the first year, and raise that amount each year by the inflation rate.

At today’s low bond-interest rates, however, 4 percent is too high, says William Bernstein, a portfolio manager and author of The Ages of the Investor. A 65-year-old should probably take just 3 percent, to protect his principal, he says. Or you could start with 4 percent and skip inflation adjustments when the market is poor.

Option 3: Mixing It Up

There’s an interesting third approach, based on research by Wade Pfau, a retirement income specialist at the American College of Financial Services in Bryn Mawr, Pa. Pfau built a range of retirement portfolios from two simple investments — low-cost index mutual funds that follow Standard & Poor’s 500-stock average, plus low-cost single premium annuities, which pay you (and a spouse) an income for life. He applied the 4 percent spending rule for a couple, age 65. The annuities paid more than 4 percent, so he put the extra into the stock fund.

All these portfolios — whatever the proportion of stocks to annuities — covered the couple’s retirement spending in almost all situations. They also left more money at death than a traditional portfolio.

Whichever path you take, your target shouldn’t be a “magic number” like $500,000 or $1 million. Instead, you’re targeting a specific annual income.

To pursue the safety-first solution, you have to be a black-belt budgeter and saver. Work as long as you can, including part-time work; put off taking Social Security (the delay increases your future monthly income); cut spending and pour savings into guaranteed investments. Consider TIPS (Treasury inflation-protected securities), but not now — wait until interest rates go up, both Bodie and Bernstein say.

A total return investor is taking a greater risk for a better lifestyle. For you, Bernstein recommends this rule: The percent of bonds in your portfolio should equal your age, with the rest in stocks. At 55, for example, you’d be 55 percent in bonds and 45 percent in stocks. You’re aiming for savings worth 20 or 25 times the amount of your annual living expenses that aren’t covered by Social Security or a pension. If you approach those numbers, take money out of stocks, Bernstein says. Build up your safety-first investments.

https://www.aarp.org/money/budgeting-saving/info-05-2013/safest-investment-path-for-retirement.html

Planning to retire in 10 years or less? Find out what you need to know and do for a smoother transition.

Average life expectancy has risen by 16 years since the national retirement age was set at 65. We asked health experts when they think people should stop working now.

In 1881, the conservative German Chancellor Otto von Bismarck, plagued by a rise in socialist ideology, proposed a national retirement benefit to appease the leftist masses. He set the retirement age at 70. Average life expectancy at the time? About 40 years.

Von Bismarck resigned shortly after the policy passed, but his legacy remained, and Germany’s retirement benefit (which was lowered to age 65 in 1916) became the model for many other nations. When President Roosevelt established the Social Security Act of 1935, 65 was similarly chosen as the national retirement age, despite the fact that less than 60 percent of American adults lived that long.

Which is all to say, the national retirement age in the U.S. and elsewhere has origins in a bit of political smoke and mirrors; it began as a symbolic offering, accessible only to the lucky citizens who managed to survive well into old age.

Today though, many more people live long enough to have access to a national retirement fund, often for years if not decades. Average life expectancy in the United States is 76, and in many European countries it’s even higher. The U.S. national retirement age — when you can start claiming full Social Security benefits — has crept up much more gradually, to 67 for people born after 1960.

In response, several countries — most notoriously France, where the retirement age is 62 and life expectancy is 82 — are debating raising the retirement age to try to offset the economic pressures of an aging population and the concern that national retirement benefits won’t be able to keep up for much longer.

From an economic standpoint, a later retirement age perhaps benefits everyone’s bottom line. But putting finances aside, what are the mental and physical implications of raising a national retirement age? We asked experts to weigh in.

Working-life expectancy

One way to answer this question is to look at changes not in life span but in health-span — the number of years people are healthy and disability-free. Think of it as your work-span.

Gal Wettstein, a senior research economist at the Center for Retirement Research at Boston College, looked at age and potential for employment in a study about people’s working life expectancy. He found that Americans who are healthy at age 50 can expect to have roughly 23 more years free of disability, plus about eight years living with disability. That would suggest people’s maximum working life expectancy, on average, is age 73.

“There’s no doubt that life expectancy is longer, and also the ability to work has expanded,” Dr. Wettstein said. “Part of that is medical changes, and part of that is the nature of work has changed.” In 2020, roughly 45 percent of the American labor force worked in a knowledge-based field, such as management, business and finance, education and health care. In 1935, these types of professions accounted for just 6 percent of the workforce.

Dr. Pinchas Cohen, dean of the Leonard Davis School of Gerontology at the University of Southern California, agreed that, from a health standpoint for people in these fields, a retirement age under 65 “makes no sense.”

“Even 65 is a 20th century number,” he said.

For people working in knowledge-based jobs, a retirement age in the 70s is reasonable from a cognitive perspective, too, said Lisa Renzi-Hammond, director of the Institute of Gerontology at the University of Georgia. “Our cognitive faculties we’re able to maintain, usually, pretty well into our 70s,” she said. “If retirement age is set based on the capabilities or competence of employees, there’s absolutely no reason to have a retirement age in the 60s.”

Parts of the brain — most notably the prefrontal cortex, which is critical for executive functioning, attention and working memory — do start to lose volume as early as around age 45, but other areas are able to compensate, Dr. Renzi-Hammond said. And other aspects of cognition, such as crystallized intelligence (accumulated knowledge that can be applied to new situations) and social cognition (behaving appropriately in interpersonal interactions), continue to improve for decades.

Many of these cognitive processes are maintained and strengthened by staying in the work force. Consequently, some people decline mentally and physically when they stop working. One study even found that delaying retirement was associated with a decreased risk of death, regardless of health before retirement. Experts speculate that the losses of job-related physical activity and social interactions that come with leaving work are largely to blame for post-retirement declines.

Retirement equity

National health and disability averages don’t tell the full story, though. While some people stay sharp and continue to work into their 80s, other jobs are more physically demanding and take a toll on people’s health.

“There are people who do manual labor where at age 65, they really cannot continue to do this very challenging work,” Dr. Cohen said. “Their need to retire needs to be respected.”

For these types of work, retirement can actually improve health outcomes, Dr. Renzi-Hammond said. “If you’re leaving a job that is physically bad for you, where you are getting terrible sleep and you’re constantly stressed out, then retirement is great for your health.”

Life span and health-span are also not consistent across race and gender, both because of the type of work certain demographics are more likely to take part in, and the toll chronic stress from discrimination takes on the body.

In his research, Dr. Wettstein found that, at age 50, Black men have a working life expectancy of approximately 17 years, while white women could continue working for 24 years. “There is an equity concern there, both on the life expectancy side, and also on the working-life expectancy side,” Dr. Wettstein said.

“We know that Black Americans, particularly, develop illness at earlier ages, live with more disabilities, die younger,” said Dr. Lisa Cooper, director of the Johns Hopkins Center for Health Equity. “So not allowing them to retire until they’re older means they’re just not going to benefit from” Social Security as much. This is also true for people from lower income brackets and those who work in physically intense jobs, she added.

As a result, Dr. Cooper said, “Raising the retirement age needs to be done with all of these issues in mind, because it’s not going to affect everyone the same.”

The initial intent for Social Security when it was established in 1935 was simply to sustain people once they could no longer physically work. But another way to think of federally funded retirement is that it should reward people with a few years of leisure.

“One of the areas that we don’t talk enough about is: What do people deserve?” Dr. Cohen said. “Is a few wonderful years when you’re still healthy — that you can do things and travel and so on — is that a national goal?”

In France, and likely elsewhere too, many would say yes.

https://www.nytimes.com/2023/04/03/well/live/retirement-age-health.html

Annuities offer powerful tax benefits to those planning for, or entering retirement. Unlike money market accounts, savings accounts, certificate of deposit (CDs), and most bonds, annuities carry the potential to create tax-deferred accumulation. For example, interest earned in a deferred annuity is not taxed until the owner takes withdrawals from the annuity. This accelerates savings growth because the interest compounds without being taxed. However, understanding the full scope of annuity taxation is critical to choosing the annuity product that makes the most sense for you.

In this article, you’ll learn the most important tax implications of different types of annuities. We discuss how qualified and nonqualified annuities differ in their tax structures and various tax rules involved in annuities. Learning these key points will ensure you feel comfortable with your tax-deferred retirement savings.

With an extensive selection of fixed-rate (MYGA), fixed-index, immediate income and deferred income annuities, our friendly, experienced team of annuity agents can guide you through the selection process. Your golden years are meant for enjoyment, not worrying about finances. We ensures you find the right annuity product for your financial retirement goals.

Qualified Annuity Taxation

If you purchase an annuity with money that has not been taxed, it is considered a qualified annuity. These categories of annuities are typically funded with money from 401(k)s or other tax deferred retirement accounts, such as traditional IRAs.

Once you begin taking withdrawals or receiving payments from a non-ROTH qualified annuity, the money received becomes fully taxable as income. The reason for this is because the money you used to fund the annuity has never been taxed. For example, if you buy a $100,000 annuity and receive $6,000 back in an annual payout, you are required to report the entire $6,000 as taxable income.

Non-Qualified Annuity Taxation

If you purchase your annuity with after-tax funds, it is considered a non-qualified annuity. After-tax money means the IRS has already taxed the money used to purchase the annuity. In a non-qualified annuity, only the earnings are taxed.

Annuity withdrawals made from a non-qualified deferred annuity are taxed on a Last In, First Out (LIFO) basis, meaning that accumulated interest earnings are considered to be withdrawn first, before you get any of your tax-free principal back.

Non-qualified income annuities use what is known as an exclusion ratio to determine the amount of income you need to claim. The exclusion ratio determines the percentage of taxable income vs. the percentage of non-taxable return of principal that is included in each income payment. The exclusion ratio takes into account how long you’ve held the annuity before starting income, how much interest you’ve earned and how long the payments will last.

Further Information On How the Exclusion Ratio Works

For further reference on the exclusion ratio, let’s assume you purchase a nonqualified, immediate annuity at age 65. The insurance company determines you have a 20-year life expectancy and agrees to pay a set amount per month for the rest of your life. Your initial investment is expected to earn a return over the next twenty years and the insurance company spreads your principal investment over that time period.

Your annuity pays you $500 per month but your principal investment only accounts for $400 of the $500 monthly payment. The remaining $100 of your monthly payment is considered interest earnings and is the only taxable income in this instance, since $400 is considered a return of your original principal and it has already been taxed. In this case, your exclusion ratio would be 80%, since 80% of your monthly payment has already been taxed.

Further Tax Information On Qualified and Nonqualified Annuities

As previously discussed, qualified annuities are purchased with pre-tax funds, such as IRAs, 401(k)s, and 403(b) plans. Immediate-qualified annuities typically have the highest tax consequences because the return of the money used to buy the annuity and all of the earnings are taxable. Since you start receiving these payments immediately, you start paying taxes immediately.

One of the easiest ways to reduce taxes with annuities is by shifting money from fully taxable investments, such as bank CDs, money market accounts and bonds, into a nonqualified tax-deferred annuity. Shifting your money into a nonqualified deferred annuity helps you avoid taxation on your interest earnings, giving you the flexibility to decide when is the most strategic time to withdraw those earnings.

Annuity Withdrawal Taxation

The biggest tax considerations for withdrawals should be how and when you make your withdrawals. The 59 ½ rule is a critical tax law to consider. It stipulates that if you withdraw money from an annuity before you turn 59 ½, you will incur a ten percent penalty on the taxable portion of the withdrawal.

After age 59 ½, withdrawing your money as a lump sum rather than an income stream triggers income tax on your accumulated earnings. If you decide to do this, you will have to pay income taxes on the entire taxable portion of your funds.

