MONEY Social Security

Here’s How to Handle Social Security’s Trickiest Claiming Rule

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Cavan Images—Getty Images

Your spouse and other family members may depend on Social Security benefits. But their income may be limited by the family benefit "ceiling"—unless you plan now.

Social Security benefits include a surprising array of payments beyond your own retirement benefit. As I wrote last week, these so-called auxiliary benefits, which are geared to your earnings record, may provide income to your spouse (or former spouse), your children and even your parents. If you’re disabled, yet another set of Social Security benefits to your present and former family members may kick in.

This is, overall, a good deal. (And it’s a reason why delaying your own benefits is a thoughtful way to increase benefits to your loved ones.) But there is a big, big catch—it’s called the Family Maximum Benefit (FMB). This rule limits total Social Security payments to you and any eligible family members to a percentage of your own Social Security benefit. And it’s arguably one of the most tricky aspects of figuring out the best Social Security claiming strategy for you and your family.

Basically the FMB limits total payments to you and eligible family members to a total of 150% to 187% of the payments you alone would receive. It thus sets a ceiling on total family benefits—often, a very low ceiling. Here’s how it works:

Let’s say your spouse applies for spousal benefits based on your earnings and the payout is equal to 50% of your retirement benefit. Already we’re up to 150% of your retirement benefit. Now let’s say you have other family members who qualify for benefits—perhaps dependent children—who add another 150%, for a total of 200% on top of your payout. In all, these payments would cost Social Security 300% of your benefit.

This is where the the FMB ceiling comes in. If your FMB is 175% of your retirement benefit, then the rule will require the agency to reduce everyone’s benefit (except yours, which cannot be reduced) to a total of 75% of your benefit. Your family members will have to take nearly a two-thirds’ haircut in their benefits.

For those who want to get deeper into Social Security math—the rest of you can skip ahead—the FMB ceiling is based on what’s called your Primary Insurance Amount (PIA). This is the monthly retirement benefit you would receive if you started payments at what’s known as the Full Retirement Age (FRA), which is age 66 for those born between 1943 and 1954. (The FRA then will rise by two months a year for those born between 1955 and 1959, finally settling at 67 for anyone born in 1960 or later.) If your PIA is projected to be $2,500 in a few years, and you’re using this number for making auxiliary benefit decisions, here’s the way this year’s FMB formula would work:

  • 150% of the first $1,042 of your PIA (or $1,563);
  • 272% of the PIA between $1,042 through $1,505 (or $1,259);
  • 134% of the PIA over $1,505 through $1,962 (or $612); and,
  • 175% of the PIA over $1,962 (or $942).

The sum of these four numbers—$4,376—is the FMB for monthly benefits for all Social Security claims based on your earnings record. It equals 175% of your PIA. There is a separate formula covering FMBs for disabled persons, and it can produce very small benefits for lower-income claimants.

Is there a way around the FMB ceiling? Yes, but only if your family is flexible. Since the FMB limits apply to total benefits being collected on your earnings record in a given year, consider staggering the timing of your family’s claims. That way, they may be able to stay under the ceiling.

Here’s one example: Say you have a spouse and younger children who qualify for benefits. If your FMB would seriously reduce all these benefits, it might be best for your husband or wife to hold off on claiming the spousal benefit and take the child benefits only. The amount of money your family receives might not drop much, if at all. And the child benefits likely will expire anyway when the kids are older. Your spouse can make a claim at a later date, when the benefit also may have risen in value, depending on your age and the age of your significant other. Clearly, when it comes to strategizing benefits, Social Security is a family affair.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Ask the Expert

How To Tap Your IRA When You Really Need the Money

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Robert A. Di Ieso, Jr.

Q: I am 52 and recently lost my job. I have a fairly large IRA. I was thinking of taking a “rule 72(t)” distribution for income and shifting some of those IRA assets to my Roth IRA, paying the tax now while I’m unemployed and most likely at a lower tax rate. What do you think of this strategy? – Mark, Ft. Lauderdale, FL

A: It’s a workable strategy, but it’s one that’s very complex and may cost you a big chunk of your retirement savings, says Ed Slott, a CPA and founder of IRAhelp.com.

Because your IRA is meant to provide income in retirement, the IRS strongly encourages you to save it for that by imposing a 10% withdrawal penalty (on top of income taxes) if you tap the money before you reach age 59 ½. There are several exceptions that allow you to avoid the penalty, such as incurring steep medical bills, paying for higher education or a down payment on a first home. (Unemployment is not included.)

