Weekly Newsletter

COVID-19 has shaken America and the world, causing widespread social and economic upheaval. The most obvious and distressing cost is the tens of thousands of lives lost to the pandemic, but attendant costs range from shuttered businesses to an unprecedented hole in the federal budget. As policymakers and others continue to grapple with controlling the pandemic, the permanent scars from this episode have yet to become clear.

Indeed, the economic downturn is unlike anything the economy has ever experienced. Over the first three months of the pandemic, tens of millions of workers applied for unemployment insurance as employment fell 21 percent through late April. As many as 20 percent of small businesses closed and bankruptcies skyrocketed. Housing construction fell by 19 percent relative to a year earlier before eventually rebounding, while the stock market fell by about one-third over five weeks.

As painful as this episode has been for all Americans, it has also been especially trying for older individuals. While seniors benefitted from the critical support provided through Social Security and Medicare, and to a lesser extent Medicaid, the nature of the COVID-19 pandemic introduced special challenges for this group. The most obvious and painful element has been the drastically higher fatality risks for retirement-age Americans, including in particular those in institutional settings. But older workers have also been disproportionately impacted: one recent study estimated that unemployment rate in April 2020 was 15.4 percent for workers aged 65 and older, compared to 13.0 percent for those aged 25 to 44. And sadly, economists expect that a devastatingly high proportion of these jobs are lost for good.

Why have older workers faced higher rates of displacement in this recession? The evidence is not yet in but is likely linked to disparate health impacts of COVID-19 by age and the nature of employment for older workers. Many older workers remain in the workforce by taking “bridge jobs” to retirement. These bridge jobs, especially those held by women, are more likely to involve face-to-face contact and are less likely to be performed using remote technology—heightening the health risks from work. These employees may also face heightened discrimination if employers are concerned they are more likely to catch the virus and more likely to become seriously ill if they do catch it.

On the health side, the impact is even more severe and likely longer lasting. As of July 2020, over 142,000 people have lost their lives, making COVID-19 one of the leading causes of death in the United States, with elevated fatality rates for older households. Hundreds of thousands of older Americans have become ill from the virus, with long-term consequences still unknown. Higher consequences for transmission have made shelter-in-place orders especially necessary for retirement-age individuals, likely exacerbating the loneliness epidemic that inflicts many older people. Nursing homes, which housed about 1.3 million mostly older Americans in 2016, have become hotbeds for transmission, inflicting sharply higher death rates on residents. With our nation already facing a crisis in long-term care, the devastating impact of COVID-19 on people over 60 has called into question the very safety of a system which has disproportionately relied on institutional settings for much of the formal care.

While we are still in the midst of the pandemic and its full effects are not yet known, it appears the impact will transform retirement for years, if not decades. On the economic side, prolonged weakness in the stock market, if it occurs, would eat into retirees’ income and savers’ expected returns, causing both lower spending during retirement and the need for more saving during working lives. An extended labor market slump may disproportionately impact workers near retirement age, in part because older workers often face acute re-employment challenges during downturns and in part because older workers’ health is especially at-risk in many work environments. If the economic impacts bleed into the housing market, retirees could lose trillions in home equity. And the massive Federal Reserve (Fed) response may keep interest rates low for years, undermining savers’ efforts to build up nest eggs.

Some of the impacts of COVID-19 will mostly affect today’s retirees, such as the safety of elderly institutions, while low interest rates will impact both today’s retirees and those who have yet to leave the labor market. Naturally, the future impacts are generally less certain than those experienced today.

This brief discusses the ways these social and economic impacts may transform retirement. Because this pandemic is unique in modern times, there is massive uncertainty about the future, but we will make arguments based on empirical evidence as much as possible. Our central conclusion is that the pandemic will threaten the quality of retirement for today’s retirees and near retirees by undercutting resources for retirement, imposing steep (but necessary) social restrictions, and calling into question the safety of institutional care. The impact on future retirees is less certain, but could include weakened public entitlement programs, the need for higher rates of saving, and a heightened focus on community-based care.

In the final section of this brief we lay out steps that can be taken to mitigate the impact of COVID-19 on the economy, with a particular emphasis on helping older workers and retirees.

Read the full report here.

https://www.brookings.edu/research/covid-19-and-retirement-impact-and-policy-responses/

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Using Annuities to Cover Basic Living Expenses for Life

The names and numbers may vary but the situation is all too common. Approaching retirement at age 65, John and Jill Smith realized their monthly income from Social Security and pensions total $700 less than their fixed expenses. They have savings to fill the gap, but worry that their nest egg may not be sufficient to cover both their fixed expenses and their annual travel plans — especially if they are fortunate enough to enjoy a long retirement.

Prudent investors often tackle this problem by becoming ultra conservative with their money. They commit to withdrawing so little from their savings that they have almost no chance of using it all up — say 4 percent of their account balance per year — or they simply forego travel and most other forms of discretionary spending.

There is an alternative approach, one that could be considered even more fiscally conservative and yet simultaneously more freeing. It involves using some portion of your savings to purchase an annuity, which is a special type of insurance contract that can be used to generate a guaranteed stream of income for life. The idea is to use these payouts to cover your monthly income gap, which then frees you to use the balance of your savings as you like — without worrying that you’ll be unable to afford food and shelter down the road.

Thanks to recent product innovations, it is now easier than ever to tailor such a strategy to your personal financial circumstances. Annuity issuers have created optional features for their products that can hedge their long-term value against financial market declines; boost their value if the financial markets perform well; provide guaranteed payouts for your beneficiaries should you die before taking advantage of them yourself; and even provide extra income if you ever require long-term care.

“In an ideal world, your essential expenses in retirement should always be covered by guaranteed sources of lifetime income,” says Jeff Cimini, president of Fidelity Investments Life Insurance Co. “If Social Security and pensions are insufficient, annuities are a viable option for generating that income.”

Getting started

The first step in executing this “lock it in” retirement income strategy is to identify your existing sources of guaranteed retirement income: Social Security benefits, pensions, and any other investment income you are confident of receiving, such as rent or royalty payments. From that, subtract your nondiscretionary living expenses. In addition to food and utilities, such items might include mortgage or rent payments, insurance premiums, vehicle expenses and property taxes. Your financial advisor can help you cover all the bases. If your expenses exceed your income, it’s time to consider an annuity.

There are two basic variations, fixed and variable. With a fixed annuity, you give a sum of money — the “premium”— to an insurance company, and in exchange the insurer promises to make regular payments of a specified dollar amount to you for a specified period of time—say, 10 or 20 years. Or, if you prefer, you can designate that period of time to be your lifetime, or the lifetime of another person, such as your spouse. This person is called the annuitant. The insurance company decides how to invest your premium, then pays your benefits as long as you or your designated annuitant are alive — even if your account value falls to zero.

With a variable annuity, you again pay a premium, or perhaps a series of premiums, to the insurance company. However, the dollar value of the payments you receive in exchange is not fixed. Instead, it is determined by the performance of the underlying investments you choose, typically a mix of stock and bond funds. As such, your payout can vary. However, to ensure against catastrophe and provide more certainty for buyers, most variable annuities today are sold with so-called “living benefits”— riders that guarantee some minimum level of payout regardless of how your investments perform.

Smart Choices

Deciding which type of annuity to buy depends in part on how close you are to retirement. If you are at retirement age, you may want to use a “fixed immediate annuity” that begins paying out right away. These typically offer the highest guaranteed payout of any investment product, since the insurance company pools your mortality risk — your chances of dying — with that of its other fixed annuity customers. That simply means that if you die before you recover your entire investment, the insurer keeps the balance of your account.

“In the last 10 years, the insurance industry has seen a more than doubling in sales of immediate annuity products,” says Kevin McGarry, director of retirement income strategies for financial services firm Nationwide Financial, part of Nationwide Mutual Insurance Company. “People are gravitating toward these products to ensure that they have a guaranteed stream of income for life to cover essential expenses.”

Can’t abide the idea of losing your investment? You can buy an optional rider that will continue payments to your designated beneficiaries, although this will cost more money. Recently, for example, a 65-year-old Pennsylvania man who wanted to buy a fixed immediate annuity paying out $700 a month for life would have spent about $112,000 for it, according to the website ImmediateAnnuities.com. If he wanted payouts to continue to his beneficiaries for the first 20 years of the policy, assuming he died sooner, it would have cost him another $9,500.

If you’re not at retirement age yet, you could choose a “fixed deferred annuity” that lets you begin withdrawals at some specified date in the future: 5, 10, maybe 15 years out. Or you could choose a variable annuity, letting your account value grow until it’s time to begin withdrawals. In either case, a financial planner can help you forecast your expenses in retirement, and the minimum you can expect to earn from your annuity.

In some cases, a variable annuity may be a better choice than a fixed annuity even if you are already at retirement age. That’s because once regular payouts begin from a fixed annuity — once you’ve “annuitized” the contract — you can no longer make lump sum withdrawals from your underlying account. “A lot of Americans don’t have the luxury of having money that can be used solely to fill a gap in their monthly household income budget,” explains Jac Herschler, head of business strategy for Prudential Annuities, part of Prudential Insurance Company of America. “Their savings must do double duty: fill the gap in their monthly budget, but also be available for unforeseen major expenses.”

A variable annuity with a living benefit feature can fulfill that dual role, promising that you can withdraw a specified amount from your account balance each year for as long as you or your spouse live, no matter how your underlying investments perform during your retirement, and still access your remaining account balance in case of emergencies. You can do this because you don’t have to formally annuitize the contract to take advantage of the living benefit feature. “While your future guaranteed income amount may be reduced if you make a withdrawal exceeding your annual withdrawal amount, this type of flexibility is still important for most Americans, “ Herschler says. “It assures them that if they need money for a new roof or some other big expense, they have access to it.”

Finally, you may find a mix of fixed and variable annuities the optimal recipe for locking in retirement income. You could, for example, buy a “period certain” fixed immediate annuity to cover the gap between your monthly income and expenses for some fixed period of time — say 10 years. Meanwhile, you invest the balance in a variable annuity. During the first 10 years, the money in the variable annuity remains available for emergency expenses. Once 10 years is up, you can begin withdrawing money from the variable annuity, or cash it out and buy another fixed immediate annuity.

Consider Inflation

Daniel Herr, assistant vice president for product research and development in the retirement solutions group at The Lincoln National Life Insurance Co., says investors crafting a retirement income strategy sometimes forget about the potentially damaging impact that inflation can have on their plans. A simple way to address that with a fixed annuity, he notes, is to purchase an optional cost-of-living rider that will boost your annual payout in line with changes in the Consumer Price Index or some other common inflation measure. Investors in variable annuities enjoy some measure of inflation protection automatically, he adds, since their underlying investment portfolios have a chance to outperform inflation over time.

“Having a predictable stream of income is core to your retirement planning, but having the potential for your income to grow as a hedge against inflation is equally important,” Herr says.

In addition to accounting for inflation, it’s important for anyone considering annuities as part of their retirement income strategy to seek out counsel from a financial advisor who understands and appreciates their nuances. Terms, conditions and prices for annuities can vary greatly from one provider to another and from one type of product to another — just as one person’s financial circumstances can be quite different from another’s.

“There are many factors to consider — your marital status, your financial resources, the terms of any pension plans you may have and the way you structure your Social Security benefits, just to name a few,” Fidelity’s Cimini notes. “We feel strongly that people should talk to a financial advisor and do a full financial plan before considering the purchase of an annuity to cover their living expenses. If an annuity is the appropriate solution, this will help them choose the right one for their own circumstances.”

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Know your full retirement age, coordinate the timing of benefit claims with your spouse, and weigh the advantages of delaying your Social Security benefits.

Social Security benefits have long been a critical part of Americans’ retirement income plans. After all, the monthly benefits provide a stream of income that is adjusted for inflation annually and can’t be outlived. And now, with the decline of pensions and increasing life spans, Social Security is playing a larger role in shoring up retirees’ nest eggs. “Social Security payments are one of the biggest assets that most people have,” says Dan Keady, chief financial planning strategist at TIAA.

How you handle that income “has an important impact on an overall plan,” Keady says. For baby boomers, “using a more intelligent Social Security strategy can increase income over their lifetimes.” Some critical moves: Know your full retirement age, coordinate the timing of benefit claims with your spouse, and weigh the advantages of delaying your Social Security benefits.

As more baby boomers become eligible for benefits, some claiming strategies are disappearing, the full retirement age is increasing and the threat of future benefit cuts looms—but the rules for claiming retirement benefits have also become a little simpler. Under a 2015 law, for example, people born on or after January 2, 1954, are presumed to be applying for the highest benefit for which they qualify—whether it’s their own benefit or a spousal benefit—no matter what their age is when they claim. The law also phases out a strategy known as “restricting an application for spousal benefits,” which could boost a couple’s total payout by tens of thousands of dollars—but a small group of boomers still have a shot at using it.

These key moves can help you maximize your lifetime benefits—and help your nest egg go the distance.

Know Your Full Retirement Age

Full retirement age, which is determined by your birth year, is on a gradual march upward from age 66 to age 67. For instance, a boomer who turns 62 in 2019 has a full retirement age of 66 and six months. But someone who turns 62 in 2021 has a full retirement age of 66 and 10 months. Benefits increase monthly by a small percentage from age 62 to your full retirement age, so if you mistakenly claim at age 66 when your full retirement age is really 66½, the haircut won’t be massive—but it could be permanent, trimming your benefits for a lifetime.

The rising full retirement age for Social Security means that people who claim early face a bigger benefit reduction. For those with a FRA of 66, claiming at 62 permanently reduced benefits by 25%—but for those with a FRA of 67, the reduction is 30%. A higher full retirement age also reduces the bonus for people who delay claiming until age 70. Those with a FRA of 66 can earn up to 32% extra—or 8% a year in delayed retirement credits up to age 70—while those with a FRA of 67 can earn up to 24% extra. Pin down your precise FRA to understand exactly how your benefit will be affected by claiming at different ages.

But those numbers don’t tell the whole story. Christine Russell, senior manager of retirement and annuities for TD Ameritrade, notes another advantage of delaying benefits: “All the cost-of-living adjustments are calculated on that higher amount. You get the benefit of compounding.”

FRA also matters if you are still working when you claim. Retiring and taking Social Security benefits are two separate decisions, and you can do one without doing the other. But if you apply for benefits before your full retirement age while still working, your benefits will be subject to the earnings test.

Early claimers will temporarily forfeit $1 of benefits for every $2 of earnings above $17,640 in 2019. In the year you hit full retirement age, the threshold is higher—in 2019, you’d temporarily forfeit $1 of benefits for every $3 of earnings above $46,920.

But in the month you turn full retirement age—poof!—the earnings test goes away. If you plan to keep working later in life, it’s typically a good idea to wait until full retirement age or later to claim benefits. (If you do forfeit any benefits to the earnings test, your benefit will be adjusted upward at your full retirement age to replace the missing benefits over time.)

Coordination for Couples

If you’re married, carefully time your claim with your spouse’s claim to maximize the total benefits. The highest benefit is the one that will last the lifetime of the last spouse to die, so boosting that benefit is key. “It’s very common for one spouse of a married couple to live to their nineties,” says Russell.

For dual-earner couples, ideally the higher earner should wait to claim until age 70, while the lower earner could claim a benefit earlier, perhaps even at age 62, to bring some income into the household. At the death of the first spouse, the lower benefit will drop off, and the survivor gets 100% of the highest benefit, including any delayed retirement credits that were earned.

Dual earners should doublecheck if they fall in the narrowing group of boomers who can still make use of the “restricting an application to spousal benefits” strategy. To qualify, you must be born before January 2, 1954. You also need to file the restricted application for spousal benefits only once you hit your full retirement age, and your spouse must claim his or her benefit so that you can get a spousal benefit. If you and your spouse can time your claims to make use of this strategy, the higher earner can bring in additional income from the spousal benefit to add to the lower earner’s benefit. At age 70, the higher earner switches to a boosted benefit that’s earned delayed retirement credits worth 8% a year, and the lower earner switches to a spousal benefit if it’s higher than his or her benefit.

An age gap between spouses can affect a couple’s claiming strategy. The claiming decision typically hinges on the life expectancy of the second spouse to die, says Neil Krishnaswamy, a certified financial planner at Exencial Wealth Advisors. For instance, a higher earner who is 10 years older than his spouse should typically delay his benefit, because it will last the lifetime of the lower earner who has the longer life expectancy. For a higher earner with a lower life expectancy, “it can be counterintuitive to say to wait, but there’s a reason to do it,” he says, and that’s to account for joint life expectancy.

In a one-earner household, holding off until age 70 can be a tougher decision because the non-earning spouse can’t claim a spousal benefit until the earner claims a benefit. The spousal benefit is worth up to 50% of the worker’s full retirement age benefit. Carefully consider life expectancies when deciding when to claim. If one spouse lives into his or her nineties, delaying benefits could still make sense in the long run.

Strategies for Singles

“For single people, it’s fairly straightforward,” says Russell. If you never married, the main claiming considerations are your life expectancy and whether you can afford to delay benefits. If your family has a history of longevity and you have a sizable nest egg, delaying until 70 makes sense. If your health, or the health of your nest egg, isn’t great, you might consider claiming at full retirement age or sooner. After all, no survivor will qualify for a benefit off your record. “For singles, it really comes down to how long you think you will live,” says Sarah Caine, a certified financial planner with Agili, a financial planning and investment management firm.

If you are single now but were once married, you may have more options. What “makes it more complex is that you are integrating spousal and survivor benefits into the mix,” says Krishnaswamy. If you are divorced, you might qualify for a spousal benefit off an ex-spouse’s record. You must have been married for at least 10 years and be single now, and both you and your ex must be eligible for a Social Security benefit. If you’ve been divorced at least two years, it doesn’t matter whether your ex has started his own benefits. And Caine notes that if you were born before January 2, 1954, you can restrict your application to the spousal benefit on your ex’s record and let your own benefit earn delayed retirement credits until age 70.

Widows and widowers can qualify for a survivor benefit starting at age 60 (50 if disabled), and surviving spouses who haven’t yet claimed a benefit can mix and match the survivor benefit with their own benefit. A survivor benefit is worth up to 100% of the deceased worker’s benefit, including delayed retirement credits. And the 2015 law that is phasing out the ability to restrict an application to spousal benefits only does not apply to widows and widowers. Surviving spouses can restrict their applications to make use of both their own benefit and the survivor benefit. For instance, a widow could file a restricted application for a reduced survivor benefit at age 60 and let her own benefit grow until age 70. Or she could claim her own reduced benefit at age 62 and switch to the maximum survivor benefit at her full retirement age. Note that widows and widowers who remarry after age 60 can continue to receive their survivor benefits.

Weigh Benefits for Family

A worker’s earnings record may provide a Social Security benefit for some of his family members, too. In addition to a spouse age 62 or older, children under the age of 18 can each get a benefit worth up to 50% of the worker’s benefit. If the worker’s spouse is younger than 62 but caring for a child under age 16, the spouse can get a spousal benefit, too. The total amount that a family can claim on one earner’s record is capped at about 150% to 180% of the worker’s benefit.

The kicker: To claim benefits for family, the worker has to claim his own benefit. If you have family members who can qualify for benefits on your earnings record, carefully weigh how the timing of your claim will affect their benefits and vice versa. Let’s say you are 66, have a 12-year-old child and qualify for a $2,000 full retirement age benefit now. You could delay four years to bring in a lifetime monthly benefit of $2,640 at age 70, at which time your child would qualify for two years of half your full retirement age benefit, totaling about $24,000. Or you could claim a $2,000 monthly lifetime benefit at 66, which would also provide $1,000 a month for your child for six years until she turns 18, for a total of $72,000.

Consider a Do-Over

What if you’ve already claimed benefits, but you’re not happy with your decision? In the not too distant past, if you made a mistake in claiming benefits, you could fix it—even years later. But now, the chances for a do-over are limited. This makes it all the more important to correctly time your initial claim, but it’s also critical to know the rules for a do-over so you don’t miss your second shot if you need it.

First, you can withdraw your application for benefits within the first 12 months of applying. You will have to repay any benefits received from your earnings record, but you can then later reapply fresh. You only get one chance to withdraw. So if you first claimed at age 63, but then changed your mind about taking a reduced benefit, you could withdraw within 12 months and reapply at your full retirement age to get your full benefit or anytime up to age 70 to get a boosted benefit.

Second, if you miss the window to withdraw your application but claimed early for a reduced benefit, you can pump up that benefit by suspending it at your full retirement age. You forego income while the benefit is suspended, but your benefit will grow 8% a year with delayed retirement credits until age 70. That can help boost a reduced benefit back up to nearly what it would have been if you had filed at full retirement age. If your monthly $2,000 full benefit at age 66 was cut to $1,500 by claiming at 62, suspending your benefit from your FRA of 66 to age 70 would bring it back up to $1,980 a month for the rest of your life.

Check Up on Social Security’s Health

If you’re concerned about potential future benefit cuts, you could factor that into your claiming calculations. The Social Security trustees’ report released in April estimates a 23% cut in retirement benefits in 2034—meaning a full benefit of $2,000 would be sliced to $1,540. Congress has been kicking the “fix Social Security” can down the road for years, and suddenly 2034 doesn’t seem so far away. While many experts say any fixes that might depress benefits would most likely affect younger generations, preretirees who want to plan for the worst-case scenario could run one set of numbers with full benefits for a lifetime and another set that includes benefit cuts. If those reduced numbers don’t look so good to you, consider how you might fill that income gap and start dialing up your Congressional representatives to demand action.

No one has a crystal ball, so you have to make the best planning decisions you can with the rules that currently exist. “You want to maximize whatever benefit you can get,” says Krishnaswamy. He says he wouldn’t advise near retirees to change their strategies, and he notes that those with a longer time horizon could scale down their assumption of benefits in their planning. Many policy changes beyond benefit cuts could affect Social Security, Russell notes, adding, “focus on the things you can control.”

https://getpocket.com/explore/item/time-claims-to-maximize-social-security-benefits?utm_source=pocket-newtab

Even in light of an all-consuming pandemic, there are some mega-trends that continue their powerful and profound impact on global society. One such trend is global aging, which has led to a reimagining and a reframing of the relationship between age and health, economic, and social policies. Now, one of the more valued ideas on global aging — to keep people active, engaged, and working well past 20th century retirement and “old age” norms — offers a critical opportunity to jumpstart economic recovery during the Covid-19 pandemic.

Despite the scale of this opportunity, public discussion about Covid-19 has often relied on and reinforced outdated stereotypes about older adults: that every person over 60 is unhealthy, vulnerable, and out of the workforce. Not only are these assumptions false, they threaten to actively undermine societies’ responses to and recovery from Covid-19. Sustaining financial and physical well-being during the Covid-19 outbreak will require empowering this huge population of workers and consumers to continue contributing, spending, and saving. The Silver Economy is alive, well, and still growing as increasing numbers of older adults buy, play, learn, and work online.

For Covid-19 economic recovery, it is especially necessary to recognize how a multi-generational workforce and workplace can drive individual prosperity and widespread economic growth — before, during, and after the pandemic. This is intimately linked to the idea of a multi-generational society, where the roles needed in health and social care, education, and economics are structured differently. Moreover, if the basic proposition is that active life — including work — beyond one’s 60s is a pre-condition for healthier aging, itself bending the curve on health spending, why not apply this to the broader-based societal needs of a Covid-19 economic recovery, especially at this most critical and tenuous moment when innovation — including in how we live our lives — is central?

Here are three ideas how older citizens globally can be central to becoming the engines of our economic reopening:

1. Education: It’s increasingly recognized that economic opening in a Covid-19 pandemic is inextricably linked to school opening, since parents, especially of younger children, often struggle to both work and take care of their kids. Yet we persist in outdated models with respect to who teaches and how they do it. This generates widespread challenges, as the number of “teachers” must now expand to cover the number of classes needed to accommodate social distancing, the challenges of remote learning and the hybrid models.