The tax status of the contract, be it qualified or nonqualified, determines how much of your withdrawal will be taxed. In non-ROTH qualified annuities, since the entire annuity is taxable, all of your withdrawal is taxable. In nonqualified annuities, you only pay taxes on the earnings portion of the withdrawal.

Another tax related benefit of annuities is that you are in control as to when you take withdrawals and recognize taxable interest earnings. However, qualified annuities held as non-ROTH retirement accounts are subject to required minimum distribution (RMD) rules. These rules stipulate that you must start taking withdrawals annually after age 73.

Conversely, nonqualified annuities are not subject to RMD rules, so you can accumulate interest without paying tax for as long as you like. This gives you the ability to benefit from additional years of tax deferred growth because you don’t need to make annual withdrawals, at any age.

Another taxing component you should understand is that the earnings you withdraw from all deferred annuities is taxed as ordinary income rather than long-term capital gains, regardless of the type of annuity.

Some Additional Considerations About the 59 ½ Rule

The 59 ½ rule stipulates that you will owe a 10 percent tax penalty on the interest earnings if you withdraw money from your annuity before reaching the age of 59 ½. This penalty is in addition to the ordinary income tax due on the withdrawn earnings.

However, there are some extenuating circumstances to this rule, such as having a permanent disability or terminal illness at the time of your withdrawal. In this case, the IRS will waive the 10 percent tax penalty.

Surrender Charges

In addition to tax penalties, withdrawals can also be subject to early surrender charges from the annuity issuer. Surrender charges can occur if the withdrawn amount exceeds the penalty-free amount during the surrender charge period. These charges vary based on the annuity product you choose. You should take both your potential tax implications and surrender charges into account when deciding on the annuity that best fits your needs.

Annuity Payout Taxation

Annuity payouts have a slightly different tax structure than direct withdrawals. In a nonqualified annuity that has been annuitized (annuitization), each monthly payment contains a tax-free portion that is considered a return of your original premium deposit and a taxable portion that is your interest earnings.

Nonqualified annuities in the payout phase are structured so they evenly portion the original principal amount over the course of the expected annuity payout term. The earnings portion in your payments that has not been taxed is the only portion subject to income taxes. With qualified annuities, since none of your principal investment used to purchase the annuity has been taxed yet, all of your payout is taxable.

When making withdrawals from a non-annuitized deferred annuity, it should also be noted that IRS rules state you must withdraw all of the taxable interest earnings before withdrawing your tax-free principal. This means you have to pay all of your taxes upfront if you want to start making withdrawals. One tactical move you can make to avoid this tax drawback is to annuitize or exchange an existing fixed-rate, fixed-indexed, or variable deferred annuity into an income annuity.

Inherited Annuity Taxation

If you are inheriting a nonqualified deferred annuity as a beneficiary, there are a few things to consider with regard to taxation. The first determining factor of annuity taxation is whether you’re the spouse of the deceased annuity owner. If you are, you can usually assume ownership, keeping the existing annuity in tact with the same terms. The tax structure won’t change, and you won’t incur any tax penalties.

If you’re not the spouse, there are typically four options to choose from for your payout:

1. Lump sum payout option: you can opt to take the remaining balance from an inherited annuity in a lump sum. In this case, you would have to report the entirety of the taxable portion of the annuity on your tax return.

2. Five-year rule: the five-year rule lets beneficiaries spread out the payments over five-years, which carries some tax deferral benefits.

3. Nonqualified stretch: in a nonqualified stretch option, the beneficiary can stretch the annuity withdrawals over the rest of their life. Their life expectancy would determine the withdrawal amounts and schedule. Not all insurance companies offer this option.

4. Period Certain or Life Annuitized Payout: the contract is annuitized and you receive payments for either a set period of time of for the remainder of your life.

The options that spread out your tax liability the most are the nonqualified stretch or lifetime annuitization. However, in this scenario, you will wait longer to receive the remaining money in the annuity. The lump sum payment method would give you access to the money faster. However, you would take a harder tax hit in the short-term.

Some Other Things Beneficiaries Should Consider

• Children of the annuitant who are beneficiaries are also only required to claim the untaxed portion of the annuity on their tax return.
• If you name a charity as the beneficiary, you can fully or partially offset tax liability.

Rollovers

401(k)s, IRAs, 403(b)s, and pension lump sum payouts can be rolled over into any type of qualified annuity without incurring taxes.

Deductibility

The same deductibility limits apply to qualified annuities for contributions as IRA, 401(k), 403(b) or other qualified plans. You can visit the IRS website for the deductibility limits for IRAs. Premium payments made to nonqualified annuities are not tax deductible.

Exchanges

Exchanges in annuities are relatively simple. You can exchange nonqualified annuities tax-free for a different nonqualified annuity. This is what is referred to as a 1035 exchange. You can also exchange any annuity that has an unappealing product design for one that has more attractive features or one that pays a higher interest rate.

QLACs Reducing and Deferring RMDs

Qualified longevity annuity contracts (QLACs) are qualified annuities that meet IRS requirements and let you exclude up to $200,000 of your IRA balance from RMDs, with payments delayed to as late as age 85. Excluding up to $200,000 of your IRA from RMD requirements until as late as age 85 reduces your taxes until payments begin and allows your money to continue to grow and compound. While your QLAC income is 100% taxable, it’s money you would eventually have to withdraw from your IRA anyway, so it doesn’t worsen your tax situation. In 2023, the maximum amount you can allocate to a QLAC is $200,000.

We Are Is Here to Help

Understanding annuity taxation and the tax deferral benefits that each prospective annuity provides is important. This should help determine whether you opt for a qualified or nonqualified annuity, or an immediate or deferred annuity. Having an annuity agent on your side whose concern is to offer you the most beneficial annuity for your individual needs can help you make informed decisions that are in your best interest.

We believe you should view your annuities as an integral component of your retirement portfolio. You shouldn’t have to stress about tax implications affecting your finances and whether you can achieve tax deferred growth in retirement. You should be able to rest easy knowing you have the most effective annuity for your financial needs and desires.

https://www.annuityadvantage.com/blog/are-annuities-taxable-guide-to-how-annuities-are-taxed/

Fixed indexed annuities (FIAs) have grown in popularity over the years, primarily due to their unique combination of safety, growth potential, and guaranteed income streams. In this people-first guide, we’ll explore the benefits of fixed-indexed annuities, how they work, and how they can fit into your financial plan. We aim to provide clear, actionable insights to help you make informed decisions about your financial future. Let’s dive in!

More than a quarter of Americans have no money saved for retirement.

That’s according to a new survey from personal finance site Credit Karma, which found older respondents are even less prepared by some measures than their younger counterparts. Nearly one in five people aged 59 and older said they didn’t have a retirement account and 27% of respondents said they haven’t set anything aside for their later years. That compared to a quarter of Gen X respondents.

For those aging Americans who do have retirement accounts, persistent inflation has thwarted their plans, worsening the $7 trillion retirement-savings shortfall. Among baby boomers who are employed and saving for retirement, 17% said they’ve decreased their contributions to their retirement accounts as a result of inflation. Another 5% of respondents aged 59 and older said they can’t afford to contribute to their retirement account at all.

Gen Z is more optimistic, with more than half saying they dream of gaining financial independence and retiring early, better known as the FIRE movement. However, many Americans don’t have the financial resources to make early retirement a reality.

More than 30% of respondents said their net worth is $0 or less, meaning they have more debts than assets. That’s especially true for younger generations, with 41% of Gen Z and 38% of millennials saying they have zero or negative net worth. For people aged 59 and over, that number was 21%.

This article was provided by Bloomberg News.

Average life expectancy has risen by 16 years since the national retirement age was set at 65. We asked health experts when they think people should stop working now.

In 1881, the conservative German Chancellor Otto von Bismarck, plagued by a rise in socialist ideology, proposed a national retirement benefit to appease the leftist masses. He set the retirement age at 70. Average life expectancy at the time? About 40 years.

Von Bismarck resigned shortly after the policy passed, but his legacy remained, and Germany’s retirement benefit (which was lowered to age 65 in 1916) became the model for many other nations. When President Roosevelt established the Social Security Act of 1935, 65 was similarly chosen as the national retirement age, despite the fact that less than 60 percent of American adults lived that long.

Which is all to say, the national retirement age in the U.S. and elsewhere has origins in a bit of political smoke and mirrors; it began as a symbolic offering, accessible only to the lucky citizens who managed to survive well into old age.

Today though, many more people live long enough to have access to a national retirement fund, often for years if not decades. Average life expectancy in the United States is 76, and in many European countries it’s even higher. The U.S. national retirement age — when you can start claiming full Social Security benefits — has crept up much more gradually, to 67 for people born after 1960.

In response, several countries — most notoriously France, where the retirement age is 62 and life expectancy is 82 — are debating raising the retirement age to try to offset the economic pressures of an aging population and the concern that national retirement benefits won’t be able to keep up for much longer.

From an economic standpoint, a later retirement age perhaps benefits everyone’s bottom line. But putting finances aside, what are the mental and physical implications of raising a national retirement age? We asked experts to weigh in.

Working-life expectancy

One way to answer this question is to look at changes not in life span but in health-span — the number of years people are healthy and disability-free. Think of it as your work-span.

Gal Wettstein, a senior research economist at the Center for Retirement Research at Boston College, looked at age and potential for employment in a study about people’s working life expectancy. He found that Americans who are healthy at age 50 can expect to have roughly 23 more years free of disability, plus about eight years living with disability. That would suggest people’s maximum working life expectancy, on average, is age 73.

“There’s no doubt that life expectancy is longer, and also the ability to work has expanded,” Dr. Wettstein said. “Part of that is medical changes, and part of that is the nature of work has changed.” In 2020, roughly 45 percent of the American labor force worked in a knowledge-based field, such as management, business and finance, education and health care. In 1935, these types of professions accounted for just 6 percent of the workforce.

Dr. Pinchas Cohen, dean of the Leonard Davis School of Gerontology at the University of Southern California, agreed that, from a health standpoint for people in these fields, a retirement age under 65 “makes no sense.”

“Even 65 is a 20th century number,” he said.

For people working in knowledge-based jobs, a retirement age in the 70s is reasonable from a cognitive perspective, too, said Lisa Renzi-Hammond, director of the Institute of Gerontology at the University of Georgia. “Our cognitive faculties we’re able to maintain, usually, pretty well into our 70s,” she said. “If retirement age is set based on the capabilities or competence of employees, there’s absolutely no reason to have a retirement age in the 60s.”

Parts of the brain — most notably the prefrontal cortex, which is critical for executive functioning, attention and working memory — do start to lose volume as early as around age 45, but other areas are able to compensate, Dr. Renzi-Hammond said. And other aspects of cognition, such as crystallized intelligence (accumulated knowledge that can be applied to new situations) and social cognition (behaving appropriately in interpersonal interactions), continue to improve for decades.

Many of these cognitive processes are maintained and strengthened by staying in the work force. Consequently, some people decline mentally and physically when they stop working. One study even found that delaying retirement was associated with a decreased risk of death, regardless of health before retirement. Experts speculate that the losses of job-related physical activity and social interactions that come with leaving work are largely to blame for post-retirement declines.

Retirement equity

National health and disability averages don’t tell the full story, though. While some people stay sharp and continue to work into their 80s, other jobs are more physically demanding and take a toll on people’s health.

“There are people who do manual labor where at age 65, they really cannot continue to do this very challenging work,” Dr. Cohen said. “Their need to retire needs to be respected.”

For these types of work, retirement can actually improve health outcomes, Dr. Renzi-Hammond said. “If you’re leaving a job that is physically bad for you, where you are getting terrible sleep and you’re constantly stressed out, then retirement is great for your health.”

Life span and health-span are also not consistent across race and gender, both because of the type of work certain demographics are more likely to take part in, and the toll chronic stress from discrimination takes on the body.

