social security

How One More Year of Work Can Transform Your Retirement

Matt Bell — Mon, 02 Jul 2018 08:30:17 +0000

As you glance into the future, do you see a life of endless work stretching out in front of you? If so, you're not alone. An increasing number of people are wondering how they'll ever be able to retire.

But maybe things aren't as bad as they seem. In fact, a recent study found that delaying retirement by just a few months could have a major impact on your ability to retire and your standard of living in retirement.

A National Bureau of Economic Research (NBER) study concluded that "working three to six months longer boosts retirement income by as much as increasing retirement contributions by one percentage point over 30 years of employment."

More specifically, the study found that instead of retiring at age 66, working until age 67 can boost retirement income by 7.75 percent. By contrast, increasing the amount of earnings saved in a retirement account by one percentage point starting at age 36 and keeping it at that level for the next 30 years would raise retirement income by just over 2 percent.

The NBER findings held true for singles as well the primary earner of married couple households across a wide range of incomes.

That isn't to say that increasing your savings rate is a bad idea. It's just that of the two main options available to workers who are behind on their retirement planning — saving more or working longer — working even a little longer will likely pay higher dividends than saving more.

The value of waiting

The researchers noted four benefits from delaying retirement. First, each additional month of work provides an opportunity to save more in a retirement account. Second, it gives that account balance more time to grow. Third, if you plan to buy an annuity, each month that you hold off will increase the benefit amount for the same cost or lower the cost of the same benefit amount.

Fourth, and by far most importantly, each month you delay retirement will boost your Social Security benefits. The earliest you can claim benefits is age 62; the latest is age 70. Between those two points, each month that you wait will increase your monthly benefit.

You can review your estimated Social Security benefits by creating an account on the SSA website. You'll see how dramatically different your estimated monthly benefits will be at age 62, at your "full retirement age" (67 for those born in 1960 or later), and at age 70. For example, my benefit will increase more than 50 percent if I claim at age 67 instead of 62. And if I wait until age 70, my benefit will be nearly twice as high as my age 62 benefit.

Once you know your full retirement age benefit, you can also estimate the month-by-month or year-by-year differences in your benefits by using the SSA's calculator. For example, if I were to claim benefits beginning at age 67 instead of age 66, waiting that extra year would give me a 6.5 percent raise — $2,750 per month vs. $2,582, a difference of $168 per month or $2,016 per year.

To understand how that compares to saving more, let's start with "the 4 percent rule," a common recommendation to withdraw no more than 4 percent of your nest egg each year in order to make sure your retirement savings last throughout retirement. Following that guideline, it would take $50,400 of additional retirement savings in order to provide a $2,016 boost of yearly retirement "income."

To accumulate that much more money in her retirement account, a 56-year-old making $80,000 per year would have to contribute an additional 4.3 percent of salary each month ($289.50) to her workplace retirement plan, generate an average annual return of 7 percent, and do that for 10 years. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

There may be other benefits to delaying retirement as well.

Continued employer matches on retirement savings

If your employer matches a portion of the money you contribute to your workplace retirement plan, that's an incredible benefit. The longer you keep taking advantage of it, the larger your nest egg will grow. (See also: 7 Things You Should Know About Your 401(k) Match)

Extended group health insurance

Medicare eligibility begins at age 65, so if you retire before then, you'll need to find coverage elsewhere, which can be expensive. By the same token, if you continue to work past age 65, you may be able to hang onto your group health insurance, which may be more comprehensive than Medicare.

If that's your situation, be sure to contact your benefits department to see how your current health insurance works with Medicare. It may be that you'll have to sign up for Medicare even if you keep your current insurance. The number of people employed at your company will dictate how payment of claims will be coordinated between the two insurance plans. (See also: 4 Common Mistakes to Avoid When You Enroll in Medicare)

More employer-provided education opportunities

Employer-sponsored training is another valuable benefit, whether it comes in the form of tuition reimbursement for college classes or in-house workshops. If you're among the growing number of people who plan to do some type of work for pay after leaving the full-time workforce, new skills you pick up on your current employer's dime could be well worthwhile.

If you're behind on your retirement planning, hopefully this has shown you that you probably won't have to work forever in order to cover your later life expenses. Even relatively small delays in your retirement can make a meaningful difference. And when you factor in the other benefits of working a bit longer, you may be in far better shape than you thought. (See also: 6 Great Retirement Jobs)

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Ways to Embrace Having to Work in Retirement

Emily Guy Birken — Thu, 28 Jun 2018 08:00:15 +0000

We all know what retirement is supposed to look like: You get a nice farewell luncheon and a gold watch from your employer — and then you get busy golfing, traveling, spoiling the grandkids, and generally living it up in your golden years.

So if you find yourself with an underfunded nest egg and the realization that you have to continue working in retirement, you can be forgiven for wanting to throw an epic temper tantrum. Working in retirement is not what we were promised, and if that doesn’t warrant some flailing and crying, I don’t know what does.

But not being able to fully retire doesn’t have to put you in a permanent bad mood. Once you’ve stopped shaking your fist at the heavens, consider these ways to not only accept, but also embrace the reality of working in retirement.

1. You may be happier than retirees

Though it might seem like retirement is the key to happiness, psychological researchers have found that working is actually better for your subjective well-being. According to a 2014 study by Dr. Elizabeth Mokyr Horner in the Journal of Happiness Studies, retirees do experience a rush of well-being and life satisfaction in the first few months after they retire — but they feel a sharp decline of their levels of contentment within the first few years of retirement.

There are a couple of reasons for this decline in happiness. First, anything you spend years planning for is unlikely to live up to your expectations. It’s only natural for retirees to feel let down when they realize their new chapter in life isn’t exactly what they expected. In addition, when you end a career that has helped define who you are, it’s common to feel adrift once that career has ended. Finally, retirement can often lead to a shrinking social circle, since you no longer see co-workers on a daily basis. Lack of social contact can increase feelings of loneliness and depression, which can be a major problem among retirees.

Even if you are not happy about the fact that you have to work past retirement age, remember that working may actually be improving your happiness by helping to define you, giving you a broader social circle, and providing you with a reason to get up every morning. (See also: How to Find Your New Identity After Retirement)

2. You can make your workplace better

One of the benefits of working past traditional retirement age is the amount of knowledge and experience you bring to your job. Not only does that make you a valuable member of your workplace, but it provides you with an opportunity to help encourage and shape the culture there. By taking younger co-workers under your wing and making suggestions based on your depth of knowledge, you can potentially improve the company you work for. It’s tough to do this without the kind of clout your experience lends you.

3. You can put off taking Social Security

According to the Center for Retirement Research at Boston College, approximately 42 percent of men and 48 percent of women begin taking their Social Security benefits at age 62, the earliest you are eligible to receive them. But Social Security benefits are permanently reduced by up to 30 percent by taking them so far in advance of full retirement age.

If you are still working in retirement, you can put off taking your Social Security benefits, and thereby increase your monthly benefit by as much as 8 percent per year that you put off Social Security. In addition, you may also be increasing your Social Security monthly payment by continuing to work, since the Social Security Administration calculates your benefit based on your 35 highest earning years. If you are at the top of your lifetime salary while working past retirement age, these high earning years will replace lower earning years from your youth — and potentially increase your monthly payment. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

4. You are in a retirement investment sweet spot

Though working past retirement age may not be your idea of fun, it does give you an unparalleled opportunity to invest. First, since you are over the age of 50, you can take advantage of the catch-up provisions that allow you to contribute up to $24,500 to your 401(k) and up to $6,500 to your IRA, allowing you to reduce your tax burden while funding your retirement accounts.

In addition, since you are working longer, that means you have a longer investment timeline to play with. This can allow you to invest for growth in ways that a typical retiree could not, since she would be trying to protect principal. Since you anticipate working for a few more years, you get a few more years of the magic of compound interest working to build your wealth. (See also: 7 Reasons to Invest in Stocks Past Age 50)

5. You can keep using your employer’s health insurance

All Americans are eligible for Medicare as of age 65, but the program costs more than you might expect and covers less than you might think. Not only do you have to pay a premium of at least $134 per month for Medicare Part B, but you will be on the hook for 20 percent of the Medicare approved amount for health care after you have met the annual deductible of $183. In addition, Medicare does not cover prescription drugs, dental or vision care, foot care, hearing aids, or dentures.