A new, more effective plan would apply a multi-generational innovative approach to tap older adults as teachers — bringing experience, knowledge, and skills that can be readily adopted and adapted to these needs. The young-old, 55–75, who also tend to be healthier, less compromised, and looking for continued activity (read work), can be effective teaching both in classrooms and online. They could also partner with the millions of recent college grads looking for their first jobs to work as teacher teams. The older adults could help teach the younger grads in areas both will teach the youth. I’d bet that millions of grandparents around the planet, even if at greater risk will never-the-less happily volunteer, as they will want to “give back,” even with risks understood.

Let all of us make our own decisions about risk, but in ways that will respect the basic new tenets of public health and work — mask-wearing, social distancing, and reduction of large gatherings. The idea of a fully engaged multi-generational society is what so many had already been thinking as the way to reimagine aging and its relationship to economic growth. This is even more valuable, if we are to successfully manage the public health aspects of Covid-19 and economic activity.

2. Caregiving: As Covid-19 dramatically increases the need for childcare and eldercare, healthy older adults can help to address these needs at both ends. With the proper public health procedures, older adults can safely and effectively work as professional caregivers, without compromising the health of either caregiver or care recipient. Indeed, this approach is actually essential to protecting well-being, as it can help to ensure proper care for age-related chronic conditions, which are not going to subside during the pandemic.

Innovative leaders in home care, like Home Instead Senior Care, have already developed advanced protocols and trainings to mitigate the risk of Covid-19. Together with tools for remote care, this can enable people with chronic conditions to continue receiving the care they need, while also offering job opportunities for older adults.

3. Entrepreneurship: Embracing silver entrepreneurship as a principal engine of 21st-century growth is becoming even more important during the pandemic. Many businesses and services have had to move online, almost overnight, indicating the huge entrepreneurship opportunities for older adults working from any location. By empowering older entrepreneurs, societies and governments can unleash a wave of new, digitally enabled businesses that spark economic recovery and continue driving prosperity even after the pandemic.

This will feed on a trend that existed even before Covid-19. Contrary to the myth of the whiz-kid founder, older adults actually start businesses at higher rates than younger adults, and these businesses are more likely to be successful. Older adults not only have more experience and larger networks — essential ingredients for startup success — they also enjoy unmatched knowledge about a huge consumer base: other older adults. During Covid-19, older entrepreneurs can leverage these advantages to launch businesses that create new jobs and effectively serve older consumers’ preferences and needs.

Teachers, caregivers, and entrepreneurs are essential in every society. At a time of massive economic upheaval, we can’t afford to exclude older adults from these critical roles. Instead, businesses, policymakers, and societies should empower older adults to enter these jobs and careers, contribute to their communities, and realize their own financial and health benefits. The win-win-win will be the spark for successful economic reopening as we continue to respect the core public health elements now an organic part of everyday life.

https://medium.com/global-coalition-on-aging/older-adults-can-jumpstart-the-covid-19-economic-recovery-db13eaa2dbdf

They face particular challenges brought on by Covid-19 — issues, experts say, that could lead to retirement earlier than planned.

Dorian Mintzer loves her work. A 74-year-old psychologist, coach and author, she has no plan to retire, and has continued to work during the pandemic, doing teletherapy from her home in the Boston area.

Now, like millions of other older working Americans, Dr. Mintzer is uncertain about the future of her job — much will depend on whether health insurers continue to cover teletherapy post-pandemic.

“I’m going to keep working virtually — the idea of going into an office building, and not knowing who’s going in and out — I’m really not sure about that,” she said. “And sitting in a room with clients with both of us wearing masks — I wouldn’t be able to see their facial expressions. So I am now for the first time feeling at a crossroads.”

Dr. Mintzer is asking the same questions facing millions of older workers. It’s still early, but experts believe the pandemic will upend the timing of retirement plans of many older workers. In some cases, their decisions will be voluntary; in other cases, retirement may be forced upon them by job elimination or unavoidable health risk.

One of the most important factors affecting your retirement security is how long you work. Additional years make it easier to increase annual Social Security benefits through delayed filing: Filing at the earliest age (62) gets you 75 percent of your annual full benefit; every 12 months of delay past your full retirement age (currently around 66, depending on your year of birth) gets you an additional 8 percent until you turn 70. Working longer also can mean saving more, living off those savings for fewer years and getting more years of employer-subsidized health insurance.

Many older workers, generally those over 40, say they will need to work longer because of the economic crisis. For example, 37 percent of baby boomers and 39 percent of respondents from Generation X said they had delayed retirement or were considering doing so, according to a recent survey by TD Ameritrade. But that will be easier said than done: Between 2014 and 2016, just over half of workers who retired between ages 55 and 64 did so involuntarily because of ill health, family responsibilities, layoffs and business closings, according to research by the Schwartz Center for Economic Policy Analysis at the New School for Social Research.

Here are some of the key issues and questions facing older workers navigating the last part of their careers in the pandemic.

Your Retirement Timeline

In a typical recession, the unemployment rate for older workers remains below that of their younger counterparts, but that’s not the case this time, noted Richard W. Johnson, director of the program on retirement policy at the Urban Institute.

The combined rate of unemployment and underemployment for workers over 65 was 26 percent in May, roughly five points higher than for those ages 25 to 54. That is the largest gap since record keeping began in 1948, Mr. Johnson said. And the combined rates are especially high for older workers who are less educated, black, Latino or in certain industries, such as leisure and hospitality, transportation, and education.

What’s going on? “It could be that what we’re seeing is a continuation of a long-term trend in which seniority-based advantages have been gradually eroding because of the decline in unions, and the shrinking bargaining power of older workers,” Mr. Johnson said. “But health risks related to the virus are also probably a very important factor.”

Recovery is starting quickly as states reopen, but the journey gets bumpier from here, Kelly and fellow strategist David Lebovitz warn.

There is still a long way to go before the United States has a full economic recovery and it is therefore wise for investors to be cautious, not make any bold predictions about what will happen with the economy for now, and maintain balanced portfolios, according to JPMorgan strategists.

“Technically, the recession is actually over” because there was improvement in the economy after April, but “the struggle to recover” remains, David Kelly, the firm’s chief global strategist, told reporters Thursday during a third-quarter “Guide to the Markets” call. And he predicted the recovery will be a slow one.

“We have seen some positive news recently,” he said, pointing to Thursday’s jobs report, which showed 4.8 million jobs added in June and a drop in the unemployment rate to 11.1%.

However, that is still a huge unemployment rate and “we have to be honest and realistic about where we are,” he said.

He compared the current situation to when he used to drive to New York from Massachusetts. It’s only about a four-hour drive in theory, but it always takes longer, he noted. That is because you’ll be “speeding along the highway, but you always know by the time you get to Bridgeport, Connecticut,” you hit traffic, so you try to avoid the traffic by taking the side roads, he recalled, adding: “Eventually you do get there — it’s just much slower going.”

There is talk about a V-shaped recovery, he noted. But he warned: “Be very careful in how you think about that because the first part of it is a V … because a lot of companies that shut down in April were able to reopen [and] get back to business in May and June, and we’re seeing that in the data,” he said.

“But the rest of it, I think, we unfortunately get diversion off the side road” as the virus continues to spread, and “progress from here will be slower,” he predicted.

The risk for investors is that “they buy too much into the idea of a full V-shaped recovery in the economy and don’t recognize” that we are “entering the back roads of the economy and they’re slower and they’re bumpier,” he said. “You need to position a portfolio … recognizing we’re eventually going to get there — we will eventually have a vaccine and we’ll get past all this — but do recognize there’s also going to be a slower going from here.”

Pointing to the recent surge in confirmed U.S. virus cases, he predicted infections would continue to rise, but added: “It’s not all new bad news.” For one thing, the pace of fatalities has declined, although it is “still frighteningly high,” he said.

Kelly also predicts there will be another government stimulus — of $1 trillion or more — this summer, probably in August. That will help support the economy with continued job gains through the first quarter of next year, he projected.

“If we do this, then I think we’ll be able to avoid a double-dip recession,” he said, but he warned: “If we don’t do that, then the economy could well fall back into recession” with more layoffs later this year.

Portfolio Building

JPMorgan Global Market Strategist David Lebovitz went on to tell reporters he was “relatively neutral on stocks versus bonds, adding: “We are somewhat measured in terms of how we’re thinking about building portfolios” at this time.

“There’s really no substitute for Treasurys and other forms of high-quality fixed income when it comes to offsetting equity market volatility,” he noted. “When we think about building fixed income portfolios … we’re still comfortable holding Treasurys as a hedge despite the fact that they’re not really generating any sort of meaningful income at the end of the day,” he said.

However, “in an uncertain world what investors need to do — particularly in an uncertain world where interest rates are historically low — is … expand and change the way that they think about portfolio construction and diversification,” he suggested.

What that means, he explained, is “embracing less traditional equity and fixed income strategies, thinking about things like option overlays on your portfolio and also maybe looking in parts where you haven’t looked all that much before.” That includes “core real assets and, specifically, direct real estate and unlisted infrastructure are really interesting ways of generating income in your portfolio without materially adding to your overall volatility.”

A balanced portfolio is important and it is best to not try to make investments based on what you think might happen with the economy and markets over the next year, he said.

He cautioned: “When you take the back roads, there are lots of twists and turns and the bottom line is that that makes it very difficult to see what is ahead, and speeding on a back road … will get you into trouble.”

https://www.thinkadvisor.com/2020/07/02/jpmorgans-kelly-welcome-to-the-back-roads-of-the-economy/

Now that we’ve entered a bear market for the first time since 2009, many pre-retirees are likely asking questions about the impact on their retirement savings. Will the stock market sell-off wipe out years of growth in their 401(k)s? Are there any steps that can be taken to protect savings and investments against future volatility?

These are important considerations. While the recent stock market sell-off is a reaction to concerns around COVID-19, an unprecedented global event, it’s a sobering reminder that volatility can strike at any time. And while the general idea of a financial vehicle like a 401(k) is to play the long game and hold investments through market highs and lows, it’s still important to protect your retirement portfolio against those lows.

Building a portfolio with principal protection

Fortunately, pre-retirees can work with financial professionals to diversify their portfolio in a way that distributes risk and prepares their retirement savings for growth in a variety of economic environments. It’s even possible to build in some principal protection with the inclusion of Fixed Indexed Annuities (FIAs).

FIAs are insurance products that can guarantee income to contract holders over a period of time — even over a lifetime. Unlike a 401(k), the insurance company absorbs the risk of market downturns, guaranteeing a minimum floor, and protecting contract holders from market losses.

In other words, an FIA offers the potential for interest based in part on the performance of an external index without the risk of market loss. Your principal amount is guaranteed, subject to any withdrawals you take or any surrender charges incurred due to early termination of the contract. Any growth in annuities is tax-deferred and most compound annually, meaning gains are locked in and added to your principal, with future interest earned on that compounded amount.

That means, for example, if an FIA purchased in the amount of $100,000 were to earn 3% in its first year, the insurance company would consider $103,000 to be the new “floor,” guaranteeing this amount from market loss. The same process occurs annually through the end of the FIA contract.

Risk, reward and inflation

As with every investment or retirement product purchase, there are benefits and costs. With FIAs, insurance companies are absorbing all of the market risk. FIAs typically include an interest rate floor and an interest rate cap on the percent of interest credited in a given year. In some cases, FIAs do not have an interest rate cap, but that doesn’t mean they have unlimited interest. Insurance companies use models that factor in participation rates, spreads, margins or other measures to determine creditable interest.

And, although FIAs guarantee lifetime income, inflation has the power to diminish the purchasing power of that income. It is therefore recommended that purchasers work with a financial professional who can help contract holders understand their target income for retirement, and how to build a balanced strategy with enough growth potential to account for inflation.

Looking ahead

While the circumstances of the latest market decline are unusual, market volatility is something pre-retirees will likely continue to experience as they save for retirement. Don’t panic. Take this opportunity to evaluate how much you will need to save with IALC’s retirement calculator, and talk to your financial professional about whether an FIA might be right for you.

Concerned about market volatility? Here’s one way to protect your retirement savings.

Americans without retirement savings are increasingly moving in with their millennial children.

Sian-Pierre Regis, 35, is used to living with roommates. For the past 10 years, he has split the rent on his apartment in the Chelsea neighborhood of Manhattan with two (in some cases, three) friends. But in June, he’s getting a co-tenant of a different sort: his 78-year-old mother, Rebecca Danigelis.

“I don’t think either of us expected to be in this situation,” said Mr. Regis, a freelance filmmaker. His mother worked for over 40 years as a hotel housekeeper, rising to a management position, until her job was abruptly eliminated three years ago.

Since then, she has lived off her slim retirement savings (she liquidated most of her 401(k) to pay Mr. Regis’s college tuition in 2002) and whatever part-time cleaning jobs she could find. When the coronavirus pandemic hit, she again was out of work, and at the end of May, the lease on her subsidized housing in Boston will expire. She can’t afford the rent.

“I don’t know what she could have done better, or how she could have prevented this,” Mr. Regis said. “She worked long hours, never called in sick and cleaned houses to make extra money when she wasn’t at her hotel job. She had no vices.”

Still, as a single parent raising two children, she struggled to save. “When she lost her job, she had $600 in her savings account,” he said. “She had nothing to fall back on.”

Nothing except her son, that is. Which makes Mr. Regis one of the growing number of millennials who are supporting their parents financially and, in some cases, giving them a place to live. Known as the reverse-boomerang effect, the phenomenon of parents moving in with their adult children, often for financial reasons, is on the rise. According to a Pew Research Center analysis of population data, 14 percent of adults living in someone else’s home in 2017 were a parent of the head of household, up from just 7 percent in 1995. And this trend is expected to balloon in the coming decades as baby boomers leave the work force but can’t afford to support themselves.

Expressed in starker terms, the Center for Retirement Research at Boston College has predicted that half of today’s workers will not have enough savings to sustain their standard of living when they retire. According to the AARP Public Policy Institute, one in five Americans will be over the age of 65 by 2030 (compared with one in seven in 2017), “and our nation will face a severe shortage in accessible and affordable housing to meet their needs.”

Enter the resurgence of multigenerational housing, when adults from at least two generations share the same home. After declining to its lowest point in 1980, multigenerational housing is now close to its 1950 peak, representing 20 percent of the total American population in 2016, according to another Pew analysis.

While that trend is largely driven by 20-somethings living with their middle-aged parents, Pew researchers found that older adults were also significantly more likely to be living with their grown children in recent years than they were in the 1990s.

Younger Americans should take this pattern seriously, says Georgia Lee Hussey, a financial planner in Portland, Ore., who has clients across the country. “Most of my clients have at least one parent that needs to be factored into their financial plan,” she said. “What’s tricky is that for some families, it can be unexpected. Especially in white American culture, people over 60 are often uncomfortable talking about their finances, and ashamed to ask their children for help.”

And don’t underestimate the power of denial. Ms. Hussey noted that many baby boomers watched their own parents enjoy an era of heartier pension plans and lower health care costs. Now, many Americans work hard all their lives but still don’t have enough savings to retire. “Then, suddenly their child realizes, ‘Oh, I’m going to have to take care of dad,’” she said. “It can lead to some incredibly difficult conversations.”

For Dulcinea Myers-Newcomb, 45, that realization happened when her 80-year-old father came to visit her and her two children, ages 8 and 14, in Portland — and then never left. “He said, ‘So, I’m not really visiting. I live here now,’” she said. “I knew that my father did not ever plan for this phase in his life, but my husband and I were not prepared for him to move in as soon as he did.”

To make room for their new housemate, Ms. Myers-Newcomb, a real-estate agent, arranged to install what is known as an accessory dwelling unit — a secondary apartment built on a single-family residential lot — in their small backyard. But the price — about $110,000 — put the family in a tight spot. Like many Americans, she and her husband were already sandwiched between lingering student debt and trying to save for their own retirement. They took out a home equity line of credit to cover the costs, and her father contributes just under $1,000 a month to help with the bills.

“I hope my kids don’t have to do this for me someday, but I think it’s beautiful that our children see that we’re taking care of our elders,” Ms. Myers-Newcomb said. “I’m seeing it more and more in my work, too: people my age and younger taking in their parents.”

For other families, the topic was never taboo.

“My parents were pretty explicit that my siblings and I were their retirement plan,” said Ka Po Lam, a 28-year-old treasury analyst who works for a bank in New York City. His family moved to the United States when he was a young boy, and he started giving half his take-home pay to his father at age 15, when he got his first job at McDonald’s.

“Being from Hong Kong, it’s part of our culture to help the family,” he said. “As immigrants, both my parents worked manual labor jobs. They don’t get Social Security. The traditional ways to afford retirement aren’t really available to them.”

Mr. Lam now sends about $800 a month to his parents, who live with his older sister in Boston. “I’m basically paying double rent — mine and my parents’ — so I manage money pretty carefully,” he said. For a while, he had a second job at a coffee shop to earn extra cash on weekends — a different lifestyle from most of his banker colleagues’, but he’s not complaining. “It’s not something I hide,” he said. “As much of a burden as that can be, I find validation in the fact that I can provide for my family.”

Still, financial responsibility for aging parents can be daunting no matter how much planning you do, said Athena Valentine Lent, 34, a program manager for a nonprofit in Phoenix, Ariz. “I’m Latina, and multigenerational households are normal in our culture,” she said. “I always knew my dad would come to live with me someday, and I’ve worked hard to prepare, but it’s still not easy.”

Although her father is only 53, she expects that a combination of his health and financial issues will put him on her doorstep within the next five years. “I have a ‘dad fund,’ and I put a couple hundred dollars a month in it,” she said. “It affects a lot of my life decisions. If my partner and I decide to buy a house, it will have to be big enough for my dad to live there with us. It’s a lot to think about, especially since I’d like to have children of my own in the next couple of years.”

To make matters more complicated, her father takes care of his mother, Ms. Lent’s grandmother. “So I wouldn’t just be taking care of him. I would also take in my grandma, and possibly my aunt too, because she also lives with them,” she said. “Sometimes we don’t just inherit our parents — we inherit entire families.”

These early reverse-boomerang pioneers are laying important groundwork, said Rodney Harrell, the vice president of family, home, and community at the AARP. “As it becomes more normalized for older adults to live with their grown children, I think it will get easier for everybody,” he said. “If your neighbor builds an accessory dwelling unit, or has their parents living with them, you might realize it’s a viable option for you and your family, too.”

That’s certainly been the case for Mr. Regis. “At first, I felt really lost. My situation was foreign to my closest friends, the people I’d gone to college with,” he said. But when he made a documentary film about his mother’s experience, “Duty Free,” the response was huge. “When we released the trailer for the film, I heard from so many people, my own age and younger, who said, ‘Thank you for making this. My mom just moved in with me, too, and I would do anything for her.’”

He also sees a silver lining. “In our country, the elderly become invisible. We don’t see them, and we don’t feel like we need to help them,” he said. “But they have so much to give, and maybe, if they live in our homes with us, people will realize that more.”

The economic gut punch of the COVID-19 pandemic is being felt by retirees. Even those who have savings and other resources now fear that the financial stability they had envisioned for their post-working years is gone.

With the U.S. economy staring at a recession and the stock market having plunged more than 25% from its peak in February, retirees have seen the value of their retirement funds badly eroded and are looking for ways to generate cash for their living expenses.

Here are three retirees who explain how they’re coping with the crisis:

‘Never seen something this big’

Randy Smythe, 60, retired last September after a career in e-commerce sales and soon took off to spend a year visiting the national parks while renting out his home in Lake Arrowhead.

Now, he’s stuck at home in Lake Arrowhead because of the pandemic and — still two years from eligibility for Social Security — Smythe is hoping income from his six-figure investment portfolio and lower living costs can see him through.

“I’m a single guy so I typically eat out, but I’m not eating out now” with all the restaurants closed, Smythe said. “So, I’m saving money there.” He also no longer has his traveling costs.

Smythe said he also pays his bills as soon as they arrive. “I’ve always used that as my first line of defense against being laid off or something else,” he said. “I’m good until the first of May.”

As for his investments, Smythe said he actively trades stocks but when the market began gyrating wildly several weeks ago, “the first week I just didn’t look at it” as prices plunged into a bear market, he said. “I’ve been doing this a while, so I’ve been through multiple downturns, but not this big. I’ve never seen something this big.”

So far, he hasn’t sold stocks heavily to raise cash. Smythe said the value of his portfolio — which is 90% individual stocks and 10% cash — has dropped only 5% since February, thanks in part to the market’s rebound from its recent lows. “I do like risk, but not this much risk,” he said. “I know the market has always gone up over time.”

And if it doesn’t again anytime soon? “I could still work until I’m 67 or 68, if I need to,” he said.

‘Lucky to be in this position’

At 64, Marty Foster was in the process of moving to Las Vegas from San Francisco a month ago when the pandemic hit the United States. Living in Nevada is saving him money because the cost of housing is lower, as is being holed up in his one-bedroom apartment that rents for $944 a month.

“There’s nothing to do, there are no places open,” Foster said.

Born and raised in Los Angeles, Foster said he was a prop maker in the movie business for 25 years, then spent 11 years as a cabinet installer. A back injury sent him into retirement seven years ago with Social Security Disability Insurance, which provides him “a decent fixed income,” he said.

“There’s nothing to spend money on,” he said. “I used to love to go to the movies because I worked on them. But now, anything other than a grocery store is out. I wouldn’t want to go out right now if they were open.”

Foster also is looking for ways to trim expenses. When his car battery died last week, he didn’t replace it, and instead left the car parked and suspended his car insurance. “That saved me another $50 a month,” he said.

Foster said he did splurge $130 for an exercise bike to stay active. He hasn’t yet canceled some cruises that he’d already paid for, despite harrowing stories of infected passengers on some ships, in part because the cruise lines are offering him credits toward items he buys on the ships when he’s finally able to travel.

For now, though, “I see the horror” of the pandemic and “I read the stories about the people it’s affected,” he said. “I’m not that religious, but I’m blessed to have this apartment, and I’m not going out of it.”

‘Incredible sense of fear’

Two weeks ago, Charles V. (he did not want his last name used) arrived at his apartment in San Juan, Puerto Rico, to stay while his new house is being built in Rehoboth Beach, Del. Now the 56-year-old doesn’t know when he’ll return to the mainland.

Charles was a marketing executive with “a major consumer-products company,” which he declined to identify, for 29 years until he was laid off two years ago. He said he received a “generous severance” of a continued salary that, coincidentally, ended just as the coronavirus crisis hit.

Now, he’s making changes to his seven-figure investment portfolio to raise cash and cut his exposure to the stock market while also looking to reduce his living expenses.

“The value of my retirement account has dropped by 25%,” Charles said. “The only thing I could control at this moment was to perhaps get a little bit more safety in my financial situation. And immediately you start to think of things you can cut back on, whatever they might be.

“Let me be clear, I fully recognize I’m in a better situation than the majority of retirees,” he said. “But if there’s one thing we all share, it’s a sense of concern and worry that the prospects of a comfortable retirement are in jeopardy.

“There is an incredible sense of fear about your future,” he said. “Hopefully the market will rebound more than I’m having to deplete [my investments] on a monthly basis.”

https://www.latimes.com/business/story/2020-04-04/retirement-401k-social-security-coronavirus

Right now, spending habits are changing, for better or worse. With unemployment at an all-time high and many people working from home, your budget could be totally different from usual. You may be tight on money or have a little extra cash in your pocket.

Regardless of which end of the spectrum you’re on, now is a great time to make sure your finances are in good health. Here are five tips to keep your money matters in order.

1. Keep a spending diary.

Track every dollar you spend. It’s the foundation of a great budget. Even if you’re doing generally well financially, it’s important to keep checking where your dollars are going. You can keep your diary in an app, like Mint, or store it as a note on your phone. The combo of a good old-fashioned pen and paper also works — whatever method provides the least barriers for you.