The exception that you’re considering is known as rule 72(t), after the IRS section code that spells it out, and anyone can use this strategy to avoid the 10% penalty if you follow the requirements precisely. You must take the money out on a specific schedule in regular increments and stick with that payment schedule for five years, or until you reach age 59 ½, whichever is longer. Deviate from this program, and you’ll have to pay the penalty on all money withdrawn from the IRA, plus interest. (The formal, less catchy name of this strategy is the Substantially Equal Periodic Payment, or SEPP, rule.)

The IRS gives you three different methods to calculate your payment amount: required minimum distribution, fixed amortization and fixed annuitization. Several sites, including 72t.net, Dinkytown and CalcXML, offer tools if you want to run scenarios. Generally, the amortization method will gives you the highest income, says Slott. But it’s a good idea to consult a tax professional to see which one is best for you.

If you do use the 72(t) method, and want to shift some of your traditional IRA assets to a Roth, consider first dividing your current account into two—that way, you can convert only a portion of the money. But you must do so before you set up the 72(t) plan. If you later decide that you no longer need the distributions, you can’t contribute 72(t) income into another IRA or put it into a Roth. Your best option would be to save it in a taxable fund. “Then the money will be there if you need it down the road,” says Slott.

Does it make sense to take 72(t) distributions? Only as a last resort. It is true that you’ll pay less in income tax while you’re unemployed. But at age 52, you’ll be taking distributions for seven and a half years, which is a long time to commit to the payout plan. If you get a job during that period, the income from the 72(t) distribution could push you into a higher tax bracket. Slott suggests checking into a home equity loan—or even taking some money out of your IRA up front and paying the 10% penalty, rather than withdrawing the bulk of the account. “Your retirement money is the result of years of saving,” says Slott. “If you take out big chunks now, you might not have enough lifetime to replace it.”

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

MONEY 401(k)s

The Secret To Building A Bigger 401(k)

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Brad Wilson—Getty Images

There's growing evidence that financial advice makes a big difference in your ability to achieve a comfortable retirement.

Some people need a personal trainer to get motivated to exercise regularly. There’s growing evidence that a financial coach can help whip your retirement savings into better shape too.

People in 401(k) plans who work with financial advisors save more and have clearer financial goals than people who don’t use professional advice, according to a study out today by Natixis Global Asset Management. Workers with advisors contribute 9.5% of their annual salary to their 401(k) vs. 7.8% by those who aren’t advised, according to Natixis. That puts workers with advisors on target for the 10% to 15% of your annual income you need to put away (including company match) if you want to retire comfortably.

Natixis also found that three-quarters of 401(k) plan participants with advisors say they know what their 401(k) balance should be by the time they retire vs. half of workers without advisors who say the same.

The Natixis study follows a Charles Schwab survey out last week that found that workers who used third-party professional advisors and had one-on-one counseling tended to increase their savings rate, were better diversified and stayed the course in their investing decisions despite market ups and downs.

Similar research was released in May by Financial Engines—that study found that people who got professional investment help through managed accounts, target-date funds or online tools earned higher median annual returns than those who go it alone. On average employees getting advice had median annual returns that were 3.32 percentage points higher, net of fees, than workers managing their own retirement accounts.

Granted, most of these studies come from organizations that make money by providing advice—either directly to investors or as a resource provided by 401(k) plan providers. Still, Vanguard, who provides services to both advisers and do-it-yourself investors, has published research showing that financial guidance can add value. In a 2013 research paper, Advisor’s Alpha, Vanguard said that “left alone, investors often make choices that impair their returns and jeopardize their ability to fund their long-term objectives.” According to Vanguard, advisers can help add value if they “act as wealth managers and behavioral coaches, providing discipline and experience to investors who need it.”

In other words, the value of working with an advisor, like a personal trainer, may simply be that when someone is working one-on-one with you to reach a goal you are more likely to be engaged.

Whether you want to work with a financial advisor is a personal decision. If you’re like many people who feel overwhelmed by investment choices, or don’t have a lot of time to spend on investment decisions, getting professional financial advice can help you stay on course towards your retirement goals. You can get that advice through your 401(k) plan or via a periodic check up with a fee-only financial planner or simply by putting your retirement funds into a target date fund.