Being able to stay on your employer’s health insurance could be a major benefit to working, since you are likely to have more comprehensive coverage under that insurance and it may be less expensive for you, as well. (See also: 4 Common Mistakes to Avoid When You Enroll in Medicare)

No need to curse the heavens

Working in retirement may not be what you planned, but it doesn’t have to feel like the end of the world. If you take the time to recognize how working in retirement can actually help your emotional, mental, financial, and physical well-being, you can embrace the reality of working when you’d expected to be golfing.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Ways to Preserve Your Net Worth in Retirement

Tim Lemke — Thu, 21 Jun 2018 08:01:16 +0000

We all know the key to a comfortable retirement is amassing enough wealth to last your entire post-work life. But if you truly want to ensure financial security, you should work to maintain or even build upon your net worth as you age. This requires an aggressive level of saving when you are young, and a lot of discipline along the way — but it can be done.

Let's examine some ways you cannot only make your retirement savings last, but also protect all of your net worth throughout your lifetime.

1. Budget and plan wisely

Retirees generally see their expenses decline as they age. The kids are out of the house, college is paid off, homes are owned free and clear. Don't get too cocky, though; you still need to ensure your expenses don't outpace your income. Continue working hard to live within your means. Keep budgets for most expenses, and develop savings plans for any big-ticket purchases. If you want to maintain your net worth, you can't allow your day-to-day cost of living to get out of hand.

2. Downsize

Do you need to live in such a large house? Do you really need two cars? You can reduce your day-to-day expenses and make your retirement funds last longer by simply scaling down your possessions. Considering selling some of your material items and converting them to cash for living expenses or for investing. Or, just donate them to charity and potentially get a tax break on donations.

Even though the footprint of your life may be getting smaller, your net worth can actually increase under these circumstances because you may be converting physical assets (house, car, etc.) to investments that can rise in value and generate new income. (See also: 7 Reasons You Need to Downsize)

3. Never spend your principal

In an ideal world, you are spending your retirement living off the gains and interest from your savings, not the savings itself. If you amass enough savings, that sum can by itself generate its own income in the form of interest, dividends, and capital gains, and it may be possible to live on that income alone. You need a lot of money saved to make this happen, but it's a wonderful feeling to know you are living comfortably without ever tapping into the bulk of your savings.

4. Avoid taking on new debt

You may be tempted in retirement to finally buy that beach house, that luxury car, or that set of his-and-hers personal watercraft. This is fine if these are things you saved for, but you can't let yourself go overboard. The last thing you want is to take on new debt that will add to your expenses at a time when your income is drastically reduced.

Borrowing can lead to interest payments, which can lead to more debt, and then you're seeing your nest egg and net worth drop faster than you ever intended. Avoid debt — especially new debt — and you will be in much better shape financially as you age. (See also: What to Do If You're Retiring With Debt)

5. File for Social Security as late as possible

Anyone can begin accepting Social Security benefits starting at age 62, but if you can wait until you're 67 (what the Social Security Administration considers full retirement age), you'll get 100 percent of your benefits. Accepting benefits before your full retirement age means you'll receive lower monthly payments, costing yourself thousands of dollars annually. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

6. Continue to invest

It may seem counterintuitive to consider investing when you're looking to protect the income you have. But there is a growing body of evidence to suggest that it's OK to invest in stocks even as you get older. Why? Because people are living longer and are more likely to outlast their savings.

Continuing to invest smartly in stocks can help you increase your savings and make it last longer. It's certainly wise to move most of your money into safer things like bonds and cash, but setting aside a certain portion for stocks could mean the difference between seeing your net worth shrink and watching it grow.

7. Pay as little tax as you can

Hopefully, you've used tax-advantaged accounts such as a 401(k) and Roth IRA to build your retirement savings. When you retire, you no longer have those vehicles at your disposal. But there are some things you can do to keep the government from taking too much. First, you can work to ensure that any income you have is taxed at as low a rate as possible. This means taking advantage of stock dividends and long-term capital gains, which are taxed at lower rates than normal income. It means purchasing tax-free municipal bonds. It means claiming as many deductions as you can on your taxes. Taxes are necessary to keep our society upright, but there's no reason to pay more than required.

8. Avoid bailing out relatives

This is not an argument against helping out your children or other loved ones with financial expenses. But it's important to be thoughtful about how you help and the impact it may have on your finances. Is the money you are giving to your adult child simply throwing good money after bad?

If you are helping to take care of the grandkids, are you being reimbursed for the child care expenses (food, clothes, etc.) you are taking on? Remember that in order to make your retirement funds last, you can't be giving away your savings carelessly. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Ways to Build Retirement Stability in Your 50s

Alicia Rose Hudnett — Tue, 22 May 2018 09:00:31 +0000

If retirement planning hasn't been at the top of your to-do list, your 50s are the time to make it your first priority. Wait 10 more years, and your only choice of retirement options may just be to keep working. Here's how you can prevent that from happening.

1. Take advantage of catch-up contributions

Whether you've been a responsible saver or not, this may be your last chance to really build up your nest egg. Beginning the year you turn 50, you can contribute $6,500 to an IRA (that's an additional $1,000 for 2018) and $24,500 to most workplace retirement plans (that's $6,000 more than the standard allowable amount for 2018). (See also: 6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future)

2. Get an HSA

If you have a high-deductible health plan (HDHP), you can open a health savings account, or HSA. Contributions to an HSA are made on a pretax basis and remain tax-free if used for qualified health care expenses. For the 2018 tax year, if you have an individual plan, you can contribute up to $3,450, and if you have family coverage, you can contribute up to $6,900. If you are age 55 or older, you can contribute an additional $1,000.

A health savings account is similar to other tax-advantaged retirement accounts: Once you establish an account, you don't need to use up the funds each year, and you may be able to invest the money within the HSA, allowing the account to grow. And even if you've established the account through your job, you can take the account with you if you leave.

Before age 65, if you take a distribution from your HSA for non-qualified medical expenses, you may owe income taxes and a 20 percent penalty. But after age 65, non-qualified distributions are penalty-free (but not income-tax free), making it structured like a traditional IRA. Qualified health care expenses are always tax-free at any age. (See also: How an HSA Could Help Your Retirement)

3. Check your Social Security benefit

This is the time to begin thinking about how you will establish a base foundation of guaranteed monthly income that will cover your necessary living expenses. And for many individuals, your Social Security benefit will be the first part of that foundation.

If you haven't already done so, you can start by creating a "my Social Security" account on the Social Security Administration's website, where you can check your work history and benefit summary. This can give you a good idea of how much other savings you will most likely need in order to cover the shortfall between your living expenses and your Social Security check each month.

You can receive Social Security benefits as early as age 62, with one major caveat: You will receive 70 percent of your full earned benefit. To receive 100 percent of your retirement benefit, you must wait until your full retirement age, as determined by the Social Security Administration. For anyone born in 1960 or after, that age is 67.

So if you think that your Social Security benefit is going to play a substantial role in your retirement equation, it's worth waiting until at least your full benefit is available. Each year you delay, up until age 70, your benefit may increase 8 percent. (See also: 5 Questions to Ask Before You Start Claiming Your Social Security Benefits)

4. Sit with a financial planner

Now is the perfect time to sit with a financial planner who can help you look at what retirement will realistically look like for you. You can go over your expenses, which is the first step to figuring out how much monthly retirement income you will need. That, in turn, will indicate how big of a retirement portfolio you will need to generate that income.