2. Check in on your money.

Next, review your finances regularly. This step is key to making sure that things are running smoothly and keeps you from overspending on things like overdraft or late payment fees. Even if your budget works well, it’s important to look under the hood and check in every week or two. You don’t want to be looking so often that it becomes an obsession, but often enough that you’ll catch any mistakes.

3. Think about your purchase priorities.

You can only spend your money once. When you’re tracking your spending and looking at the big picture regularly, you will be more aware of what you are doing with your money and can make more empowered decisions.

For example, if you don’t care about buying takeout, there’s no need to spend money on that if you would rather be using those dollars to work toward your savings goals or building an emergency fund.

4. Save, even if it’s only a little.

If you can afford it, save a little money. Think of it as paying yourself first. Having power over your finances is all about planning, and a lot of that power comes from having some money saved for when you really need it. Even if you’re not the planning type, you can automate your savings account to do this so you never have to think twice about it. You don’t need a lot; even $10 or $20 a month can do it. So, if you have that money, try to put it away.

5. Go easy on yourself.

Money is an emotional thing — and so is living through a pandemic. If you mess up, it will most likely be OK. And if it’s not, you can do your best to recover. Use these tips to keep your finances in good health. Any step in the right direction, no matter how small, is worth it.

https://www.today.com/money/how-manage-your-money-during-covid-19-pandemic-t182376

The Washington Post spoke to six Americans who have come to the end of their work lives with no financial cushion, no nest egg. The coronavirus pandemic has scrambled many Americans’ financial futures, but some baby boomers have found surprising ways to cope with the downturn in the economy.

As a licensed fiduciary for over 15 years and spending most of that time with retirees, I’ve heard the same desires and concerns repeatedly: They want a retirement product that will offer them safety, income, and growth. My clients fear a repeat of 2000 or 2008, are concerned with how to pay for long-term care, and are very concerned about outliving their retirement assets. When I hear this, there is one financial product that comes to mind that can help address all of these concerns: a hybrid annuity, also known as a fixed index annuity.

A lot of people get scared when they hear the word annuity, but the truth is not all annuities are created equal. In fact, a fixed index annuity is like a Swiss army knife: It’s a flexible tool with multiple uses to help benefit your portfolio.

Here are five reasons the fixed index annuity is the “Swiss army knife” of retirement planning.

Safety of principal

The fixed index annuity is a vehicle where your principal is protected from the downside risk of the stock market. When the market declined in 2000 or 2008, hybrid annuity owners did not lose any principal due to the downturn, or any of the gains that were previously credited. This is possible because a consumer earns interest in this product by linking their contract to various external index options; however, because the money is never directly invested in the stock market, there is no direct market risk.

Income

The retirement landscape has changed. Now that pensions are practically gone, individuals are having to create their own income stream, and that can be a scary thing.

Fixed index annuities are an efficient way to generate income. When Social Security benefits and/or pensions can’t provide enough income, this is one product that offers an optional guaranteed lifetime income stream by turning 401(k) or IRA dollars into an income stream you can’t outlive. Having a guaranteed income stream in retirement is what I call having a paycheck versus having a “playcheck.”

Growth potential

Unlike bonds, fixed index annuities can offer safer growth with potentially a better upside. You earn interest or grow your money inside of this vehicle by linking your annuity to various external index options, like the S&P 500, for example, without directly investing in the stock market. You are not buying stocks, bonds, or mutual funds. You’re simply linking your money to share in a portion of the gains of the external index you selected. Obviously, you don’t get all the upside since you aren’t fully invested in the stock market. If the market has a downturn, there are no losses because you are not in the stock market.

Different companies have various indexing options and crediting methods. When these products were first introduced almost 25 years ago, your money typically had to be linked to the one index option available (such as the S&P 500) and had a cap. Now, there are more index options available today, there are strategies that are not caped meaning there is not a ceiling on how much the client can gain. These options are called spreads and participation rates.

Roger Ibbotson, professor at Yale and one of the greatest minds in the financial world, states, “Annuities have for a long time deserved a place in retirement portfolios, and the evolution of the industry has made these vehicles more flexible and attractive. Furthermore, FIAs have many attractive features as both an accumulation investment and as a potential source of income in retirement. In simulation, the FIA performed better net of assumed fees than long-term government bonds.”

Long-term care riders

There are a handful of companies that offer optional long-term care riders inside a fixed index annuity. Typically with a long-term care rider, if you are receiving a lifetime income stream from the annuity and you meet the long-term care qualifications, whether it be in a facility or at home, you could be eligible to double your income payment for a portion of time.

For example, if you were getting an income stream of $5K a month from the annuity and you qualified for long-term care benefits through the rider, the insurance company can increase your income payment to $10K a month for five years. This is not a long-term care insurance policy but can offer additional financial protection by helping you cover a portion of long-term care costs.

I like two features of this rider: one, there is less stringent medical underwriting than traditional long-term care insurance; two, it can cover joint owners or husband and wife!

Tax-deferred growth

Fixed index annuities offer 100% tax-deferred growth, meaning you aren’t taxed on the interest earnings while your money stays in the annuity. When you take withdrawals from the annuity or cash it out, the taxes you pay will generally be based on your ordinary income tax rate at the time of distribution. That is not the case for Roth IRAs, Roth 401(k), or 1035 exchanges; with these, there are no taxes due.

It’s important to diversify your retirement portfolio past the standard bonds, stocks, and other traditional retirement vehicles; utilizing a fixed index annuity as a “Swiss army knife” in your portfolio could benefit you for your retirement years. Just like no one investment strategy works for everyone, it’s important that you discuss if a fixed index annuity could work for you with a seasoned financial professional.

https://www.forbes.com/sites/impactpartners/2020/01/28/income-riders-mount-up/#4cfbe5004c51

“Jobs Friday” is usually a nerdy day for financial types and economists only. But everyone was watching the most recent jobs report. I had a big drink and told my family to remember May 8. For labor economists, it will be a day to remember. For the first time, even the teenagers really listened.

Due to the COVID-19 recession, the U.S. has now hit a depression-era unemployment rate of 14.7%. And it gets worse. In a highly unusual footnote, the Bureau of Labor Statistics explained that millions of jobless were misclassified as employed due to errors in survey responses. Adding them back in, as well as discouraged workers (workers who want to work but are too discouraged to look), the true unemployment rate is over 20%.

Older workers in the COVID-19 recession

On Jobs Friday I look for older workers. The COVID-19 recession is causing a special type of hardship for this group. Older workers who kept their jobs are risking their health and lives. The ones who lost their jobs may be poor or near poor for life.

The jobless rates for workers over 55 rose to the unheard-of level of 13.6%. Remember, this is an undercount due to faulty responses. This number also doesn’t include the many older workers who have dropped out of the labor force.

Most workers are waiting for the economy to open, but older workers don’t get re-hired as quickly and some are forced into early retirement. We know early retirement really means downward mobility. They can’t save anymore without a job and the little savings they have will get drained by market losses or in replacing lost income. The economic fallout from the virus is deep, and older workers will take the biggest hit—they don’t have time to recover like younger workers and going back to work could be dangerous.

If older workers cannot get rehired, they start to drain their savings sooner than expected and claim Social Security benefits a lot sooner than they wanted. And we know what that means. For lower earners who rely solely on Social Security, leaving the labor force earlier than planned means spending whatever meager savings they have or going into debt. Collecting Social Security at age 62 instead of full retirement age reduces lifelong benefits by over 30%.

The typical older worker was already in trouble before the crisis. Around 35% of older workers had no retirement savings. The median balance for those who had a defined contribution account such as a 401k was only about $92,000 before the COVID-19 recession (equal to lifetime payments of roughly $400 per month). Now these already low balances have fallen in value due to market losses. Involuntary retirement, low retirement savings and claiming Social Security benefits early—which shrinks benefits for life—can lead to life-long-poverty.

The economy relies on older workers

Since the bulge of boomers are now older workers and recent retirees, the scale of this new elder poverty will be devastating to the nation. We know from past recessions that many older workers never came back to the labor force. Conor Sen at Bloomberg makes the sensible argument that if older workers don’t come back the economy may not come back.

Between 2008-2018, the number of older workers grew by 9.5 million. In the same time period, the total labor force of 162 million in 2018 grew by 7.8 million. This means the growth in the number of older workers accounted for all labor force growth in the past decade, since the net number of younger workers fell. Older workers will continue to make up for most of the growth in the next ten years.

It is our broken retirement system that exposes individuals to such deep risks and creates economic and personal instability, especially in middle and working-class families. The pandemic was going to hurt no matter what the retirement system looked like. But because it is so broken already, we will feel this recession for a long time.

Bottom line: The one word to describe the April jobs report is devastating.

https://www.forbes.com/sites/teresaghilarducci/2020/05/10/a-devastating-jobs-report-for-older-workers/#6c5a49681e43

By the time most of us reach retirement age, we feel as if we don’t have enough money to live the life we envisioned.

Our feelings aren’t wrong: a 2019 analysis from the Employee Benefit Research Institute found that over 40% of American households in which the official head is between their mid-30s and mid-60s are projected to run short of money in retirement.

But there’s a way to fix the problem. As a social psychologist who has been researching perception and motivation for 15 years, I’ve found that, when it comes to financial challenges, narrowing your focus can push you — mentally, at least — to the retirement finish line faster.

‘The future seems so far away’

May 4th, 2020

Chadd Mason, CEO The Cabana Group

Can April’s Rally Continue, or is More Economic Disruption on the Horizon?

Equity markets finished off April with the biggest monthly gain since 1974. The huge rally followed an even bigger decline in March. Face-ripping rallies are common in bear markets, although it must be noted that this one was especially quick. The S&P 500 moved all the way back to its 200-day moving average, just below 3000, before meeting resistance and pulling back almost 4%. The 200-day moving average also coincided with a 61.8% retracement off the March 23 low. This is an important Fibonacci number and is a common level for counter-trend reversals.

In digging deeper into the stocks that have led the rally, it is clear that large cap technology has been the one standout leader. Names like Amazon, Google, Apple and Netflix make up a large part of the broad index’s weightings. These stocks have pulled the S&P 500, Dow and Nasdaq up, while almost everything else has been left behind and is still down 30-40%. During bull markets you want to see all stocks participating, not just narrow segments of the market. The fewer stocks leading the rally, the more tenuous its staying power. Huge swaths of the broad market are still bleeding profusely. These include airlines, retailers, energy, consumer discretionary goods – and everything tied to these important sectors.

We are in the middle of first quarter earnings season, and it is hard to evaluate how good or bad companies are doing. In excess of 40% that have reported are refusing to give guidance going forward. Even Warren Buffet reported over the weekend that he has sold all his positions in four major airlines for a $50 billion loss. That shows just how unsure he is of the industry going forward. We will see non-farm payroll unemployment numbers this week, and expectations are for jobs to be down 20 million. This will cause the unemployment rate to jump from 4.4% to 16%. That alone is simply jaw dropping. If these numbers persist and we see one fifth of the labor force out of work, we are in for a world of hurt. It does not matter how much band-aid money gets thrown at the consumer, people are going to be scared and for good reason. When people are scared that their children will go hungry or that they won’t have a roof over their head, they stop spending on other things. It is the spending on these other things that drives 60% of the United States GDP. The impacts of this sudden vacuum will be felt everywhere else sooner or later.

The point in all this is that these are unusual and potentially life-altering economic times. To all those proponents of a quick return to normalcy and the bull market of the past decade, I hope you are right. With that said, I am afraid it will require a vaccine or an effective treatment for COVID-19 for this process to start. The longer it takes for the medical solution to come, the longer it is going to take for our world to repair itself. It surely will, and we will come out stronger than ever, but how long that takes is anyone’s guess right now.

At Cabana, we remain in our most bearish scene, but are prepared to reallocate should conditions improve.

Key terms:
In mathematics, Fibonacci numbers, commonly denoted Fn, form a sequence, called the Fibonacci sequence, such that each number is the sum of the two preceding ones.

Here’s how the ongoing crisis could wreck your long-term plans — and what you can do to prevent that from happening.

COVID-19 has turned the U.S. economy on its head, battering the stock market and forcing millions of workers into unemployment. But while the crisis is no doubt affecting your short-term financial plans, it may, unfortunately, throw a wrench into a lot of people’s retirement plans as well. Here are a few reasons your retirement could be affected — and what to do about them.

1. Paused retirement plan contributions

If you’ve been laid off due to COVID-19, you may be entitled to unemployment benefits. And thanks to the CARES (Coronavirus Aid, Relief, and Economic Security) Act, weekly unemployment benefits are getting a $600 boost and are also being extended by 13 weeks on top of what your state allows for.

But let’s be clear: Even with that boost, some workers will still be missing a chunk of their income by virtue of replacing their regular paycheck with unemployment benefits. If you’re one of them, you may have no choice but to hit pause on your 401(k) or IRA contributions until your financial situation improves.

What impact could that have? Imagine you normally contribute $500 a month to a retirement plan, only you don’t do that for a period of six months while you’re out of work. That means you’ll wind up with $3,000 less in retirement savings, which may not seem like a huge deal. But if your retirement plan normally generates an average yearly 7% return on investment, and you’re 35 years away from retirement, you’ll actually miss out on $32,000 in potential retirement income when you factor in that growth. And that’s a large chunk of money to give up.

The solution? Let yourself off the hook right now if you can’t swing retirement plan contributions, but pledge to ramp up once you’re gainfully employed once again. If you increase your savings rate after you’re back on your feet, you’ll have an opportunity to make up for a period without contributions, especially if retirement is many years away.

2. Early retirement plan withdrawals

If you’re out of work, your unemployment benefits may not suffice in paying the bills. As such, you may need to raid your retirement savings to cover your near-term expenses. And thanks to the CARES Act, you can do so without penalty.

Normally, you’d face a 10% early withdrawal penalty for taking a retirement plan distribution prior to age 59 1/2, but now, you can remove up to $100,000 from a 401(k) or IRA if you’ve been negatively affected by COVID-19. The problem, however, is that any money you withdraw right now is money that won’t be available to you in retirement. And as we saw above, it’s not just that principal withdrawal you lose out on; you lose out on its growth as well.

The solution? Don’t take that retirement plan withdrawal unless you’re truly desperate for money. Many mortgage lenders are letting borrowers put their home loans into forbearance right now, while landlords are giving tenants more time to pay rent. Meanwhile, utility companies are relaxing their payment terms, and credit card and loan servicers are cutting consumers a lot of slack. The point? You may be able to defer some expenses to avoid tapping your retirement plan, or at least limit the extent to which you remove money from it.

3. Forced early retirement

If you’re among the millions of Americans who have lost a job in the past month, you’re clearly in good company. But if you’re an older worker, you may have a hard time finding another job once the crisis ends. The result? You may be forced into early retirement, which could hurt you financially.

The solution? If you’ve already fallen victim to a layoff, spend the next few weeks doing two things: boosting your job skills and networking extensively. Both will increase your chances of being able to find a job once things get back to normal.

At the same time, it pays to think about starting your own independent venture if you’re not confident you’ll be hired easily. Some companies, unfortunately, hesitate to hire older workers for fear that they’ll invest in training and development only to lose them to retirement a year or two after the fact. But if you shift gears and go to work for yourself, you’ll have the option to stay in the workforce when you want to.

Hopefully, COVID-19 won’t hurt your retirement plans too badly. And if you act strategically, you can minimize its damage and salvage your senior years.

https://www.fool.com/retirement/2020/04/25/3-ways-covid-19-may-hurt-your-retirement.aspx

Now that we’ve entered a bear market for the first time since 2009, many pre-retirees are likely asking questions about the impact on their retirement savings. Will the stock market sell-off wipe out years of growth in their 401(k)s? Are there any steps that can be taken to protect savings and investments against future volatility?

These are important considerations. While the recent stock market sell-off is a reaction to concerns around COVID-19, an unprecedented global event, it’s a sobering reminder that volatility can strike at any time. And while the general idea of a financial vehicle like a 401(k) is to play the long game and hold investments through market highs and lows, it’s still important to protect your retirement portfolio against those lows.

Building a portfolio with principal protection

Fortunately, pre-retirees can work with financial professionals to diversify their portfolio in a way that distributes risk and prepares their retirement savings for growth in a variety of economic environments. It’s even possible to build in some principal protection with the inclusion of Fixed Indexed Annuities (FIAs).

FIAs are insurance products that can guarantee income to contract holders over a period of time — even over a lifetime. Unlike a 401(k), the insurance company absorbs the risk of market downturns, guaranteeing a minimum floor, and protecting contract holders from market losses.

In other words, an FIA offers the potential for interest based in part on the performance of an external index without the risk of market loss. Your principal amount is guaranteed, subject to any withdrawals you take or any surrender charges incurred due to early termination of the contract. Any growth in annuities is tax-deferred and most compound annually, meaning gains are locked in and added to your principal, with future interest earned on that compounded amount.

That means, for example, if an FIA purchased in the amount of $100,000 were to earn 3% in its first year, the insurance company would consider $103,000 to be the new “floor,” guaranteeing this amount from market loss. The same process occurs annually through the end of the FIA contract.

Risk, reward and inflation

As with every investment or retirement product purchase, there are benefits and costs. With FIAs, insurance companies are absorbing all of the market risk. FIAs typically include an interest rate floor and an interest rate cap on the percent of interest credited in a given year. In some cases, FIAs do not have an interest rate cap, but that doesn’t mean they have unlimited interest. Insurance companies use models that factor in participation rates, spreads, margins or other measures to determine creditable interest.

And, although FIAs guarantee lifetime income, inflation has the power to diminish the purchasing power of that income. It is therefore recommended that purchasers work with a financial professional who can help contract holders understand their target income for retirement, and how to build a balanced strategy with enough growth potential to account for inflation.

Looking ahead

While the circumstances of the latest market decline are unusual, market volatility is something pre-retirees will likely continue to experience as they save for retirement. Don’t panic. Take this opportunity to evaluate how much you will need to save with IALC’s retirement calculator, and talk to your financial professional about whether an FIA might be right for you.

Concerned about market volatility? Here’s one way to protect your retirement savings.

The COVID-19 pandemic could upend retirement planning, jeopardizing financial security for the next generation of retirees. Experience from the 2007–08 financial crisis and Great Recession that followed suggests the current crisis could wipe out existing retirement savings, hinder additional savings, and threaten public and private retirement systems.

Here’s how:

1. Trillions of dollars of retirement savings could disappear

In 2008, the Russell 3000 index, designed to reflect the performance of the entire US stock market, plunged 39 percent. The value of US retirement accounts, including employer-sponsored defined-contribution plans, such as 401(k)s, and individual retirement accounts fell 24 percent that year, erasing $2 trillion of retirement savings.

In 2020, the Russell 3000 index fell 25 percent through April 3, wiping out an estimated $3.8 trillion of retirement savings.

2. Employee contributions to 401(k) plans could shrivel

Ten million workers have filed unemployment claims in just the past two weeks. Workers can no longer contribute to their 401(k) plan after they’ve been laid off.

During the Great Recession, about 4 in 10 employees reduced their 401(k) plan contributions by at least 39 percent.

During the current crisis, job losses have been concentrated among service workers, especially those in the hospitality and food service industries, who are only about one-third as likely as management, business, and financial workers to participate in a workplace retirement plan (PDF). Lost 401(k) contributions are likely to increase, however, as job losses spread.

3. Employers might cut 401(k)-matching contributions

Nearly all employers with a 401(k) plan match a portion of their employees’ contributions, and those matches average 5 percent of participants’ pay. As the economy slows, some employers are already cutting costs by trimming these contributions, and more are likely to follow. In 2008–09, more than 200 employers suspended their 401(k) matches.

4. Working-age people may have to dip into their retirement savings

When facing financial emergency, such as job loss or unusual medical costs, many people turn to their retirement accounts, which hold most household savings. Withdrawals from 401(k) plans spiked during the Great Recession, and the recently signed Coronavirus Aid, Relief, and Economic Security Act eases withdrawals this year. Unless funds are paid back, however, these withdrawals leave workers less prepared for retirement.

5. Defined-benefit pension plans may be at risk

Fifteen percent of full-time private-sector workers (PDF), 83 percent of full-time state and local government workers (PDF), and nearly all federal government workers participate in a defined-benefit pension plan, which guarantees retirees a lifetime stream of cash payments, typically based on their years of service and salary earned near the end of their career. As we saw after the 2008 financial crisis, stock market losses and an economic downturn could worsen plan finances and lead to benefit cuts.

Compared with 2008, twice as many employers terminated their pension plan in 2009 because they were unable to meet their obligations. Although the federal government insures most private pension benefits, retirees in terminated plans don’t always receive their full benefits, and workers no longer continue to accrue benefits.

Investment losses in the wake of the 2007–08 financial crisis also created significant financial problems for state and local pension plans. Data compiled by the Center for Retirement Research at Boston College show that funding shortfalls for the largest 190 state and local plans grew $244 billion in 2009, a 47 percent increase.

Most plans still haven’t recovered more than a decade later, and many states have cut benefits for recently hired public employees. Pension plans in both the private and public sectors weren’t as well funded in 2019 as they were in 2008, so financial losses could have a bigger impact today.

6. Workers may retire early

Social Security provides a crucial lifeline to unemployed workers ages 62 and older, who are much less likely than younger workers to become reemployed. Social Security claiming spiked in 2009, when unemployment surged. However, Social Security permanently cuts monthly payments for early retirees.

In 2020, beneficiaries who begin collecting when they turn 62 will receive 28 percent less each month than if they instead had begun collecting at age 66 and 8 months, their full retirement age. Those losses generally sting once beneficiaries reach their 80s, when out-of-pocket medical expenses and spending on home and residential care often surge.

7. Social Security’s financial outlook could deteriorate

Before the pandemic broke out, the Social Security trustees projected that program benefits would exceed revenues in 2020 and every subsequent year for the foreseeable future. Unless policymakers close this shortfall, Social Security’s trust fund would run out by 2035, leading to across-the-board benefit cuts of about 25 percent.

Slow wage growth and extended unemployment would reduce payroll taxes collected by Social Security and further strain the program’s finances. The program’s payroll tax revenue fell $4.2 billion in 2009 and another $26 billion in 2010, when unemployment peaked after the financial crisis. A repeat of that scenario could lead to benefit cuts in coming years.

What are the policy solutions?

Most younger workers can recoup their lost retirement savings before they stop working by saving more each year and extending their careers. The retirement security threat is more serious for older workers, who don’t have much time to rebuild their nest egg.

Policymakers can help by shoring up Social Security’s finances. Raising Social Security revenues so that the program’s trust fund does not run out would prevent a 40 percent increase in the number of older adults living in poverty.

Policymakers could also reduce economic hardship at older ages by creating a meaningful minimum benefit in Social Security, improving Supplemental Security Income for low-income retirees, or providing refundable tax credits for low-income seniors.

Policies that improve medical and long-term care coverage for seniors would also help retirement income go further. Seniors’ out-of-pocket medical costs are projected to increase 40 percent relative to income over the next two decades, and the need for expensive home or residential care after mobility or cognitive limitations emerge may be the greatest financial risk most older adults face.

https://www.urban.org/urban-wire/seven-ways-covid-19-pandemic-could-undermine-retirement-security

This lesser-known rule could potentially save you a bundle of cash.

Millions of Americans have been directly affected by the coronavirus pandemic, from both a health and financial perspective. With thousands of businesses shuttering to slow the spread of the virus, approximately 10 million workers have filed for unemployment benefits in the last two weeks.

The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act aims to provide relief to individuals and businesses facing financial hardship due to the coronavirus. One of the most popular aspects of the bill is the $1,200 stimulus check millions of Americans will be receiving, but there’s also one lesser-known feature of the bill that could boost your retirement savings.