Still, before you hire a pro, make sure you understand the fees. A recent study by the GAO found that 401(k) managed accounts, which let you turn over portfolio decisions to a pro, may be costly—management fees ranged from .08% to as high as 1%, on top of investing expenses. Ideally, you should pay 0.3% or less. High fees could wipe out the advantage of professional guidance.

Other research has found that you may get similar benefits—generally at a much lower cost—by opting for a target-date fund. If you go outside your 401(k) plan, it’s generally better to use a fee-only planner, who gets paid only for the advice provided, not commissions earned by selling financial products. You can find fee-only financial planners through the National Association of Personal Financial Advisors; and for fee-only planners who charge by the hour, you can try Garrett Planning Network.

Still, if you enjoy investing, and you are willing to spend the time needed to stay on top of your finances, a do-it-yourself approach is fine. Using online calculators can give you a clearer picture of your goals, and simply knowing what your target should be can be motivating. The Employee Benefit Research Institute (EBRI) consistently finds that people who calculated a savings goal were more than twice as likely to feel very confident they’ll be able to accumulate the money they need to retire and are more realistic about how much they need to save. All of which will help you reach your retirement goals.

MONEY 401(k)

3 Things to Know About Your 401(k)’s Escape Hatch

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Alamy

More and more 401(k)s offer a formerly rare option—a brokerage window. That's raising questions from Washington regulators. Here's what you should watch out for.

While 401(k)s are known for their limited menu of options, more and more plans have been adding an escape hatch—or more precisely, a window. Known as a “brokerage window,” this plan feature gives you access to a brokerage account, which allows you to invest in wide variety of funds that aren’t part of of your plan’s regular menu. Some 401(k)s also allow you to trade stocks and exchange-traded funds, including those that target exotic assets such as real estate.

No question, brokerage windows can be a useful tool for some investors. But these windows carry extra costs, and given the increased investing options, you also face a higher risk that you’ll end up with a bad investment. All of which raises concerns that many employees may not fully understand what they’re getting into with these accounts. Earlier this week the U.S. Labor Department, which has been fighting a long-running battle to make retirement plans cheaper and safer for investors, asked 401(k) plan providers for information about brokerage windows.

You may wonder if a brokerage window is something you should use in your 401(k). To help you decide, here are answers to three key questions:

How common are brokerage windows?

Not long ago these features were rare. As recently as 2003, just 14% of large plans included offered a brokerage window, according to benefits company Aon Hewitt. But they’ve grown steadily more popular over the past decade, with about 40% of plans offering this option as of 2013. Interestingly, the growth has taken place even as more 401(k)s have opted to take investment decisions out of workers’ hands by automatically enrolling them in all-in-one investments like target-date funds.

Those two trends aren’t necessarily at odds. Experts say companies often add brokerage windows in response to a small but vocal minority of investors, who, rightly or wrongly, believe they can boost returns by actively picking investments. But overall just 5.6% of 401(k) investors opt for a window when it is offered. The group that is most likely use a brokerage window: males earning more than $100,000, about 9% of whom take advantage of the feature, according to Hewitt. (Not surprisingly, this group also tends to have the corporate clout to persuade HR to provide this option.) By contrast, only about 4% of high-earning women use a window.

When can brokerage windows make sense for the rest of us?

That depends in part on whether the other offerings in your 401(k) meet your needs. If you want an all-index portfolio, for example, a brokerage window may come in handy. Granted, more plans have added low-cost index funds, especially if you work for a large or mid-sized company. Today about 95% of large employers offer a large-company stock index fund, such as one that tracks the S&P 500, according to Hewitt.

Workers at small companies are less likely to enjoy the same access, however. These index funds are on the menu only about 65% of the time in plans with fewer than 50 participants, according to the Plan Sponsor Council of America, a trade group.

Moreover, even in large plans investors seeking to diversify beyond the broad stock and bond market can find themselves out of luck. Only about 25% of plans offer a fund that invests in REITS. And only about two in five offer a specialty bond fund, such as one that holds TIPS.

But even if a window allows you to diversify, you need to consider the additional costs. About 60% of plans that offer a brokerage window charge an annual maintenance fee for using it, according to Hewitt. The average amount of the fee was $94. And investors who use the window typically also pay trading commissions, just like they do at a regular brokerage.

Where does that leave me?

Before you decide to opt for a brokerage window, check to see if the fees outweigh the potential benefits. Here are some back-of-the-envelope calculations to get you started:

If you have, say, $200,000 socked away for retirement, paying an extra $100 a year to access a brokerage window works out to a modest additional fee of 0.05%. While the brokerage commission would increase that somewhat, you can minimize the damage by trading just once a quarter or once a year.