A financial planner can also evaluate your investments and make recommendations that can make a huge impact on the growth of your retirement savings. After all, despite the fact that you may be retiring within the next 10 or 15 years, your investment time horizon is still 30 to 40 years, so it's critical that your portfolio reflects that. (See also: 7 Occasions When You Should Definitely Hire a Financial Adviser)

5. Consider long-term care

When people hear "long-term care," they often think it has to do with an insurance policy. But it's a more pressing matter than that. This is the age when you should start reviewing long-term care insurance policies (which cover expenses that Medicare doesn't) and evaluate your own assets to see if you have the ability to effectively self-insure should you need assisted living. If not, a long-term care insurance policy may be a good idea. (See also: The Best Age to Buy Long-Term Care Insurance)

Your 50s are as much about increasing your net worth as they are about properly managing and protecting your current assets. This may be your last chance to get it right.

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This article is from Alicia Rose Hudnett of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

3 Unexpected Hurdles You Might Encounter When Applying for Social Security Benefits

Emily Guy Birken — Fri, 18 May 2018 08:30:31 +0000

Every month, 61 million Americans collect some sort of Social Security benefit. So the process to file for and receive benefits must run like a well-oiled machine, right?

Not necessarily. While the majority of Social Security beneficiaries enjoy a relatively simple and painless process when they apply for benefits, not everyone is quite so lucky. For some beneficiaries, the path to receiving monthly benefits may be littered with unexpected hurdles, pitfalls, and snags.

Here's what you need to know about the potential hiccups you might encounter when applying for your Social Security benefits, and how you can avoid them.

The hurdle: You don't have all of your vital paperwork

As a government benefit, Social Security does require a relatively long list of vital paperwork for signing up. Specifically, you will need the following documentation to apply for benefits:

Your Social Security number.
Your original birth certificate or other proof of birth.
Proof of U.S. citizenship or lawful alien status if you were not born in the United States.
Your military discharge papers, if you served.
A copy of either your W-2 forms or your self-employment tax return for the previous year.

For most beneficiaries, gathering these documents is simply a matter of gathering papers from a file cabinet or safe.

However, some beneficiaries may either have no copy of their vital paperwork, or they may have some sort of problem with a piece of paperwork. For instance, my stepfather discovered as an adult that his original birth certificate had spelled his name differently than he had spelled it his entire life, which meant that he had to get a new birth certificate issued in order to make sure his legal name matched his birth name. Otherwise, he may have been considered ineligible for Social Security benefits when he was ready to retire. (See also: 5 Questions to Ask Before You Start Claiming Your Social Security Benefits)

The fix: Ask staffers to help you get started

Not having all the necessary paperwork is a relatively common problem facing beneficiaries, and it is something that the staffers at your local Social Security office are used to dealing with. If you are simply missing the necessary paperwork, Social Security can help you to obtain any information you might be having trouble finding.

If you have a more complex problem like my stepfather's, Social Security may also be able to let you know what legal steps you must take — although it's always wise to get a second opinion on such matters.

In either case, it is ultimately better to get the ball rolling on time for your Social Security benefits application and enlist the help of the Social Security Administration in getting your paperwork in order.

The hurdle: Your claiming situation is unusual

Most of the millions of beneficiaries who are processed through the Social Security Administration fit into one of several standard claiming situations. For these beneficiaries, the basic information available through both the SSA website and via staffers at the local office will provide the road map necessary to get signed up for benefits.

However, there are any number of less-than-standard situations that a beneficiary may find herself in, and that's when things can get tricky.

For instance, something as simple as applying for Medicare benefits after age 65 could stymie your local Social Security office. Beneficiaries who have health care benefits through another source are not required to sign up for Medicare upon reaching age 65. However, the majority of beneficiaries must sign up for Medicare at age 65 or face a fine, and since the rule covering this so-called special enrollment period is not necessarily well-known by the staffers whose job it is to get you enrolled, a beneficiary in this situation may find herself arguing again and again that she is not subject to the fine.

Any claiming situation that is not standard can become bogged down with this kind of miscommunication and misunderstanding. The rules governing Social Security are complex and not even lifelong staffers know all of the specific situations that could affect benefits, which can cause confusion and frustration for any beneficiary who does not fit into a neat claiming box. (See also: How to Make Sense of the Different Parts of Medicare)

The fix: Research and persistence

The hardworking folks at your local Social Security office want to help and they have a great deal of expertise — but it is not their primary responsibility to make sure you understand your options. Ultimately, it is up to the beneficiaries themselves to understand the specific rules governing their claiming situations.

That's not to say that you are entirely on your own. Start by asking questions at your local office, and use that as the jumping off point to research the particular rules for your situation. Remember that the staffers at the local office will be experts on Social Security as a whole, while you may need to become an expert on your specific claiming strategy.

Once you have determined what rules govern your situation, be persistent in asking that those rules are followed. Bring a copy of the rule with you when you meet with a Social Security staffer, and be prepared to keep presenting it as you go up the chain of command if you're not satisfied.

The hurdle: You receive conflicting information

Since you know that you'll have some sort of unusual claiming situation, you take the bull by the horns and research your options. You do some preliminary digging on SSA.gov and call your local office to double check what you've found. Based on the information you were able to read online and the assurance of the staffer at the office, you feel confident that everything is copacetic.

The next time you call, however, you receive a different answer from a different staffer when you ask the exact same question. And the discrepancy is not a minor one — it's going to cost you big money. There is no way to prove that the first staffer told you something different, and you are going to have to pay for someone's mistake. (See also: 13 Crucial Social Security Terms Everyone Needs to Know)

The fix: Record your conversations with Social Security

Social Security expert Larry Kotlikoff is no stranger to some truly terrifying Social Security mistakes, and after years of helping beneficiaries navigate the program, he advises everyone to record their conversations with Social Security. While actually recording your conversations may or may not be feasible, it is paramount that you take notes of your conversations so that you have a record of the information you receive.

In particular, you will want to note the date and time of the conversation, the name of the staffer you speak to, the specific aspect of Social Security law that governs your situation, the next steps advised by the staffer, and what potential fines, fees, or problems may arise from either taking or not taking those steps.

Keeping this kind of record will not only help you better understand your situation, but also provide you with proof that you were advised a specific course of action if another staffer gives you conflicting advice later on.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Should You Treat Your Social Security Benefits Like a Bond?

Matt Bell — Thu, 17 May 2018 08:30:19 +0000

As you may know, one of your most important investment decisions has to do with asset allocation — that is, how much of your portfolio should be invested in various asset classes, such as stocks and bonds. The optimal answer has mostly to do with your age and risk tolerance.

When you're young, you have time to ride out the market's ups and downs, so it's generally best to tilt your portfolio toward riskier but potentially more rewarding investments, such as stocks. As you get older, it's wise to change that mix, reducing your stock exposure and increasing your use of less volatile investments, such as bonds.

Your risk tolerance also plays a role. If you're comfortable with risk, that may point you toward a more stock-heavy portfolio. If you prefer the safer side of the spectrum, you may want a more conservative investment mix.

But here's where our esoteric-sounding opening question comes in: What if you could put a present value on your future Social Security benefits? And what if you added that amount to your current investment portfolio? That would make your portfolio much larger, and it would change how you're investing, which is exactly what investing legend and Vanguard Founder Jack Bogle recommends. (See also: The Basics of Asset Allocation)

Running the numbers

Let's say you have investments totaling $450,000 and your optimal asset allocation is 60 percent stocks and 40 percent bonds. That means you should have $270,000 invested in stocks and $180,000 in bonds.

Let's also assume your estimated Social Security benefits will be $1,250 per month, or $15,000 per year, beginning at age 67 (you can see your estimated benefits by making an account the Social Security Administration's website). This exercise also requires that you make an assumption about your life expectancy; let's assume you'll live another 20 years after you start collecting Social Security.

Bogle would suggest valuing your portfolio at $750,000. That's $450,000 of actual investments plus $300,000 of assumed future Social Security benefits ($15,000 per year times 20 years). There are other ways of determining the present value of your future benefits, but taking the annual estimated benefit amount and multiplying it by the number of years you expect to live after starting to claim benefits is the simplest.