Helping your savings last longer

Under the new stimulus bill, retirees will not have to make their required minimum distributions (RMDs) for 2020.

Normally, retirees age 72 and older are required to withdraw a certain amount from their 401(k) or traditional IRA each year. This also applies to those who turned 70-1/2 in 2019, because these retirees would have to start taking RMDs in 2020. The SECURE Act that passed in December changed the age retirees have to start taking RMDs to 72.

Traditional IRAs and 401(k)s are tax-deferred, meaning you don’t pay taxes when you make the initial contribution, but you do owe taxes when you make withdrawals. The IRS wants its money eventually, so if you haven’t begun withdrawing from your retirement account by the time you hit those key ages, RMDs require you to start.

If you would normally be required to take a RMD this year, this new rule can help your savings last longer. It’s best to avoid making withdrawals from your retirement fund during a market downturn if you can help it, because withdrawing now means you’re essentially locking in your losses. It may feel like you’ve already lost a lot of money, especially if your account balance is significantly lower now than it was a few weeks ago. However, you haven’t technically lost any money until you sell your investments, so selling now when the market is at rock bottom could cost you.

By not taking a RMD in 2020, you can leave your investments alone and give them more time to recover. The market will bounce back eventually, so by not withdrawing from your retirement fund now, you can help your savings bounce back as well. Hopefully by next year the market will be in better shape, so your investments will be worth more.

Other rules that can help investors

The new RMD rule mainly benefits those who are already in their 70s, but there are other regulations in the stimulus bill that are designed to help younger workers.

For one, you’re now allowed to withdraw up to $100,000 from your retirement fund without paying a penalty. Normally, withdrawing from your 401(k) or traditional IRA before age 59-1/2 means you’ll have to pay income taxes and a 10% penalty on the amount you withdraw. Now, you can avoid that penalty as long as you’re withdrawing the money for coronavirus-related expenses. While you still have to pay income taxes on your distributions, those tax payments can now be spread out over three years.

In addition, workers can now borrow more from their 401(k)s and take longer to repay the loan. Typically, you can only borrow 50% of your vested account balance up to $50,000, and you normally have to repay the loan within five years. Under the new stimulus bill, you can borrow 100% of your vested account balance up to $100,000, and you have an extra year to repay the loan.

Keep in mind that it’s not ideal to take money from your retirement savings before retirement, because that makes it harder for your investments to grow. But if your financial situation is dire and you have no other options, these new rules can make it a little less expensive to tap your retirement fund.

COVID-19 has wreaked havoc on the stock market and millions of Americans’ lives, and these are trying times for many families. By taking advantage of these new regulations, though, you can take steps now that might make the future a little brighter.

Dick has worked as a hospital administrator for 30-plus years. He was planning to retire in a few months. COVID-19 just delayed his plans for many months, or perhaps for years. Reflecting on what the market decline has done to his retirement savings, he conceals his anxiety with humor, remarking, “Now I may never be able to (expletive) retire – I just hope my (expletive) parking spot has not already been reassigned!”

COVID-19 is providing all of us a practice run in retirement.

Dick joins countless worried younger and older working adults wondering how COVID-19’s impact on investments may have derailed their retirement plans. Without warning they joined the many anxious retirees concerned that their life spans might outlast their wealth spans.

George Fraser, is reaching out to employees of the firms where he serves as a retirement plan advisor. Fraser has found that employees, regardless of their age, are looking for reassurance that they will “have enough” to retire. According to Fraser, “the reaction [of employees] is the same across the board, there is great concern over the market but also a resounding thank you for the education we have provided…” to guide them in planning and saving, and to reduce their current anxiety.

The fear of running out of money is only one dimension of retirement. COVID-19 has caused drastic changes to daily routines and contributed to conditions similar to what many experience daily in retirement.

Many of us may be concerned with having saved too little for retirement, but are we prepared for the problem of having too much time? You may believe you have a retirement bucket list all planned. But, has your COVID-19 self-isolation experience taught you about the number, and diversity, of activities you might pursue not for just weeks, or months, but quite likely for decades of life after work? Or, has each COVID-19 day at home become ground hog day?

Answer the following questions. During COVID-19 social isolation have you found days blurring into days…moments where you wondered is it Sunday or Monday? Do you have two wardrobes that can be best described as your morning sweat pants and your evening sweat pants? Have you suddenly developed a newfound interest in video games and competing in a virtual bowling league? Suddenly, structuring the day at home has become a chore, not freedom from work.

Identifying and pursuing activities in the middle of a global contagion may be a lot to ask for, but the pandemic has now given many of us experience with life without the structure of the daily commute and grind. Without work, what will you do? What will get you up in the morning?

Retirement is about more than financial security and keeping busy. Blake Bostwick, CEO of Transamerica’s Workplace Solutions division, noted that “retirement plan sponsors and advisors have found that conversations that focus on the intersection of wealth and health are engaging people – because even before COVID-19, it was clear that a person’s well-being has a direct bearing on their financial future.”

COVID-19 has poignantly spotlighted the urgency of health and caring for loved ones. Suddenly, all of us are faced with the question, if I become ill, who will care for me and who will care for those that I love?

Most of us will need some help and care in older age. Today, nearly one in four families provide care for an older adult. The MIT AgeLab, which I lead, is recruiting thousands of caregivers from around the world to join CareHive, a global study of those who provide care (please join). MIT AgeLab’s findings, thus far? Few people have planned for how they will provide care to others, or how they might receive care in the future.

Toronto-based Darren Coleman, Senior Vice President describes the impact of COVID-19 as a “retirement fire drill for all of us.”

Retirement is something that we save for – many even look forward to. Distracted by brochure images of beaches, bars, and boats, we rarely see retirement for what it is. It is a seismic shift in life, an entirely new life stage. Not one to simply plan, but like every other life stage before it, one that must be prepared for.

The COVID-19 shutdown of work as we know it, social distancing, endless hours at home, or at best, in the neighborhood, is a trial run of life in retirement. An imperfect test? Yes, but your current COVID experience is closer to what you may confront in retirement than any computer program querying you about your “retirement objectives.”

The operative word, however, is may. Even if you have financial security, could take a vacation or two, go to a restaurant, do a few laps at the mall, take this COVID moment to think. Are you really preparing for retirement, for what it is, an entirely new life stage?

• Do you have a bucket list that doesn’t last only for weeks or months, but one that lasts for decades?
• Do you know what will get you up for what are likely to be 8,000 distinct mornings in retirement?
• How will you provide care to a loved one – and have you put into place your own care plan for older age?

These are just a few COVID-19 trial run questions about life in retirement. Raymond James’ Darren Coleman may be correct that COVID-19 is a retirement fire drill. So – how are you doing so far?

https://www.forbes.com/sites/josephcoughlin/2020/03/29/heres-why-covid-19-is-your-retirement-fire-drill/#5397fa5552aa

Dick has worked as a hospital administrator for 30-plus years. He was planning to retire in a few months. COVID-19 just delayed his plans for many months, or perhaps for years. Reflecting on what the market decline has done to his retirement savings, he conceals his anxiety with humor, remarking, “Now I may never be able to (expletive) retire – I just hope my (expletive) parking spot has not already been reassigned!”

COVID-19 is providing all of us a practice run in retirement.

Dick joins countless worried younger and older working adults wondering how COVID-19’s impact on investments may have derailed their retirement plans. Without warning they joined the many anxious retirees concerned that their life spans might outlast their wealth spans.

George Fraser, Managing Director, is reaching out to employees of the firms where he serves as a retirement plan advisor. Fraser has found that employees, regardless of their age, are looking for reassurance that they will “have enough” to retire. According to Fraser, “the reaction [of employees] is the same across the board, there is great concern over the market but also a resounding thank you for the education we have provided…” to guide them in planning and saving, and to reduce their current anxiety.

The fear of running out of money is only one dimension of retirement. COVID-19 has caused drastic changes to daily routines and contributed to conditions similar to what many experience daily in retirement.

Many of us may be concerned with having saved too little for retirement, but are we prepared for the problem of having too much time? You may believe you have a retirement bucket list all planned. But, has your COVID-19 self-isolation experience taught you about the number, and diversity, of activities you might pursue not for just weeks, or months, but quite likely for decades of life after work? Or, has each COVID-19 day at home become ground hog day?

Answer the following questions. During COVID-19 social isolation have you found days blurring into days…moments where you wondered is it Sunday or Monday? Do you have two wardrobes that can be best described as your morning sweat pants and your evening sweat pants? Have you suddenly developed a newfound interest in video games and competing in a virtual bowling league? Suddenly, structuring the day at home has become a chore, not freedom from work.

Identifying and pursuing activities in the middle of a global contagion may be a lot to ask for, but the pandemic has now given many of us experience with life without the structure of the daily commute and grind. Without work, what will you do? What will get you up in the morning?

Retirement is about more than financial security and keeping busy. Blake Bostwick, CEO of Transamerica’s Workplace Solutions division, noted that “retirement plan sponsors and advisors have found that conversations that focus on the intersection of wealth and health are engaging people – because even before COVID-19, it was clear that a person’s well-being has a direct bearing on their financial future.”

COVID-19 has poignantly spotlighted the urgency of health and caring for loved ones. Suddenly, all of us are faced with the question, if I become ill, who will care for me and who will care for those that I love?

Most of us will need some help and care in older age. Today, nearly one in four families provide care for an older adult. The MIT AgeLab, which I lead, is recruiting thousands of caregivers from around the world to join CareHive, a global study of those who provide care (please join). MIT AgeLab’s findings, thus far? Few people have planned for how they will provide care to others, or how they might receive care in the future.

Toronto-based Darren Coleman,  a Senior Vice President describes the impact of COVID-19 as a “retirement fire drill for all of us.”

Retirement is something that we save for – many even look forward to. Distracted by brochure images of beaches, bars, and boats, we rarely see retirement for what it is. It is a seismic shift in life, an entirely new life stage. Not one to simply plan, but like every other life stage before it, one that must be prepared for.

The COVID-19 shutdown of work as we know it, social distancing, endless hours at home, or at best, in the neighborhood, is a trial run of life in retirement. An imperfect test? Yes, but your current COVID experience is closer to what you may confront in retirement than any computer program querying you about your “retirement objectives.”

The operative word, however, is may. Even if you have financial security, could take a vacation or two, go to a restaurant, do a few laps at the mall, take this COVID moment to think. Are you really preparing for retirement, for what it is, an entirely new life stage?

• Do you have a bucket list that doesn’t last only for weeks or months, but one that lasts for decades?
• Do you know what will get you up for what are likely to be 8,000 distinct mornings in retirement?
• How will you provide care to a loved one – and have you put into place your own care plan for older age?

These are just a few COVID-19 trial run questions about life in retirement. Darren Coleman may be correct that COVID-19 is a retirement fire drill. So – how are you doing so far?

https://www.forbes.com/sites/josephcoughlin/2020/03/29/heres-why-covid-19-is-your-retirement-fire-drill/#1ffd80aa52aa

With all that is going on in the market with the Coronavirus, we have received many requests to give our opinion on how long it will take for a retirement savings to get back to the level it was before the virus took its toll on the market. Understanding that no one can predict what kind of return anyone is receiving on their savings, and knowing that returns are always investor specific, what we can do is provide you below with the mathematical formula for you to apply to your own situation, and under your own assumptions.

Concerned you’d need too many years? Call us. Maybe it’s time to protect a portion of what is left of your retirement savings from more loss. We have some ideas that you may want to know about.

Everything these days seems to be about coronavirus, coronavirus, coronavirus. Especially when you have a family, these can be scary times.

So, first and foremost: Chances are that you will be OK. The novel coronavirus seems to mostly spare young kids, and if you’re a healthy adult under age 50, there’s a good chance you’ll be fine.

Nonetheless, lots of people are worried, and we get it. One question we hear is: How can I financially prepare myself, and my family, just in case?

So think of this as your “good excuse” preparation list. Just as it doesn’t hurt to stock up on extra cereal and toilet paper just in case—we put together a number of financial tasks that you’ll be grateful to get done regardless. We hope your family won’t be affected by the coronavirus at all, but consider this a good excuse to knock these items off your to-do list.

Turning lemons into lemonade and all that, right?

1. Name a Healthcare Proxy

Again—the risks of coronavirus are relatively low right now. Still, it’s a smart idea in general to name a healthcare proxy for yourself. That’s a person you trust to make medical decisions for you if you are incapacitated or otherwise unable to make them for yourself.

If, for example, you were to be in a coma, what kind of care would you want to receive? This document allows you to state your own wishes and designate someone to make specific decisions on your behalf. It can be a key way to help relieve stress for family members at a crucial juncture, and it can help avoid infighting among your loved ones.

2. Think About Taking Care of Your Family

If you were no longer around, would your family be OK financially? Let’s keep things in perspective here—your chances of dying from coronavirus are really quite low—but life insurance is a smart move for most parents anyway.

If anyone depends on you, this can help them get by in your absence. Here’s how life insurance works: You name a beneficiary, and if you were to pass away, that person would receive a lump sum from the insurance company. They could use the money to fund your funeral, pay off debts like credit cards or a mortgage, replace the income you would’ve contributed and more.

Full disclosure: Fabric lets you apply for term life insurance in 10 minutes, online, without speaking to an agent.

3. Verify Your Health Insurance Details

Do you have a deductible? If so, do you know offhand how much it is, and how close (or far) you are from hitting it? It’s always a good idea to make sure you have enough on hand in savings to take care of your deductible in case something were to happen. But especially with the media abuzz about a pandemic, this is a good time to ensure that you could cover your deductible if you needed to.

No health insurance? Again, something you should probably take care of no matter what’s happening with world events. But given what’s going on, another great excuse to finally go on a healthcare exchange or find your own insurance.

4. Reassess Your Emergency Fund

Take the opportunity to think about your emergency savings fund. If something unforeseen happened financially, how much do you have on hand to deal with it? This is a good step for everyone, but especially those in jobs that may have limited sick days, or no guaranteed paid sick leave at all.

If you’re concerned about taking a financial hit due to coronavirus (from missed work, medical treatments that may not be covered by your insurance, paying off your deductible or anything else), take as much action as you can while you’re healthy: Try to minimize your spending and set aside as much as you can from your paychecks to bolster your savings.

5. Update Your Will

This is a best practice even in the best of times. We like to recommend that people update their last will and testament whenever there’s a major change in their lives, such as a birth, marriage or divorce—or once a year. It’s a good idea to periodically review your choices and make sure they still fit your life. Do you still want to choose the same person as your beneficiary? Do you still want the person you’ve chosen as your executor?

If you haven’t made a will yet, you can make one for free with Fabric’s online will maker. And if you already have a will with Fabric, you can update it by logging in to your account.

At the end of the day, COVID-19 could be a big deal or a flash in the pan. We don’t actually know, so the approach we’re taking is to hope for the best—while taking a few easy steps to get our affairs buttoned up just in case.

If this whole coronavirus thing blows over, we definitely won’t mind things like an updated will and more confidence in our health plan and emergency fund!

https://meetfabric.com/blog/worried-about-coronavirus-5-financial-moves-for-the-age-of-covid-19

As we progress through life, we find there are certain things we can control and others we cannot. However, even with the things we can’t control, we can exercise good judgement based on facts, due diligence, historical patterns and a risk/reward calculation.

These strategies play an important role in retirement planning. When it comes to accumulation, spending and protecting your nest egg, financial analysts rely heavily on safety and probability planning strategies.

For example, a probability-based approach generally refers to investing. In other words, prices of stocks and bonds will vary over time, and as investors we do not have control over the factors that cause those price swings – such as poor company management, a dip in sector growth, an economic decline, political instability and even global economic implications. We basically have to do our due diligence to ensure the securities we invest in are stable and well-managed, but in the end it’s a bit of a leap of faith. The markets will inevitably rise and fall and our equity investments will be impacted.

When it comes to retirement, financial advisors often recommend the following probability-based investments because they tend to be more stable and reliable:

• Investment-grade bonds
• High dividend-paying stocks
• Real estate investment trusts (REITS)
• Master limited partnerships (MLPs)

On the other hand, the safety side of the equation involves insurance products. Note that all guaranteed payouts are backed by the issuing insurer, not the Federal Deposit Insurance Corporation (FDIC) or the U.S. Treasury Department. So even though insurance products represent strategies that we consider “safe,” they are only as secure as the financial strength of the issuing insurance company.

Insurance contracts are based on insurance pools. This means they spread the risk of losing money across a wide pool of insured participants, betting that a portion of that pool will die early while others live longer. However, that risk is managed by the insurer instead of the contract owner, who is guaranteed to get paid no matter what happens in the investment markets or how many people in the insurance pool live a long time.

Among safety-based vehicles, you might want to consider a long-term care insurance policy to cover expenses should you need part- or full-time caregiving in the later stages of your life. Like homeowner’s insurance, this type of contract leverages manageable premiums to pay for expenses that you might otherwise not be able to afford.

Another safety contract is an income annuity, which offers the option to pay out a steady stream of income for the rest of your life and the life of your spouse – even if the payouts far exceed the premiums you paid. This is a way of ensuring you continue to receive income even if you run out of money.

A retirement plan doesn’t have to rely on safety or probability alone – you can combine these strategies. Many retirees feel more comfortable knowing they have a growth component in their portfolio to help offset the impact of long-term inflation. And within the safety allocation, you can even combine strategies. For example, a hybrid life insurance policy that offers a long-term care benefits rider allows you to draw from the contract if you need to pay for your own long-term care, which simply reduces the death benefit for your heirs. This way you don’t have to pay for coverage you don’t need, but it’s there if you do.

Taking these steps before you begin claiming can ensure you’re receiving as much money as possible.

The majority of retirees will depend on their Social Security benefits for at least a significant portion of their income. In fact, half of married couples and nearly three-quarters of unmarried beneficiaries rely on their monthly checks for at least 50% of their retirement income, according to the Social Security Administration.

Social Security benefits can potentially make or break your retirement, so it’s crucial to have a strategy behind how and when you choose to file for benefits. Before you start claiming, make sure you do these three things.

1. Decide what age you should claim benefits

You can file for benefits as early as age 62, but you won’t receive the full benefit amount you’re entitled to each month unless you wait until your full retirement age (FRA) — which is age 67 for those born in 1960 or later, or either 66 or 66 and a certain number of months for those born before 1960, depending on the exact year you were born.

You can also receive bigger checks by waiting until after your FRA to begin claiming. If you have a FRA of 67, you can earn an additional 24% on top of your full benefit amount by waiting until age 70 to file for benefits. On the other hand, if you claim as early as possible at age 62, your benefits would be reduced by 30% for the rest of your life.

The system is designed so that, theoretically, you should receive the same amount in lifetime benefits no matter when you begin claiming. If you claim earlier, your checks will each be smaller, but you’ll receive more of them over a lifetime. And if you delay benefits, you’ll receive bigger (but fewer) checks.

However, these calculations assume you’ll live an average lifespan, which is around 85 years, according to the Social Security Administration. If you live a longer- or shorter-than-average lifespan, you could receive more money over a lifetime if you claim early or delay benefits. So if, for example, you’re battling health issues and don’t expect to live into your mid-80s or beyond, it may be wise to claim earlier. But if you’re in peak physical condition and expect to enjoy an extra-long retirement, delaying benefits may be in your best interest.

2. Consider creating a claiming strategy with your spouse

If you and your spouse are both eligible to collect benefits, it’s smart to come up with a strategy for when you’ll each claim. For instance, you may decide that the lower-earning spouse should claim early so you both have some extra cash to enjoy now, while the higher-earning spouse delays benefits to earn those fatter checks for the rest of retirement.

Also, although it’s not the most enjoyable topic to think about, consider both of your life expectancies and how the surviving spouse will make ends meet if the other spouse passes away. When one spouse dies, the surviving partner may be entitled to receive the deceased person’s entire benefit amount in survivors benefits.

If, for example, you have reason to believe your spouse will outlive you and you’re the higher earner between the two of you, it may be wise for you to delay benefits so that your spouse will receive bigger checks in the event that you pass away first. Keep in mind, though, that the surviving spouse won’t receive his or her own benefit amount in addition to survivors benefits — only the higher of the two amounts. So if you pass away first but your spouse was already receiving more than you in benefits, your spouse might not be entitled to extra money in survivors benefits.

3. Make sure you know all the types of benefits you’re entitled to collect

You may be eligible for your own retirement benefits, and some people can collect survivors benefits if a loved one passes away. But there are a couple of other types of benefits out there, and if you’re not taking advantage of them, you may be missing out on extra cash.

Two of the more common types of benefits are spousal benefits and divorce benefits. To be eligible for spousal benefits, you must currently be married to someone who is eligible to receive Social Security benefits. For divorce benefits, you must have been married for at least 10 years, and you cannot currently be married. In both cases, the maximum amount you can receive is 50% of the amount your spouse (or ex-spouse) can collect by claiming at his or her FRA.

Similar to survivors benefits, you cannot receive your full benefit amount plus your entire spousal or divorce benefit amount. If your benefit amount is less than what you could receive in spousal or divorce benefits, the Social Security Administration will pay your benefits first. Then if you’re entitled to more money based on your spouse or ex-spouse’s work record, you’ll receive a little extra each month. And if your benefit amount is higher than 50% of the amount your spouse or ex-spouse is entitled to at his or her FRA, you may not be eligible for spousal or divorce benefits at all.

Social Security benefits can be a lifeline in retirement, but it’s important to make sure you’re doing everything you can to maximize them. By taking these steps to ensure you’re making the most of your benefits, you’ll be setting yourself up for a much more enjoyable retirement.

Going through her mail, Kendra slices open an envelope from her preferred airline. Inside she finds a hefty gray card with her name etched on it. The 36-year old reads the enclosed letter informing her of her “achievement.” She has reached Platinum status as a frequent flyer. But, her newfound “status” is not because she is a regular business traveler, but because she is a caregiver.

Kendra is among a growing number of Millennials caring for ailing parents. A 2018 Associated Press-NORC reports that one-third of Americans under 40 consider themselves a caregiver. Two years ago Kendra’s 71 year-old mother began having difficulty managing her diabetes. Divorced many years ago, her mother lives alone. Simply telephoning every evening was not enough to allay Kendra’s stress about her mother’s wellbeing. Now, nearly every other week, the rising public relations executive flies from Philadelphia to Sacramento to help her mother with maintaining the house, checking in on her diet, and managing medications.

Caregiving is a fact of life that presents several paradoxes. Here is the first paradox: even when needed, it is never wanted. Kendra now finds the end of each visit punctuated by an argument with her mother. Her mother tells Kendra that traveling to Sacramento is too expensive and takes too much time from her work and social life. In short, Kendra’s mother argues she does not need her daughter’s help.

Are you a caregiver?

You might be without even knowing it.

In 2018, 40 million Americans were unpaid caregivers, according to AARP. Many of them are working full-time jobs or raising children while caregiving.

You may hear “caregiver” and think of lifting a loved one out of bed in the morning, pushing them in a wheelchair in the afternoon, and bathing them at night. You may think of adult diapers, medication bottles, and compression socks. But not everything caregivers do is health related or complex – a phone call to say hello, scheduling an appliance repair, or dropping off groceries is an act of caregiving.

The wide range of caregiving tasks and acts of love lead to a second caregiving paradox: People who aid their parents, spouses, partners, siblings, and other loved ones, do not see themselves as caregivers—they see themselves as just being helpful, being a good family member or friend. But they are caregivers, even if they don’t give themselves the label.

Dorothy, 85-years old, lives alone and does most things on her own. Dorothy’s Gen X, 49 year-old daughter, Karen, stops by after work a few days a week to visit. On weekends Karen takes her mom grocery shopping and once a month helps her pay bills. When told that she was a caregiver, Karen looks blankly away, and robotically replies, “I am just trying to be a good daughter, never thought I was a caregiver.”