If your plan includes only actively managed mutual funds with annual investment fees in the neighborhood of 1%, the brokerage window could allow you to access ETFs charging as little as 0.1%. That means you could end up paying something like 0.15% instead of 1%.

If your plan has low-cost broad market index funds, however, a brokerage window offers less value. Say you want to add more more specialized investment options, such as a REIT or emerging market fund. Even if you have $200,000 in your 401(k), you’ll probably only invest a small amount in these more exotic investments—perhaps $5,000 or $10,000. So a $100 brokerage fee would increase your overall costs on that slice of your portfolio to 1% to 2%. Plus, you’ll pay brokerage commissions and fund investment fees. In that case, better to leave the escape hatch shut.

MONEY Social Security

Maximize Your Social Security Benefits…By Not Freaking Out

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Lyn Balzer and Tony Perkins—Getty Images

A financial planner explains why, when it comes to retirement income, being patient can pay off in a big way.

About a month ago, a client walked into our office and announced that he had decided to take his retirement package being offered at work. We had to work out a number of issues related to his company’s retirement benefits. Finally, when the subject of Social Security came up, my client said, “I want to start taking the benefit as soon as I can, before they stop it.”

His opinion of Social Security is common. Many retirees believe that Social Security may run out or that Congress may legislate away their benefit.

We pushed back on this. First, the actuarial analysis shows the Social Security fund is pretty secure; it is Medicare that we all need to be worried about. Second, we feel that for a current retiree, the benefit amount is fairly safe; the only possible changes might involve a lower increase in the annual benefit. We agree with most experts that making changes to current benefits is a non-starter.

Our client was persuaded. Then he asked us a question we hear a lot: “When should I start taking Social Security, at age 66 or 70?”

The answer is not straightforward. If our client — let’s call him Jack — started taking Social Security at age 66, he’d receive a monthly benefit of $2,430. But your initial benefit increases the longer you postpone taking it, until you reach age 70. If Jack delayed taking the benefit until he turned 70, the initial amount would be $3,680, or 52% more per month.

Since Jack has other forms of retirement income, he doesn’t need the monthly check as soon as possible to live on. Instead, Jack’s goal is to get as much back from Uncle Sam as possible.

If Jack started his benefit at age 66, he would receive approximately $116,700 by age 70. (He’d actually get more, since benefits are adjusted annually for inflation. But for the sake of simplicity, I am ignoring inflation and other complicating factors.)

If he waited until age 70, he would be receiving $1,250 more per month, but he wouldn’t have received any money over the prior four years. It would take around 94 months to recoup the $116,700 he did not earn by waiting.

In other words, Jack would have an eight-year breakeven point if he waited until 70. If Jack dies before age 78, he would have received more by taking the benefit at age 66; if he lives past 78, he would be better off to wait until age 70. Federal life expectancy tables say a male 65 years old has a life expectancy of age 82. So if Jack has average health, the odds suggest he should wait until age 70 to take his benefit.

Jack’s wife — we’ll call her Jill — is 65, and has been retired for a couple of years. Jill’s Social Security projection looks like $2,120 monthly at age 66 or $3,200 at age 70. Jill’s breakeven also projects to be at age 78, yet her life expectancy is age 85, so the odds that she will be better off waiting until age 70 are greater than Jack’s.

But they both shouldn’t necessarily wait until 70 to take their benefits. Why? Because Social Security offers married couples a spousal benefit option.

This takes us into a different kind of strategy with our clients, something advisers call “file and suspend.”

It is possible to start taking a spousal benefit at age 66 (as long as your spouse has filed for his or her own benefit amount) and let your personal benefit increase to the maximum amount at age 70. The strategy is to have both spouses wait until 70 to take their own benefit, but for the spouse with the lower benefit amount to take a spousal benefit from age 66 up to age 70. For this to work, the spouse with the higher benefit amount needs to file for his or her benefit—then suspend receiving his or her own benefit until age 70.

For Jack and Jill, the file and suspend would work as follows: Jack, the spouse with the higher benefit, files for benefits at age 66, then immediately requests the benefits be suspended; that’s “file and suspend.” Then at age 70, he requests his benefits, which would be approximately $3,680 a month.