Applying a 60/40 allocation to your newly inflated $750,000 portfolio would mean your optimal investment mix is $450,000 in stocks and $300,000 in bonds. Bogle suggests that since Social Security is a virtually guaranteed benefit, that $300,000 "asset" is a conservative asset — more like a bond than a stock. That means you're free to invest your entire actual $450,000 portfolio in stocks. (See also: 7 Reasons You're Never Too Old to Buy Stocks)

What could go wrong?

Proponents of this idea, such as Bogle, point out that the much more aggressive approach it would enable you to take with your actual investments would give you the potential to grow your nest egg much larger. Historically, stocks have far outperformed bonds, so in theory that's correct.

However, it would also mean taking on much more risk than you are right now and having to endure much more volatility than you may be comfortable with, especially as you get older. For example, how would you like to be 65 years old, have your entire retirement portfolio invested in equities, go through a bear market similar to 2008, and lose 50 percent?

Plus, let's say that leaving an inheritance is important to you. What if you go through a 2008-style bear market when you're in your 60s or 70s and that assumption you made about living to age 87 doesn't work so well? The only part of your portfolio that would be left behind is your actual portfolio, which just got cut in half.

What about the rest of your portfolio — the $300,000 of future Social Security benefits? The minute you die, the value of those benefits drops to $0. Are you comfortable with that?

One more concern is whether Social Security will even exist by the time you retire. While it's hard to imagine the organization ever completely disappearing, it's much easier to envision a day when benefits will be reduced based on household income — so-called means testing. The amount of money current workers are paying into the program simply isn't enough to continue paying beneficiaries the full amount they are owed indefinitely.

Not for the faint of heart

Only if you are extremely risk tolerant should you consider factoring future Social Security benefits into your asset allocation. Even then, you would be wise to factor in only a portion of those benefits.

For most, however, because of the added stress this approach would bring, especially at a time of life when peace of mind will be increasingly important, it probably doesn't make sense.

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Myths About Money in Retirement

Emily Guy Birken — Fri, 11 May 2018 08:00:21 +0000

Retiring is an amorphous and complicated goal — which means retirement planning attracts more than its fair share of plausible-sounding myths. Unfortunately, these myths, misconceptions, mistakes, and misbegotten rules of thumb can seriously lead you astray on your path to a well-funded and fulfilling retirement.

Don't fall for any of the following common myths about money in retirement.

1. You need $1 million to retire comfortably

This particular myth holds a unique distinction in that it is wrong in both directions: $1 million is both not nearly enough money for the retirement you're dreaming of, and way too high a number for most people to achieve.

How is that possible?

On one hand, $1 million doesn't go nearly as far as it once did. If you plan for a grand retirement that involves traveling, fine dining, entertainment, and general living-it-up, you will probably find that a $1 million nest egg will not cover all you want to do. In fact, depending on your cost of living and other circumstances, it's entirely possible you could exhaust $1 million with relatively modest retirement spending.

On the other hand, $1 million is a number that is out of reach for the majority of workers. According to a 2016 GoBankingRates survey, 33 percent of Americans have nothing saved for retirement at all. For most Americans, the idea of saving $1 million for retirement may sound too overwhelming to even think about, and they may give up on the idea of saving altogether.

The problem with this myth is that it is slapping a blanket generalization over a very idiosyncratic process — preparing for retirement. Instead of focusing on a nice, round number, calculate your best estimate of how much your own dream retirement will cost. Make adjustments to your dream or the number as necessary. (See also: How to Retire With Less Than $1 Million in Savings)

2. The 4 percent rule

This myth actually has a specific start date. Financial adviser William Bengen proposed this rule in 1994 as a potentially safe withdrawal rate for retirees to make sure their money would comfortably last for the rest of their lives. He based his proposal on historical market data and predictions over where the markets would go in the next 20 years.

Here's how the rule works: Historically, the rate of return on stocks generally hovers around 10 percent. That means a retiree can take 4 percent of their assets each year to live on, without ever touching the principal and still seeing growth each year. For a retiree with a $1 million nest egg, that means $40,000 would be available each year for living expenses, without ever dipping into the $1 million itself.

There is no problem with the 4 percent rule when the market is doing well. The problem with this rule is that it doesn't work during market downturns. In 2008, the market saw a 30 percent decrease overall. Any withdrawals a retiree made during that time took a permanent bite out of their nest egg. Such a retiree either had to accept that permanent bite, or learn to live on less (or nothing) until the market bounced back.

This is why it's a good idea to diversify so that you have some more stable and liquid investments you can count on in bad years, as well as long-term investments that can continue to grow (and recover) over time.

3. Social Security will cover your basic expenses

After paying into Social Security all your life, it's natural to expect the benefits to take care of you in retirement. But Social Security benefits are not now and were never meant to be a primary source of income in retirement. The program was begun in order to provide a safety net to keep seniors from abject poverty.

The average monthly Social Security benefit in 2018 is $1,404 — which is barely enough to cover basic expenses in most areas of the country. It is far better to consider Social Security a supplement to your retirement income than count on it for living expenses. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

4. Medicare will take care of your health needs

Something that comes as a nasty surprise to retirees is the fact that Medicare covers less than you might think — and health care in retirement costs more than you might realize.

Specifically, Medicare does not cover the following needs:

Long-term care (the nonmedical help that an otherwise healthy senior might need for daily living).
Self-administered prescription drugs.
Routine dental or eye care.
Dentures.
Hearing aids and exams for fitting them.
Routine foot care.

Of these coverage gaps, long-term care can be the most devastating because the costs for such care can add up so quickly. It is in part because of the cost of long-term care that Fidelity calculated the average cost of lifetime medical expenses for a 65-year-old couple retiring in 2017 to be $275,000. (See also: How to Make Sense of the Different Parts of Medicare)

5. Your taxes will be lower in retirement

One of the few benefits of no longer drawing a paycheck is the fact that you don't have to see Uncle Sam take a cut from it. You may think that once you're retired, all your money is yours free and clear, and the taxman will finally leave you alone.

It doesn't quite work that way.

First, you are going to owe taxes on any money you take out from tax-deferred retirement accounts. Since retirees often have fewer federal deductions and dependents to claim, that means you could be paying a greater percentage of your income to taxes. And don't forget that once you reach age 70½, you will have to take required minimum distributions, which means the size of your distribution (and therefore the size of the tax bite) isn't entirely up to you.

In addition, depending on your retirement income, you may also owe taxes on your Social Security benefits. Altogether, it's good to remember that the taxman always cometh for you.

The truth will set you free

The myths about money in retirement are generally more pleasant than the reality. But as tough as it may be to swallow the truth about how much you need, how much you can withdraw, and how much the government plans to giveth and taketh away, it is far better to be clear-eyed and prepared.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Ways to Find Income While Waiting for Full Retirement Age

Emily Guy Birken — Thu, 26 Apr 2018 08:30:16 +0000

Every single retirement expert seems to agree on one thing: You should wait until at least your full retirement age (FRA) before taking your Social Security retirement benefits. The reason for this consensus is the fact that taking retirement benefits before reaching that all-important FRA will result in permanently reduced benefits — which could be a serious problem as you get older.

But what do you do if you can't afford to wait until your FRA? Those same retirement experts may wag their fingers at you for taking early benefits, but are they offering solutions for how to bridge the financial gap until you have reached your FRA?

Thankfully, there are legitimate ways to bring in income while waiting to reach your full retirement age — and none of them require you to pull a Walter White. Here are four options for bringing in money while waiting for that magical moment known as FRA.

Tap your equity with a reverse mortgage

With a reverse mortgage, any homeowner over the age of 62 who owns their home free and clear (or has significant equity in the home) may access the equity in their home, either in a lump sum or in monthly installments, while still living on the property.

If all you know about reverse mortgages comes from the attractive seniors on daytime commercials, you might assume that this is a great option with no downsides. However, reverse mortgages do come at a cost, and it's important for homeowners to understand what they are agreeing to before they sign on the dotted line.

To start, reverse mortgages, just like their traditional counterparts, come with closing costs. In particular, you can expect to pay an origination fee of approximately 2 percent of the home's value, an upfront mortgage insurance premium, and traditional closing costs. In addition, during the life of the loan, you can expect to pay an annual mortgage insurance premium and a monthly servicing charge.