For others, caregiving is a full-time responsibility that presents a third caregiving paradox: Caregiving is universal, a natural part of living in an era of longer lifespans, but rarely discussed, let alone planned.

Sean and Pat have been married for 55 years. Pat had a minor stroke and fell three years ago. She never gained back her full mobility. Unable to exercise, she has put on weight, and is increasingly dependent upon Sean for nearly everything. Sean celebrates his 80^th birthday this year and is managing his own physical limitations making lifting and moving his wife more difficult each day. Neither Sean, nor Pat, ever thought they would move from their family home, but Sean wonders how long he can care for his wife. Although he is not sure what assisted living options might be available, Pat ends the conversation of moving before Sean can even explore any alternatives with her. Sean remarks, “We planned for retirement, but we never planned for this.”

One result of these three paradoxes is that caregiving is a phenomenon—who does it, how we do it, its impacts, its details, how to plan for it —is remarkably under-explored at the profoundly human level. While we are awash in statistics, as to its scope, the essential, unpaid, and under-appreciated work of caregivers remains largely unseen in the shadows.

The Massachusetts Institute of Technology AgeLab which, in full disclosure, I lead, is building an international research panel of caregivers called CareHive. To learn more, visit the MIT AgeLab CareHive website or view our video. CareHive will bring to light what it means to be a caregiver, the many ways that caregivers provide help, and how caregiving affects the lives of those receiving help and the caregivers themselves. If you are a caregiver, please consider joining thousands of others from around the world by signing up for the AgeLab’s CareHive, which engages caregivers in research.

We need to hear from you.

Here is how to help. First, sign up on the MIT AgeLab CareHive site and answer a few questions. Second, you will be asked periodically to participate in follow-up surveys, perhaps interviews, and, for some, experiments, all at your convenience. Your personal information will be confidential, but the insights we develop from caregivers like you, will inform research to improve the lives of older people and those that care for them.

Often caregivers lament, no one “asks about what I do, or how I am.”  So now, we are asking in the belief that CareHive will help us to understand how technology might help caregivers; the many other ways that caregivers need help to provide care to others and to care for themselves; and how to plan for this universally experienced fact of life.

https://www.forbes.com/sites/josephcoughlin/2020/02/23/what-millennials-gen-x–boomers-have-in-common-but-dont-admit-discuss-nor-plan-for/?ss=retirement#32c6beb03c0f

New federal legislation made sweeping changes in retirement plans. Here’s what you need to know.

The new year has brought a number of changes in financial rules affecting consumers.

Many of them are in new federal legislation called the Secure Act, which mostly applies to retirement plans but also has provisions that help new parents and those with student loans.

Another opportunity for savers is an increase in 401(k) contribution limits, which are set by the IRS.

Here’s a checklist of the biggest changes and how you can make the most of them.

Save More in Your 401(k)

For many people, retirement is a key reward for decades of daily work—a time to relax, explore, and have fun unburdened by the daily grind. For others, though, retirement is a frustrating period marked by declining health and increasing limitations.

For years, researchers have been trying to figure out whether the act of retiring, or retirement itself, is good for health, bad for it, or neutral.

A new salvo comes from researchers at the Harvard School of Public Health. They looked at rates of heart attack and stroke among men and women in the ongoing U.S. Health and Retirement Study. Among 5,422 individuals in the study, those who had retired were 40% more likely to have had a heart attack or stroke than those who were still working. The increase was more pronounced during the first year after retirement, and leveled off after that.

The results, reported in the journal Social Science & Medicine, are in line with earlier studies that have shown that retirement is associated with a decline in health. But others have shown that retirement is associated with improvements in health, while some have shown it has little effect on health.

Retirement changes things

In their paper, Moon and her colleagues described retirement as a “life course transition involving environmental changes that reshape health behaviors, social interactions, and psychosocial stresses” that also brings shifts in identity and preferences. In other words, moving from work to no work comes with a boatload of other changes. “Our results suggest we may need to look at retirement as a process rather than an event,” said lead study author J. Robin Moon, who is now a senior health policy advisor to New York Mayor Michael Bloomberg.

These changes may be why retirement is ranked 10th on the list of life’s 43 most stressful events. Some people smoothly make the transition into a successful retirement. Others don’t.

For four decades, Dr. George E. Vaillant, professor of psychiatry at Harvard Medical School, and numerous colleagues talked with hundreds of men and women taking part in the Study of Adult Development. Initially focused on early development, the study now encompasses issues of aging, like retirement.

When researchers asked study participants 80 and older what made retirements enjoyable, healthy, and rewarding, four key elements emerged:

Forge a new social network. You don’t just retire from a job—your retire from daily contact with friends and colleagues. Establishing a new social network is good for both mental and physical health.

Play. Activities such as golf, bridge, ballroom dancing, traveling, and more can help you let go a bit while establishing new friendships and reinforcing old ones.

Be creative. Activating your creative side can help keep your brain healthy. Creativity can take many forms, from painting to gardening to teaching a child noun declensions in Latin. Tapping into creativity may also help you discover new parts of yourself.

Keep learning. Like being creative, ongoing learning keeps the mind active and the brain healthy. There are many ways to keep learning, from taking up a new language to starting—or returning to—an instrument you love, or exploring a subject that fascinates you.

Individual effects

Understanding how retirement affects a large group of people is interesting, but doesn’t necessarily have anything to do with how it will affect you.

If you’ve had a stressful, unrewarding, or tiring job, retirement may come as a relief. For you, not working may be associated with better health. People who loved their work and structured their lives around it may see retirement in a different light, especially if they had to retire because of a company age policy.

An individual who has a good relationship with his or her spouse or partner is more likely to do well in retirement than someone with an unhappy home life for whom work often offered an escape hatch.

People with hobbies, passions, volunteer opportunities, and the like generally have little trouble redistributing their “extra” time after they retire. Those who did little beside work may find filling time more of a challenge.

And then there’s health. People who retire because they don’t feel well, or have had a heart attack or stroke, or have been diagnosed with cancer, diabetes, or other chronic condition may not enjoy retirement as much as someone who enters it in the pink of health.

Are you retired, or planning to be soon? What do you think are the elements of a successful retirement?

Is retirement good for health or bad for it?

Among the various kinds of annuities, which are contracts you sign with an insurance company to pay a premium for guaranteed income later, two of the most common are fixed and fixed indexed annuities. The former offers a fixed rate of return; the latter ties your rate to a market index to let you realize greater returns. Comparing the key differences between the two will help you determine which one might be suitable for your retirement saving strategy.

What is a Fixed Annuity?

A fixed annuity is a contract between a policyholder and an insurance company. In exchange for a lump sum or a series of payments, the insurance company provides a set amount of income starting at a future date. Even though there are many different types of annuities, fixed annuities tend to be more straightforward and easier to understand.

Essentially, you purchase an annuity and the money in the policy grows tax-deferred at a fixed rate. This phase is known as the accumulation phase. Then, the annuitization phase begins when you start to take money out of the annuity and receive payments, according to the terms of the contract. The rest of the funds in the account continue to grow tax deferred.

What is a Fixed Indexed Annuity?

With a fixed indexed annuity, investors receive a minimum interest rate over a certain number of years. The contract defines all terms. This type of annuity’s returns are usually based on the performance of an underlying index like the S&P 500. Purchasing a fixed indexed annuity allows the investors the opportunity to diversify their portfolio. It also gives investors the opportunity capitalize on a wide section of the market. Even though the benchmark does follow the index, you’re never truly exposed to the volatility of the stock market.

For example, let’s say you purchase an equity-indexed annuity. With this type of annuity, you may earn up to 80% of the returns of the S&P 500 over the past year. If stock prices dip, your annuity may pay a guaranteed percentage of between zero to 2%. It’s important to note, even if the stock market has a great year, you may only be able to earn as much as the capped maximum percentage, which is defined by the annuity contract.

Keep in mind, fixed indexed annuities are complex since they combine characteristics of a fixed annuity and a variable annuity. A fixed annuity offers a guaranteed return while variable annuities give the investors the opportunity to invest in assets of their choice. A fixed annuity offers security while a variable annuity comes with a higher level of risk.

Key Differences

The biggest difference between fixed annuities and fixed indexed annuities is how the insurance providers calculate interest. A fixed annuity offers a guaranteed interest rate for a specific amount of time. You can then exchange your annuity for another without any tax consequences if you find the rate of return is too small or the surrender period expires. Then, a new surrender period would apply to the new contract.

A fixed indexed annuity offers a guaranteed interest rate as well as additional returns if the stock market performs well. However, the tradeoff is that there is a lot larger surrender charge and the formula for calculating returns can often be extremely complex.

Which Annuity is Right for You?

Overall, a fixed annuity is a good option for a more conservative investor who doesn’t want to take on much risk but does want to achieve higher returns than a traditional money market or certificate deposit. Fixed indexed annuities might be suitable for an investor who still wants to minimize risk but wants the potential to earn a higher rate of return.

It’s important to note that annuities aren’t liquid assets. If you choose to withdraw your funds before the term of the annuity is up, you may have to pay a surrender fee. You may also have to pay a 10% penalty if you’re under 59 1/2 years old. This may be in addition to the taxes on your gains. Therefore, if you think you may need cash soon, you may not want to tie up all your assets in either kind of annuity.

Also, it’s important to note brokers may try to exaggerate returns to attract investors. FINRA warns that an annuity is only as good as the insurance company that backs it up. So, before you purchase either annuity, do the proper research. You will also want to understand all the benefits and drawbacks to each investment decision.

The Bottom Line

Fixed annuities and fixed indexed annuities offer a guaranteed rate of return. However, fixed indexed annuities provide the potential to earn a higher rate of return because they are tied to an index such as the S&P 500. Even though both investments have relative principal protection, they still come with a few disadvantages.

https://finance.yahoo.com/news/fixed-vs-fixed-indexed-annuities-185817226.html

From retirement plans to health care, things are changing

A new year and a new decade begin next week. Whether you’re retired or still working, many changes are coming that could affect you—for better and/or worse. Here’s our breakdown of what you need to know in 2020:

Retirement plans

You’ll be able to stash $19,500 in your 401(k) plan, 403 (b), Thrift Savings Plan and most 457 plans. That’s up $500 from this year.

If you’re age 50 or older, so-called “catch-up” contributions allow you to save an additional $6,500 in each of these accounts—also up $500 from this year.

If you have a SIMPLE retirement account (typically offered by small businesses with 100 or fewer employees), you can save $13,500, which is also up $500 from 2019.

If you have an individual retirement account (IRA), you can save $6,000 in 2020, with a catch-up contribution of an additional $1,000. These levels are unchanged from 2019.

Social Security

According to the Social Security Administration, the average Social Security benefit in 2019 was $1,356.05 per month. This will rise an extra 1.6% in 2020. The increase, tied to inflation, works out to an extra $21.69 a month. In 2019, some 63.8 million Americans drew Social Security—the first time since the program began in 1935 that spending topped the $1 trillion mark.

There’s another important Social Security threshold to mention. The program’s full retirement age (also known as the “normal retirement age”) will increase by two months to 66 years and eight months for persons born in 1958. This means if you were born that year, you’ll have to be that age in order to collect your full 100% benefit. In both 2021 and 2022, the full retirement age will increase another two months a year—bringing the full retirement age to 67 for anyone born in 1960 or later.

Of course, you can still begin taking payments as early as age 62, but you’ll get less. How much less? The Social Security Administration says if you start receiving retirement benefits at age 62, you’ll get 75% of the monthly benefit because you’ll be getting benefits for an additional 48 months; age 65, you’ll get 93.3% of the monthly benefit because you’ll be getting benefits for an additional 12 months

If you start receiving benefits as a spouse, there’s an additional set of numbers to be aware of.

When should you and/or your spouse begin taking payments? There’s no one-size-fits-all answer here. It also depends on other factors, such as your pension, your level of personal savings and so forth. As always, you should discuss your own situation over with a trusted financial adviser.

Medicare

It’s worth noting that while you’ll get 1.6% more from Social Security, you’ll pay 6.7% more for Medicare—or at least the standard monthly Part B premiums. They’ll increase to $144.60, up from $135.50 in 2019 (funny how politicians mention the good news but not the bad, isn’t it?).

That’s the minimum premium. The Centers for Medicare and Medicaid Services, says that depending on your income, premiums could be as much as $491.60 per month. Part B premiums cover doctor visits and outpatient care. Why the increase in premiums? Medicare officials blame higher drug prices.

Health care tsunami

It’s important to remember that these rising medical costs are part of a far bigger problem that retirees are likely to face. Each year, Fidelity Investments, the Boston-based asset management firm, estimates out-of-pocket medical expenses for the average couple retiring at age 65.

The figure for 2019? Hold on to your hat: $285,000. For single retirees, the health care cost estimate is $150,000 for women and $135,000 for men. You can be sure these figures will rise another few percentage points in 2020.

This is a sobering figure, particularly when you consider how little millions of Americans have saved up.

I’ve said it before and say it again now: for many, there won’t be any golden years. For younger Americans, it’s a reminder to save as much as you can—starting right now.

https://www.marketwatch.com/story/numbers-that-older-workers-and-retirees-need-to-know-in-2020-2019-12-26

Every day, 10,000 or so baby boomers are turning 65. Some of you have probably already retired. Many are likely counting the days until they can leave the full-time workforce.  For many of you, Social Security will be a major part of your retirement income.  With that in mind, it is important to know how Social Security will be changing for 2020.

Here are six ways that Social Security will be changing in 2020.

1)     Dipping into the Social Security Trust Fund

Without some major action from Congress, the current excess trust fund revenue will be depleted by the year 2034.  If this occurs, it is estimated that Social Security would only be able to pay less than 80% of the promised benefits from ongoing payroll taxes.

Donald Trump has thrown out lowering the payroll tax in an attempt to spur the economy. If the government takes this action, the Social Security trust fund would likely be depleted faster.

2)     Full Retirement Age Has Increased

For those still a few years away from retirement, those born in 1960 or later, the full retirement age has increased to 67. You will still be able to start taking Social Security Retirement Benefits at age 62, but with reduced monthly payments.

3)     Cost of Living Adjustment

Low inflation is a good thing for consumers, as it means pricing isn’t going up that quickly. On the other hand, lower inflation numbers mean small cost of living increases for your Social Security benefits. In case you didn’t know, your Social Security benefits may be increased each year, partially depending on inflation numbers.

For 2020, the Social Security cost of living adjustment is expected to be around 1.8%. Not life-changing, but if you are living off of Social Security alone, every penny counts. For the average retiree, this would likely amount to around $25 more per month. For the highest earners, this could come closer to $50 more per month in Social Security retirement benefits.

4) Maximum Social Security Benefits Will Increase

For workers near the top of the Social Security income scale, $132,900 or more for 2019, your maximum Social Security payout will likely increase slightly in 2020. No individual at full retirement age can take home more than $2,861 per month, regardless of their pre-retirement income. This number can be increased by delaying Social Security until the age of 70. Oprah won’t get more than this at full retirement age, neither will you.

Could you live off of $34,332 per year? I would not find that a pleasant standard of living here in Los Angeles. You can take home more than this amount in Social Security benefits if you delay your benefits until you reach the age of 70, but still, it would be rough to get by in most big cities.

In case you were wondering, waiting till 70 could increase your Social Security benefit by 32% compared with the starting benefit at 66. This takes the maximum monthly benefit up to about $3,776 per month.

5)     More of Your Social Security Will be Taxed

Yes, your Social Security benefits are taxable. The amount that is hit with taxes will depend on household income levels. Just fifty percent of your benefits will be taxed if your income is between $25,000 and $34,000 as an individual. That goes up to $32,000 to $44,000 for a married couple, still another example of the marriage penalty.

Hopefully, everyone reading this will have more income than that to live off in retirement. If so, 85% of your Social Security benefits will be taxable. That is assuming you have an income in retirement above $34,000 (individual) or $44,000 as a married couple.

6)     End of Two Great Social Security Maximization Strategies

File and suspend was a great social security maximization strategy that is no longer available to younger Americans. The last few baby boomers who were grandfathered into eligibility will turn 70 in 2020. Seventy is the latest you can wait to start your Social Security benefits.

Related: 6 Big Tax Mistakes That Can Ruin Your Dream Retirement

I may joke that congress doesn’t do anything, but they did manage to take action to prevent people who reach full retirement age in 2020 (or later) from filing for a restricted claim of spousal benefits. Like file and suspend, this was a strategy to help smart couples maximize their Social Security benefits. Thanks a lot.

Whatever your age, take a moment and register for access to your Social Security Benefit estimates.  Visit ssa.gov, just take a few minutes and you will be able to find more information about Social Security, and more importantly, what it will mean for your retirement.

Think about your Social Security benefits when you vote in 2020 as well. With record deficits and the skyrocketing national debt, there are rumblings of draconian cuts from Trump and the Republicans to programs like Social Security and Medicare.

Make today the day you find out if you are on track for the type of retirement you want. What do you have to lose? Peace of mind today, hopefully a happier, healthier and wealthier retirement in the future.

https://www.forbes.com/sites/davidrae/2019/09/09/social-security-changes-2020/#2f1e65806752

Both annuities and life insurance should be considered in your long-term financial plan. While both include death benefits, you buy life insurance in the event you die too soon and an annuity in case you live too long. In other words, life insurance provides economic protection to your loved ones if you die before your financial obligations to them are met, while annuities guard against outliving your assets.

https://www.iii.org/article/the-difference-between-annuities-and-life-insurance

The new Setting Every Community Up For Retirement Enhancement (SECURE) Act, just signed by President Trump, is the broadest piece of retirement legislation passed in 13 years. Ultimately, the law focuses on retirement planning in three key areas: 1) modifying required minimum distribution (RMD) rules for retirement plans; 2) expanding retirement plan access and 3) increasing lifetime income options in retirement plans.

The most immediate impact of the bill will be felt by those nearing or in retirement. If you’re a saver or investor in your 50s or 60s, there are six ways the SECURE Act may affect you:

1. Required Minimum Distribution Relief for Retirement Plans

Before the SECURE Act, if you had money in a traditional Individual Retirement Account (IRA) or an employer-sponsored retirement plan and were retired, you were required by law to start making withdrawals at age 70 ½. But for people who haven’t hit 70 ½ by the end of 2019, the SECURE Act pushes out the RMD start date for most situations until age 72.

By pushing back the RMD start date, the SECURE Act gives you additional time to allow your IRAs and 401(k)s to grow without being depleted by distributions and taxes.

2. Additional Roth IRA Planning Opportunities

Because RMDs won’t start until age 72, the new law will give you an additional two years to do what are known as Roth IRA conversions without having to worry about the impact of required distributions. With a Roth IRA, unlike a traditional IRA, withdrawals are tax-free as long as you meet certain requirements and there are no RMDs during your lifetime. The general goal of a Roth conversion is to convert taxable money in an IRA into a Roth IRA at lower tax rates today than you expect to pay in the future.

While you can do Roth conversions after you start RMDs, the process is a lot harder.

3. Increased Savings Opportunities

The SECURE Act also increased retirement savings opportunities in a number of ways.

Before this law, you couldn’t contribute to a tax-deductible IRA after 70 ½. But with the SECURE Act, you can. So, if you plan on working into your 70s, you can still put money into a deductible IRA. Those over 70 ½ in 2019 won’t be able to save in an IRA for this year.

This law change means a couple over 70 ½ will be allowed to save to an IRA over $14,000 in 2020 if both spouses are contributing the maximum of $7,000 a year. This can help them receive a valuable tax deduction and save for the future.

As more retirees are looking for ways to go back to work part-time in an encore career or in the gig economy, the SECURE Act will provide additional retirement funding flexibility for years to come.

Another SECURE Act provision will make it easier and less expensive for small business owners to set up retirement plans for employees. The new rule will let more small businesses band together to offer what are called Multiple Employer Plans or MEPs.

David Hanzlik, vice president, annuity and retirement solutions at CUNA Mutual Group, says: “Many people are behind in building their retirement savings and any measures that potentially help them gain access to the benefits of a workplace retirement plan are great.”

However, it could be a few years before small business employees without retirement plans see their employers offer them as a result of the SECURE Act. The law’s MEPs provisions don’t take effect until 2021. Additionally, the U.S. Department of Labor will need to clarify the rules before many small business employers will feel comfortable providing retirement accounts.

The SECURE Act also will also allow more part-timers to save through employer-sponsored retirement plans, starting in 2021. In some cases, these workers will need to put in at least 500 hours a year for three consecutive years in order to be eligible for the plans.

4. Guaranteed Lifetime Income From Retirement Plans

The SECURE Act will also encourage employers with retirement savings plans to let employees convert their savings into guaranteed lifetime income, through annuities. Employers will be protected from being sued if the insurer they choose to make annuity payments doesn’t pay claims in the future.

But it will likely take years before many employer-sponsored retirement plans offer annuities due to the SECURE Act.

5. A Reason to Review Beneficiary Designations

The SECURE Act also removed so-called “stretch” provisions for beneficiaries of IRAs and defined contribution plans, like 401(k)s.

In the past, if a traditional IRA was left to a beneficiary, that person could, in most cases, stretch out the RMDs over his or her own life expectancy, essentially “stretching” out the tax benefits of the retirement account. But with the new law, starting on Jan. 1, 2020, most IRA beneficiaries will now have to distribute their entire inherited retirement account within 10 years of the year of death of the owner.

Surviving spouses, minor children and those not more than 10 years younger than the deceased, however, are generally exempt from this new SECURE Act 10-year distribution rule.

So, the SECURE Act means it’s now very important to review the beneficiary designations of your retirement accounts to make sure they align with the new beneficiary rules.

6. A Reason to Review Trusts

In the past, many people used trusts as beneficiaries of IRAs and 401(k)s, with a “pass-through” feature that let the beneficiary stretch out the tax benefits of the inherited account. The benefit of the trust was, in part, to help manage the inherited retirement account and to provide protections from creditors. However, many of these trusts provided the beneficiary or heir with access to “only the RMD due each year.” But the SECURE Act states that all money must be taken out by the end of year 10 after the year of death of the owner.

Anyone with a trust as the beneficiary of an IRA or employer-sponsored retirement plan such as a 401(k) should immediately review the trust’s language to see if it still aligns with his or her intended goals.

Start Planning Now

Many of these SECURE Act rule changes require proactive planning.

So, it is important to speak with a qualified professional about them and your financial and retirement situation.

https://www.forbes.com/sites/nextavenue/2020/12/31/6-ways-the-secure-act-may-impact-your-retirement/#356659e9672a

Retirement isn’t what it used to be. Today, not only are people working, traveling and living dynamic lives well past the previous generation’s retirement age of 65, but saving for retirement requires a different mindset than your parents may have had. “In the past, many people had pensions, which would guarantee fixed income for life,” notes Don Dady, co-founder of Annexus, an independent designer of fixed-index annuities, or FIAs. “Today, people are living longer, healthier lives, and it’s very likely they may spend a third of their lives in retirement. This makes it important for people close to retirement to ask the question: How can I guarantee lifetime income, no matter how long my life might be?”

In the past, bonds served as the sole answer to this question for many people, functioning as a de-risking vehicle that could help guard retirement income against market fluctuations. And while bonds are still a solid way to de-risk a portfolio, exclusively relying on bonds may leave a portfolio vulnerable due to today’s historically low interest rates (as well as the possible negative valuation impact if interest rates were to rise in the near future). That’s where annuities come in as an option, says Roger Ibbotson, professor in the practice emeritus of finance at the Yale School of Management and chairman and CIO of Zebra Capital Management, who has researched annuities as part of the modern retirement portfolio.

An annuity is an insurance contract that can help protect and grow your retirement savings. There is a wide range of annuity options, each of which comes with unique features and benefits, making the landscape confusing. Many, though, fall under two major categories: fixed annuities, which offer set payments over a period of time (similar to a CD), and variable annuities, which offer payments based on performance.