In his research, Dr. Wettstein found that, at age 50, Black men have a working life expectancy of approximately 17 years, while white women could continue working for 24 years. “There is an equity concern there, both on the life expectancy side, and also on the working-life expectancy side,” Dr. Wettstein said.

“We know that Black Americans, particularly, develop illness at earlier ages, live with more disabilities, die younger,” said Dr. Lisa Cooper, director of the Johns Hopkins Center for Health Equity. “So not allowing them to retire until they’re older means they’re just not going to benefit from” Social Security as much. This is also true for people from lower income brackets and those who work in physically intense jobs, she added.

As a result, Dr. Cooper said, “Raising the retirement age needs to be done with all of these issues in mind, because it’s not going to affect everyone the same.”

The initial intent for Social Security when it was established in 1935 was simply to sustain people once they could no longer physically work. But another way to think of federally funded retirement is that it should reward people with a few years of leisure.

“One of the areas that we don’t talk enough about is: What do people deserve?” Dr. Cohen said. “Is a few wonderful years when you’re still healthy — that you can do things and travel and so on — is that a national goal?”

In France, and likely elsewhere too, many would say yes.

https://www.nytimes.com/2023/04/03/well/live/retirement-age-health.html

Fixed index annuities can help you accumulate money for retirement and provide guaranteed income after you retire. A fixed index annuity may be a good choice if you want the opportunity to earn indexed interest, but don’t want to risk losing money in the market.

Answers to frequently asked questions about your retirement benefits

Social Security provides benefits to more than 66 million people, and those monthly payments have an enormous impact on older Americans’ financial health. According to Census Bureau data:

• Social Security accounts for at least 50 percent of income for more than half of households headed by someone 65 or older.

• It provides nearly 80 percent of income for 1 in 5 such households.

• It keeps more than 26.5 million people from falling below the poverty line.

An institution that looms so large in American life is bound to generate questions about what it does and how it works. Here are the answers to some of the most frequently asked questions about Social Security. You’ll find more detailed information on these and many more issues in AARP’s Social Security Resource Center.

1. Is Social Security just for retired workers?

No. As of February 2023, about 74 percent of beneficiaries were retirees. The remainder were spouses, ex-spouses and children of retirees (4 percent); disabled workers and their families (13 percent); and survivors of deceased beneficiaries (9 percent).

2. At what age can I start collecting Social Security benefits?

You can begin receiving retirement benefits at age 62, but your payments will be greater if you wait until your full retirement age (between 66 and 67, depending on year of birth). If you are eligible for survivor benefits or Social Security Disability Insurance (SSDI), you can start collecting earlier.

3. How do I sign up for Social Security?

You can apply for retirement, spousal or disability benefits online, by phone at 800-772-1213 or in person at your local Social Security office. For survivor benefits, you can apply by phone or in person. Local offices reopened to walk-in traffic in April 2022 after being largely closed to visitors for more than two years due to the COVID-19 pandemic, but the Social Security Administration (SSA) strongly recommends calling ahead to make an appointment.

4. How long do I need to work to become eligible for benefits?

For retirement benefits, at least 10 years. Social Security uses a system of credits, which you collect by working and paying Social Security taxes. You can earn up to four credits a year, and you need 40 credits to qualify for retirement benefits. The credit threshold may be lower for disability benefits.

5. Must I stop working to collect retirement benefits?

No, you can receive benefits while working. But if you are below full retirement age and earn more than a certain amount, your monthly benefits will be temporarily reduced. Once you reach full retirement age, the reduction is eliminated, and your benefits will be increased to make up for what was lost over time.

6. How much will I get from Social Security?

That depends on a number of factors, most crucially your lifetime earnings from work in which you paid Social Security taxes. Social Security takes your 35 highest-earnings years, calculates an inflation-adjusted average, and plugs that into a progressive formula that determines your “basic” benefit. The amount will also be affected by how old you are when you claim benefits. You won’t know it for sure until you file, but you can use the AARP Social Security Calculator to get an estimate.

7. What’s the maximum monthly Social Security benefit?

For a worker claiming Social Security in 2023 at full retirement age, the highest monthly amount is $3,627. That’s a little less than double the average retirement benefit ($1,831 in February 2023). To draw the top benefit, your earnings must have exceeded Social Security’s maximum taxable income — the annually adjusted cap on how much of your income is subject to Social Security taxes — for at least 35 years of your working life.

8. How can I boost the amount of my benefit?

The longer you wait to start collecting after you become eligible, the more you will receive. Say you were born in 1960. If you claim Social Security upon turning 62, you’ll get 70 percent of the benefit amount calculated from your lifetime earnings. If you wait until full retirement age — in this case, 67 — you’ll get 100 percent. Delay past full retirement age and Social Security increases your benefit 8 percent a year until you hit 70. There’s no financial incentive to delay past age 70.

9. Can I receive Social Security benefits based on an ex-spouse’s earnings?

You may be able to claim a divorced-spouse benefit if the marriage lasted at least 10 years, you are at least 62 years old and you have not remarried. If so, you could get up to 50 percent of your former spouse’s full benefit amount — but only if that exceeds your own retirement benefit. Social Security will pay the higher of the two amounts, not both.

10. When someone dies, how does Social Security know?

The SSA receives reports of beneficiaries’ deaths from family members, funeral homes and government agencies. Even if you know another entity will report the death of a member of your family, it’s a good idea to inform Social Security yourself (by calling at 800-772-1213) as soon as possible.

https://www.aarp.org/retirement/social-security/info-2020/social-security-questions-answered.html

The first question you need to ask yourself is, what are your financial goals? An annuity may be a good option if you are looking for stability in retirement. There are 13 types of annuities, each with its pros and cons.

Reasons why an annuity makes a good investment include:

A Guaranteed Income For Life

An annuity may be a good option if you are close to retirement and are looking for a way to guarantee income during retirement. Annuities can provide a stream of income that lasts for the rest of your life, no matter how long you live. As a result, this can be an excellent way to hedge against the risk of outliving your other retirement savings.

Combating Inflation

Another benefit of annuities is that they can help you keep up with inflation. With an annuity, you can receive cost-of-living adjustments (COLAs) that increase your payments each year to keep pace with inflation. This can be valuable if you are retired and relying on your annuity income to cover basic living expenses.

Deferring Taxes

With some annuities, you can defer taxes on your investment earnings until you start withdrawing. This can be an excellent way to grow your money while postponing taxes on the growth. When you eventually withdraw, the money will be taxed as ordinary income.

Never Worry About Running Out Of Money

One of the biggest fears people have in retirement is running out of money. With an annuity, you can rest assured knowing that you will have a stream of income for as long as you live. This can give you peace of mind and allow you to enjoy your retirement without worrying about money. Budgeting your retirement savings will be on auto-pilot!

Never Worry About Losing Money In The Stock Market

Another benefit of annuities is that they are not subject to the ups and downs of the stock market. Fixed annuities offer a guaranteed rate of return, which means you will never have to worry about losing money in the stock market. Fixed index annuities offer a rate of return linked to the stock market’s performance while protecting you from losses in a down market.

Reducing Taxes In Retirement

If you have a significant amount of money saved in a 401(k) or traditional IRA, an annuity can be an excellent way to reduce your taxes in retirement. When you purchase an annuity with after-tax dollars, the money grows tax-deferred, and you only pay taxes on the growth when you start withdrawing. This can be an excellent way to reduce your overall tax liability in retirement. A non-qualified annuity with a lifetime income rider can also create an income stream in retirement with minimum taxes owed.

A Tax-Free Retirement Income For Life

A Roth annuity may be a good option to receive tax-free income during retirement. With a Roth annuity, you contribute money that has already been taxed. When you eventually withdraw from the annuity, the money will be tax-free. Adding a lifetime income rider to a Roth annuity can provide you with a way to receive tax-free income for life.

Earn A Guaranteed Interest Rate Higher Than A CD

An annuity may be a good option if you want a safe place to park your money and earn a guaranteed interest rate. You can earn a higher interest rate with an annuity than a bank CD, and the insurance company and the State Guaranty Association back your money.

Pay For Long-Term Care At A Fraction Of The Cost

If you are worried about the cost of long-term care, an annuity can be an excellent way to pay for it. With a long-term care annuity, you can use your annuity to cover the cost of long-term care expenses. This can be a valuable benefit if you need assistance with activities of daily living or nursing home care.

Retirees Can Participate In Medicaid Without Losing All Their Money

If you are a retiree and need to apply for Medicaid, an annuity can be an excellent way to keep your assets. With a Medicaid annuity, you can retain your assets and qualify for coverage. This can help you pay for long-term care expenses without depleting your savings.

Avoid Probate

When you die, your annuity will pass to your designated beneficiary without probate. This can save your loved ones time and money and provide them with immediate access to the money.

There are many reasons why an annuity may be a good investment for you. These are just a few of the benefits that annuities can offer. If you want to secure your financial future, an annuity may be the right choice for you.

Offsetting Taxes For Your Beneficiaries

An annuity can be a good option if you want to offset the taxes your beneficiaries will owe on your estate. With an annuity, you can add an enhanced death benefit rider that will pay your beneficiaries a larger death benefit. This can help offset the taxes they will owe on your estate and provide them with more money.

Save Money On Fees

If you are worried about the fees associated with other investment options, an annuity can be an excellent way to save money. Most annuities have no management fees or commissions out of your pocket. This can help you keep more money and reach your financial goals sooner.

No Contribution Limits

An annuity can be a good choice if you want an investment option with no contribution limits. With a non-contribution annuity, you can contribute as much money as you want. This can be an excellent way to save for retirement or another financial goal.

https://www.annuityexpertadvice.com/are-annuities-a-good-investment/

If you have a dream destination in mind, careful planning and a willing boss could help you make the move ahead of schedule

Rob Nehrbas was winding up his career as an executive at an Arizona-based laser device company he’d sold to a bigger competitor when he realized that he wanted to live somewhere else in retirement.

“I’ve got to get back to the ocean,” the Long Island native, who’d grown up racing sailboats, recalls telling his wife while they were out paddleboarding on a lake one day. Linda Nehrbas was taken by surprise, since they’d just done some renovations on their home, but she was OK with moving, provided it was to another warm climate.

After looking at several possible locales, they found a spot that seemed ideal — an active adult community near Charleston, South Carolina, where they would be a 35-minute drive from the beach. “It’s a much calmer lifestyle, a lot slower pace,” says Nehrbas, 67.

The couple were so enthralled by the place that they wanted to make the 2,000-plus-mile move right away, even though Rob wasn’t quite ready to leave his job. Fortunately, there was a solution: Rob proposed doing his job remotely from the couple’s retirement home.

His employer agreed, and Rob worked in South Carolina for his Arizona company for a year and a half before retiring.

The couple made their move before COVID-19 hit, but the growing acceptance of remote and flexible work arrangements in the pandemic’s wake makes following their example considerably more feasible than in the past. Nearly 3 in 10 U.S. workers ages 55 to 64 have been offered the option of working from home full-time, according to a June 2022 survey by business services firm McKinsey & Company.

“The shift to remote work options by some employers can facilitate a preretirement relocation,” says Barbara O’Neill, a retired Rutgers University professor and author of Flipping a Switch: Your Guide to Happiness and Financial Security in Later Life. “People don’t have to wait until they retire to live in their happy place, end the stress and cost of commuting, or keep living in a high-cost state.”

Early move can pay off

Relocating before retirement can have a positive impact on your cost of living as well as your quality of life, financial planners say.

O’Neill moved from New Jersey to a 55-plus community in Florida after leaving Rutgers in 2019, but she continues to work as the CEO of Money Talk, a company that offers financial planning seminars. She says Florida’s lower property taxes and lack of state income tax save her more than $10,000 a year.