You should also remember that your reverse mortgage loan can come due for any of the following reasons:

If you sell the house.
If you pass away.
If you can no longer consider the home a primary residence. In particular, if you have to spend more than 12 months in a nursing home, your house will no longer be considered your primary residence.
If you don't pay your property taxes, don't have adequate homeowners' insurance, or if you don't maintain your home properly.

Reverse mortgages can be a good option for seniors who need to bridge the gap until reaching full retirement age, but they are certainly not a cure-all solution. If there's any possibility that you can't keep up with maintenance (including paying your taxes and insurance bill), that you might need some sort of long-term, off-site care, or that your kids are counting on inheriting the house from you when you pass away, this is not a good option for you. (See also: 5 Downsides of a Reverse Mortgage)

Rent out your property

You probably don't have a spare house available, but that doesn't mean you can't make some money by renting out your space or even the things you own. To start, if you live in an area that draws tourists, renting out a spare room (or even the entire house) on Airbnb can be an excellent way to bring in extra cash. If you rent out your entire home, you could house or pet sit while your guests are in your home — and potentially make money on both ends. (See also: 5 Easy Ways to Make Good Money From Airbnb)

Of course, not all rentals are about a place to hang your hat. Don't use your car every day? Rent it out with a service like Getaround or Turo. Have a two-car garage and only one vehicle? Rent out that extra parking space with a service like Parking Panda or Spot. Have power tools or sporting equipment gathering dust? Rent it all out with a service like Loanables or RentNotBuy.

Embrace the side hustle

No one wants to hear that they have to work longer in retirement, but side jobs ain't what they used to be. These days, you can find any number of rewarding gigs that can help make ends meet — and fit in with the lifestyle you want in retirement.

For instance, finding a way to make money off a hobby you're already doing can be a good way to bring in extra income without feeling like you're still stuck in the daily grind. Avid gardeners could become garden consultants for neighbors with black thumbs. Animal lovers could offer daily dog-walking services. Crafters could make their wares for sale, or offer classes on how to create their beautiful designs.

If you're not interested in monetizing a hobby, think about what sorts of things people turn to you for. If you have an impeccable eye for fashion, offer to help people look their best. If you know how to get the best deal on a used car, create a consulting service for buying cars. The sky is the limit in terms of creating a side hustle that will fit with your preferences, abilities, and schedule. (See also: 9 Easy Ways Retirees Can Earn Extra Income)

Sell your stuff

If you have the time to post your items on Craigslist or eBay, this can be a great way to both downsize your stuff to a more manageable (and retirement-ready) amount while making some money at the same time. As a bonus, a lot of the stuff that was new when you were in college is considered vintage these days — which means you might get some good money for the stuff you'd otherwise just give away. (See also: 5 Things You Can Resell on eBay That Make the Most Money)

Making it until FRA

Though it can seem like the wait to reach full retirement age is interminable when you could use the Social Security retirement benefits each month, you will be glad you waited. Finding a way to bring in other income while you wait for your FRA may not be the retirement you dreamed of, but you'll feel good that you ensured higher monthly benefits for life.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What You Should Ask Your Financial Adviser at Your Annual Meeting

Matt Bell — Tue, 17 Apr 2018 08:30:09 +0000

The decision to work with a financial adviser is not a one-and-done type of deal. You need to stay engaged and informed. While you probably covered most of your key financial questions in your first meeting or two, you should continue to meet at least on an annual basis. Here are some important questions to explore when you do.

Is my investment mix still appropriate?

When your adviser first put your financial plan together, he or she probably had you fill out a risk tolerance questionnaire or asked you questions directly. That information, coupled with your investment time frame, helped determine your portfolio's optimal asset allocation — the mix of stocks and bonds that's generally best for someone in your situation.

But your situation is ever changing. You're getting older, which could spell the need to make your portfolio a bit more conservative. Or changing market conditions might reveal something about your risk tolerance that the questionnaire couldn't catch. There's nothing like a real market downturn to find out just how risk-tolerant you really are.

So, one key question to keep on the table is whether your portfolio is allocated appropriately. (See also: The Basics of Asset Allocation)

How will you help me navigate the next bear market?

This question could just as easily be, "How will you help me navigate the next bull market?" It depends on where we are in the market cycle. At the moment, we're still in the midst of a very long-running bull. But just as surely as night follows day, bear markets follow bull markets. President Kennedy once said, "The time to repair the roof is when the sun is shining." Right now is a good time to talk about your adviser's plan for the bear market to come.

When the market changes direction, are you expected to grit your teeth and ride out the storm? Or does your adviser plan to make changes to your investment holdings? If so, what changes will be made and what will trigger the need to make them? If your adviser plans to make adjustments, hopefully he or she will base them on clear, objective criteria. Make sure you understand them.

This is all about expectations management. The better you prepare yourself for challenging market conditions and the actions your adviser may take to steer your investments through those conditions, the better you'll be able to sleep at night when they appear. (See also: 6 Investment Truths to Remember When the Stock Market Is Down)

What if a bear market hits at the start of my retirement?

If you're within 10 years of retirement, it's not too early to ask this question. For the unprepared, a bear market that hits right at the start of retirement can be devastating. This is why some advisers recommend taking a "bucket approach." One bucket contains cash, or very conservatively invested money. It should contain enough to cover three to five years' worth of the living expenses that your adviser predicts you'll have once you've spent your monthly payouts from Social Security or other guaranteed income sources. The other bucket is more traditionally invested.

When the market is in decline, you use the first bucket to draw money for living expenses. That way, you can avoid selling more volatile investments while they're falling or recovering. When the market is growing again, you draw from that bucket and also use it to replenish your cash bucket.

What's your adviser's perspective on this approach? What else does he or she recommend if the start of your retirement coincides with a market downturn?

What's my Social Security contingency plan?

Your financial plan surely includes an assumption about the age when you plan to take Social Security. If you intend to wait at least until your full retirement age (67 for anyone born in 1960 or later), what contingency plan does your adviser recommend in case you're not able to wait that long?

Many of today's retirees left the workforce earlier than they expected due to medical problems, the need to care for a loved one, or a corporate downsizing. Your plan should include a contingency in case something similar happens to you. (See also: How to Plan for a Forced Early Retirement)

Should I consider an annuity at some point?

An immediate annuity purchased upon retirement or shortly thereafter could provide some invaluable peace of mind, especially if it covers much or all of your essential living expenses. Generally, what does your adviser think of immediate annuities? And how does he or she recommended sorting through the myriad decisions related to annuities, such as: whether to base benefits on your life only or your spouse's as well, whether to include an inflation rider, whether to include a "period certain" provision whereby benefits would continue being paid to your spouse or heirs even after your death.

What annuity companies does your adviser recommend and will he or she earn a commission from the sale of an annuity provided by one of those companies? Are there other annuities available to you that may offer better terms but no commission to your adviser?

Also, what does your adviser think of longevity annuities? This type of annuity helps protect against the financial risk of a long life. You might purchase it for a lump sum when you are 65 or 70, with benefits not kicking in until you are 80 or 85. Should you plan to purchase one?

Just because you're working with a financial adviser doesn't mean you can think of yourself as having outsourced your financial life. Stay involved, see it as a partnership, and keep asking informed questions.

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

3 Financial Penalties Every Retiree Should Avoid

Matt Bell — Thu, 22 Mar 2018 09:30:19 +0000

Managing money effectively can be challenging enough, but paying unnecessary financial fines only makes it tougher — especially in retirement. Here are three hefty penalties many older people may face, and how to avoid them.

1. Failing to take RMDs

If you are age 70½ or older, have money in a tax-deferred retirement account, and fail to take your required minimum distributions (RMDs), you will owe a penalty equal to half the required-but-not-taken amount. You'll also have to catch up on the amount you were supposed to take and pay tax on that.

The potential penalty pertains to traditional IRAs and 401(k)s — any retirement account that enabled you to make tax-deductible contributions and defer taxes on investment gains. It does not pertain to Roth accounts.