Jill files for her spousal benefit at age 66. This allows her to delay her own benefit while collecting a spousal benefit of around $1,250 a month. Then at age 70, she cancels the spousal benefit in order to collect her full benefit of $3,200 a month.

This scenario would provide them an added benefit of almost $60,000 in those first 4 years!

All Social Security scenarios have a breakeven age, so it is important to take an honest look at your health when evaluating all your options. The most important factor is your own cash flow need when you retire. If Social Security is going to be one’s sole source of income in retirement, waiting until age 70 is probably not an option.

But for those who can, delaying benefits is a useful tool. Outliving your money in your 80s or 90s is a real possibility. Postponing Social Security to allow for the highest possible benefit can mitigate that longevity risk.

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Scott Leonard, CFP, is the owner of Navigoe, a registered investment adviser with offices in Nevada and California. Author of The Liberated CEO, published by Wiley in 2014, Leonard was able to run his business, originally established in 1996, while taking his family on a two-year sailing trip from Florida to New Caledoniain the south Pacific Ocean. He is a speaker on investment and wealth management issues.

MONEY Social Security

What’s Missing in Your New Social Security Benefits Statement

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iStock

Many workers will start receiving Social Security benefits statements again. Just don't expect to see much discussion of inflation's impact on your payout.

The Social Security Administration will be mailing annual benefit statements for the first time in three years to some American workers. That’s good news, because the statements provide a useful projection of what you can expect to receive in benefits at various retirement ages, if you become widowed or suffer a disability that prevents you from working.

But if you do receive a statement next month, it is important to know how to interpret the benefit projections. They are likely somewhat smaller than the dollar amount you will receive when you actually claim benefits, because they are expressed in today’s dollars—before adjustment for inflation.

That is a good way to help future retirees understand their Social Security benefits in the context of today’s economy—both in terms of purchasing power, and how it compares with current take-home pay. “For someone who is 50 years old, this approach allows us to provide an illustration of their benefits that are in dollars comparable to people they might know today getting benefits,” says Stephen Goss, Social Security’s chief actuary. “It helps people understand their benefit relative to today’s standard of living.”

In part, the idea here is to keep Social Security out of the business of forecasting future inflation scenarios in the statement that might—or might not—pan out. The statement also provides a starting point for workers to consider the impact of delayed filing.

“It provides valuable information about how delaying when you start your benefit between 62 and 70 will increase the monthly amount for the rest of your life—an important fact for workers to consider,” says Virginia Reno, vice president for income security at the National Academy of Social Insurance.

Unfortunately, the annual statement is silent when it comes to putting context around the specific benefit amounts. The document’s only reference to inflation is a caveat that the benefit figures presented are estimates. The actual number, it explains, could be affected by changes in your earnings over time, any changes to benefits Congress might enact, and by cost-of-living increases after you start getting benefits.

And the unadjusted expression of benefits can create glitches in retirement plans if you do not put the right context around them. Financial planners don’t always get it right, says William Meyer, co-founder of Social Security Solutions, a company that trains advisers and markets a Social Security claiming decision software tool.

“Most advisers do a horrible job coming up with expected returns. They choose the wrong ones or over-estimate,” he says, adding that some financial planning software tools simply apply a single discount rate (the current value of a future sum of money) to all asset classes: stocks, bonds and Social Security. What’s needed, he says, is a differentiated calculation of how Social Security benefits are likely to grow in dollar terms by the time you retire, compared with other assets.

“Take someone who is 54 years old today—and her statement says she can expect a $1,500 monthly benefit 13 years from now when she is at her full retirement age of 67,” says William Reichenstein, Meyer’s partner and a professor of investment management at Baylor University. “If inflation runs 2% every year between now and then, that’s a cumulative inflation of 30%, so her benefit will be $1,950—but prices will be 30 percent higher, too.

“But if I show you that number, you might think ‘I don’t need to save anything—I’ll be rich.’ A much better approach for that person is to ask herself if she can live on $1,500 a month. If not, she better think about saving.”

About those annual benefit statements: the Social Security Administration stopped mailing most paper statements in 2011 in response to budget pressures, saving $70 million annually. Instead, the agency has been trying to get people to create “My Social Security” accounts at its website, which allows workers to download electronic versions of the statement. The move prompted an outcry from some critics, who argue that the mailed statement provides an invaluable reminder each year to workers of what they can expect to get back from payroll taxes in the future.