Preretirees who relocate to lower-cost states may find substantially cheaper housing “and then take that money and put it into their portfolio,” stretching their retirement dollars, says Jeremy Kisner, a Phoenix-based financial planner whose clients include Rob and Linda Nehrbas.

Older remote workers may even be able to move outside the U.S., where living costs could be lower still.

Michael Cobb, CEO of Belize-based real estate firm ECI Development, envisions Latin America becoming an attractive spot for Americans in their 50s who want to get an early start on their chosen retirement lifestyle. He factors the need for Zoom-friendly spaces and fiber optics for fast internet connections into the designs of his company’s homes.

“Why wait to retire when you can move somewhere phenomenal right now?” Cobb says. “As long as you have high-speed internet and the type of work that allows you to work remotely, many of the benefits of retirement can start immediately.”

How to make a preretirement relocation work

Ensuring your dream locale has the amenities that enable you to keep working, including fast, reliable broadband access, is just one part of the careful advance planning such a move requires. Another is closely comparing costs to make sure savings in one area, such as lower property taxes, aren’t eaten up by, say, higher homeowners insurance.

And, of course, your employer must agree to let you telecommute full-time. Some may balk. Linda Nehrbas, 62, worked in supply chain management when she and her husband were planning their move. Her supervisor agreed she could do her job remotely in South Carolina, but the company’s human resources department vetoed the arrangement.

“I had a really good job, and it was a little hard to walk away from,” she says. “But quality of life won over that.”

Getting an employer to let you work remotely across state lines may take some persuading. It helps if you can demonstrate that you’ve been productive working from home, O’Neill says. She recommends proposing a fixed work schedule in which you’ll always be available for meetings or calls during certain hours, to ease concerns that collaboration could suffer if you’re not on-site.

Talk to your boss about the business or tax implications of you working elsewhere. For example, Rob Nehrbas’ employer had to set up a business entity in South Carolina, so his new home state could withhold taxes from his paycheck.

Even if you get a green light from your employer, think about how your coworkers will react to your move and whether it will make working relationships too difficult, O’Neill says.

“You could be perceived as being less dedicated to the job, and it’s a potential source of jealousy,” particularly if your colleagues are dealing with harsh winters while you’re working from a warm, sunny clime, she cautions.

Keep connected — but know when to quit

If the move is long-distance, that can create additional hurdles, notes Scott Fuller, a real estate agent and relocation consultant who specializes in helping people and businesses move from California.

“If you’re working remotely in Florida but you’re on California hours and having to work until 8:30 or 9 p.m., is that conducive to your lifestyle?” he says.

Similarly, if your position requires you to periodically return to company headquarters for meetings, take travel time into account. “If you have to be back monthly or more often, you probably want to look at being within an hour-and-a-half direct flight,” Fuller says.

Maintaining a good work-life balance is important, so you don’t miss out on the benefits of getting a head start on life in your retirement location. “You’re constantly connected to your devices, and you can’t help but see an email come in,” Rob Nehrbas says.

For him and his wife, early relocation helped them solve that puzzle sooner by speeding up their transition to retired life. With the money they saved by moving to South Carolina, Rob was able to end his career earlier than planned (Linda still works part-time as treasurer of an Elks lodge to which the couple belong).

“After five years of living here, and three-and-a-half of those years being retired, we could not be happier,” he says. “We feel like we chose the right spot, and we just love our lives.”

https://www.aarp.org/retirement/planning-for-retirement/info-2023/early-relocation-advantages.html

Tax changes, RMD rules, Social Security COLA and more will affect older Americans’ finances

You might have heard about big changes coming to retirement finance due to Secure 2.0, a package of provisions included in the massive spending bill enacted by Congress and signed by President Joe Biden late last year. Among other things, Secure 2.0, which AARP supported, will broaden access to workplace savings plans and expand incentives for savers to contribute to retirement accounts.

Most of Secure 2.0’s key provisions won’t take effect until 2024 or beyond, but that doesn’t mean retirement finance is standing still in 2023. Changes to tax rules, savings plans, Social Security benefits and more will have an impact on older Americans’ pocketbooks in the here and now. Here’s a closer look at what’s in store.

1. Social Security payments

Inflation isn’t good for much, but it is providing Social Security beneficiaries with their biggest increase in monthly payments in more than 40 years. The 8.7 percent cost-of-living adjustment (COLA) raises the average monthly retirement benefit by $146, from $1,681 a month to $1,827.

The first retirement, disability and survivor benefit payments reflecting the increase go out in January. People receiving Supplemental Security Income (SSI), a Social Security–administered benefit for low-income people who are older, blind or have disabilities, got their first COLA-boosted payment Dec. 30.

The COLA is based on changes in prices for a set of consumer goods and services in the third quarter of 2022 compared to the same period the year before. Since hitting a 40-year high of 9.1 percent in June, inflation has cooled somewhat, dipping to 7.1 percent in November. If that trend continues, the new COLA will provide an especially strong buffer against higher prices, since the benefit increase is fixed at 8.7 percent through 2023.

2. Retirement plan contributions

Like Social Security benefits, contribution limits to individual retirement accounts (IRAs), 401(k)s and other savings vehicles get an inflationary bump in 2023.

If you are 50 or older, the amount you can put into an IRA this year goes up from $7,000 to $7,500. That includes the $1,000 catch-up contribution available to older savers; the limit for those under 50 is $6,500 (up from $6,000 last year).

People age 50-plus can contribute up to $30,000 this year to a workplace retirement plan such as a 401(k), 403(b) or (for federal government workers) Thrift Savings Plan. That’s a $3,000 increase from the 2022 cap. The contribution limit for younger adults goes up from $20,500 to $22,500.

Secure 2.0 includes multiple provisions to raise contribution limits in coming years. Starting in 2024, the catch-up contribution for IRAs, which has been stuck at $1,000 for several years, will be indexed to inflation, which could mean annual increases. From 2025, 401(k) catch-up limits will also be linked to inflation, and there will be a new, higher contribution cap for people ages 60 to 63.

3. Retirement plan distributions

One of the few Secure 2.0 changes taking effect this year involves required minimum distributions (RMDs) from retirement accounts. The new law bumps up the minimum age for starting those mandatory withdrawals from 72 to 73. (It will ultimately go up to 75, but not until 2033.)

RMDs are a fact of later life for holders of traditional IRAs, 401(k)s and most other types of retirement savings. (The exception is Roth IRAs, which are not subject to annual required withdrawals while the owner is alive.) The IRS uses a calculation based on the account balance and your life expectancy to determine the minimum you must take out in a given year; failure to do so can lead to hefty penalties.

Most people subject to RMDs must make their withdrawal for the year by the last day of that year. In your first year of eligibility, however, you have until April 1 of the following year. Thus, people who turned 72 in 2022 have an extra three months to take their initial RMD but must make their next by Dec. 31. Under Secure 2.0, from 2023 to 2033 that timetable applies to people turning 73 in a given year.

Another Secure 2.0 provision taking effect this year reduces the excise tax for failing to make your RMD in time. Previously, the penalty was 50 percent of the amount by which your withdrawal fell short of the required minimum. It’s now 25 percent and can be cut to 10 percent if you make good the full withdrawal and file a revised tax return in a timely manner.

4. Medicare costs

After a record-breaking leap in 2022, standard premiums for Medicare Part B come down a bit in 2023, from $170.10 to $164.90 per month. The decline is largely due to lower-than-expected costs for Aduhelm, a new Alzheimer’s drug that Medicare had initially projected would cost far more to cover.

Most Medicare enrollees have their premium payments for Part B, the portion of original Medicare that covers doctor visits and other outpatient treatment, deducted directly from their Social Security payments. For this group, the average net benefit — Social Security minus the Part B premium — increases from about $1,511 in December 2022 to $1,662 in January 2023.

The annual deductible for Part B is also declining, from $233 to $226.

Medicare enrollees who have Medicare Advantage (MA) coverage or Medicare Part D prescription drug plans may also pay slightly less in 2023. These plans are provided by private insurers so costs vary, but Medicare estimates that the average premium for an MA plan will drop from $19.52 to $18 and Part D plans will cost an average of $31.50 a month, down from last year’s $32.08.

5. Standard deduction

Most taxpayers take the standard deduction rather than itemizing on their tax returns. Married couples in that majority can take $25,900 off their taxable income for 2022, up from $25,100 the year before. For individual taxpayers, the standard deduction increases from $12,550 to $12,950.

You get a bigger standard deduction if you or your spouse is 65 or older: $1,750 more for a single filer and $2,800 for a couple filing jointly, up from $1,700 and $2,700, respectively, in the 2021 tax year.

6. Full retirement age

Congress voted in 1983 to raise the Social Security full retirement age (FRA) from 65 to 67 but opted to do so gradually — very gradually. Forty years on, the change is nearly complete, with FRA reaching 66 years and 6 months in mid-2023.

For the past few years, FRA — the age when you become eligible to claim 100 percent of the retirement benefit calculated from your lifetime earnings — has been going up two months at a time, based on year of birth.

For people born in 1956, FRA is 66 hears and 4 months. If you were born from September through December 1956, you will hit the milestone by the end of April this year. For those born in 1957, it’s 66 and 6 months; the first of that cohort will become eligible to claim their full retirement benefit midway through the year. FRA settles at 67 for people born in 1960 or later.

You can start collecting retirement benefits before FRA — the minimum age is 62 — but your monthly payment will be permanently reduced, by as much as 30 percent. You can also wait past FRA and be rewarded with a benefit increase: an extra 8 percent a year until age 70.

7. Social Security earnings test

Some retirees are only semiretired. If you claim retirement benefits before reaching FRA and continue working, your benefits may be temporarily reduced if your annual working income exceeds a set limit.

For 2023, that limit increases from $19,560 to $21,240 for beneficiaries who will not reach FRA until a future year. Social Security withholds $1 in benefits for every $2 in earnings above the cap.

If you will reach FRA this year, the income threshold is higher ($56,520, compared to $51,960 in 2022) and the withholding lower ($1 less in benefits for every $3 above the limit). The withholding ends in the month you hit full retirement age, and Social Security recalculates your benefit amount to make up for the prior reductions.

https://www.aarp.org/retirement/planning-for-retirement/info-2023/big-federal-policy-changes-affecting-your-finances.html

KEY POINTS

• Retirees can push back RMDs to age 73 in 2023.
• The penalties for not taking RMDs will drop significantly.
• A big change is coming to workplace accounts with a Roth designation in 2024.

The $1.7 trillion spending bill that Congress passed last week includes two big changes to required distributions from retirement accounts.

https://www.iii.org/article/how-much-life-insurance-do-i-need

AARP Financial Security Trends Survey: Wave 2

In January 2022, AARP launched its Financial Security Trends Survey, which is designed to monitor the financial experiences, behaviors, and attitudes of adults age 30-plus. The survey examines perceptions of overall financial well-being, debt, emergency savings, retirement savings, expenses, and financial worries. Fielded semiannually across all 50 states and the District of Columbia, the survey includes oversamples of Black and African American adults as well as Hispanic and Latino adults.

The most recent survey, conducted in July 2022 among 4,817 adults, reveals the widespread impact of inflation, including increased concern about the ability to afford basic expenses and increased concern about the future.

The survey’s key findings are as follows:

Inflation has taken a considerable toll on everyday finances as demonstrated by increased worries about expenses, changes in lifestyle and shopping habits, and a larger share of adults who feel that they are worse off than they were in July 2021. 