You see, Uncle Sam wants his money, and age 70½ is as long as he's willing to wait. Even if you don't need the money, you have to start drawing it out of your account(s) and paying taxes on it or face the penalty.

To determine the amount of your RMD for a particular year, take the account balance at the end of the prior year and divide it by the distribution period from the IRS's Uniform Lifetime Table found in these IRS work sheets.

For the year you turn 70½, your RMD must be taken by April 1 of the following year. For all subsequent years, it must be taken by the end of the year. If you have multiple accounts, you must calculate your RMD for each one. For IRAs, the total distribution amount can be taken from just one of the accounts or spread out across all of them, and it can be taken as a lump sum or little by little throughout the year. RMDs from employer-sponsored retirement accounts or inherited IRAs must be taken from their respective accounts.

2. Claiming Social Security too early

If you claim Social Security benefits when you are first eligible at age 62, you will lock yourself in to the lowest possible monthly payments. For those born in 1960 or later, it will be about 30 percent less than if you wait until your full retirement age of 67.

The Social Security Administration's full retirement age chart has the details. Even better, check the actual benefit amounts you'll be eligible for at different ages by creating your own account on the SSA's site.

Some argue that by collecting even a reduced benefit beginning at age 62, that five-year head start is more beneficial than waiting. And it's true that there are some people for whom it may make sense to claim as early as possible. However, with longer life spans, waiting at least until full retirement age — and arguably, even waiting until the maximum age of 70 — will prove most beneficial for most people.

Plus, consider a married couple's situation in which the man is the higher earner. Because women tend to live longer than men, and because widows are eligible to replace their monthly benefit with their husband's upon his death, that's one more reason why a higher-earning husband may want to wait until he's eligible for his highest monthly benefit. (See also: 3 Reasons to Claim Social Security Before Your Retirement Age)

3. Missing the Medicare sign-up deadline

Medicare eligibility begins at age 65. If you claim Social Security benefits at least four months before your 65th birthday, you'll be automatically enrolled in Medicare at the appropriate time. However, if you hold off on Social Security until you're older than 65 but you want Medicare coverage, you'll have to sign-up for it within a seven-month window that begins three months before your 65th birthday month. Otherwise, you'll face two possible penalties — one for Medicare Part A (hospital insurance) and one for Part B (medical insurance).

Most people qualify for premium-free Part A coverage based on how much they or their spouse contributed to Medicare during their careers. However, if you don't qualify for free Part A coverage and don't sign up on time, opting for it later will cost you in the form of premiums that are 10 percent more expensive than they would have been otherwise.

Those higher premiums will be in effect for twice the number of years that you've been eligible for coverage. In other words, if you sign up at age 67 (two years past the age when you were first eligible), you'll owe the higher premiums for four years. Bottom line on Part A? Most people should sign up when they are first eligible.

The penalty for missing the sign-up window for Part B is even more significant — 10 percent higher premiums for as long as you have coverage. Plus, your earliest opportunity to sign up will be the next January-through-March period, with the policy going into effect on July 1, so you may experience a coverage gap.

Of course, a prime reason why you might want to opt out of Medicare Part B is that you're still working, have health insurance, and don't want to pay the additional premium.

According to Medicare, if your employer has less than 20 employees, you should sign up for Medicare Parts A and B when you are first eligible. It will become your primary health insurance, with any other coverage you have only paying expenses not covered by Medicare.

If your employer has 20 or more employees and you are covered by a group insurance plan, you don't have to sign up for Medicare Part B (if you do, it will become your secondary insurance). However, when you leave that employer, you'll have to sign up within eight months or face the penalty mentioned earlier. (See also: How to Make Sense of the Different Parts of Medicare)

Clearly, as you get older, certain birthdays aren't just causes for celebration. They're reminders to make careful decisions about your tax-deferred retirement accounts, Social Security, and Medicare.

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9 Surprising Ways Marriage Can Make You Richer

Tim Lemke — Mon, 19 Mar 2018 09:00:06 +0000

Marriage can be a wonderful thing, and not just because of the potential for lifelong companionship. Tying the knot can be a great financial decision, too.

When you get married, you'll be eligible for some key tax breaks, and there are a number of other advantages that will ultimately help you build wealth. Take a look at these examples of how marriage can make you richer.

1. There's a larger standard tax deduction

Under the 2018 tax law, every married couple filing jointly is eligible for a standard deduction of $24,000. That's nearly double from the previous law and exactly twice the standard deduction for single people. This standard deduction is more important than ever, as the new tax law does not allow for as much itemizing of deductions. (See also: 12 Things You Should Know About the New Tax Law)

2. You may save on taxes if filing jointly

Much has been said about the so-called "marriage penalty" in which couples could face a higher tax rate if they file jointly. But in truth, this was not an issue for most people, and the new tax law makes it even less likely that married couples will be penalized.

In fact, in most cases under the 2018 tax law, there won't be much difference between your taxes if you file separately or jointly. But it could be very advantageous for couples to file jointly if one spouse makes considerably more than the other.

To illustrate this, let's say you earn $37,000 in taxable income. Under the 2018 tax law, you'd be in the 12 percent tax bracket and pay $4,440 in tax if filing separately. Now let's say your spouse earns $190,000 per year and pays $60,080, based on the 32 percent tax bracket, also filing separately. If you file jointly instead, you'd report a combined income of $227,000 and would be in the 24 percent tax bracket. You would pay $54,480 in tax, a savings of nearly $10,000.

3. You have more buying power

When you get married, you are pooling financial resources. If both of you have assets and income, then you have greater ability to make purchases. It means you may be more likely to afford a down payment on a home, and have more ability to handle the monthly mortgage. It means you may become more attractive to lenders, though it is worth noting that you will still each have separate credit scores.

4. You can contribute to an IRA even if you don't work

If you want to contribute to an individual retirement account (IRA), you must have earned income. But there are exceptions, most notably in the form of a spousal IRA. With a spousal IRA, each spouse can have their own IRA, as long as one of the spouses has earned income. For most people, the limit of contributions on each account is $5,500 annually, so the total contributions allowed for married couples doubles to $11,000. The only catch to a spousal IRA is that couples must file their taxes jointly. (See also: 4 Ways Couples Are Shortchanging Their Retirement Savings)

5. You can receive Social Security spousal benefits

When you file for Social Security benefits, you can file for your own benefits or under your spouse's. Even if you did not earn any income during your life, you can receive benefits through your spouse. Usually, spousal benefits are up to half your spouse's normal Social Security benefit. You'll also be able to receive spousal benefits even after your spouse passes on.

6. You may spend less on health care

There is considerable evidence that being married can make you healthier. Married couples look out for one another. They keep each other on track regarding diet and exercise, and a spouse is often the first person to notice when you appear unwell.

The Harvard Health blog reported in 2016 that married people tend to live longer, are less likely to be depressed, and have fewer strokes and heart attacks. The report also cites studies showing that married people have better immune systems. This potentially means that your health care expenses could be less than if you remained single.

7. You can get health insurance through your spouse

If one spouse has access to health insurance through his or her employer, they can add a spouse to their plan. This is very helpful when one spouse is not employed or is not offered health insurance through their job. In most cases, family plans offer savings over plans for individuals.

8. Auto insurance is cheaper

Generally speaking, auto insurance companies will charge less to married couples than single people. That's because they tend to see marriage as something a more mature person does. Of course, it helps if both drivers have good driving records; if your spouse has a worse driving record than you, you may not see any savings.

An analysis from Carinsurance.com revealed that married couples can typically see savings of 10 to 15 percent in most states. It's worth noting that insurance companies will offer discounts for multiple cars, as well.

9. You can inherit assets from your spouse without a will

To be clear, no one is suggesting you should celebrate when your spouse passes away. But it's worth noting that when you are married, you are usually entitled to inherit their assets, even if you don't have a formal will drawn up. Note: Crafting a will is still a very good idea. (See also: Here's What Happens If You Don't Leave a Will)

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8 Startling Facts That Will Make You Want to Invest

Tim Lemke — Wed, 14 Mar 2018 09:01:08 +0000

Sometimes you need to be startled into action when it comes to investing. It's easy to come up with excuses not to begin placing money in the markets and saving for retirement. Armed with the right information, however, most people would likely choose to invest rather than stay on the sidelines.