Hence the reversal. Social Security announced last spring that it is re-starting mailings in September at five-year intervals to workers who have not signed up for online accounts. The statements will be sent to workers at ages 25, 30, 35, 40, 45, 50, 55 and 60.

MONEY 401(k)s

Workers Spend More Time Researching Cars Than Checking Out 401(k) Options

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Dimitri Vervitsiotis—Getty Images

Investors understand that retirement plans are important. But judging by time spent, 401(k)s are don't rate nearly as high as a new SUV.

When it comes to retirement saving, Americans still have their priorities skewed. That’s the conclusion of a new Charles Schwab survey, which found that workers spend more time investigating options for buying a new car or planning a vacation than researching the investment choices in their retirement plan. Cars and vacations got two hours of effort compared with one hour for 401(k)s.

It’s not that workers don’t value their retirement plans. Nearly 90% of workers say that a 401(k) is the most important option an employer can offer, the survey finds. But for most workers, appreciation of the plan isn’t translating into doing the best job possible of managing it. “It’s just human nature. We tend to gravitate to things we are comfortable with and avoid the things that we are not,” says Steve Anderson, president of Schwab Retirement Plan Services.

Part of the problem may be lack of financial knowledge. Workers surveyed by Schwab say they’d feel more confident about the ability to make a good financial decision if they had some professional guidance. Yet few people seek out help. Fewer than 25% participants who have access to professional advice have used it, according to the survey. By contrast, 87% of workers said they would hire a professional to change the oil in their car and 36% rely on one to do their taxes.

Of course, outsourcing your taxes and car maintenance isn’t the same as finding good investment help. But it’s not that the advice isn’t there. Three-quarters of 401(k) plans offer some type of help, ranging from from target-date funds to online tools to professionally managed accounts. Anderson said one reason people may not seek out help is that they don’t know it’s available. “Advice is available but it’s not promoted,” he says.

Taking advantage of this guidance can pay off, especially when it comes to reducing risk.

According to a study released by Financial Engines earlier this year, people who got professional investment help through managed accounts, target-date funds or online tools earned higher median annual returns than those who go it alone. It found that on average, employees getting advice had median annual returns that were 3.32 percentage points higher, net of fees, than workers managing their own retirement accounts.

Meanwhile, Schwab also found that people who used third-party professional advisors and had one-on-one counseling tended to increase their savings rate, were better diversified and stayed the course in their investing decisions despite market ups and downs.

If you are looking for plan guidance, though, make sure you understand the fees for this advice. A recent study by the GAO found that managed accounts, which let you turn over portfolio decisions to a pro, may be costly—management fees ranged from .08% to as high as 1%, on top of investing expenses. Ideally, you should pay 0.3% or less. High fees could wipe out the advantage of professional guidance. Other research has found that you may get similar benefits—generally at a much lower cost—by opting for a target-date fund.

In the long run, stepping up your saving and keeping fees low will make a bigger difference to your financial security than the investments you select. Still, making the right choices in your 401(k), as well as understanding what you need to do to reach your goals, is important. If professional advice will help you avoid making mistakes, it may be worth seeking out.

MONEY retirement planning

Get These 4 Big Things Right to Retire in Comfort

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OJO Images—Getty Images

By focusing on a few essentials, you can keep your retirement strategy on track—and reduce stress too.

Take a look at financial websites or switch on a cable TV program and you get the impression that smart retirement planning requires you to stay constantly attuned to every wiggle in the economy and the stock market—and act on it: dump one investment, buy another, re-jigger your entire portfolio…do something, anything, to react to the latest buzz. This, of course, is nonsense.

In a constantly shifting global economy, there are far too many things going on for any person—any organization for that matter—to keep tabs on, evaluate and integrate into a master retirement plan. And then do it over and over again as conditions inevitably shift. It’s just not realistic.

Even if you could stay on top of the overwhelming amount of financial information, it’s still not always clear how best to react to news. For example, a good GDP report can be a plus for stocks if investors take it as a sign that a recovery is gaining traction—or bad if it stirs fears that interest rates will rise causing stock prices to soften.

So given the complexity of today’s financial world, what can you do to better assure you’ll have a secure and comfortable retirement? My advice: Focus on getting these four Big Things right.

1. Set a target—but make sure it’s the correct one. Generally, you’ll do better at any activity—career, health, sports—if you have a goal. Retirement is no exception. The Employee Benefit Research Institute’s latest Retirement Confidence Survey notes that people who’ve tried to calculate their retirement savings needs are more likely to feel very confident about affording a comfortable retirement than those who don’t.