• In July 2022, one in three (33%) adults age 30-plus indicated their financial situation is worse today than it was 12 months ago, up from 22% in January. Among those whose situation was worse in July, the most common reasons were higher expenses (65%) and a decline in the value of investments (36%).
• Close to eight in ten (78%) adults were worried about prices rising faster than income, up from 74% in January.
• Eight in ten (80%) adults reported that their transportation and groceries expenses were higher in July than they were 12 months ago, up from 61% and 66% in January, respectively.
• In fact, nearly half (45%) of adults age 30-plus expressed worry in July about their basic expenses such as food, housing, and transportation, up from 38% in January.
• Nearly eight in ten (78%) adults have adjusted their lifestyle or shopping habits in at least one way to help offset the impact of inflation. For example, 45% have cut back on basic expenses and 50% have cut back on “extras.”
• And while some remain optimistic about their financial future, the share of adults age 30-plus who expect their financial situation to be worse 12 months from now increased to 17% in July, up from 12% in January. In fact, a full one in five (21%) adults age 50-plus expect their situation to decline over the next 12 months (July 2022–2023).

Debt, coupled with inflation, continues to burden many adults age 30-plus, hampering their ability to save for the future.

• Roughly eight in ten adults age 30-plus carry debt from month to month, with approximately four in ten viewing their debt as unmanageable, which is consistent with the January survey.
• Over one in three adults with debt stated that they had more debt in July than they did 12 months earlier, while roughly one in four had less.
• Credit card debt carried over from month to month is the most common type of debt, held by 41% of adults age 30-plus. Everyday expenses continue to be the top reason for credit card debt, with even more attributing their credit card debt to everyday expenses in July (41%) than in January (35%).
• Everyday expenses, housing costs, and debt are the top barriers to saving both for emergencies and for retirement. Roughly six in ten adults age 30-plus cite everyday expenses as a barrier to saving, while roughly four in ten cite debt and housing costs as barriers to saving.

With this financial unease, it is not surprising that many adults expect to work in “retirement,” primarily for financial reasons. 

• Among adults age 30-plus who are not retired, more than half (52%) expect either to work in retirement or never retire. Of those who expect to work in retirement, three in four (74%) cite financial reasons for this expectation, while just one in four (26%) cite nonfinancial reasons.

Methodology

These findings are based on a semiannual survey of adults age 30-plus conducted by NORC at the University of Chicago on behalf of AARP. The July survey of 4,817 adults was conducted from July 12 through August 1, 2022. The January survey  of 6,162 adults was conducted from January 7 to February 1, 2022. The sample includes oversamples of Hispanic adults and Black/African American adults.

Data for the general sample were collected using NORC’s AmeriSpeak® Panel, a probability-based panel designed to be representative of the U.S. household population. To achieve the desired sample sizes of Black adults and Hispanic adults, respondents from the Dynata nonprobability online opt-in panel were included along with AmeriSpeak respondents. The July survey included a total of 1,660 Black respondents and 1,615 Hispanic respondents. TrueNorth® calibration weighting was used in the oversamples to combine the AmeriSpeak and Dynata respondents and reduce bias in the nonprobability sample.

For more information, contact S. Kathi Brown of AARP Research at skbrown@aarp.org. Media inquiries should be directed to media@aarp.org.

Suggested citation:

Brown, S. Kathi. AARP Financial Security Trends Survey. Washington, DC: AARP Research,

https://www.aarp.org/research/topics/economics/info-2022/financial-worries-older-adults.html

AARP Financial Security Trends Survey: Wave 2

In January 2022, AARP launched its Financial Security Trends Survey, which is designed to monitor the financial experiences, behaviors, and attitudes of adults age 30-plus. The survey examines perceptions of overall financial well-being, debt, emergency savings, retirement savings, expenses, and financial worries. Fielded semiannually across all 50 states and the District of Columbia, the survey includes oversamples of Black and African American adults as well as Hispanic and Latino adults.

The most recent survey, conducted in July 2022 among 4,817 adults, reveals the widespread impact of inflation, including increased concern about the ability to afford basic expenses and increased concern about the future.

The survey’s key findings are as follows:

Inflation has taken a considerable toll on everyday finances as demonstrated by increased worries about expenses, changes in lifestyle and shopping habits, and a larger share of adults who feel that they are worse off than they were in July 2021. 

• In July 2022, one in three (33%) adults age 30-plus indicated their financial situation is worse today than it was 12 months ago, up from 22% in January. Among those whose situation was worse in July, the most common reasons were higher expenses (65%) and a decline in the value of investments (36%).
• Close to eight in ten (78%) adults were worried about prices rising faster than income, up from 74% in January.
• Eight in ten (80%) adults reported that their transportation and groceries expenses were higher in July than they were 12 months ago, up from 61% and 66% in January, respectively.
• In fact, nearly half (45%) of adults age 30-plus expressed worry in July about their basic expenses such as food, housing, and transportation, up from 38% in January.
• Nearly eight in ten (78%) adults have adjusted their lifestyle or shopping habits in at least one way to help offset the impact of inflation. For example, 45% have cut back on basic expenses and 50% have cut back on “extras.”
• And while some remain optimistic about their financial future, the share of adults age 30-plus who expect their financial situation to be worse 12 months from now increased to 17% in July, up from 12% in January. In fact, a full one in five (21%) adults age 50-plus expect their situation to decline over the next 12 months (July 2022–2023).

Debt, coupled with inflation, continues to burden many adults age 30-plus, hampering their ability to save for the future.

• Roughly eight in ten adults age 30-plus carry debt from month to month, with approximately four in ten viewing their debt as unmanageable, which is consistent with the January survey.
• Over one in three adults with debt stated that they had more debt in July than they did 12 months earlier, while roughly one in four had less.
• Credit card debt carried over from month to month is the most common type of debt, held by 41% of adults age 30-plus. Everyday expenses continue to be the top reason for credit card debt, with even more attributing their credit card debt to everyday expenses in July (41%) than in January (35%).
• Everyday expenses, housing costs, and debt are the top barriers to saving both for emergencies and for retirement. Roughly six in ten adults age 30-plus cite everyday expenses as a barrier to saving, while roughly four in ten cite debt and housing costs as barriers to saving.

With this financial unease, it is not surprising that many adults expect to work in “retirement,” primarily for financial reasons. 

• Among adults age 30-plus who are not retired, more than half (52%) expect either to work in retirement or never retire. Of those who expect to work in retirement, three in four (74%) cite financial reasons for this expectation, while just one in four (26%) cite nonfinancial reasons.

Methodology

These findings are based on a semiannual survey of adults age 30-plus conducted by NORC at the University of Chicago on behalf of AARP. The July survey of 4,817 adults was conducted from July 12 through August 1, 2022. The January survey  of 6,162 adults was conducted from January 7 to February 1, 2022. The sample includes oversamples of Hispanic adults and Black/African American adults.

Data for the general sample were collected using NORC’s AmeriSpeak® Panel, a probability-based panel designed to be representative of the U.S. household population. To achieve the desired sample sizes of Black adults and Hispanic adults, respondents from the Dynata nonprobability online opt-in panel were included along with AmeriSpeak respondents. The July survey included a total of 1,660 Black respondents and 1,615 Hispanic respondents. TrueNorth® calibration weighting was used in the oversamples to combine the AmeriSpeak and Dynata respondents and reduce bias in the nonprobability sample.

For more information, contact S. Kathi Brown of AARP Research at skbrown@aarp.org. Media inquiries should be directed to media@aarp.org.

Suggested citation:

Brown, S. Kathi. AARP Financial Security Trends Survey. Washington, DC: AARP Research,

https://www.aarp.org/research/topics/economics/info-2022/financial-worries-older-adults.html

Tax changes, RMD rules, Social Security COLA and more will affect older Americans’ finances

You might have heard about big changes coming to retirement finance due to Secure 2.0, a package of provisions included in the massive spending bill enacted by Congress and signed by President Joe Biden late last year. Among other things, Secure 2.0, which AARP supported, will broaden access to workplace savings plans and expand incentives for savers to contribute to retirement accounts.

Most of Secure 2.0’s key provisions won’t take effect until 2024 or beyond, but that doesn’t mean retirement finance is standing still in 2023. Changes to tax rules, savings plans, Social Security benefits and more will have an impact on older Americans’ pocketbooks in the here and now. Here’s a closer look at what’s in store.

1. Social Security payments

Inflation isn’t good for much, but it is providing Social Security beneficiaries with their biggest increase in monthly payments in more than 40 years. The 8.7 percent cost-of-living adjustment (COLA) raises the average monthly retirement benefit by $146, from $1,681 a month to $1,827.

The first retirement, disability and survivor benefit payments reflecting the increase go out in January. People receiving Supplemental Security Income (SSI), a Social Security–administered benefit for low-income people who are older, blind or have disabilities, got their first COLA-boosted payment Dec. 30.

The COLA is based on changes in prices for a set of consumer goods and services in the third quarter of 2022 compared to the same period the year before. Since hitting a 40-year high of 9.1 percent in June, inflation has cooled somewhat, dipping to 7.1 percent in November. If that trend continues, the new COLA will provide an especially strong buffer against higher prices, since the benefit increase is fixed at 8.7 percent through 2023.

2. Retirement plan contributions

Like Social Security benefits, contribution limits to individual retirement accounts (IRAs), 401(k)s and other savings vehicles get an inflationary bump in 2023.

If you are 50 or older, the amount you can put into an IRA this year goes up from $7,000 to $7,500. That includes the $1,000 catch-up contribution available to older savers; the limit for those under 50 is $6,500 (up from $6,000 last year).

People age 50-plus can contribute up to $30,000 this year to a workplace retirement plan such as a 401(k), 403(b) or (for federal government workers) Thrift Savings Plan. That’s a $3,000 increase from the 2022 cap. The contribution limit for younger adults goes up from $20,500 to $22,500.

Secure 2.0 includes multiple provisions to raise contribution limits in coming years. Starting in 2024, the catch-up contribution for IRAs, which has been stuck at $1,000 for several years, will be indexed to inflation, which could mean annual increases. From 2025, 401(k) catch-up limits will also be linked to inflation, and there will be a new, higher contribution cap for people ages 60 to 63.

3. Retirement plan distributions

One of the few Secure 2.0 changes taking effect this year involves required minimum distributions (RMDs) from retirement accounts. The new law bumps up the minimum age for starting those mandatory withdrawals from 72 to 73. (It will ultimately go up to 75, but not until 2033.)

RMDs are a fact of later life for holders of traditional IRAs, 401(k)s and most other types of retirement savings. (The exception is Roth IRAs, which are not subject to annual required withdrawals while the owner is alive.) The IRS uses a calculation based on the account balance and your life expectancy to determine the minimum you must take out in a given year; failure to do so can lead to hefty penalties.

Most people subject to RMDs must make their withdrawal for the year by the last day of that year. In your first year of eligibility, however, you have until April 1 of the following year. Thus, people who turned 72 in 2022 have an extra three months to take their initial RMD but must make their next by Dec. 31. Under Secure 2.0, from 2023 to 2033 that timetable applies to people turning 73 in a given year.

Another Secure 2.0 provision taking effect this year reduces the excise tax for failing to make your RMD in time. Previously, the penalty was 50 percent of the amount by which your withdrawal fell short of the required minimum. It’s now 25 percent and can be cut to 10 percent if you make good the full withdrawal and file a revised tax return in a timely manner.

4. Medicare costs

After a record-breaking leap in 2022, standard premiums for Medicare Part B come down a bit in 2023, from $170.10 to $164.90 per month. The decline is largely due to lower-than-expected costs for Aduhelm, a new Alzheimer’s drug that Medicare had initially projected would cost far more to cover.

Most Medicare enrollees have their premium payments for Part B, the portion of original Medicare that covers doctor visits and other outpatient treatment, deducted directly from their Social Security payments. For this group, the average net benefit — Social Security minus the Part B premium — increases from about $1,511 in December 2022 to $1,662 in January 2023.