A fixed-index annuity, or FIA, can be considered a hybrid of both, offering both a potential source of guaranteed income in retirement and a growth vehicle that may outperform bonds — without the risk of loss of the initial investment. “Annuities used to be cloaked in this black box of mistrust, but what we saw after the stock market crash of 2008 is that consumers really saw annuities as a viable fixed-income alternative,” explains Dady. In 2018, FIA sales set a new record of $69.6 billion, surpassing the previous 2016 high of $60.9 billion, according to the LIMRA Retirement Institute. “A fixed-index annuity can give you peace of mind, since the principal is guaranteed against market losses (subject, of course, to the claims-paying ability of the insurer). It also serves as a stable base of assets for an insurance company to offer a guaranteed future stream of income in retirement,” explains Ibbotson, “which may replace the pension-like cash that helped previous generations offset longevity risk.”

While returns are based on a market index, like the S&P 500, your money is never directly exposed to the market, which is why there is no risk you will lose your principal — but there is an opportunity you could benefit from interest earnings based on index gains. However, while a fixed-index annuity can be a smart addition to your portfolio, that doesn’t mean it’s appropriate for everyone. Here are some considerations to determine whether a fixed-index annuity is right for you.

You’re Approaching Pre-Retirement Age Or Are In Early Retirement

In your early career, you’re saving, building capital and managing risk. But as you near retirement, it may make sense to begin to actively de-risk your portfolio. “In general, people aged 50-75 could be an appropriate age bracket to consider fixed-index annuities,” says Ibbotson. Prior to 50, it may make sense to invest primarily in stocks due to their growth potential, as you should have time on your side for your portfolio to ride out market fluctuations. After 75, you may be drawing on financial capital and need more liquid income. (Contracts for FIAs vary, but many are five-plus years.) If you are approaching retirement, it may make sense to speak with a financial advisor to see if fixed-index annuities are the best path to achieving your financial goals.

You’ve Already De-risked Your Portfolio With Bonds

Bonds can be a great vehicle to de-risk your portfolio, but bond performance is vulnerable to market dips and rising interest rates. An FIA guarantees principal, and in research where Ibbotson compared the performance of large cap stocks, long-term government bonds and a simulated large-cap FIA over the period of 1927 to 2016, FIAs slightly outperformed bonds in average annualized returns with no risk of loss. That said, bonds, which can offer more liquidity to your portfolio, can also be valuable financial tools. While cases vary, in general, Ibbotson suggests that by around 65, individuals should consider investing about half of their portfolio in lower-risk, bond-like options.

As 2019 comes to an end, it’s worth taking a moment to reflect back on what took place in the retirement landscape during the past 12 months and how it could affect those preparing for life after work.

In recent years, the United States has witnessed a shift from employer-based retirement planning opportunities like pensions toward a more “do-it-yourself” approach. As Americans are living longer, the stakes for financial planning couldn’t be higher. In fact, nearly six out of 10 people are more afraid of running out of money in retirement than they are of dying.

Given these trends, it’s unsurprising people are beginning to look for retirement tools that can provide guaranteed lifetime income—tools like fixed indexed annuities (FIAs). This past year, FIAs continued to grow in popularity, driven by legislative activities and a rising understanding of their potential benefits. More specifically:

• The House of Representatives passed the SECURE Act by an overwhelming majority of 417-3. Contained within are sweeping changes designed to encourage Americans to save for retirement by improving access to more types of financial products, including annuities. The bill would also create incentives for employers to expand access to 401(k) plans, particularly to employees of small businesses and part-time employees—two groups traditionally left out of the employer-sponsored retirement planning landscape. Although the bill has not yet made it out of Congress, it continues to hold widespread bipartisan support.
• Annuities continued to grow in popularity. As reported by three market research firms showing similar data, annuities sales showed a significant increase from the same time last year. This is in line with research previously conducted by the Employee Benefit Research Institute, which found that 80% of 401(k) plan participants are interested in putting some or all of their balances in a guaranteed lifetime income option like an annuity.

Recognizing the growing popularity of annuities, the IALC took steps this year to educate consumers on the benefits they can provide, namely tax-deferred growth, principal protection and the ability to generate lifetime income. Our “Game Ready” video series, launched this year, highlights how the guaranteed income of an FIA can help anyone become retirement ready. And to provide practical next steps, we published a Financial Checklist that describes what you can do today to get started.

This year was exciting for many reasons, but mostly because the financial world saw real headway in addressing the needs of today’s changing retirement landscape. If you’re like the majority of Americans who are concerned about running out of lifetime income, consider talking to a financial professional about FIAs and whether they make sense for your unique retirement journey.

Recap: What happened to the retirement landscape in 2019?

The Internal Revenue Service announced on Wednesday, November 6, that several contribution limits in qualified retirement plans will increase next year.

The IRS announced the increases as part of an annual adjustment for cost-of-living increases as provided in the Internal Revenue Code.  According to IRS Notice 2019-59, employees participating in 401(k) plans may contribute up to $19,500 in 2020, up from $19,000 for this year.  This increase also applies to 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan.  In addition, the catch-up contribution limit available to employees aged 50 or older will increase from $6,000 to $6,500 in 2020.

The limit on the annual benefit for a participant under a defined benefit plan will increase from $225,000 to $230,000 in 2020.  In addition, the limit on the annual benefit for a participant under a defined contribution plan has increased from $56,000 to $57,000 for 2020.

The IRS also announced increases in phase-out income ranges for determining a taxpayer’s eligibility to deduct contributions made to Individual Retirement Accounts (“IRAs”).  If a taxpayer meets certain conditions, such as annual income limits, the taxpayer can deduct contributions made to traditional IRAs.  However, these deductions are phased out depending on the annual income of a taxpayer, or a taxpayer’s spouse, who is covered by a retirement plan at work.  For example, the phase-out income range for a single taxpayer covered by a workplace retirement plan ranges from $65,000 to $75,000 for 2020, which is an increase from $64,000 to $74,000 for 2019.  The phase-out range has also increased for married couples filing jointly when the spouse making contributions to the IRA is covered by a workplace retirement plan.  The income range is $104,000 to $124,000 for 2020, which is an increase from $103,000 to $123,000 for 2019.  For a full list of phase-out income ranges for taxpayers who take this deduction, Notice 2019-59 can be accessed at the bottom of this page.

In addition, the income limit for married couples filing jointly who take the Retirement Savings Contributions Credit is $65,000 for 2020, which is an increase from $64,000 for 2019.  For heads of household, the income limit is $48,750 for 2020.  Also, for single taxpayers or married individuals who file separately, the income limit for this tax credit is $32,500 for 2020.

One limit that will not change in 2020 is the limit on annual contributions to an IRA, which remains at $6,000.  Moreover, the IRA catch-up contribution limit remains at $1,000 for individuals aged 50 or older.

https://www.wardandsmith.com/articles/retirement-plan-contribution-limits-will-increase-in-2020

You definitely want to avoid these at all costs.

Millions of seniors today regard Social Security as a critical source of income. But if you’re not careful, you could wind up losing out on some of that money and struggling during retirement as a result. Here are a few ways your benefits might shrink.

1. Not knowing your full retirement age

Your Social Security benefits are calculated by taking your 35 highest-paid years of wages, adjusting them for inflation, and then applying a special formula to arrive at the amount of money you’re entitled to collect each month during retirement. But you can only claim your full monthly benefit once you reach full retirement age, or FRA. Here’s what FRA looks like, depending on when you were born:

DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.

Now, you are allowed to file for benefits beginning at age 62, but as you can see, that’s well before FRA. And for each month you claim benefits ahead of FRA, they get reduced on a permanent basis. The maximum reduction in benefits you might face is 30%, which applies if you claim Social Security at 62 with an FRA of 67, but filing even a year early will reduce your benefits by 6.67%.

As such, it’s important that you know when you’re entitled to your benefits in full. Yet in a recent Fidelity survey, only 26% of Americans could correctly pinpoint their FRA so if you don’t know that number, consult the table above and be sure to remember it.

2. Not checking your earnings statements for errors

Each year, the Social Security Administration (SSA) issues you an earnings statement summarizing your taxable wages for the year, as well as estimating your retirement benefits. If you’re 60 or older, you’ll get that statement in the mail. If you’re younger than 60, you’ll need to create an account on the SSA’s website and access it there.

If you don’t review your earnings statement each year, you risk losing out on money down the line. That’s because it’s not unheard of for an earnings statement to contain an error that works against you, like missing income, and since your retirement benefits are earnings-based, failing to correct mistakes could hurt you when you’re older.

For example, your earnings statement might list your annual income one year as $54,000 when it was really $72,000. Does that happen all the time? No. But it can happen, so stay vigilant.

3. Delaying benefits too long

Just as claiming benefits ahead of FRA will cause them to shrink, delaying benefits past FRA will cause them to increase. For each year you hold off filing beyond FRA, you accrue credits that boost your benefits by 8% a year. This incentive, however, expires once you turn 70, which means there’s no sense in delaying your filing past that point. And if you wait too long to claim benefits, you’ll risk losing out on money that could’ve otherwise been yours.

Now one thing you should know is that the SSA will pay you up to six months of retroactive benefits, so if you file at 70 1/2, you won’t lose out on money by waiting those extra six months. But if you file past then, you’ll effectively give up income for no good reason. As such, you really shouldn’t wait past your 70th birthday to sign up for Social Security.

Chances are, you’ll rely on Social Security to some degree in retirement. Avoid the mistakes we’ve discussed here so your benefits don’t take a needless hit.

Everyone’s idea of the “perfect retirement” is different.

Some of us plan to travel the world, while others hope to move to a new location, perhaps with a warmer climate. Still others might wish to live frugally so they have a sizable nest egg they can pass on to future generations.

No matter your goal, stability is an important part of most retirement lifestyles. In fact, IALC has found that 80% of Americans say their top retirement need is a stable income that can’t be outlived. Each of us should strive to manage our nest egg with the right retirement savings vehicles to help ensure we have the financial security we need to be ready for life after work.

A fixed indexed annuity (FIA) is one retirement tool that can help make this possible, offering a number of benefits to help you prepare for your long-term future:

• A balanced portfolio

  A balanced portfolio is essential for managing risk and reward in the financial markets. Designed for the long term, FIAs are a great retirement vehicle to ensure you are not putting all your eggs in one basket.

• Principal protection

  Even with market volatility, an FIA will not lose value. Your savings aren’t exposed to market fluctuations, so even in a negative market return, interest credited will never fall below zero. Moreover, you can never lose your interest once it’s credited to your principal.

• Predictable income

  Choosing an FIA is an efficient way to plan for your future, as your interest earnings rate always remains somewhere between the interest rate floor and the cap. In turn, no matter what happens in the market, you can count on payments throughout your golden years.

• Tax-deferred growth

  FIAs offer long-term tax-deferred savings. As long as your money stays in the annuity, you will not be taxed on interest earnings. Once you receive a payout, the annuity is taxed as ordinary income.

• Guaranteed income stream

  With Americans living longer and spending more time in retirement, many retirees are concerned about outliving their savings. FIAs are designed with guaranteed lifetime income so you can never outlive your earnings.

No matter your retirement goal, don’t just be ready for it; be Game Ready. Learn more by watching our new Game Ready video series.

Don’t Just Be Ready; Be Game Ready

The holidays are just around the corner, meaning it’s almost time to prepare for parties, travel, gift-giving and more. But what’s good for the spirit can be hard on the wallet. Without a proper plan in place, it can be easy to lose track of how much you’ve spent, which might affect your financial goals.

The point of any financial plan is not to restrict yourself unnecessarily, but to become intentional about the way you approach spending, saving and investing. It’s akin to the way we should approach retirement—by becoming aware of where our money is going, and how it is performing for us, we can make ourselves “Game Ready” for life after work.

Whether you’re managing your plan for the holidays or your broader path to retirement, the following best practices may help.

1. Set realistic goals

   It’s much easier to stick to a plan when we know what we’re working towards. During the holidays, that could mean adhering to a maximum budget or fitting in a trip to somewhere warm. Similarly, in retirement, you might want to travel the world or build a cushion of savings to help manage health care expenses. In all cases, put your pen to paper and write out what you want to achieve.

2. Figure out what it will take to get there

   What do you need to do to make that holiday trip happen? Search for low-cost flights? Figure out the cost-effective locations this time of year? Reach out to family and friends to ask who’ll be joining you? No matter the goal, you need to make a plan for action. When it comes to retirement, the process is the same. For example, if one of your retirement goals is to avoid running out of savings after you stop working, consider exploring tools that can provide guaranteed lifetime income, such as fixed indexed annuities. Either way, it’s important to ensure you have the details ironed out.

3. Periodically check in

   To make sure you aren’t overspending during the holidays, you’ll need to keep track of your spending and saving. Likewise, when preparing for retirement, annual financial check ups can help ward off any unnecessary surprises.

4. Don’t forget to enjoy the process

   Just like the holidays, retirement should ideally be one of the best times of our lives (they don’t call it the “golden years” for nothing!). While it’s important to have a plan and maintain discipline to follow through, don’t forget to allow for enough flexibility to relax and enjoy the ride.

At the end of the day, the most important aspect of success is intentionality, whether that’s for the holidays or for retirement. As long as we know where we are headed and are consciously taking steps to get there, getting “Game Ready” is right within our grasp.

Changing Seasons in Retirement

How to find coverage that meets your needs and budget

Life insurance can form a vital part of your family’s financial stability and well-being but, if you’re like most people, you may find the thought of shopping for the right type of coverage a little daunting. Fortunately, these eight simple steps can guide you along the way.

1. Determine whether you actually need life insurance

Most people do, but not everyone. If no one depends on you financially, if you have no debt and would leave an estate with enough cash to pay its own taxes and expenses, you probably don’t need life insurance. If you do not meet these criteria, you probably will need individual life insurance.

2. Calculate how much life insurance you need

There are two important questions to ask:

• What financial resources will be available to survivors after your death? For simplicity, consider three categories of resources: (1) Social security and other retirement-related survivor benefits; (2) group life insurance; and (3) other assets and resources. It is also important to know when these resources will become available—for example, social security survivor benefits are payable immediately to a surviving spouse with dependent children, but only after age 60 if there are no children.
• What financial needs will your survivors have after your death. For simplicity, consider three categories of requirements: (1) final expenses; (2) debts; and (3) income needs.

Then subtract your survivors’ financial resources (step #2) from their financial needs (step #3) to determine how large a policy to buy. Many people are underinsured, often because they skip these steps or take a shortcut (such as simply buying a multiple of annual income). For more help in determining the right amount of life insurance, see: How Much Life Insurance Do I Need?

3. Consider other objectives you may have for your life insurance

Some types of life insurance policies include a savings feature that can be used for purposes other than paying death benefits.

4. Determine what type of life insurance best meets your needs

Essentially, there are three types of life insurance policies—term life, whole life and universal life. If you need the insurance for only a specific period of time, or are on a limited budget, a term policy, which has lower premiums, may be a good fit. If, however, you need the insurance for as long as you live and want to accumulate savings, a whole or universal policy may be a better choice.

5. Find out if you need to add any “riders” to the policy

There are two that you should consider—waiver of premium and guaranteed insurability. Some policies come with one or both included with the basic contract but, if not, it is generally a good idea to add them. Waiver of premium pays the life insurance policy premium for you if you are disabled. Guaranteed insurability permits you to add to the death benefit without providing additional evidence that you are in acceptable health.

6. Shop around

There are many ways to save money when buying life insurance, but they don’t always entail paying a lower premium immediately. That said, life insurance is a very competitive business so quotes can vary significantly between companies.

7. Decide whether to pay premiums annually

In most cases, it is better to pay annually rather than in installments because there is often a relatively large additional charge for paying smaller amounts more frequently.

8. Tell your beneficiaries about your life insurance policy

Once the policy is issued, inform your beneficiaries the company that issued it, where to find the paper copy of the policy and any specifics about what you want them to do with the death benefit. While is rare for people to be unaware they are the beneficiary of a life insurance policy, it does happen and you want to make sure that the benefit will not go unclaimed. And store your documents so that they can be easily accessed by your beneficiaries.

https://www.iii.org/article/8-smart-steps-for-buying-life-insurance

Are you on track for retirement? These customizable calculators will allow you to run different scenarios and discover how small adjustments could make a big difference for your retirement future.

Earlier this month, the United States celebrated Grandparent’s Day, which serves as a reminder to appreciate the hard work and dedication of generations before us (regardless of our current age). However, as Intergenerational Month, September also marks a time to reflect further down the family tree and think about our impact on those who come after us.

Preparing for retirement can be a highly individual process, or a process limited to the relationship between spouses. For example, countless resources exist to help pre-retirees plan for healthcare expenses and lifestyle disruptions. But often, less emphasis is given to the ways in which a strong financial strategy can affect children, grandchildren and other surviving heirs.

For instance, as many as 60% of U.S. adults do not have a will—or an “estate plan”—in place. Without an estate plan, the government will manage the division of your assets, and you will have no say in how your property is split among surviving relatives after you die. Often, the process is tedious and expensive.

Put simply, your financial approach could affect your entire family, so it’s important to plan accordingly. In addition to creating a will, here are three ways to maximize your future financial impact:

1. Keep your estate plan updated

   After you create an estate plan, it should be refreshed every year to ensure it is up to date. Specifically, you’ll want to account for any big changes, including divorce or marriage, the birth or death of an heir, large shifts in your financial situation, significant investment decisions, changes in the tax code and similar developments.

2. Explore trusts as an additional option

   While an estate plan governs the division of all your assets combined, a trust can help fine-tune the approach by letting you handle a specific segment, such as property or a life insurance policy. Importantly, trusts are not the same as estate plans and instead tend to focus on a subset of your assets rather than everything you own. Beyond giving you greater control over how your assets are divided, trusts can help minimize gift and estate taxes.

3. Examine how retirement products are transferred

   A wide range of financial products can help you prepare for retirement, and each is governed by a different set of rules. These rules affect everything from how much you pay in taxes to how the product can be transferred to a surviving heir (if at all). Social Security payments, for example, are not transferred after death, although surviving spouses and dependents may be eligible for survivor’s benefits. Individual retirement accounts (IRAs), on the other hand, often are absorbed into your estate, unless you name a beneficiary beforehand. Annuities, which include products such as fixed indexed annuities (FIAs), may or may not be transferred, depending on your individual agreement. It’s crucial to understand the terms of each product under your control.

To maximize the benefit your estate will confer to your heirs, you’ll need to plan thoroughly and take charge of your financial future.

Not sure where to get started? Take a look at our video gallery to learn more about getting “Game Ready” for life after work.

Planning a Generational Impact

Since 1971, the United States has celebrated Women’s Equality Day on August 26. Although the occasion originally commemorated the passage of the 19^th amendment, which gave women the right to vote, today it recognizes and encourages people and organizations to promote the full equality for women in society. We recognize equality spreads the gamut, going beyond voting rights and equal representation in the workforce (although these things are just as important); it also represents the right a woman has to take charge of her own financial future. Tremendous progress has been made in this area, but we still have a way to go.

For example, men and women have traditionally been on unequal financial footing when it comes to retirement security. Despite progress in pay equity, women, on average, continue to earn about 20% less than men, receive Social Security benefits that are about 23% smaller, and accumulate about one-third less in retirement savings. Combined, this lowers women’s average retirement income by 42% compared to men.

Additionally, even though ultimately eight out of 10 women will be solely responsible for their financial well-being at some point due to divorce, widowhood or never marrying, most women prefer to let their spouse handle long-term financial planning. But this can lead to financial surprises once women are on their own. Underscoring this point, 59% of divorced and widowed women say they wish they’d been more involved in long-term financial decisions during their marriage.

Finally, women tend to live longer than men, which leads to not only increased living expenses throughout retirement, but also higher healthcare expenditure. Combined, this requires more robust retirement planning to avoid outliving savings.

As a result, women face unique challenges when preparing for their lives after work, and thus require unique solutions.

Here is four practical steps that can help women take control of their financial future:

1. Regular meetings with a financial advisor. A financial health checkup is just as important as a physical checkup for maintaining retirement security. A trusted financial advisor can help you examine financial habits, explore potential benefits and pitfalls, develop a set of goals and discover useful retirement planning tools and options.
2. Lifetime income options. Given the stakes are higher for women than men, retirement products that provide lifetime income—such as fixed indexed annuities (FIAs)—can be beneficial to any robust financial plan.
3. Retirement calculators. Retirement planning can quickly become overwhelming if you don’t know where to start. A good first step is to explore free online retirement calculators to help you visualize how much income you’ll need to sustain your desired lifestyle during retirement, as well as the potential tax implications of various retirement products.
4. Continued financial education. Life is a never-ending learning process, and financial health is no different. Everyone—women and men—should make it a priority to stay abreast of the latest retirement strategies, or at the very least, work with a financial advisor to make sure your financial plan matches your retirement goals. Here is a great place to start.

This Women’s Equality Day, we encourage women to empower themselves and investigate what life can look like during retirement, because no matter your background or stage in life, investing in your financial future will always pay dividends.

Promoting Women’s Equality in Retirement Planning

Nearly three in four affluent respondents to an Allianz Life survey said they’d be willing to give up some gains for protection.

Second-quarter market volatility is making Americans increasingly worried about their finances and retirement savings, with only 31% in a new survey saying they were comfortable with market conditions and ready to invest, down two percentage points from the previous quarter and four points from last year’s first quarter.

The latest market perceptions study from Allianz Life also found that more Americans feared the approach of a major recession in the second quarter than in the 2019 and 2018 first quarters — 48% vs. 46% and 44% — or major market crash — 47% vs. 46% and 42%.

“Volatility has become the norm over the past year and a half, but that doesn’t mean those major market swings are any less gut-wrenching,” Kelly LaVigne, vice president of advanced markets at Allianz Life, said in a statement.

“The collective worry around an impending market crash or recession has been growing steadily since last summer, and people are starting to wonder when the other shoe will drop.”

The study’s findings were based on online surveys conducted in March and May this year among 1,000 respondents 18 and older, and in April 2018 among 800 respondents.

The survey’s findings suggest that volatility might also be making people wary of investing funds. Thirty-seven percent of respondents said now was a good time to invest in the market, compared with 41% who said this in the first quarter.

The survey results further showed millennials were more reluctant than their Gen X and baby boomer counterparts to invest now — 36% vs. 34% and 28% — even though they had the longest way to go before retirement.

Seeking Protection

Not surprisingly, give ongoing volatility, survey respondents indicated that they were looking to financial products that offer a balance of growth potential and protection.

One-third expressed interest in such a product, up from 27% last quarter, and 72% said it was important to have some retirement savings in a product that protects from loss, up from 68%.

Seventy-one percent of respondents with $200,000 or more in investable assets said they would give up potential gains for a financial product that protects a portion of their retirement, compared with 52% of those with less than $200,000 in investable assets.

“It’s no surprise people want to move toward protection as they see market drops put a dent in their hard-earned savings,” LaVigne said. “This is especially important for people getting ready to retire in the next five to 10 years who might not be able to rebuild their savings in time for retirement.”

Boomers in the survey showed growing concern about volatility’s effect on their retirement savings, with 38% saying market volatility was making them anxious, up from 32% in the first quarter.

“Those that are feeling worried about their retirement savings within the current financial forecast should meet with their financial professional to assess their risk exposure,” LaVigne said. “Creating a strategy that addresses an ongoing volatile market is as important as ever.”

https://www.thinkadvisor.com/2019/07/10/retirement-savers-seeking-protection-amid-market-volatility-allianz/?kw=Retirement%20Savers%20Seeking%20Protection%20Amid%20Market%20Volatility:%20Allianz&utm_source=email&utm_medium=enl&utm_campaign=lifehealthnewsflash&utm_content=20190710&utm_term=tadv&slreturn=20190723095216

August is an exciting time of year. As the start of a new semester approaches, families across the country begin to pull themselves out of vacation mode and think more critically about the future. A spirit of learning is in the air, which makes things just a little brighter in anticipation.