Perhaps it's time to digest these eye-opening facts and realize that waiting to invest could be a big mistake.

1. The average retirement savings is measly

According to a 2016 survey from the Transamerica Center for Retirement Studies, baby boomers have an average retirement savings of $147,000. Those from Generation X have an average $69,000, while millennials have $31,000 saved. Those figures have probably risen slightly in the last two years, but are still well shy of the totals necessary for a comfortable retirement.

Older people approaching retirement age may have held off investing in their earlier years and are now playing catch up. Younger people have more time to invest and get to where they need to be — but the longer they wait, the harder it gets. (See also: 7 Retirement Planning Steps Late Starters Must Make)

2. You may be retired longer than you worked

Imagine starting work at 21 and retiring at 60. That's 39 years in the workforce. If you live to 100, that's an additional 40 years — longer than the time you spent working! People are living longer these days, so it's not uncommon to see retirees still kicking it well into their 90s and beyond. In some cases, retirements are stretching past 40 years. Are you doing all you can to allow your money to last that long? Smart investing may be the only way to accumulate enough cash to support a retirement of that length. (See also: 5 Ways Longevity Is Changing Retirement Planning (And What to Do About It))

3. Very few people get a pension these days

Defined benefit plans, in which a company guarantees workers a specific amount of money each year in their retirement, have been going away fast. Today, only 13 percent of nonunion private sector workers have access to a defined benefit plan, according to the Bureau of Labor Statistics.

Instead, most companies now only offer defined contribution plans, such as a 401(k). With these plans, workers must invest their own money, and companies may offer to match a certain percentage of contributions (some don't). If you're in the workforce, it's likely incumbent upon you to take charge of your own retirement savings. (See also: If You're Lucky Enough to Receive a Pension, Here Are 6 Things You Need to Do)

4. Half of workers say they'll probably work during retirement

Isn't the entire idea of retirement to stop working? For many people, ceasing to work entirely just isn't in the cards. The Transamerica survey revealed that about half of all workers — including baby boomers, Gen Xers, and millennials — expect to work at least part-time during retirement. Working is fine if you want to, but if you dread the idea of punching a clock in your old age, invest now.

5. About 20 percent of seniors rely on Social Security for nearly everything

Social Security is certainly better than nothing if you're retired, but it's not a lot of money. The maximum Social Security benefit for 2018 is $2,788 per month, or about $33,500 a year, if you retire at age 66. You could get up to $3,698 monthly if you are willing to wait until age 70 begin accepting payments.

You won't starve, but you're not going to be cruising the Mediterranean, either. And yet, roughly one in five Americans over 65 rely on Social Security for 90 percent or more of their income, according to a 2015 study from AARP. There are some states where this figure rises to more than one in three older residents. This is a startling figure when you consider that Social Security is currently running a deficit. Invest now, so that Social Security can be like icing on your retirement cake. (See also: 5 Questions to Ask Before You Start Claiming Your Social Security Benefits)

6. The market rarely has bad years

Everyone remembers when the market crashed about a decade ago during the financial crisis. And there have been some high-profile bad years in the past. But consider this: Since the end of World War II, the S&P 500 has recorded a negative annual return just 15 times. That's 15 bad years out of 72. The New York Yankees have won 17 World Series titles during the same period! Only once since World War II — from 2000 to 2002 — has the market had three bad years in a row, and there's only one other instance of back-to-back negative annual returns. So even if you had no idea what year it was and still chose not to invest, you'd likely be missing out on positive returns. (See also: How the Risk Averse Can Get Into the Stock Market)

7. Almost as many people own dogs as stocks

About 54 percent of Americans own stocks, according to research from Gallup. Meanwhile, the American Pet Products Association reports that 48 percent of Americans own dogs. Dogs are nice. Dogs can be enjoyable. Dogs are good to have in retirement as companions, but they won't appreciate in value or help pay the bills as you get older.

Invest now, and you can have a comfortable retirement, complete with as many canine friends as you want.

8. If you invested $100 in Amazon 20 years ago, you'd have $50,000

When Amazon went public in 1997, its shares were trading at about $18. As of this writing, the company is now trading at more than $1,300 per share. A simple $100 investment 20 years ago would be worth tens of thousands today. Of course, Amazon's stock returns aren't typical. But it goes to show how even a modest investment over time can prove to be enormously lucrative.

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Here's What You Need to Know About 529 ABLE Accounts

Dan Rafter — Mon, 12 Mar 2018 09:30:21 +0000

Do you have a child with disabilities? You might benefit from investing in a 529 ABLE account. These tax-advantaged savings accounts let you save money for your child's long- or short-term care without jeopardizing their eligibility for public assistance from the government.

Many parents with special needs children may not even know this savings vehicle exists. After all, it wasn't until 2014 that legislation paved the way for the 529 ABLE account. If you're the parent of a child with a disability, here's everything you should know about these tax-advantaged accounts.

A new opportunity

Congress signed the Achieving a Better Life Experience, or ABLE, act into law in 2014. The new law gave families with special needs children the option to save post-tax dollars in a new type of account. These ABLE accounts were designed to give families a way to save extra money in addition to the financial benefits their disabled child was already receiving from private insurers or from government programs such as Social Security and Medicaid.

It's a huge positive that families can save in an ABLE plan without losing their eligibility for financial government assistance. Before the act was passed, disabled people who earned more than $700 a month or who had more than $2,000 in assets could lose their eligibility for Medicaid and Social Security assistance.

The ABLE Act changed that. Today, families can save up to $100,000 in a 529 ABLE account before their child will lose their extra Social Security benefits. Even if they do save more than $100,000 in an account, their child will still be eligible for financial assistance from Medicaid. The money saved in a 529 ABLE account does not count against that $2,000 asset limit.

How they work

A 529 ABLE account works similar to its cousins, the 529 college savings and prepaid plans. But it does come with some key differences.

As with a traditional 529 savings plan, the contributions that you make to an ABLE account are not tax-deductible. But the earnings on those investments will not be taxed as long as you use any money you withdraw from the account for what are known as "qualified disability expenses." With 529 ABLE accounts, you can withdraw money tax-free for several types of expenses. Qualified disability expenses include money spent on health, education, housing, transportation, legal fees, employment training, and monitoring.

In other words, there is more flexibility with a 529 ABLE account. Where there is less flexibility, however, is in eligibility. To be eligible for a 529 ABLE account, individuals must meet specific requirements.

Eligibility requirements

There is only a narrow band of individuals who are eligible for 529 ABLE accounts. Individuals participating must have been diagnosed with a disability before they turned 26 and must have a disability that is expected to last at least 12 consecutive months.

Individuals must also already be receiving benefits through the Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) programs offered through Social Security, or obtain a certificate of disability from a doctor.

For the 2018 tax year, individuals can make an annual contribution up to $15,000 into an ABLE account.

These accounts are sponsored by individual states. If your state doesn't offer a 529 ABLE account, you can still participate. You are free to sign up for an ABLE account through any state offering one, even if you don't live in that state.

Changes under the Tax Cuts and Jobs Act

In more good news, two key changes that came with President Trump's Tax Cuts and Jobs Act, signed into law late last year, make 529 ABLE accounts even more attractive.

The new federal law allows for tax-free rollovers from traditional 529 plans to 529 ABLE accounts. This is a benefit to individuals whose disabilities are diagnosed later in life. Say you've saved money for your child in a traditional 529 plan. When your child turns 16, he or she is diagnosed with a disability. In the past, if you wanted to take your funds from the traditional 529 plan and roll them into an ABLE account, you'd have to pay taxes and a financial penalty. Today, you can rollover funds from a traditional 529 plan into an ABLE account without suffering any financial penalties or paying taxes on the money.