The annual deductible for Part B is also declining, from $233 to $226.

Medicare enrollees who have Medicare Advantage (MA) coverage or Medicare Part D prescription drug plans may also pay slightly less in 2023. These plans are provided by private insurers so costs vary, but Medicare estimates that the average premium for an MA plan will drop from $19.52 to $18 and Part D plans will cost an average of $31.50 a month, down from last year’s $32.08.

5. Standard deduction

Most taxpayers take the standard deduction rather than itemizing on their tax returns. Married couples in that majority can take $25,900 off their taxable income for 2022, up from $25,100 the year before. For individual taxpayers, the standard deduction increases from $12,550 to $12,950.

You get a bigger standard deduction if you or your spouse is 65 or older: $1,750 more for a single filer and $2,800 for a couple filing jointly, up from $1,700 and $2,700, respectively, in the 2021 tax year.

6. Full retirement age

Congress voted in 1983 to raise the Social Security full retirement age (FRA) from 65 to 67 but opted to do so gradually — very gradually. Forty years on, the change is nearly complete, with FRA reaching 66 years and 6 months in mid-2023.

For the past few years, FRA — the age when you become eligible to claim 100 percent of the retirement benefit calculated from your lifetime earnings — has been going up two months at a time, based on year of birth.

For people born in 1956, FRA is 66 hears and 4 months. If you were born from September through December 1956, you will hit the milestone by the end of April this year. For those born in 1957, it’s 66 and 6 months; the first of that cohort will become eligible to claim their full retirement benefit midway through the year. FRA settles at 67 for people born in 1960 or later.

You can start collecting retirement benefits before FRA — the minimum age is 62 — but your monthly payment will be permanently reduced, by as much as 30 percent. You can also wait past FRA and be rewarded with a benefit increase: an extra 8 percent a year until age 70.

7. Social Security earnings test

Some retirees are only semiretired. If you claim retirement benefits before reaching FRA and continue working, your benefits may be temporarily reduced if your annual working income exceeds a set limit.

For 2023, that limit increases from $19,560 to $21,240 for beneficiaries who will not reach FRA until a future year. Social Security withholds $1 in benefits for every $2 in earnings above the cap.

If you will reach FRA this year, the income threshold is higher ($56,520, compared to $51,960 in 2022) and the withholding lower ($1 less in benefits for every $3 above the limit). The withholding ends in the month you hit full retirement age, and Social Security recalculates your benefit amount to make up for the prior reductions.

https://www.aarp.org/retirement/planning-for-retirement/info-2023/big-federal-policy-changes-affecting-your-finances.html

IRS adjustments may save you some money in 2023

Are expensive gas and groceries busting your budget? The Internal Revenue Service feels your pain. In one of the few silver linings of the highest inflation rates in four decades, the IRS announced inflation-adjusted changes to 2023 tax rules that could mean smaller tax bills for returns filed in 2024.

The Consumer Price Index (CPI) is more than just a measure of the change in prices of cereal, chicken and cars. Each year, the IRS takes the rate of inflation into account when determining the tax rates Americans pay. In the latest annual adjustments, Uncle Sam not only is giving taxpayers a break by boosting the standard deduction and raising income levels for each tax bracket, he’s including perks that could result in larger take-home pay and lower tax bills.

“This is a silver lining of the high inflationary environment,” said Lisa Featherngill, national director of wealth planning for Comerica Bank.

A lot of financial things are tied to fluctuations in inflation, including annual Social Security benefit increases, the interest paid on U.S. I bonds, and tax changes that impact Form 1040. For example, the U.S. government already announced that Social Security recipients will receive an 8.7 percent cost-of-living adjustment in 2023 to offset higher inflation. On Nov. 1, the U.S. Treasury will set the new interest rate on I bonds for the next six months. (I bonds currently yield 9.62 percent; DepositAccounts.com expects that the new rate, from Nov. 1 to April 30, 2023, will be 6.48 percent.)

Most add up to savings

Changes in the tax code to account for inflation affect the most people. Here are 12 IRS changes for tax year 2023, for returns filed in 2024, that could save retirees and pre-retirees money and offset the financial hit of higher consumer prices:

1. TAX BRACKETS 

While the 2023 tax brackets remain the same — at 10 percent, 12, 22, 24, 32, 35 and 37 percent — the income level for each tax bracket has increased 7.1 percent. “That means more income will hit at [lower tax brackets] before you hit the higher brackets,” said Robert Seltzer, CPA, president of Seltzer Business Management. For example, an additional $12,600 of a married couple’s income in tax year 2023 would not fall into the higher 32 percent tax bracket as it would this tax year.

2.  THE STANDARD DEDUCTION

Joint filers who don’t itemize deductions on their return for 2023 will see an $1,800 reduction in their taxable income compared with a year ago. “For a married couple in the 24 percent tax bracket, that puts roughly $425 to $450 more in your pocket,” Seltzer said.

3. RETIREMENT PLAN CONTRIBUTIONS 

The amount you can save in retirement accounts will increase. Although the IRS hasn’t announced the contribution limits for 2023, expect a substantial jump. Last year, the government increased the amount you could contribute to a 401(k) by $1,000, to $20,500. Those 50 and older may get an increase to the catch-up amount, currently $6,500. The amount you can contribute to individual retirement accounts should rise as well.

4. HEALTH SAVINGS ACCOUNTS

The dollar limit for pretax contributions to health savings accounts has increased by $200 to $3,850. As a result, you get to pay for more health expenses like doctor copays and out-of-pocket prescription costs with income that isn’t taxed by the U.S. government.

5. EARNED INCOME TAX CREDIT (EITC)

For low- to mid-income families with three or more qualifying children, the maximum earned income tax credit jumps to $7,430, from $6,935. The credit reduces your tax dollar for dollar. Even better, EITC is a refundable tax credit, which means that even if you don’t owe any tax, you can still receive a refund.

6. ALTERNATIVE MINIMUM TAX (AMT)

The IRS has raised the income threshold for the AMT to $126,500 for married couples filing jointly, versus the prior $118,100. That means your income can be higher but still avoid the AMT tax. The AMT threshold for single filers is rising from $75,900 to $81,300.

7. ESTATE TAX

The per-person estate tax exclusion for someone who dies in 2023 has increased to $12.92 million, up from $12.06 million, which means an additional $860,000 of a person’s total estate will be shielded from the 40 percent federal estate tax on amounts that exceed the IRS threshold. “I have never seen such a huge increase,” Featherngill said. “For some people this is going to be good news.”

8. GIFT EXCLUSION

The annual exclusion for gifts increases to $17,000, up from $16,000, which can help you avoid estate taxes by giving away more money before you die.

9. ADOPTION CREDIT

The maximum credit allowed for adoptions and related qualified expenses rises to $15,950 from $14,890.

10. FOREIGN EARNED INCOME

Americans who earn income outside the U.S. (and more do in the work-from-home world we live in since COVID) will also benefit from an increase in the foreign earned income exclusion to $120,000, a hefty $8,000 more than in the prior year.

11. SOCIAL SECURITY PAYROLL TAXES 

This is one CPI adjustment that will cost you more. Employees pay 6.2 percent of their income to fund Social Security, and employers pay the same. (The self-employed pay the full 12.4 percent). The maximum amount of earnings subject to the Social Security tax will increase next year from $147,000 to $160,200.

12. VETERANS BENEFITS

As with Social Security, veterans benefits will increase 8.7 percent with inflation. For a veteran receiving about $1,500 in monthly payouts, the increase will mean about $130 extra each month.

The CPI doesn’t only affect taxes and government benefits. Employers often base their annual raises on the CPI. And while not directly impacted by IRS rules, many landlords use an inflation index clause that adjusts rents to correspond with changes in inflation, says Dan Casey, owner and investment adviser at Bridgeriver Advisors. “Landlords,” he said, “are able to raise rates because of the CPI number as well.”

While all these inflation adjustments might not make up for all the $5-per-gallon fill-ups and pricey restaurant meals in the past year, the changes will offset some of the financial outlay due to higher inflation. “It does take some of the sting out of the inflation that we have all been experiencing,” Seltzer said.

https://www.aarp.org/money/investing/info-2022/tax-year-2023-savings.html

The income ranges, adjusted annually for inflation, determine which tax rates apply to you

Even though we’re still in the 2022 tax year, and you filed your 2021 tax returns back in April, you’re probably thinking to yourself, “Gosh! I wonder what the tax brackets are for the 2023 tax year?”

We’ve got you covered — and there’s actually some good news, thanks to inflation. The Internal Revenue Service (IRS) adjusts tax brackets for inflation each year, and because inflation is so high, it’s possible you could fall to a lower bracket for the income you earn in 2023. Your standard deduction — the amount you can use as a deduction without itemizing — will also be higher.

Surprisingly, some things are bargains today — but not many

Remember 1972? Richard Nixon was president, the Oakland Athletics were on the way to winning the first of three consecutive World Series and All in the Family was the number 1 television show.

Still, what you might remember most from 50 years ago is inflation, although the consumer price index, the government’s main measure of inflation, rose just 3.27 percent in 1972, the lowest annual rate of the decade. But the 1973–74 oil embargo would send inflation soaring 11 percent by 1974 and another round of inflation pushed prices up 13.5 percent in 1980. Inflation has averaged 4 percent the past 50 years, meaning that, on average, things that cost a dollar 50 years ago would cost $7.03 today.

Not everything was cheaper in 1972. On January 4, 1972, Hewlett-Packard introduced the first handheld scientific calculator, which cost $395 — about $2,775 in today’s dollars. You could buy a pretty maxed-out laptop for that these days. Cell phones? Fugeddaboutit. You had to rent your landline from AT&T, and long-distance calls cost extra.

But most things were cheaper in 1972, even adjusted for inflation. Here’s a look at what a basket of goods would have cost you back when astronauts were still walking on the moon. (The last moon walk was part of the Apollo 17 mission in December 1972.)

Gasoline

A gallon of regular gasoline would have cost 36 cents in 1972, the equivalent of $2.53 a gallon today. The Organization of Petroleum Exporting Countries (OPEC) put an embargo on foreign oil imports between 1973 and 1974, which tripled the price of gasoline, to $1.19, by 1980.

Groceries

If you were shopping in the Chicago area in July 1972, you probably would have been pleased with prices overall — and with the price of seasonal produce in particular. A 5-pound cantaloupe cost the inflation-adjusted equivalent of $3.86. But even then, a rib-eye steak would have taken a bite out of your budget: At $2.49 a pound, it would have cost the equivalent of $17.50 a pound today.

These prices are from Chicago-area newspapers on July 5, 1972. When items were advertised on sale, we used the higher, everyday price.

• Rib-eye steak: $2.49 a pound (in today’s dollars, $17.50)
• Vanilla ice cream: $1.29 a gallon ($9.06)
• Milk: 89 cents a gallon ($6.25)
• Bacon: 79 cents a pound ($5.55)
• Coffee: 66 cents a pound ($4.57)
• Chuck roast: 65 cents a pound ($4.50)
• Cantaloupes: 11 cents a pound ($0.71)
• Sweet corn: 5 cents an ear ($0.35)

Hardware

If you’ve painted a room lately, you probably reacted to paint prices with a low whistle and a chorus of sad trombones emanating from your wallet. You can typically pay $20 to $45 a gallon for Sherwin-Williams white interior paint. In 1972, you would have paid $3, or the inflation-adjusted equivalent of $21.08. Bear in mind, however, that those gallons of 1972 paint may have come with a hidden cost: Lead wasn’t federally banned in paint until 1978.

Tools were reasonably priced, though. A hammer cost $3.99 at Sears, and a 7-inch circular saw cost just $19.88.