Of course, if your household doesn’t include school-age children, you can still take August as a time to reevaluate your personal development and consider areas for growth in the future. For instance, a financial health checkup is a good way to discover ways to improve your financial education.

Although many Americans think they are financially savvy, data shows the group closest to retirement, baby boomers, struggle with retirement fundamentals and are not saving enough for their golden years. Many don’t know how much money they need to live comfortably, and 25% have less than $5,000 in savings. This is in part due to the changing nature of retirement planning, the burden of which has shifted from employers to individuals as part-time, temporary or “gig” jobs grow in quantity. But no matter where you are in your retirement journey, there’s always an opportunity to learn more.

Here are five ways to boost your retirement IQ this month.

1. Are you saving enough for retirement?

   To discover whether your current savings strategy will lead to the life you want in retirement, utilize this calculator to determine if your funds will run out after you stop working. Your results will provide insight into how long your savings will last and what changes you can make to achieve your goals.

2. How will tax laws impact your savings?

   Certain retirement products, such as fixed indexed annuities (FIAs) have special tax benefits, such as tax-deferred growth. This calculator will help you determine how much money you can accumulate based on the type of financial product you choose: a fully-taxable account, a tax-deferred option (like an FIA) or a tax-free vehicle.

3. What is your risk tolerance?

   Knowing your propensity or tolerance for risk can help steer you in the direction of the best retirement plan for your situation. Complete this questionnaire to see what adjustments you need to make to match your strategy to your risk profile.

4. What are the tax advantages of annuities?

   This calculator compares the tax advantages of an annuity versus a retirement product where the interest is taxed each year, like a CD. With an FIA, you do not have to pay taxes on the interest earned until you begin making withdrawals, and this tax-deferred period can have a dramatic effect on your growth.

5. What will your Social Security payment be?

   Many factors will impact the Social Security benefit you may receive, but you can use this calculator to make an estimate. Once you know your expected Social Security income, you can determine how much additional guaranteed lifetime income you may want from products like an FIA.

Have you mastered the above areas? There’s never a reason to stop learning. If you feel you’ve got a lock on topics like Social Security and tax advantages, consider diving deeper into the subject of FIAs to examine how they can fit into your unique life plan. Here’s a great place to start.

Back to School: Five Surefire Ways to Boost Your Financial Education

LONDON — In this city known for grumps and complainers, the happiest people are those with a pension and those too young to understand how a pension works, according to Britain’s first-ever national happiness survey, out last week. Results further show that people living in rural areas and those who own their own house are happier than those living in the city and renting.

The inaugural survey looked only at British citizens. Yet the results offer universal lessons, the main one being the importance of guaranteed income in retirement. Owning a house also helps, reinforcing what is commonly called the American Dream. The highest happiness readings came from pensioners aged 65-69, who scored 7.8 on a 10-point scale. But all pension-collecting age groups scored at least 7.6—ahead of every other age group save for teens, who generally haven’t yet experienced financial stress and also scored 7.8.

Pensions that provide guaranteed income have become increasingly rare around the world, as employers have shifted from defined benefits plans to defined contribution plans. But many of today’s retirees enjoy the old-style plans, which play into their elevated happiness reading. Studies in the U.S. have shown that retirees with a guaranteed income stream are more confident about their financial future.

In Britain, the groundbreaking study is expected to lead to policy change, something that is already happening in the U.S. where both lawmakers and large employers are looking at ways to make it easier for the next generation of pensioners—those with a 401(k) and no built-in income stream—to easily convert some or all of the assets in their plan into a guaranteed lifetime annuity.

The Obama administration has gotten behind this push, encouraging employers to offer a deferred fixed annuity as one investment option within 401(k) plans. Meanwhile, one in five employers expect to introduce some kind of guaranteed lifetime income product in the next 12 months, according to the 2012 BlackRock Retirement Survey. That would double the number already offering such an option.

You don’t have to wait for your employer to make things easy. Annuities sold through big insurance companies like New York Life, Allianz and John Hancock have soared in popularity as retirees have come to understand that guaranteed lifetime income makes them more financially confident—and happier, too. In general, immediate fixed annuities offer the best combination of certainty and low cost. Warning: With interest rates at historic lows today these products are relatively expensive, and you should get professional advice before buying a potentially higher-paying variable annuity. But securing at least a base level of lifetime income should be every retiree’s priority—at least if they want to live happily ever after.

Lifetime Income Stream Key to Retirement Happiness

10,000 simulations highlight impact of guaranteed income for retirees

“If the hard numbers and math don’t convince you, then take it right from the source. Retirees who had purchased an annuity are more confident than those without one”

The research looked at how retirees can use guaranteed income annuities to not only improve financial outcomes, but also increase confidence and reduce stress in retirement.

“Workers show strong interest in guaranteed income, but one-third of individuals report lower interest in the same guaranteed lifetime income product when it is labeled as an annuity,” said Sri Reddy, senior vice president of retirement and income solutions at Principal^®. “It’s time to demystify the value of annuities and acknowledge their role as part of a balanced retirement plan.”

How annuities impact retirement portfolios

Retirees who had guaranteed income through an annuity were more likely to feel confident and accept more market volatility with their other assets.

Annuities are one of the most efficient ways to generate guaranteed income. This is demonstrated through a series of three case studies which looked at combination strategies using both annuities and investments compared to traditional investments-only portfolios. The simulations found:

• Adding an income annuity to a retirement portfolio allows a retiree to get the same or higher income with lower risk of outliving savings than an investments-only approach.
• Income annuities allow a retiree to spend at a level that investments alone would be unable to match without significant risk of running out of money before age 95.
• Using both annuities and investments can enhance the value of assets for heirs over the long term.

Ultimately, the research showed income annuities can help to better meet client goals in retirement than an investments-only approach in most situations.

“Annuities are essentially a pension provided by a private company. If you’re the type of retiree who wishes they had a pension, you can buy one through an income annuity that will provide a regular income as long as you live,” said Finke. “If the reason you saved for retirement was to provide a secure lifestyle, there’s no more efficient way to create lifetime income that through an annuity.”

The role of confidence

In addition to the quantitative findings, the researchers interviewed income annuity owners to provide insight into the emotional impact of guaranteed income. They found that annuity owners have a greater level of confidence, feel the freedom to spend and invest and feel more certain in leaving a legacy.

Using an income annuity supports higher success rates in retirement. Retirement outcomes when the combination approach is used are very attractive when compared to investments-only, both in terms of supporting a spending goal and a greater legacy value of remaining assets.

On an emotional level, retirees are more confident when there’s certainty to their monthly income. The certainty an income annuity provides increases confidence and reduces stress in retirement.

“If the hard numbers and math don’t convince you, then take it right from the source. Retirees who had purchased an annuity are more confident than those without one,” added Reddy. “They worry less about the market, feel more comfortable spending on things they enjoy and feel they have a better life with less worry of outliving their savings. The head and the heart come together here to show that annuities really do help people have enough, save enough and protect enough for their future.”

Principal helps people and companies around the world build, protect and advance their financial well-being through retirement, insurance and asset management solutions that fit their lives. Our employees are passionate about helping clients of all income and portfolio sizes achieve their goals – offering innovative ideas, investment expertise and real-life solutions to make financial progress possible.

https://www.businesswire.com/news/home/20190422005038/en/

Get tips on what to do if you’re 10, 5 or 1 year out from retirement.

What is your current retirement outlook? If you’re 10 years or less from retirement, does getting everything in order seem like too much to process? Do you know where to even start?

According to a 2018 survey by the Indexed Annuity Leadership Council (IALC), 79 percent of workers surveyed admitted to expressing worry about their retirement.1

The survey also found workers who feel unprepared for retirement lack information about retirement planning, with approximately half feeling only a little or not at all informed.1

When it comes to retirement, here are some important ages to remember:

• 50: The age when you can defer paying income tax on more of your qualified retirement plan contributions (“catch-up contributions”)2
• 59 ½: The age when you can begin withdrawing funds from qualified plans, such as 401(k)s and IRAs, and annuity contracts without incurring a 10 percent federal penalty (unless an exception applies for early distributions)3
• 62: Earliest age when you can start receiving Social Security retirement benefits4
• 70 ½: The age when you must begin taking annual distributions from your qualified retirement plans, except Roth IRAs 5

Whether you’re 10, 5 or 1 year away from retirement, here are some important tips that may help put you at ease with your planning.

10 Years from Retirement

The IALC survey reported workers regretted not saving enough when it came to retirement planning. In fact, 40 percent of workers surveyed claimed their biggest mistake in retirement planning was not saving earlier.1

Have you started to think about your retirement date, and if you can afford to retire within the next decade? If you don’t think you can afford to retire in the next decade, you might need to evaluate your retirement income sources, such as your company’s 401 (k) plan, annuities, or other financial investments.

During this pre-retirement period, you should consider evaluating all your potential income sources for retirement. A retirement planning tool that can help is the Social Security Administration’s website.

The Social Security Administration allows you to set up a free account where you can receive personalized estimates of future benefits based on your earnings, get your latest Social Security statements and review your earnings history.6

Five Years from Retirement

One third of workers think they will spend more during retirement on daily expenses and activities, as compared to their current expenses, while two-thirds of workers believe they will actually spend less, according to the IALC survey.1

What kind of lifestyle do you want in your retirement, and are you financially prepared to pay for it?  According to a 2014 survey conducted by the Bureau of Labor Statistics, total yearly expenses for those surveyed averaged $49,279 for households with people age 55 and older.7

It’s important to take inventory of your assets and annual expenses so you can identify any gaps between your income and expenses.

The Bureau of Labor Statistics also stated survey participants reported housing is the greatest expense for households with a person age 55 or older.7 Think about where you want to live and what type of house, condo or apartment would be best for you in your golden years, and remember to calculate that into your expenses.

Health care is another major expense during retirement. The Lifetime Medical Spending of Retirees report stated people incur an average of $122,000 in medical expenses, including Medicaid payments, between the age of 70 and throughout their remaining years.8

Next on the list is to make sure you have a plan for health insurance, especially if you retire before age 65, which is when Medicare coverage can begin.9

Five years out from retirement is a good time to review and, if necessary, update your estate plan. Have you named the proper beneficiaries or pay-on-death designees on all of your accounts and policies?

A survey from Caring.com, a company that specializes in senior care, showed only 42 percent of U.S. adults surveyed have prepared estate planning documents, including a will or living trust. In contrast, 81 percent of adults surveyed, who were 72 or older, reported having either a will or living trust.10

Another important estate-planning document is a power of attorney (POA). A POA allows you to designate someone you trust to make important decisions for you in case you are not able to do so in the future. A financial POA allows you to designate someone to make financial decisions for you. A medical POA allows you to designate someone to make medical decisions for you.

The Caring.com survey also showed 83 percent of Americans surveyed over the age of 72 have executed a health care power of attorney.10

It’s important to make sure all necessary legal documents concerning your estate are up to date. Keep in mind, estate-planning documents are important legal documents, which should be prepared by a licensed attorney.

One year from Retirement

At one year out, retirement might seem right around the corner. You’ve spent the last decade making sure your finances and savings are in order; now it’s time to make sure you’re ready for a lifestyle change. That might even mean continuing to work in some type of professional capacity. Nearly 25 percent of Americans age 65 and older without a disability are participating in the current labor force.11

Leaving one type of profession might open the door to another in your post-retirement years. You can also make the choice to stay involved in your previous workplace, just in a different role. A retired teacher might become a substitute for the local school district, and a business executive might look into becoming a management consultant.

This is a point where you can choose how you want to earn additional income in retirement. Another important decision to make is how to spend your free time.

Social networks are often built around jobs and professions. It’s important to invest time and resources into physical and mental health and building up a new social network during retirement. This could include getting a gym membership and attending group exercise classes, joining a senior center or finding other social activities outside of work.

In preparing to retire, you have to take all of your financial, health and lifestyle decisions into account. The earlier you start making decisions about life in your golden years, the better off you may be.

While it may seem like a lot all at once, a checklist can help keep your tasks in order, especially as your retirement date gets closer. Download our pre-retirement checklistopens a pdf fileOpens a New Window. so you can start preparing for your future, whether retirement is a decade or just months away.

March celebrates National Consumer Protection Week (NCPW), a time to help people understand their consumer rights and make well-informed decisions about money and saving for their retirement.

No matter your age, some of the most important financial decisions relate to retirement. With U.S. adults living longer—and thus spending more time in their post-working years—56 percent of Americans admit they are unsure if their retirement savings will last their lifetime. Additionally, nearly 90 percent of Americans are not very confident in their overall retirement savings situation.

To someone without a plan, these numbers can seem overwhelming. But, recognizing the stakes involved in retirement can be empowering—spurring you to take ownership of your financial future. Keep in mind the following, as you educate yourself about planning for this important time in your life.

1. Start now, regardless of age.

Today’s retirement can stretch for decades, and similarly, you’ll need a nest egg that can keep you comfortable for a long time. The best way to build up such a cushion is to start early. The earlier the better.  A retirement calculator can help you take the first step by projecting potential risk, tax implications, and estimated future savings growth.

2. Keep a realistic view of the future.

In a similar vein, it’s important to recognize that certain expenses, particularly healthcare expenses, are likely to increase as you age. Thus, when forming your retirement budget, you’ll want to leave no stone unturned. In addition to healthcare costs, be sure to factor in things like travel, the need for emergency savings to address anything unexpected, and general day-to-day expenses that meet your definition of a “comfortable lifestyle.” Remember, you’ll be facing these expenses for many years. To help provide a steady source of income that can help address your needs, you may consider products such as fixed index annuities (FIAs), which offer steady lifetime income, regardless of market swings, throughout your retirement.

3. Diversify. Diversify. Diversify.

The future is unpredictable, especially the future of financial markets. Although 401(k) accounts are an important part of a retirement portfolio, you may find it useful to consider products like FIAs to help give you an added layer of financial security. Not only can they provide much-needed balance to your portfolio, they also offer a guaranteed minimum rate of return and tax-deferred growth over time. It’s a way to make sure you aren’t putting all your eggs in one basket—the gold standard of financial planning.

The prospect of retirement should be something to take seriously, but it’s not scary. With some proper planning, dedication, and the right strategies, you can look forward to your “golden years” with satisfaction, knowing that you have the financial tools to support yourself.

https://fiainsights.org/ncpw-how-planning-for-retirement-can-be-empowering-not-frightening/

Women’s History Month is a time to look back at the vital role women have played throughout history. In every industry, women are natural leaders and change makers – from Congress to financial services. In addition to driving change around women’s rights, many women in leadership are addressing income disparity and improving retirement security for women.

When it comes to retirement, there are best practices for everyone to follow, such as planning for lifetime income and having a balanced portfolio. But for women, there are three key differences in planning for retirement: healthcare, longer life expectancy, and gaps in working years.

Longer Life Expectancy & Health Care Costs

Because women have a longer life expectancy than men, they will likely need their savings to go further. Besides income having to last, there may be other factors to plan for, such as increased health care costs. In fact, a study by Fidelity found that women will need to plan for $147,000 in health care costs, while men will need $133,000 on average. Certain monthly expenses or travel planning can be relatively simple to calculate, but healthcare planning is tricky to plan for because it is unpredictable. One way to prepare for these costs is to make sure you have secure, steady income in retirement. Fixed indexed annuities (FIAs) offer both principal protection and lifetime income in retirement and can help balance a portfolio.

Working Years & Lifetime Income

Social Security benefits are based on 35 years of employment, with a minimum of 10 years to draw benefits. Because each year of work is averaged into the social security benefit, those with fewer than 35 years will have lower monthly payments. Women often have fewer working years under their belt, as many take time off work to take care of their families, either their young children or aging parents. To help offset this gap, women can work a few extra years before retiring or delay Social Security benefits until they are 70 to help increase benefits. Remember, we have free calculators, specifically for Social Security payments, so you can get an idea of your monthly income.

This Women’s History Month, rememeber that women are leading the charge and feeling more optimistic about all the opportunities in retirement and actively planning for the fulfilling years ahead.

https://fiainsights.org/national-womens-history-month-and-the-state-of-retirement-preparedness-for-women/

Both annuities and life insurance should be considered in your long-term financial plan. While both include death benefits, you buy life insurance in the event you die too soon and an annuity in case you live too long. In other words, life insurance provides economic protection to your loved ones if you die before your financial obligations to them are met, while annuities guard against outliving your assets.

Comparing deferred and immediate annuities

“Your article on annuities [Does An Annuity Belong In Your Retirement Plan?] did not demonstrate that an annuity always improves a retirement plan.”

True, Warren Buffet’s retirement plan would not be improved by an annuity because he will not face the mortality and investment risks of a retiree with limited resources. Retirees with limited resources face the risk that if they live too long, and/or their assets earn less than expected, they will run out of spendable funds. There is also the risk that if they die too soon, and/or their assets earn more than expected,  they will leave financial assets to their estate that they would have preferred to spend on themselves.

Retirees exposed to these risks can reduce or eliminate them in only one way: by using some of their assets to buy an annuity, which pays them as long as they live. This is a core feature of the Retirement Income Stabilizer (RIS) which I have been developing with Allan Redstone. With RIS, the retiree uses some of her assets to buy an annuity, payments from which are deferred for a period ranging from 5 to 25 years. The remaining assets are used as the primary source of spendable funds during the deferment period, with the amount drawn each year adjusted based on earnings during the year.

This article will compare retirement plans with and without an annuity for a hypothetical retiree of 65 who has $1 million in her 401K, half of it in common stock and half in intermediate-term Government securities. She is deciding between a RIS-based withdrawal plan that includes a 10-year deferred annuity, and the 4% withdrawal rule, which is advocated by many advisors.

With the RIS alternative, part of the $1 million purchases an annuity deferred 10 years. During the first 10 years the retiree draws on the assets remaining after the annuity purchase. At the end of the 10 years, those assets are gone and the annuity kicks in.

With the 4% rule alternative, the retiree makes monthly withdrawals equal to .04/12 of the initial balance, plus an annual inflation increase. I applied a 2% inflation adjustment to both schemes.

I am going to compare the monthly spendable funds that could be drawn by the retiree using these options, on two assumptions about future asset yields. One assumption is that yields are those expected, which I define as the median return during 1926-2012 among periods of the same length as the option. For the 4% rule, which must support the retiree until she dies, the period runs to age 104, or 39 years. The median return over 577 39-year periods was 9.4%. For the deferred annuity option, the relevant period is 10 years. The median return over 925 10-year periods was 8%.

As shown in Chart 1, despite the higher expected rate over the longer period relevant to the 4% rule, spendable funds are consistently higher in the annuity case. The first month draws are $4,363 and $3,333, and the difference widens as the retiree ages.

The likely rejoinder of a 4% rule advocate is that the retiree in my example could break from the rule to increase withdrawals if necessary. At a return of 9.4%, the retiree’s assets using the rule  rise over time, where in the annuity case, the assets are gone after 10 years. The problem is that the 4% rule itself provides no guidance on how much extra can be safely drawn, and when. Further, the bias of advisors managing client assets is to avoid shrinking those assets if possible.

In any case, projections based on expected returns have limited value. Retirees must be more concerned about a worse case, because if one happens they cannot begin their careers again. I define a worse case rate of return as the return earned during less than 2% of the relevant periods. When the rates of return for all 925 10-year periods during 1926-2012 are ranked, highest to lowest, the worst-case rate is 0.7%.  The worst-case rate over 39-year periods is 2.6%.

Despite the lower worst case rate during the shorter period, the annuity case works fine while the 4% rule implodes. As shown in Chart 2, the annuity case generates larger spendable funds except during ages 69-74. Further, the worst case under the 4% rule runs out of money completely at age 92.

In sum, using part of the retiree’s nest egg to purchase a deferred annuity improved the retirement plan.

https://www.forbes.com/sites/jackguttentag/2019/01/05/how-an-annuity-improves-a-retirement-plan/#6f011bfe6371

Tax season has officially started and if you’re an early bird looking ahead to April, you might have already started filing your 2018 taxes. Regardless where you are in the process, here are a few tips to keep in mind for tax season this year.

Taxes in retirement are not exactly the same as when you’re working, but you will find some similarities. In retirement you are taxed on income the same way as you are during your working years, but because you will have several types of income (if you balance your portfolio), your taxes can work in a few different ways.

For fixed indexed annuities (FIAs), your growth is tax-deferred which means you can grow your income based on your policy to secure a higher payout. Once you start to receive a payout, it will be taxed as ordinary income. The tax deferral period can have a dramatic impact on the growth of your FIA. Use our tax advantage calculator to compare the tax savings of an annuity to other types of retirement products.

No matter if you are retired, nearing retirement, or still working full-time, here are three benefits to filing your taxes well before the deadline.

1. A Faster Refund
   There are more than 150 million individual 2018 tax returns that are expected to be filed this year. Even with the recent federal government shutdown, the IRS estimates the first round of refunds to go out in the beginning of February and expects to have most refunds back within 21 days. The sooner you file, the earlier you’ll see your tax refund. But, what if you end up owing money? If this happens, plan to pay what you owe in segments, instead of paying in one lump sum.
2. Peace of Mind
   When April comes around, who wants to be inside filing their taxes when it’s finally warm out? Not many. Use this time huddled on the couch for warmth, productively. January is also a great time to review your finances for the year and create your budget. As you’re planning, use our free calculators to see how you are tracking for retirement, calculating everything from risk tolerance to your Social Security Payment.
3. Don’t Rush
   Waiting until April can often lead to rushing and missing refunds. Having ample time will help make sure you understand each deductible you are eligible for so you can take full advantage. To make the process even smoother, consider filing your tax return online.

While April may seem far away, taking steps now to get yourself organized for the year and knowing what to expect in retirement can pay off throughout 2019 and beyond.

https://fiainsights.org/the-benefits-of-filing-taxes-early/

In case you didn’t know, there is such a thing as a lifetime income club. Of course, it goes by another name: annuities.

To an economist, an annuity is the most sensible way to provide safe income in retirement. In fact, economists spend more time researching why more Americans don’t buy annuities than they do estimating whether annuities are a sensible investment.

Why are annuities sensible? The math is pretty simple.

Instead of a pension, most of today’s workers have so-called defined contribution savings accounts, such as 401(k)s. At retirement, savings in a 401(k) are often rolled into an IRA with little guidance on how that money should be used as income. If I have $500,000 in my IRA, how much of that can I safely spend each year to fund my lifestyle? As it turns out, this isn’t an easy question to answer.

The Problem with Retirement Income Planning

Funding income in retirement from a savings account is difficult for two primary reasons. First, retirees don’t know how long they’re going to live; and, second, they don’t know what kind of returns they’ll get on their investments. A long life and low investment returns can translate to a much lower safe spending rate than what they’d need to fund their desired lifestyle.

Because no retiree knows precisely how long they will live, they typically have two choices. Either spend a lot and enjoy retirement to the fullest at the expense of possibly running out of money, or spend very little in the hope that the money won’t run out in old age.

Enter the Annuity

But there is a third choice. An income annuity is like a membership in a long-life income club. Retirees pool their money together and then let an insurance company invest their savings and send periodic checks to the retirees who are still alive. The insurance company hires actuaries to estimate how long a large pool of retirees will live and then prices the income based on this distribution of lifespans.

The advantage of the long-life income club is that the retiree can spend as if she were going to live an average lifespan, say to age 86, with no risk she will run out of money if she lives to age 100.

While no one should put all of their retirement savings into an annuity, let’s assume for the sake of this example that a woman buys a $500,000 income annuity. At today’s low interest rates, a 67-year-old woman can buy an income of about $2,800 per month (or $33,600 per year) if she joins the long-life income club. This may not sound like a lot, but it is considered fair based on today’s interest rates and her expected lifespan.

To see why it’s fair, imagine that she had instead spent $33,600 every year from her $500,000 in savings. Let’s also assume that she was able to earn 3% on her safe savings (which is likely more than retirees can receive from money market funds, CDs or short-term bond investments). Each year, she chips away at her principal to support the $33,600 income. But when we do the math, we see she runs out of money at about age 86. If she lives to age 96, someone will need to chip in more than $400,000 to support her lifestyle.

If she’s worried about running out of money before age 96, she can cut back her spending from $33,600 down to about $25,000 each year. Instead of spending $2,800 per month, she’ll spend less than $2,100 per month. And she’ll still be at risk of running out of money if she lives past 96.

By joining the long-life income club and securing protected lifetime income through an annuity, a retiree is able to live better and live safer than a retiree who doesn’t join the club. She can spend more money without worrying that she will run out in old age. This is why economists refer to the failure of more consumers to annuitize some portion of their retirement portfolio as the “annuity puzzle.”

How do you join the club? There are several ways:

• You can choose a simple single premium immediate annuity, also known as a SPIA, like the example above.
• You can also buy an annuity that starts paying income later in retirement, known as a deferred income annuity, which many economists believe is the most efficient type of annuity because it protects against running out of money later in life at the lowest cost. The IRS even gives retirees a tax break if they buy a special type of deferred income annuity with IRA dollars. This is called a qualified longevity annuity contract or QLAC.
• Finally, retirees who prefer the possibility of growth on annuity savings and some liquidity early in retirement can choose a fixed indexed annuity or a variable annuity with a so-called rider that provides lifetime income.This type of annuity product provides some market exposure with a guaranteed income option that can be turned on when income is needed. Annuities with an investment component can be complex, so it is important to do your homework to understand the trade offs.

While annuities have received some bad press recently, no other investment strategy can do a better job of supporting a safe income in retirement. Retirees should ask themselves how much of their savings they would like to set aside to fund a guaranteed base of income, how much they would like to pass on to their heirs, how much they would like to invest for growth, and how much they need in case of an emergency. An annuity is likely to be the best choice for funding the slice of retirement savings that provides lifetime income.

Like a mutual fund (or any other financial product), it pays to do your homework when deciding which annuity is right for your retirement goals. Some annuities can be complex products and fees and expenses can vary widely among providers. Remember that insurance companies create these products from investments such as bonds, stocks and options, and there will always be trade offs among income, liquidity and growth.

https://www.kiplinger.com/article/retirement/T003-C032-S014-seeking-guaranteed-lifetime-income-join-the-club.html

Annuities are getting more and more popular among seniors, and for good reason.

Annuities are not right for everyone but are a real blessing for many seniors.

Annuities are a popular choice for investors who want to receive a steady stream of income in retirement. The income you receive from an annuity can be distributed monthly, quarterly, annually or even in a lump sum payment.

A general definition is “a contract between a life insurance company and an investor, which provides savings for retirement while enjoying the benefits of tax-deferred growth”.

Like all annuities, an indexed annuity is a contract with an insurance company that provides an income stream — either immediately or at some point in the future — in exchange for premium payments. However, indexed annuities are unique in offering a minimum rate of return (typically 1% to 3%) that helps to preserve principal, along with some potential for gain when the market is riding high.

If the market has a negative year, you would receive at least the minimum return (if the annuity is held until the end of the contractual term). If the market has a positive year, you would receive a higher rate of return, based on the performance of a specified market index such as the S&P 500.

Most annuities have surrender charges that are assessed if the contract owner surrenders the annuity during the early years of the contract. However, some indexed annuities allow withdrawals of up to 10% per year without surrender charges. Of course, any withdrawals will reduce the principal, and withdrawals before the end of an index period will receive no interest for that period. Early withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty.

Indexed annuities are complex products with rules, restrictions, and expenses, and they are not appropriate for every investor. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company.

What are the differences among fixed, fixed index and variable annuities?

Fixed, fixed index and variable annuities differ in the way they generate earnings, and also in the amount of risk involved.

When you buy a fixed annuity, the insurance company guarantees you an interest rate for a certain period of time. At the end of this period, the insurance company will declare a renewal interest rate and another guarantee period. In addition, most fixed annuities have a minimum interest rate that is guaranteed for the life of the contract. In other words, regardless of market conditions, you will never receive less than your guaranteed percentage rate. Fixed annuities typically appeal to individuals who feel more comfortable knowing exactly how much their money is earning.

A fixed index annuity gives you more performance risk than a fixed annuity however more potential return. It has less performance risk than a variable annuity but also less potential return. It is also known as an equity indexed annuity, but the name is not appropriate as you are not actually invested in specific equity products.

As its name implies, a fixed index annuity is a type of fixed annuity in which the interest rate is determined in part by reference to an investment-based index such as the S&P 500 Composite Stock Price Index which is a collection of 500 stocks intended to represent a broad segment of the market. As interest is credited, the interest earnings are locked in to the account value and the account will not participate in any future market downturns. Because of this reference to an index, the annuity offers the ability to earn credited interest resulting from a rising financial market while at the same time providing the security and guarantees similar to those associated with traditional fixed annuities.

With a variable annuity, you have added control over your investment dollars. You allocate your funds among a variety of investment options with objectives ranging from aggressive to conservative; insurance companies call these sub-accounts. Your investment returns are tied to the performance of the underlying investments of the sub-accounts. As an investment in securities, the principal amount and investment earnings in a variable annuity are not guaranteed and will fluctuate with the performance of the underlying investments. They differ from fixed products because the policy owner bears investment risk and possible loss of principal. As these products are more complex and have associated with them more risk, the broker who sells this annuity must be licensed to sell securities.

Fixed, fixed index and variable annuities offer you a combination of compound interest and tax deferral. When your earnings are not subject to taxes each year, they compound faster. Faster growth of your money means more retirement income for you in the long run.

What are the main advantages of annuities?

One of the biggest advantages that annuities have to offer is that they can provide guarantee income payments. Only an insurance company issued annuity can guarantee lifetime and beneficiary income payments.

Unlike other tax-deferred retirement accounts such as 401(k)s and IRAs, there is no annual contribution limit for a non-qualified annuity. That allows ou to put away more money fir retirement, and is particularly useful for those that are close to retirement age and need to catch up.

All the money you pay into an annuity compounds year after year without a tax bill from Uncle Sam. That ability to keep every dollar working for you can be a big advantage over taxable investments.

When you cash out, you can choose to take a lump-sum payment from your annuity however most retirees prefer to set up guaranteed payments for a specific length of time, or for the rest of their life, providing a steady stream of income.

The annuity serves as a complement to other retirement income sources, such as Social Security and pension plans to enable you to maintain a certain standard of living.

When is an annuity right for me?

The following situations are examples where an annuity might be exactly what you need.

1. You’re saving for retirement – If you’re already contributing the maximum to other retirement plans like an IRA or 401(k), a fixed index annuity is an attractive retirement planning option that grows tax-deferred.
2. You don’t need the money soon – If you don’t anticipate needing the money from a fixed index annuity prior to the time you turn 59 1/2 then a fixed index annuity may be a good option for you.
3. You’re worried you might outlive your savings – Annuities can provide guaranteed income for the rest of your life, no matter whether you live to be 100 or even 120. With modern advances in health and medicine people are living longer than ever.

Fixed Indexed Annuity and Suze Orman

Suze Orman has been singing the praises of indexed annuities as a way to shield your retirement nest egg from market volatility for some time. In her 2001 book, “The Road to Wealth,” Suze Orman tells readers that “if you don’t want to take risk but still want to play the stock market, a good index annuity might be right for you.”

“In my world, annuities really sell for four things and the acronym is PILL.  P stands for principal protection. I stands for income for life. L stands for legacy, and the other L stands for long-term care. If you don’t need to fall for one or more of those issues, then you do not need an annuity, period,” says Michael Minter, managing partner of Mintco Financial.

If you work while collecting Social Security benefits, you can get hit with hefty benefit reductions. Here are the earnings limits for this year.

Can you work and collect Social Security at the same time? The short answer is yes, it’s possible. However, if you haven’t reached your full retirement age, the Social Security earnings test could cause the Social Security Administration (SSA) to withhold some, or even all, of your monthly benefit payments.

With that in mind, here’s an overview of the Social Security earnings test, how it could affect your benefits, what happens to benefits that are withheld, and all the details you need to know before claiming Social Security when you’re planning to keep working.

What is the Social Security earnings test?

Americans can claim Social Security benefits as early as age 62 or as late as age 70. However, there’s a rule known as the Social Security earnings test that prevents certain people from collecting their entire retirement benefit while simultaneously earning money from a job.

In a nutshell, the Social Security earnings test applies to people who have applied for Social Security retirement benefits but have not yet reached their full retirement age. However, there are several different parts of the Social Security earnings test, and some important concepts to understand.

What is your Social Security full retirement age?

Before we get started, the Social Security earnings test that applies to you depends on when you’ll reach your full Social Security retirement age, also known as your full retirement age, or FRA. So, the information will be useful to you only if you know what your full retirement age is.

Many Americans incorrectly believe that their Social Security full retirement age is 65 years old, and for good reason. This was indeed the case for much of the program’s history, but no longer in the modern era. For Americans who have yet to reach full retirement age for Social Security purposes, it can be age 66, age 67, or somewhere in between, depending on the year you were born.

With that in mind, here’s a quick guide to determining your full Social Security retirement age, so you’ll know which part of the Social Security earnings test will apply to you.

Three kinds of Social Security beneficiaries

The SSA classifies beneficiaries into three  categories for the purpose of the earnings test:

1. Social Security beneficiaries who will reach full retirement age after 2019. For example, if your full retirement age is 67 and you just turned 62 in 2018, you’d be in this group.
2. Social Security beneficiaries who will reach full retirement age during 2019. If you were born in February through December 1953, you’ll start 2019 in this group.
3. Social Security beneficiaries who have already reached full retirement age, or who will do so during the current calendar month.

The Social Security earnings test affects people in each of these age groups differently, so next we’ll see how the Social Security earnings test  applies to each.

1. If you’ll reach full retirement age after 2019

The most restrictive form of the Social Security earnings test applies to people who have claimed Social Security benefits but won’t reach their full retirement age until after the current calendar year. In other words, if you’ll reach your full retirement age on Jan. 1, 2020, or later, this is the rule that applies to you.

For 2019, people in this category will have $1 of their Social Security benefits withheld for every $2 in earned income in excess of $1,470 per month, or $17,640 per year.

Say you’ll be younger than your full retirement age for the entirety of 2019, and your monthly retirement benefit is $1,200. Here are a few scenarios:

• If you earn $15,000 from working part-time during 2019, you won’t have exceeded the Social Security earnings test limit and can collect your full $1,200 monthly retirement benefit all year long.
• If you earn $25,000 from working during 2019, this is $7,460 in excess of the limit. Based on the $1 per $2 withholding rate, that means $3,730 would be withheld from your benefits for the year. I’ll get to how the SSA does this later, but the takeaway is that instead of receiving $14,400 in Social Security benefits during the year, you’d get $10,670 instead. So you’d collect some, but not all, of your Social Security benefit.
• Finally, if you earn $80,000 from working in 2019, that would be $62,460 greater than the limit. Based on the calculation, it would translate to $31,230 in withholdings. That’s more than your Social Security retirement benefit, so your entire Social Security benefit for 2019 would be withheld in this scenario.

• 2. If you’ll reach full retirement age during 2019

  If you’ll reach your full Social Security retirement age during 2019, you’re still subject to the Social Security earnings test, but you face a far less restrictive version.

  For starters, the income threshold is higher. For 2019, the Social Security earnings test doesn’t kick in for members of this group unless they’ve earned more than $46,920. And the only months considered are those before the month in which you’ll reach full retirement age. In other words, if your full retirement age is 66 and your birthday is on Aug. 25, 2019, the income you earn from January through July is the only income considered for the purposes of the earnings test.

  In addition, the benefit reduction rate for this group withholds $1 for every $3 in excess earnings, so even if you exceed the income threshold, the reduction isn’t as harsh.

  For example, imagine you reached your full retirement age in August 2019 and you anticipate earning $50,000 between January and July. That’s $3,080 more than the earnings test threshold. So for every $3 of this amount, $1 of your benefit will be withheld, which translates to about $1,027.

  3. If you’ve already reached full retirement age

  Here’s the easy part. If you’ve already reached full retirement age, or you will reach full retirement age during the current calendar month, the Social Security earnings test doesn’t apply to you at all. You are free to earn as much money from working as possible without any effect on your Social Security benefits. In other words, if you’ll reach your full retirement age in January 2019, it doesn’t matter when your birthday is within the month — the entire month’s earnings are exempt from the earnings test.

  For example, if you’re 68 at the beginning of 2019 and earn a salary of $150,000 from your job, you can still collect your entire Social Security benefit as calculated by the SSA.

• What are the Social Security earnings test limits?

  For quick reference, here’s a table about the Social Security earnings test limit and how it applies to you. I’ve included the 2018 limits for reference and to illustrate how these income thresholds increase with inflation over time.

  Category	2018 Earnings Test Limit	2019 Earnings Test Limit
  You’ll reach full retirement age after 2019	$17,040/year ($1,420 per month)	$17,640/year ($1,470 per month)
  You’ll reach full retirement age in 2019	$45,360/year ($3,780 per month)	$46,920/year ($3,910 per month)
  You’ve already reached full retirement age	Not applicable	Not applicable

  DATA SOURCE: SSA.

  Benefit reductions for early retirement

  In addition to the potential for some or all of your benefits to be withheld because of the earnings test, claiming Social Security before you reach full retirement age will result in a permanently reduced monthly benefit amount.

  Depending on how early you decide to claim benefits, the SSA uses these two rules when reducing your benefit.

  • If you claim Social Security before reaching your full retirement age, but within 36 months of it, your retirement benefit will be reduced by 6.67% per year (or about 0.56% per month) early, for as many as 36 months before full retirement age.
  • If you claim Social Security retirement benefits more than 36 months before reaching your full retirement age, your benefit will be reduced by 20% plus an additional 5% for every year (or about 0.42% per month) before full retirement age. Age 62 is the earliest age at which you can claim your Social Security retirement benefit.

  If your full retirement age is 67, that means your benefit can be permanently reduced by as much as 30% for claiming early. So in addition to the earnings test, factor this in before claiming Social Security early.

  What income counts toward the earnings test limits?

  First of all, it’s important to point out that as the name implies, the Social Security earnings test applies only to earned income. That generally means either income from a job (wages, salaries, bonuses) or net self-employment income.

  The earnings test doesn’t consider investment income such as dividends or capital gains, pensions, annuities, other government benefits, or any other unearned sources of income. For example, if you claim Social Security and also take a distribution from your 401(k), that amount won’t count as earnings.

  Your earned income from a job is considered when it’s earned, not necessarily when it’s paid to you. As one possible example, if you earn a bonus for your job performance in 2018 but don’t receive it until 2019, it will be counted as 2018 income. Or if you’re paid in 2019 for built-up vacation time you’ve accrued over the past several years, it won’t be counted as 2019 income. The exception is self-employment income, which is counted when it’s received.

  How does the SSA know what you earned?

  If you expect to earn more than your applicable Social Security earnings test limit, it is your responsibility to let the SSA know how much you anticipate earning for the year. In other words, if you’re 63 in 2019, have claimed benefits, and expect to earn over $17,640 during the year, you need to let the SSA know.

  Retirement benefit recipients can’t yet do this online. If you need to report a change in your expected earnings, you can call the SSA at (800) 772-1213 or go to your local Social Security office.

  Special rule for the first year you retire

  Because not everyone retires or claims Social Security at the beginning of a calendar year, the SSA has a special rule that’s intended to make sure the earnings test doesn’t affect people it shouldn’t.

  Here’s the plain English explanation. If you retire — meaning you actually stopped working, not just that you claim Social Security — you can collect your full Social Security benefit for the rest of that year, regardless of how much you’ve earned.

  As an example, let’s say you reach age 62 in July 2019 and decide to retire. Before your birthday, you earned $75,000 — obviously well in excess of the applicable earnings test limit for a 62-year-old. However, because you’re retiring, you can collect your entire monthly benefit for the rest of 2019.

  How does benefit withholding work?

  If your benefits are reduced because of the Social Security earnings test, the SSA doesn’t withhold money from each of your checks. Rather, the SSA will withhold all benefit payments until the entire estimated annual withholding amount is met.

  Here’s an example: You’ve filed for Social Security benefits and will be younger than your full retirement age for all of 2019. The SSA calculates  you’re entitled to a $1,000 monthly benefit. If you tell the SSA you expect to earn $22,000 in 2019, this is $4,360 over the applicable earnings test limit. That means $2,180 of your benefits will be withheld in 2019. So your January, February, and March benefit payments will be withheld. From April through December, you’d receive your $1,000 monthly benefit. And since $3,000 was withheld, the $820 in excess withholding will be repaid to you in 2020.

  What if your benefits are withheld because of the Social Security earnings test?

  If your Social Security benefits are withheld because of your earnings before reaching full retirement age, there are two reasons your benefits might grow later.

  First, when retirement benefits are withheld because of the earnings test, the SSA recalculates your benefit once you reach your full retirement age to account for the months you didn’t receive benefits.

  For example, if you had 12 months’ worth of benefits withheld before reaching full retirement age, your monthly benefit after you reach full retirement age will be adjusted upward as if you had waited an additional year.

  Second, any earnings while you’re working can be factored into the Social Security benefits formula. The current benefit formula is based on your 35 highest inflation-adjusted years of Social Security taxable earnings.

  So if your most recent year of earnings is one of your 35 highest, the SSA will automatically recalculate your benefit and increase it accordingly starting with December of the following year but retroactive to January of that year.

  For example, if you’ve already claimed Social Security but earn a high salary in 2019, your recalculated benefit will be reflected starting in December 2020, paid retroactively to January 2020.

  The earnings test doesn’t just apply to retirement benefits

  It’s also important to note that the Social Security earnings test doesn’t apply only to retirement benefits when the beneficiary earns too much. The earnings test also applies to other people who may be drawing benefits on your work record, such as spousal benefits or survivors benefits.

  For example, if you die and your spouse is eligible to collect a $1,500 monthly survivors benefit based on your work record, your spouse’s income and age would be taken into account to determine if his or her survivors benefit would be partially or even fully withheld based on the Social Security earnings test. However, it wouldn’t affect survivors benefits payable to your children, unless they earn more than the earnings test limit.

  How much will the earnings test reduce my Social Security benefits?

  If you’re not a math person and don’t want to do earnings test calculations by hand, don’t worry. The Social Security Administration has an online earnings test calculator where you can estimate your potential benefit withholding.

  Should you claim Social Security even if you’ll be subject to the earnings test?

  Some people who earn in excess of the earnings test limits claim Social Security early to boost their income, even though it means some of their benefits will be withheld. Others don’t see a point in claiming Social Security early while they’re still earning enough to cover their expenses. However, now that you know the ins and outs of the Social Security earnings test, you’ll be in a good position to make a smart decision for you.

  The $16,728 Social Security bonus most retirees completely overlook
  If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after.

  https://www.fool.com/retirement/2019/01/09/2019-social-security-earnings-test-limits.aspx

Sarah O’Brien

• While some people might have been saving and planning for decades for retirement, others might not have given much thought to their life after full-time work.
• If you plan to continue working in some capacity, keep in mind the effect it could have on your Social Security benefits if you tap them before your government-determined full retirement age of about 66 or 67.
• Make sure you closely evaluate your expenses, sources of income and the potential tax implications that come with different types of income.

If you’re among the millions of older U.S. workers who will say farewell to full-time work in 2019, now’s a good time to make sure you’re truly prepared.

Whether you’re viewing the next phase of life as retirement, semi-retirement or an unknown adventure, experts say the transition should get more than just a passing once-over.

Roughly 10,000 baby boomers turn 65 every day, the age most often associated with retirement. Of course, not everyone hangs up their working hat at exactly that age, which means your own situation could be very different from that of someone else on the verge of retiring.

For instance, roughly 60 percent of workers had to stop working before they intended due to reasons such as layoffs or health issues, according to a 2015 study by Voya Financial. Still others have continued working beyond the age they once thought would mark the end of their careers.

And while some people might have been saving and planning for decades for retirement, others might be crossing their fingers or have yet to give real thought to their transition away from 40-hour (or more) work weeks.

Regardless of where you fall on that spectrum, experts recommend taking time to make sure you’ve covered all your financial bases.

Patrick J. Skerrett
Former Executive Editor, Harvard Health

For many people, retirement is a key reward for decades of daily work—a time to relax, explore, and have fun unburdened by the daily grind. For others, though, retirement is a frustrating period marked by declining health and increasing limitations.

For years, researchers have been trying to figure out whether the act of retiring, or retirement itself, is good for health, bad for it, or neutral.

A new salvo comes from researchers at the Harvard School of Public Health. They looked at rates of heart attack and stroke among men and women in the ongoing U.S. Health and Retirement Study. Among 5,422 individuals in the study, those who had retired were 40% more likely to have had a heart attack or stroke than those who were still working. The increase was more pronounced during the first year after retirement, and leveled off after that.

The results, reported in the journal Social Science & Medicine, are in line with earlier studiesthat have shown that retirement is associated with a decline in health. But others have shown that retirement is associated with improvements in health, while some have shown it has little effect on health.

Retirement changes things

In their paper, Moon and her colleagues described retirement as a “life course transition involving environmental changes that reshape health behaviors, social interactions, and psychosocial stresses” that also brings shifts in identity and preferences. In other words, moving from work to no work comes with a boatload of other changes. “Our results suggest we may need to look at retirement as a process rather than an event,” said lead study author J. Robin Moon, who is now a senior health policy advisor to New York Mayor Michael Bloomberg.

These changes may be why retirement is ranked 10th on the list of life’s 43 most stressful events. Some people smoothly make the transition into a successful retirement. Others don’t.

For four decades, Dr. George E. Vaillant, professor of psychiatry at Harvard Medical School, and numerous colleagues talked with hundreds of men and women taking part in the Study of Adult Development. Initially focused on early development, the study now encompasses issues of aging, like retirement.

When researchers asked study participants 80 and older what made retirements enjoyable, healthy, and rewarding, four key elements emerged:

Forge a new social network. You don’t just retire from a job—your retire from daily contact with friends and colleagues. Establishing a new social network is good for both mental and physical health.

Play. Activities such as golf, bridge, ballroom dancing, traveling, and more can help you let go a bit while establishing new friendships and reinforcing old ones.

Be creative. Activating your creative side can help keep your brain healthy. Creativity can take many forms, from painting to gardening to teaching a child noun declensions in Latin. Tapping into creativity may also help you discover new parts of yourself.

Keep learning. Like being creative, ongoing learning keeps the mind active and the brain healthy. There are many ways to keep learning, from taking up a new language to starting—or returning to—an instrument you love, or exploring a subject that fascinates you.

Individual effects

Understanding how retirement affects a large group of people is interesting, but doesn’t necessarily have anything to do with how it will affect you.

If you’ve had a stressful, unrewarding, or tiring job, retirement may come as a relief. For you, not working may be associated with better health. People who loved their work and structured their lives around it may see retirement in a different light, especially if they had to retire because of a company age policy.

An individual who has a good relationship with his or her spouse or partner is more likely to do well in retirement than someone with an unhappy home life for whom work often offered an escape hatch.

People with hobbies, passions, volunteer opportunities, and the like generally have little trouble redistributing their “extra” time after they retire. Those who did little beside work may find filling time more of a challenge.

And then there’s health. People who retire because they don’t feel well, or have had a heart attack or stroke, or have been diagnosed with cancer, diabetes, or other chronic condition may not enjoy retirement as much as someone who enters it in the pink of health.

Are you retired, or planning to be soon? What do you think are the elements of a successful retirement?

Is retirement good for health or bad for it?