The new tax law also allows ABLE account beneficiaries who are employed and earning income through their jobs to make contributions of more than $15,000 each year up to the Federal Poverty Level, as long as they are using their own income to get past that $15,000 mark and not participating in an employer-sponsored retirement plan.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Retire With Less Than $1 Million in Savings

Aja McClanahan — Fri, 09 Mar 2018 09:00:07 +0000

The sad truth is that many Americans are vastly underprepared when it comes to retirement savings. A 2016 GoBankingRates survey revealed that 33 percent of Americans have nothing saved for retirement at all. In total, 56 percent have less than $10,000 saved.

How much money does it actually take to retire comfortably? It seems like one million dollars is the magic number many people think of — and today, with people continuing to live longer, some think that magic number should be closer to $2 million. But is it really necessary? Could some people could get by in retirement on less?

For some, a smaller retirement income could actually support a reasonable lifestyle provided inflation and health care costs don’t get out of hand. For others, it might be a financial struggle.

That being said, let's explore all the different ways you could live a happy retirement even if you don’t amass a million-dollar nest egg.

Work part-time

If your nest egg won’t stretch far enough for all of your financial needs, a part-time job could help immensely. Not only can the extra income come in handy, but a few hours of work per week can have a positive effect on retirees' mental health, as well as their sense of purpose and social life.

You can choose to work in the same field as you always have or launch a second career, maybe in a field you've always been curious about. Turning a hobby into a business could also be profitable, provided it doesn't require a large financial investment to get off the ground. If you already have the skills and materials needed to get started, it can be a cost-effective and rewarding option to bring in extra income. (See also: 5 Questions Retirees Should Ask Before Starting a Small Business)

Wait to take Social Security

If you can live comfortably on your savings early in your retirement, most people should hold off on taking Social Security benefits for as long as they can. The Social Security Administration reports that if you delay receiving retirement benefits until after your full retirement age, your monthly benefit continues to increase. If you can wait until you’re 70 (the maximum age for waiting) you can get 132 percent of your expected payout. Unless your physical health or family history makes you think you will die before your late 70s, it usually makes sense to wait.

This strategy requires patience and frugality, and it may not work for retirees who need their benefits earlier to get by. Before taking this option, make sure you’ve got the financial means to wait, and that you have no other options for bringing in an alternative source of income. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

Reduce your housing costs

Housing is one of the largest expenses you’ll incur in life. If you can decrease this expense, you could live on a lot less in retirement. One way of doing this is to move into a smaller home or apartment. This could help you eliminate or drastically lower your mortgage payment, as well as minimize other housing costs like utilities, maintenance, and property taxes.

Another option is moving in with friends or family, if they are willing and able to take you in. Sharing a home is becoming increasingly common due to the rising costs of living for not only retirees, but for everyone else. If you don't have friends or family you could bunk with, you could try to find a roommate that could help foot your housing bill. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

Invest in a health savings account (HSA)

A health savings account is available to those who have a high deductible health care plan. You contribute pretax dollars into your HSA, and can use those same pretax dollars to cover qualified health care expenses — everything from hearing aids, to X-rays, to bandages.

The best part about this plan is that it can become a helpful part of your retirement savings when you turn 65. At this point, your HSA basically becomes a traditional IRA. You can withdraw the funds for anything — health care related or not — to help supplement your retirement income. Funds withdrawn for qualified medical expenses will continue to be tax-free, while nonmedical withdrawals will be taxed as ordinary income. (See also: How an HSA Could Help Your Retirement)

Consider relocating to a low-cost country

The number of American expats abroad is very surprising. The U.S. Department of State estimates that as many as 9 million citizens live overseas. There's a reason so many Americans are choosing to live out their golden years abroad; moving to a country with a lower cost of living means that their retirement dollars are stretching a lot further.

In lower cost of living countries, you will see steep savings on housing, food, and even health care. Many people can also afford inexpensive help from locals to assist in tasks like cooking, cleaning, and running errands.

What’s more is that many of these countries have beachfront properties and communities that are affordable even for the non-millionaire retiree. Though you may be leaving friends and family behind, the good news is that they may be more likely to visit you if there’s a beach involved. (See also: 4 Affordable Retirement Spots With World-Class Health Care)

Invest in cash producing assets

If you don’t have one million dollars in cash, you might be able to make up the balance with other assets like real estate, stocks, or a small business. All of these assets have the potential to add another stream of income for you in retirement.

Real estate can be an excellent source of cash flow if you are able to charge rents that exceed expenses for your property. If you own dividend-yielding stocks, the income from dividend payouts can also boost your bottom line. Finally, if you have an interest in a business that is profitable, you could retire on less than $1 million with a moderate amount of monthly net income. (See also: 7 Reasons to Invest in Stocks Past Age 50)

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This article is from Aja McClanahan of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Could You Make Ends Meet If You Were Suddenly Disabled?

Mikey Rox — Wed, 07 Mar 2018 09:30:09 +0000

Becoming disabled is not a worst-case scenario, but it's one that can wreak irreparable havoc on your finances. You may have little to no control over whether or not a disabling illness or injury will impact your life, but you can prepare for the what-if. If you don't, you could find yourself — and your loved ones — facing financial ruin should the what-if become reality.

We all need to ask ourselves: Could we make ends meet if we were suddenly disabled?

Build your emergency fund ASAP

Ideally, you should have at least six months' worth of salary in an emergency account, but even three months' worth can be a big help when you're facing a disability. Even if you can go back to work eventually, you'll probably be out for some time — first in the hospital, and then recovery time at home, which may be an extended period depending on the severity of your condition. If your emergency fund is currently running on empty, now is the time to focus on beefing it up. Illness or injury could happen at any time, to anyone. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

Identify other sources of income or savings

If you don't have a lot of money in your emergency fund, maybe there are other sources of income or savings that you can rely on. Do you have valuables that you can sell? Can you downsize to put cash in the bank? Will your disability allow you to get a new job based on your skills and limited mobility? Do you have stocks or bonds you can cash in? None of this is ideal, of course, but it may prevent or at least hold off mounting debt while you recover or figure out how to best move forward based on your disability.

Disability insurance is a must

If you're gainfully employed, I highly recommend that you get disability insurance — while you are still healthy and able-bodied — even if it's short-term. Short-term disability insurance will pay roughly half your salary while you're out of work. Short-term disability duration can range, but the maximum amount of time is generally a year.

If you can get long-term disability through your employer, even better; that will protect you after the short-term expires, paying around 50 to 70 percent of your normal salary until you can return to work or for the amount of time stated in your policy.

If you're not sure what kind of disability benefits you may need, talk it over with a financial adviser or planner. You may also be able to get coverage for the eventuality that your spouse has to quit their job to become your caregiver.

Disability insurance may not seem necessary when you're young (I was invincible in my 20s, too), but you could wind up in major financial trouble later in life, especially if you're starting your career with very little money in the bank. (See also: 4 Things You Need to Know About Disability Insurance)

Social Security Disability may be able to help

If you didn't invest in a disability insurance policy before the injury, you can file a claim for Social Security Disability benefits and see if you qualify. Just don't count on it right away. This can be a very long, tedious process, and many claims are denied the first time they are filed. If you are denied, you can file an appeal. A lawyer may be able to help you expedite the process, though it will come with the added expense of legal fees.

Consider your loved ones, too

You don't want to burden your family with taking care of you if you can help it. Preventing them from having to make financial sacrifices on your behalf is another case for investing in disability insurance.

Your loved ones' lives can change drastically along with yours in the event of a disabling illness or injury. They may have to quit a job to become your caretaker, sell or modify their home, or make various other types of serious financial sacrifices. You can lessen that risk with proper planning. Quality of life is even more important when faced with a disability — for all those impacted, not just the injured individual — and it's your responsibility to take care of yourself while you're still healthy and ensure you have a plan.

The reality is, you can't assume that your loved ones will be able to drop everything and make financial sacrifices for you. Illness or injury can be a very stressful situation in anyone's life, and if you can lessen that stress ahead of time, you owe it to those who would be tasked with your care.

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: