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CIA Success Story: Couple Creates Income Streams Before Retirement

CIA Success Story: Couple Creates Income Streams Before Retirement

In today’s CIA Success Story, we share a story about a couple that was concerned they wouldn’t have enough money to live comfortably during retirement. After working their entire adult lives, and regularly receiving paychecks from their employers, there was a significant amount of anxiety surrounding the amount of money they would be receiving during their retirement.

The Question:

How can we be sure that we’ll have enough in retirement to be comfortable without receiving our regular paychecks?

The Scenario:

The husband worked as a manager for a large industrial company and the wife worked as a nurse for her entire career to become Chief Nurse. Their children were in their twenties and mostly independent from their parents, aside from one wedding. Both the husband and wife worked their entire lives, but the wife was starting to have some anxiety about not receiving a regular paycheck, which became her biggest obstacle regarding retirement.

How We Helped:

When consulting with our clients who are approaching retirement, it’s important to look at everything in their portfolio, including any investments, liquid assets, pensions, 401(k)s and Social Security benefit packages. If you find yourself in a similar situation, ask yourself these questions when considering your retirement:

  1. Have I been contributing to my 401(k) with every employer?
  2. Have I worked for any employers who offered a pension plan for my retirement?
  3. What investments have I made and how profitable have those been?
  4. Do I have any liquid assets that will generate income during my retirement?

Preparation for Retirement:

You aren’t alone when it comes to planning your retirement. Our trusted advisors at Capital Investment Advisors are trained to examine all funds to help our clients enjoy their retirement. We understand that making the transition into retirement often brings anxiety, and we are here to advise on the best investment strategies.

The Takeaway:

While working with this couple, we discovered that they have several assets which would allow them to enjoy a comfortable retirement. The husband had a pension from a former employer, both husband and wife had a significant amount of Social Security benefits, and they had liquid assets. When we put this together, it amounted to approximately 4 paychecks every month. We also explained that those funds are taxed significantly lower during retirement, and that they wouldn’t be putting money into their 401(k) savings plans.


New Laws That Will Affect Social Security Benefits in 2016

Whether you are retiring now or 10 years from now, you need to be aware of these important changes to Social Security.

As of November 2nd 2015, President Obama signed, and thereby enacted into law, the Bipartisan Budget Act of 2015. Subtitle C, Section 831 of this bill includes significant changes to social security benefits. These changes include the phase out of filing strategies referred to as “unintended loopholes” created previously by Congress back in 2000.

I wrote this article with the intent of sharing the main highlights, who may be impacted, and how the changes may relate to your overall financial planning.

Before you start worrying about being personally impacted let me share with you who will NOT be impacted:

Anyone who is age 70 and up and is already receiving social security benefits. This group should see no change as a result of this new law.

Anyone who is between age 66 and 69 (and suspends their benefit) by April 30, 2016, will be “grandfathered in” and can still utilize the retroactive lump sum option. If you were not planning on taking a lump sum then these new legislative changes will not impact you.

Anyone who is between age 66 and 69 (and suspends their benefit) by April 30, 2016, can still have the option tosuspend their benefit and allow it to grow, while at the same time their spouse can file a restricted application at full retirement age (which allows them to collect spousal benefits only).

Anyone who is age 62 (by December 31st, 2015) will still have the option to file a restricted application (filing for a spousal benefit only) when they reach full retirement age (66) as long as either: (1) your spouse “filed and suspended” their benefit prior to April 30, 2016 or (2) your spouse is already receiving their lifetime benefit (anytime between 62-70).


If you do not turn age 62 by the end of 2015.

These new social security rules will apply to you. The ability for your spouse to file a restricted application (filing and collecting a spousal benefit only) if you choose to suspend your benefit will not be available. In other words, your spouse can not collect their “spousal benefit” unless you are collecting your benefit.

From our understanding of the new provisions, once you reach your full retirement age, the option to collect a retroactive lump sum will not be available to you.  This applies to anyone who has still not reached age 66 by April 30, 2016.

Of course the Social Security Administration has the final say when it comes to interpreting this statute. Just remember when you do file you should:

  • Do it in person
  • Arm yourself with information

If you feel like the SSA representative you are talking to doesn’t understand the rules, keep moving up the chain until you find someone who does.