Cars

A sweet ride cost far less in 1972 than now. If you had $2,510 — $17,636 in today’s dollars — you could have driven out of the dealership with a brand-new Ford Mustang. These days a new pony will set you back anywhere from $28,865 to $57,665, according to Edmunds, the car pricing experts. Prices have soared this year in part because of supply chain disruptions: The cost of a new car has jumped 13.7 percent in the 12 months ended May 2022, according to the Bureau of Labor Statistics, and used car prices have soared 16.1 percent.

You can’t buy a Ford Pinto anymore. Ford’s shot at a low-priced consumer car sold for $1,860, or about $13,000 in today’s dollars. The Pinto ceased production in 1978 after a series of fuel system fires attracted negative publicity.

Incidentally, car batteries cost $15.88 in 1972, or about $112 adjusted for inflation — enough for you to make sure that dome light was off when you parked.

Appliances

A portable four-cycle dishwasher cost $189.95 in 1972, or about $1,335 in today’s dollars. In part because of supply chain issues, dishwashers today can cost far more than they did in 1972, adjusted for inflation. To be fair, today’s high-end dishwashers offer many different wash cycles and use far less energy and water.

Sears shoppers in 1972 could pay $220 for a clothes washer and $90 for an electric dryer, for a total of $310 — $2,178 in today’s dollars. Both are cheaper today: Sears lists top-loading washers for $550 to $1,100, and electric dryers for $530 to $1,000.

Looking for a blender? A 16-speed electric blender would have set you back $23.99 at Sears in 1972, or nearly $170 in 2022 dollars. You can get a very nice blender for less than $50 today.

https://www.aarp.org/money/budgeting-saving/info-2022/prices-compared-to-50-years-ago.html

Whether you opt for a real or a faux one, expect to pay 5 to 15 percent more this holiday season

Christmas tree prices, whether for faux or real ones, are rising this holiday season as inflation spills over into decorations. How bad? Expect to pay anywhere from 5 to 15 percent more.

“Christmas trees are no different than any other consumer product,” says Marsha Gray, executive director of the Real Christmas Tree Board. “Everything is seeing inflation.”

As of October, prices for consumer goods are up 7.7 percent compared to a year earlier, as lingering supply chain issues and elevated input costs (expenses businesses incur to run operations) are driving prices higher.

Seventy-one percent of Christmas tree growers surveyed by the Real Christmas Tree Board this fall said they expect wholesale prices to increase between 5 and 15 percent in 2022. Some of that is being passed on to consumers. The median average for a real fir, pine or spruce tree was $69.50 in 2021. Assuming a 10 percent increase, consumers will spend $76.45 this year.​

On the faux side, prices are up on average between 7 and 10 percent for medium- and high-quality artificial trees, and flat year-over-year at the lower end of the market, says Mac Harman, CEO and founder of Balsam Hill, a Christmas tree and holiday decor retailer. At the sub-$300 price point, however, Harman says consumers are getting less for more. ”Quality has been taken out of the moderately priced trees,” Harman says. “There are fewer lights, fewer branches or a tree is 6 inches narrower.”

Why do some trees cost more than others?

There are several reasons Christmas tree prices vary for both artificial and real ones. Location is a big factor if you’re shopping for a real tree. People who live in regions that don’t grow trees pay more because of transportation and labor costs. The farther away, the more you’ll pay. Buying a Christmas tree in New York City could set you back at least $100. If you’re in a grower state like North Carolina it’s around $70 and up. ​

The size of the tree is another factor, with height dictating how much you pay. “If you are looking for an 8-foot tree and buy a tree one foot shorter or taller, it’s a big difference in price,” Gray says.

The choice of species also comes into play. Types of trees are priced differently, whether it’s a spruce or a fir. Some have to be trucked a greater distance or are in more demand, which will make them more expensive than others, says Gray.

On the faux side, prices are based on what the tree is made of, whether it comes lit and its height. The more realistic it looks, the taller it is and the more technology is built into it, the pricier it will be.

Artificial or real?

If you’re deciding between an artificial and a real Christmas tree, there are some things to consider. Price is a big one. A faux tree may be more expensive, but it is an investment, something you’ll have for several years. A Christmas tree can last only about four weeks before it has to be recycled.

Your physical capabilities might be a factor. The majority of Americans have artificial trees, and a big reason is that it’s convenient to purchase and set up. You can buy a tree online and have it delivered to your door. You don’t have to worry about getting it on the roof of your vehicle and into the house. Many artificial trees come with lights attached. With a real tree you have to string on the lights, which could be tough for some older adults. ​

How to save

Whether you go real or fake, there are ways you can save, including these strategies:

​1. Comparison shop. Prices vary for both artificial and real Christmas trees, so try to shop around. Many Christmas tree farms have websites and/or social media accounts where they list the type of their trees, quantity and prices. Big-box retailers like Lowe’s and Home Depot sell artificial and real Christmas trees, and post their prices online. ​

2. Be flexible. Since species or needle type, height and lights determine the price, the more flexible you are the better. You may have your heart set on an 8-foot Christmas tree, but if you go down to a 6-foot one, you can save, Gray says.​

3. Seek out deals. Black Friday and Cyber Week may be over, but there are still deals and discounts to be had, largely online. Free shipping coupons and discount codes are out there. The longer you wait to purchase your Christmas tree, the more it will be discounted, but you’ll have less inventory to choose from. If you can delay until next year, excess inventory will be on sale once the season is over. “Replacing an artificial tree during the clearance season is a good strategy,” Harman says. ​

4. Skip it altogether. The holidays are about faith, giving back and spending time with family, friends and loved ones. Forgoing a Christmas tree in your living room shouldn’t put a damper on that. If you can’t afford it or it’s too much work, skip it altogether. Get a tabletop tree or a holiday plant instead.

https://www.aarp.org/money/budgeting-saving/info-2022/inflation-drives-up-christmas-tree-prices.html

Economic downturns are inevitable. Here’s how to protect your retirement nest egg

Is the U.S. in a recession? The media was filled with speculation after the Bureau of Economic Analysis (BEA) announced that the nation’s economy had contracted in the first and second quarter of 2022. The official arbiter of recessions, the National Bureau of Economic Research (NBER), says it’s too soon to tell.

But sooner or later, the economy will fall into a recession, because that’s the nature of the economy: Busts follow booms. For many retirees, the biggest challenge is the investment volatility that typically accompanies a recession. For those who haven’t retired yet, the biggest worry tends to be job loss. If you know what to expect in a recession, however, you’ll know how to survive it. Let’s take a look at what recessions are and how to handle them.

What’s a recession?

Most retirees have lived through several recessions and know that it’s not pleasant. Typically, you’ll see a recession described as “two consecutive quarters of negative economic growth.” In other words, gross domestic product (GDP), adjusted for inflation, has to fall for at least six months. But that’s not a terribly accurate description.

The NBER is a private nonprofit made up of economic researchers. Its Business Cycle Dating Committee uses several different indicators to determine when a recession starts and ends. GDP is just one of those indicators. The committee also looks at employment trends, industrial production and retail sales, among other factors.

The NBER’s broad definition of a recession is that it is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” In practical terms, a recession is a period of increasing unemployment, business failures and general economic distress.

Since 1854, the U.S. has had 35 recessions, lasting an average of 17 months, according to NBER. Recessions have been fewer and shorter since 1945, lasting an average of 10.3 months. The recession of 1873 was the big daddy of misery: It lasted 65 months. Here’s how long the last 10 recessions lasted:

What causes a recession?

A classic recession is caused by an overheated economy. Rising demand for goods roars past industry’s ability to produce them; that, in turn, results in rising prices. Low unemployment means that workers can command higher wages, which results in further economic overheating.

How does that turn into a recession? High consumer demand in a ripsnorting economy usually translates into higher interest rates. Rising rates means businesses have to spend more to borrow, which reduces corporate earnings. For retirees, higher mortgage rates means it’s harder to sell a house, and the rates on credit cards and auto loans become more expensive. If businesses and consumers feel the economy is slowing, they reduce spending, and eventually, the economy stops expanding, inflation cools and sometimes the economy falls into recession, as it did in 1981, for example.

At times, an overheated economy leads to enormous run-ups in financial assets — stocks in 1929, tech stocks in 2000 and housing prices in 2006.

Other times, recessions are sparked by unexpected outside events, such as the onset of the COVID-19 pandemic in 2020, which triggered the shortest recession on record — and one of the sharpest. GDP contracted at the fastest quarterly rate ever in the United States. “We shut down,” says Mark Zandi, chief economist for Moody’s Analytics.

Most important for retirees and pre-retirees, a recession means that financial markets often crumble, forcing people to delay retirement — or return to work — in reaction to their shrinking nest eggs. During the Great Depression, stock prices fell 86 percent and didn’t recover until 1954. More than 9,000 banks failed, 4,000 in 1933 alone, because the federal government didn’t guarantee bank deposits as it does now.

Recession or depression?

The old joke among economists is that a recession is when somebody you know gets laid off; a depression is when you get laid off. (That’s why you find economists at the NBER and not at the Improv.)

In general, the difference is a matter of degree. A depression is the grizzly bear of the economic world. In the Great Depression, unemployment climbed to nearly 25 percent. The Great Recession of 2007–2009 saw unemployment rise to 10 percent and GDP fall 4.3 percent, adjusted for inflation. The most recent recession, sparked by the COVID-19 pandemic, has been the most severe since the Great Depression, although it was much shorter. In just two months, GDP plunged 19.2 percent and unemployment spiked to 14.7 percent.

One other thing: Because the Great Depression was so terrible, economists have basically stopped using the word “depression.” “We have come up with more targeted terms for the bigger events in history, and so I think the word ‘depression’ has been largely reserved, at least until now, for the Great Depression,” says Mike Englund, chief economist at Action Economics. “With the housing collapse earlier this century, we coined the ‘Great Recession.’ If we have another big adverse economic event, I think the incentive is high for the media to come up with a new clever name again.”

Will we have another recession?

Absolutely. Someday. Economists are divided as to whether we are in one now. “Recession risks are high,” Zandi says, “although the odds are that we will avoid one, with luck and deft policy from the Federal Reserve.”

In response to worrisome inflation levels, the Fed typically raises short-term interest rates to slow the economy and — at least officially — tries to keep the U.S. out of recession. Sometimes, however, a recession is the only way to tame inflation, as the nation learned in the 1981–1982 recession, when the Fed, under chairman Paul Volcker, raised short-term interest rates to 15 percent. Jerome Powell, the current Fed chairman, has warned that the Fed is ready to do what it takes to end inflation. That could mean recession. “He’s been channeling his inner Paul Volcker,” Zandi says.

Englund is less optimistic that the Fed can have the economy land on its feet. “The odds are low that the Fed can achieve a ‘soft landing’ given the tightness of the labor market, the elevated level of inflation and the remarkably late start for the tightening process in this business cycle,” he says. The Fed didn’t start raising rates until March, a full year after inflation began to climb. Englund does think, however, that some of the supply-chain problems sparked by the pandemic will ease in 2023, which will do a lot of the work of reducing inflation.

One thing is certain: Sooner or later, the economy will sink into recession, and if you’re retired — or planning to retire soon — you should be prepared for it.

How retirees and retirement savers should prepare for a recession

1. Save. “Avoid risk if you think a recession is around the corner,” says John Lonski, president of Thru the Cycle. The biggest risk for pre-retirees: losing your job. If you’re working, be sure you have an emergency fund you can tap if the paychecks stop. Financial planners often recommend that you have six months’ worth of expenses in your emergency fund.

2. Pay down debt. The money you save in interest can be used to build your emergency fund. And, all things being equal, paying off a credit card that charges 16 percent interest is the same as earning 16 percent on your money.