Over the years, however, the target of choice seems to have become Your Number—or the specific amount of money you’ll need to fund a comfortable retirement. But Your Number isn’t a very good benchmark. It gives a false sense of precision, and can often be so big and daunting that it discourages people from saving at all. (What’s the point if I have zero saved and need $1,378,050?)

A better barometer: Keep track of the percentage of your pre-retirement income you’re on pace to replace both from Social Security and draws from your retirement savings. Granted, this figure isn’t exact either. Experts generally say that to maintain your standard of living you should try to replace anywhere from 70% to 90% of your income just prior to retirement. But it’s a number you can more easily get your head around, and more easily translate to an actual lifestyle. Many 401(k) plans include tools that allow you to see how you’re doing on this metric. If yours doesn’t, try the Retirement Income Calculator in RDR’s Retirement Toolbox.

2. Save at a reasonable rate. If you’re still in career mode, setting aside a sufficient amount each year in a 401(k) or other retirement accounts is the single most important thing you can do to improve your retirement prospects. What’s sufficient? I’d say 15% of salary is a good target. But if you can’t manage that, try starting at 10% and working your way up. Employer matching funds count toward that savings figure, so be sure to take full advantage of any employer largesse.

Once you reach retirement, tending your nest egg and managing the amount you spend is key. You don’t want to spend so much that you delete your savings early on; nor do you want to be so miserly that you leave this mortal coil with a big pile of cash behind you.

3. Invest like a smart layman, not a dumb pro. I’m being a bit facetious here to make a point. Professional investors and money managers are not dumb. But many of them do things that I consider dumb, like jumping from one market sector to another in a vain attempt to outguess the market or trading so often that they rack up transaction costs that depress returns.

The smart layman, on the other hand, knows that the two best ways to invest retirement savings are to set an overall mix of stocks and bonds that best reflects your appetite for risk, and then stick to low-cost investments that allow you to pocket more of the returns your savings earn. For guidance on creating a stocks-bonds blend that will generate the returns you’ll need without subjecting you to more downside risk than you can handle, you can check out this Investor Questionnaire.

4. Monitor how you’re doing, but don’t obsess about it. Retirement planning is a long-term proposition. So while you definitely want to be sure you’re making progress toward accumulating the savings you’ll need—or, if you’ve already retired, that you’ll be able to maintain your standard of living—don’t over do it. Re-assessing your progress once or twice a year by going to a retirement income calculator like the one highlighted in RDR’s Retirement Toolbox is probably sufficient.

Constant check-ups may make you more likely to tinker with (or, worse yet, dramatically overhaul) your investments or your plans. This urge to make changes is especially strong during periods of upheaval in the economy and the markets. And changes made on the fly or precipitated by an emotional reaction to duress often do more harm than good.

That said, there can be times when adjustments are called for. But when they are, you’ll typically do better by making small changes and then later re-assessing whether you need to do more rather than going with a dramatic move that could knock you even farther off course.

MORE FROM REAL DEAL RETIREMENT

Why You Shouldn’t Obsess About A Market Crash

Why I Cried When Berkshire Hathaway Hit $200,000 a Share

5 Tips For Charting Your Retirement Lifestyle

MONEY Ask the Expert

Here’s How to Protect Your 401(k) from the Next Big Market Drop

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Robert A. Di Ieso, Jr.

Q: Bull markets don’t last forever. How can I protect my 401(k) if there’s another big downturn soon?

A: After a five-year tear, the bull market is starting to look a bit tired, so it’s understandable that you may be be nervous about a possible downturn. But any changes in your 401(k) should be geared mainly to the years you have until retirement rather than potential stock market moves.

The current bull market may indeed be in its last phase and returns going forward are likely to be more modest. Still, occasional stomach-churning downturns are just the nature of the investing game, says Tim Golas, a partner at Spurstone Executive Wealth Solutions. “I don’t see anything like the 2008 crisis on the horizon, but it wouldn’t surprise me to see a lot more volatility in the markets,” says Golas.

That may feel uncomfortable. But don’t look at an increase in market risk as a key reason to cut back your exposure to stocks. “If you leave the market during tough times and get really conservative with long-term investments, you can miss a lot of gains,” says Golas.