We will continue to watch this situation and keep you up to date on the latest developments as the Social Security Administration implements these new statutes so stay tuned for more.


3 Ways To Avoid Being Part Of The Upcoming Retirement Crisis

I ran across an interesting article this week from the Boston Globe with another dire warning about retirement in America. It profiles the work of Alicia Munnell, a former top economist at the Federal Reserve Bank of Boston who is now the head of Boston College’s Center for Retirement Research. At the age of 71, she has just released a new book (adding to her impressive collection) which focuses on my favorite subject, retirement. The title of her book is, “Falling Short: The Coming Retirement Crisis and What To Do About It.” In it, she is pushing the idea that it’s just not realistic anymore for people to plan on being able to retire at age 62, and start walking on the beach while holding hands.

Munnell’s argues that most Americans should push the retirement age to 70, so that retirees can fully “max out” what their social security payments will be. She is assuming that due to a lack of savings in America, most Americans are going to have to rely on Social Security – hence the importance of maximizing the amount (with the caveat of working longer).

What’s the unsettling reality of the Social Security system? Without any changes to the current system, the social security trust fund surplus will run to zero, and the government will likely have to reduce payments either across the board or for certain groups.

On top of social security’s issues, Munnell’s other factor leading to the retirement crisis is the slow death of the pension. In 1983 almost two-thirds of workers had some kind of traditional pension plan with a lifetime of income guaranteed. In 2013, though, less than one in four people now have pension plans. Hence, those relying only on 401k savings have increased from 12% to 71% since 1983.

While a pension plan guaranteed retirees a set monthly income based on a percentage of their previous income from the company, now, according to Munnell, the typical household approaching retirement only has around $111,000 in retirement savings which translates into about $400 a month.

I love parsing these statistics – even though some of them might be dire. This might come across as depressing news, but I believe they’re important for all of us to understand so that we can learn how to identify the warning signs and avoid ending up being a statistic.

With all that said, I also believe part of the problem people have with saving for retirement today is that Americans are hearing seemingly impossible and ultimately unattainable retirement benchmarks from Wall Street and the media.

A message of “never enough,” and “work forever” are counterproductive in my opinion for the problem we all face with retirement. That’s why I like to focus on the bare minimum financial benchmarks that everyone can target without feeling like they’ve lost before they’ve even started.

In Munnell’s book, she outlines four main strategies for people to not run out of money in retirement:
1. Work until age 70
2. Save more
3. Pass on less to your heirs

These three strategies are good “common sense” approaches, but let’s look at some of the realities behind them.

If you have zero savings for retirement, then of course you’ll have to work as long as humanly possible and at least until age 70. Based on my personal experience, though, 75% of the people I have worked with over the years are in no way interested in working full time until the age of 70.

Rather than taking Munnell’s approach, I would suggest you aim for the ability to stop working full time at age 62. Then, if you are able, work just enough part time so that you don’t have to tap into your savings. This will allow your savings to continue to grow until age 65 or 66. At that time you can also being taking your social security payments which will also have had time to grow.

For Munnell’s second point on saving more, I think that’s a no brainer. However, I think it’s important that you have a reasonable and attainable goal on the horizon. That way you at least start and stay on your savings journey. Just saying “save more” is too ambiguous of a strategy. In the research for my book I found that happy retirees typically have at least $500,000 saved for retirement. If that’s not realistic for you, though, remember that you should have $240,000 saved to pull $1,000 per month from your portfolio.

As far as leaving less money to heirs, I actually agree. With so many people having virtually zero savings, leaving millions to your kids is a rare luxury. I believe that not being a burden to your children is gift enough.

Bottom line
Here is my update to Munnell’s list:
1. Understand what you need for your monthly budget in retirement above what social security is going to provide; and map out other income streams to “fill the gap”
2. Hit $500,000 in savings for retirement
3. Have a plan to eliminate your mortgage by the time you’re ready to retire

The retirement crisis might be coming, but by reaching the above goals, you won’t be a statistic.

Read the original article here.


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