3. Keep a cash stash. Retirees who are taking withdrawals from their savings should keep about a year’s worth of expenses in cash in their retirement account. Bear markets in stocks typically last about a year. You don’t want to sell stocks when the market is falling unless there’s no other option. If your investments are down 10 percent and you withdraw 5 percent, your account is down 15 percent.

4. Stay safe. Most cash options pay little to nothing in interest. Money market mutual funds, a typical cash option in brokerage accounts, currently pay 1.71 percent in interest. That’s not much, but it’s better than a 20 to 30 percent loss from stocks in a bear market. If you take cash withdrawals from your retirement account during a bear market, you’ll give your other, riskier investments time to recover.

5. Stay on the sidelines. Sooner or later, you’ll be tempted to buy stocks while they appear to be cheap. Take your time going back in. Keep in mind that by the time the NBER has officially declared a recession has started, it’s probably near the end. After all, economic data usually lags, particularly GDP. The average recession lasts about 10 months, and the NBER typically needs about nine months to collect all the data it needs to declare that a recession has started.

https://www.aarp.org/money/investing/info-2022/recession-survival-guide.html?intcmp=AE-MON-SI-BB

If these actions sound familiar, you may want to make some changes

If worrying about running out of money in retirement is keeping you up at night, you aren’t alone. Untold numbers of older adults have that concern, and for good reason. Inflation is soaring, gas prices hit a national average of over $5 per gallon, and people are living longer. All of which means your money has to work harder to last.

“Everybody is losing sleep” about retirement, says Bryan Kuderna. “It’s definitely a bigger one for women, who have longevity in their genes.”

You can’t control inflation and gas prices, but you can take steps to control how long your money lasts in retirement. If any of the actions below sound familiar, it may be time for a reset.

1. Too much spending in the early days of retirement​

Your entire working life was spent amassing money for retirement, so who can blame you if you want to spend it early on. But do too much of that and you may run into problems down the road. “One of the big things we see is as soon as people retire, they treat every day like it’s Saturday,” says Kuderna. “They go into retirement projecting their expenses today will stay that way the rest of their lives. A few extra vacations and trips with family and friends, and before they know it, they spent their retirement account in year one or two.”

How to fix it? Rein in your expenses or get a part-time job to supplement your income. Not sure where to begin, AARP’s Money Map helps you create a budget and build emergency savings.

2. Gifting too quickly​

It’s natural to want to help your children and grandchildren out, but too much of a good thing can leave you penniless. Before you book that cruise for the entire family or give your child the down payment for a home, make sure you can afford to. “The rule of thumb I tell my clients is first make sure you’re taking care of yourself financially,” says Matthew Curfman. “If you don’t take care of yourself, you can’t help others financially.”

How to fix it: Learn to say no, at least for now. Make sure you have enough cash in the bank to live comfortably in retirement, and then lend a helping hand.

3. Upsizing instead of downsizing​

Some people go into retirement with the intention of downsizing to a smaller home, but then end up doing the opposite. Instead of saving on housing, they spend more. “They think they will downsize and will have all this equity from the house, so they buy a little condo up north and a little condo down south to do the snowbird thing. And all of sudden they didn’t downsize, they changed the situation,” says Kuderna.​

How to fix it: Don’t treat the equity in your home as a windfall. Count it as an income stream you can live off of in retirement.

4. No long-term care plan to speak of​

Close to 70 percent of Americans 65 and older will need long-term care in their lifetime, according to the Urban Institute and the U.S. Department of Health and Human Services. Some have family members to rely on, but close to half will need to pay for long-term care on their own, and many have no plan to do so. “It’s a pretty expensive proposition to need a full-time nursing home or at-home care,” says Curfman. “If you do nothing and something happens, you’ll have to pay for it somehow.”

How to fix it: Add long-term care coverage to your retirement savings plan. Depending on your situation, it may mean setting aside money, getting a long-term care insurance policy, or working with a financial adviser to devise another tax-efficient strategy.​ More the DIY type, check out Ace Your Retirement a chatbot that asks you questions and offers up retirement advice.

5. You have a lot of debt​

Lingering or new debt can be a big blow to your retirement savings. It may have been easy to manage when you were collecting a paycheck, but it can hurt your cash flow and lifestyle when you’re on a fixed income.

How to fix it: Try not to bring any debt with you into retirement. If you do, work on paying it off and resist accruing new debt.

6. You’re living on pretax income​

Taxes are a big consideration when you begin withdrawing money from your retirement savings account. If it’s a traditional 401(k) or IRA, withdrawals are taxed as ordinary income. “It has a ripple effect on your overall tax situation and cash flow,” says Kuderna. “That $1 million is suddenly $700,000. It’s not going to last as long.”

How to fix it: Move some of your retirement savings into a Roth IRA or convert your traditional 401(k) into a Roth 401(k). With both investment vehicles, you don’t pay taxes on withdrawals once you’ve had the account for five years and are 59 1/2 or older. Keep in mind that the conversion is a taxable event.

7. Investments aren’t keeping up with inflation​

The great wealth-eroding factor has always been inflation. That’s worse in 2022, with inflation running at a 40-year high of 8.6 percent. Diminishing purchasing power isn’t the only problem in high inflationary environments. Your investments have to work harder to hold their value over the long haul.

“People entering retirement at 65 think they should be all cash or fixed income,” says Kuderna. “That money is for when they are 80. It can be in the markets and keeping pace with inflation.”

How to fix it: With inflation soaring, a portfolio checkup may be in order to ensure your investments are allocated properly. The goal is a well-diversified portfolio that has just the right amount of risk.

https://www.aarp.org/retirement/planning-for-retirement/info-2022/checkup-reveals-overspending-nest-egg.html

Limits adjusted higher for soaring inflation

A 401(k) plan is a great way to increase your retirement savings. Your employer will deduct your pretax contributions from your paycheck, and your savings will be tax-deferred until you take withdrawals during retirement. (The exception is a Roth 401(k), which is funded with after-tax dollars and from which withdrawals in retirement are tax-free.) Thanks to some recent adjustments by the Internal Revenue Service, your 401(k) will get a bit better in 2023.

Savers are able to contribute as much as $20,500 to a 401(k) plan in 2022, an increase of $1,000 from 2021. Those 50 and older will be able to add another $6,500 — the same catch-up contribution amount as 2021 — for a maximum contribution of $27,000.

In 2023, the contribution limits are even more generous, because those limits are adjusted for inflation each year. Savers will be able to sock away $22,500 a year in 2023; those 50 and above can contribute an additional $7,500, for a total annual contribution of $30,000.

These limits apply to other retirement plans, such as 403(b) plans for employees of public schools and nonprofit organizations, as well as the federal government’s Thrift Savings Plan.

There is an upper limit to the combined amount you and your employer can contribute to defined contribution retirement plans. For those age 49 and under, the limit is $61,000 in 2022; that rises to $66,000 in 2023. For those 50 and older, the limit is $67,500 in 2022; that rises to $73,500 in 2023. You can’t contribute more than your earned income in any year.

Those increases are good news for retirement savers. As pensions become increasingly uncommon, for most workers the proceeds of their retirement savings, plus Social Security, will be their main source of retirement income. According to the Employee Benefit Research Institute, just 1 percent of private-sector employees participated in only a pension plan, also known as a defined benefit plan, in 2018, down from 28 percent in 1979. Just 9 percent participated in both a pension plan and a defined contribution plan, such as a 401(k), and 40 percent participated in a defined contribution plan only.

You can start small

If you can’t afford to contribute the maximum, invest what you can and then try to increase that amount each year. You may find that putting pretax money into a 401(k) doesn’t affect your paycheck as much as you’d think, because of the tax savings.

For example, suppose you had gross pay of $50,000 a year and got paid every two weeks. If you contributed 5 percent of your salary to a 401(k) plan, your contribution would be $96 a pay period, but your pay would fall by $82, assuming you were in the 15 percent tax bracket, according to a calculator from Fidelity Investments. Increase your contribution by one percentage point, to 6 percent, and you’d be saving $115 a month, but your paycheck would fall by $98.

Many employers match 401(k) contributions, which is essentially free money — and can make a big difference in the amount of money in your account at retirement. Let’s say you’re 50 years old and you earn $50,000, you put 5 percent of your salary a year into your 401(k), and you get 3 percent raises each year until you retire at 65. You’ll have $87,376 in your account when you retire, factoring in a 7 percent annual rate of return. Now let’s say your employer matches 50 percent of your contribution, up to 5 percent of your salary. You’ll have $131,064 in your account, according to AARP’s 401(k) calculator.

https://www.aarp.org/retirement/planning-for-retirement/info-2021/401k-contribution-limits.html

The answer requires a realistic look at your savings and spending

Inflation is soaring and the stock market is falling, putting a wrench in many people’s retirement plans. That’s particularly true of those gearing up to retire this year. Instead of planning their exit, they are staring at declines in their portfolios. They are left wondering if now is the time to stay or go.

“Looking at the highest point, the S&P is down about a little over 20 percent compared to where it was nine or 10 months ago,” says Pam Krueger, founder of Wealthramp.com. “People are saying, ‘Ugh! That’s when I decided to retire, and now I don’t know.’ ”

It’s hard not to consider delaying retirement for another year or two. Inflation is near a 40-year high, driving up the cost of everyday necessities, from eggs to electricity. Gas prices have retreated from their record highs but are still up more than 50 cents a gallon from a year ago, according to AAA.

Inflation alone is causing a quarter of Americans to delay their retirement, according to the BMO Real Financial Progress Index. That doesn’t take into account the psychological impact a bear market in stocks can have. Even if it’s on paper, the idea that you would have less money at your disposal if you were to retire tomorrow is too much for some people to handle.

It’s easy to get caught up in the moment — comparing your retirement nest egg now with what it was a few months ago — and cancel your plans. But that number alone shouldn’t dictate when you retire. The decision requires you to look at the big picture and let the facts decide for you.

Does it still add up?

Take your investment portfolio, for starters. Sure, your quarterly statement may look ugly on paper, but that doesn’t mean you don’t have enough money for retirement. If you’ve been saving for years, one down market isn’t a reason to reset everything. But it is time to reevaluate and reassess where you are, says Keri Dogan, senior vice president. “The closer you are to retirement, the more time you want to spend looking at different scenarios,” says Dogan. “Paying attention is good as long as you are responding in a rational way.”

Do you feel good?

Once you’ve got your portfolio in line, you can determine if retirement is still in the cards for this year, next year or even further out. That’s where testing different scenarios comes in. You’re trying to figure out if you can maintain the retirement lifestyle you planned with less cash and higher prices. Experts say to ask yourself a series of questions or work with a financial planner who can help. These questions include the following:

• What does higher inflation mean for your spending?
• Does it require any sacrifices, and are they too much to bear?
• What about a smaller investment portfolio? Can you still live comfortably?
• Don’t forget about your current debt position. You may have incurred new debt as a result of inflation. Can you pay it down before you retire? Will it negatively impact your cash flow when you do stop working?

All of these questions need to be answered as part of your retirement readiness assessment.

Be flexible

When it comes to making your final decision, be flexible and open-minded. You don’t want to be married to a time line that may no longer be realistic. Try to see the positive, even if it means delaying your retirement. Putting off retirement for just three to six months can mean an additional 1 percent of savings for the next 30 years, researchers at Stanford and George Mason universities found. It also buys you time to pay off debt and rein in some of your spending.

“If you let the facts do the talking, you will be able to commit to a plan and feel comfortable and confident,” says Krueger. Maybe that means you need one to two years’ worth of cash in the bank instead of six months’. Or maybe you have more than enough income to live off even if your investments are down 10 percent. “It’s not what my portfolio looks like, it’s what my cash looks like,” she says.

https://www.aarp.org/money/investing/info-2022/delayed-retirement-down-market.html