A better way to determine the size of your stock allocation is to use your age, projected retirement date, as well as your risk tolerance as a guide. If you are in your 20s and 30s and have many years till retirement, the long-term growth potential of stocks will outweigh their risks, so your retirement assets should be concentrated in stocks, not bonds. If you have 30 or 40 years till retirement you can keep as much as 80% of your 401(k) in equities and 20% in bonds, financial advisers say.

If you’re uncomfortable with big market swings, you can do fine with a smaller allocation to stocks. But for most investors, it’s best to keep at least a 50% to 60% equities, since you’ll need that growth in your nest egg. As you get older and closer to retirement, it makes sense to trade some of that potential growth in stocks for stability. After all, you want to be sure that money is available when you need it. So over time you should reduce the percentage of your assets invested in stocks and boost the amount in bonds to help preserve your portfolio.

To determine how much you should have in stocks vs. bonds, financial planners recommend this standard rule of thumb: Subtract your age from 110. Using this measure, a 40-year old would keep 70% of their retirement funds in stocks. Of course, you can fine-tune the percentage to suit your strategy.

When you’re within five or 10 years of retirement, you should focus on reducing risk in your portfolio. An asset allocation of 50% stocks and 50% stocks should provide the stability you need while still providing enough growth to outpace inflation during your retirement years.

Once you have your strategy set, try to ignore daily market moves and stay on course. “You shouldn’t apply short-term thinking to long-term assets,” says Golas.

For more on retirement investing:

Money’s Ultimate Guide to Retirement

MONEY Social Security

How to Claim Social Security Without Shortchanging Your Spouse

Deciding when to take Social Security can have a big impact on your family's income. Here's what you need to know.

When it comes to claiming Social Security, millions of people make this huge mistake: overlooking the impact on their family’s income.

Many people don’t realize that Social Security pays a host of benefits beyond your individual retirement income. The program may also pay so-called auxiliary benefits to your spouse, your children and even your parents. A separate program may provide auxiliary benefits if you become disabled, and, in some cases, if you are divorced or if you have passed away. The amount of these benefits is tied to your earnings record—the wages you’ve earned over a lifetime during which you’ve forked over Social Security payroll taxes—and your decision on when to file your claim.

To make the best choices about when to claim Social Security, anyone who is, or was, married, and especially those with children, needs to consider not only their own retirement benefits but also benefits that might be available to family members. This is especially true of survivor benefits.

Let me give you an example. (I wish it was simple but very little about Social Security is simple.) Say you’re 62 and your wife is 58. You’ve heard that delaying Social Security will raise your income but you want the benefits now, so you begin looking into the process of claiming them.

If you file for benefits at 62 (the earliest claiming age unless you’re disabled or a surviving spouse), they will be reduced by 25% from what you could get at full retirement age, which is 66 for people now approaching retirement. What’s more, that payout would be a whopping 76% less than if you waited until age 70 to file. To use convenient numbers, if your benefit at 66 would be $1,000 a month, you would get only $750 a month if you filed at age 62 but $1,320 a month if you waited until age 70.

Perhaps you’re okay with receiving lower income, if you start getting it sooner. But how about your family members? These reductions would also apply to their auxiliary benefits.

The most dramatic impact of early claiming decisions affects widows. Husbands are overwhelmingly likely to begin taking their retirement benefits before their full retirement age, according to Social Security data. Yet husbands are likely to die several years before their wives, statistics show, which leaves many widows struggling on small incomes.

Granted, many women have salary records of their own, and as their wages have increased over the past 30 years, so have Social Security benefits. But many women now reaching retirement age have not accumulated Social Security benefits equal to that earned by their husbands.

That inequality is a real problem for widows. While they both are alive, each spouse can collect his or her own Social Security benefit. But after one dies, the surviving spouse can only collect the greater of the two benefits. This is likely to be the husband’s benefit, even if it’s been reduced because he filed for it early.

As a result, millions of widows in this country are receiving reduced survivor benefits based on their late husband’s earnings record. Had he waited to file, their survivor benefits would have been higher—much higher in many cases.

The trend is so pronounced that the agency devised a special way of calculating benefits to try and ease its impact. It’s called the Retirement Insurance Benefit Limit, or RIB-LIM in the agency’s acronym-crazy jargon. It’s also known as the Widow(er)’s Limit.

When you make the decision when to claim Social Security, make sure it’s in the best interest of everyone in the family. To really understand this decision, you’ll need to know about Social Security’s family maximum benefits. Tune in next week to learn how they work.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

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