MONEY retirement planning

Answer These 3 Questions to See If You’re Taking Too Much Risk

standing on edge of cliff
Tom Nevesely—Getty Images/All Canada Photos

If you haven't checked your portfolio lately, you may be taking big chances with your retirement security.

With the bull market now into its sixth year and stock prices at or near record highs, many investors may be investing more aggressively than they realize—and unwittingly jeopardizing their financial security. Answer these three questions to see if you may be taking on more risk than you should.

1. Have you rebalanced your portfolio over the past five to six years? Since the market’s trough in early 2009, stocks have racked up a total return of more than 250%, nearly eight times the 33% gain for bonds. Which means if you haven’t rebalanced your holdings or taken other steps to restore your portfolio to its target asset allocation (such as investing new money in lagging holdings), you could be sitting on a higher-octane mix than you realize.

For example, someone who had a portfolio that was invested 60% in stocks and 40% in bonds in March, 2009 and simply let it ride without rebalancing over the next six or so years would be sitting on a portfolio of roughly 80% stocks and 20% bonds today. For a sense of just how more volatile an 80-20 mix is than a 60-40 portfolio, consider: From the stock market’s high in 2007 to its 2009 low, an 80-20 portfolio would have suffered a loss of more than 40% vs. a loss of just under 30% for the 60-40 mix (assuming no rebalancing).

Of course, if you failed to rebalance but added or pulled money from your portfolio over the past six-plus years, you could end up with a more, or less, stock-intensive portfolio than the example above, depending on what investments you added or which parts of your portfolio you drew from. But without a conscious effort to maintain your target asset allocation, it’s easy for a portfolio to become much more aggressive over the course of a long upswing in stock prices.

2. Have you been funneling more of your savings into stocks as the market has climbed in recent years or found yourself more eager to make volatile investments? When the market is on a long surge, many investors are willing, if not eager, to invest more aggressively than they otherwise might. Some researchers believe that’s because we’re simply more comfortable accepting more risk when stocks are risking. Others say that’s nonsense. Our appetite for risk hasn’t changed; we just underestimate the level of risk we’re taking when things are going swimmingly.

Regardless of which side is right (I tend to side with the latter group), the point is that during bull markets you may be tempted to load up more on stocks and/or jump more readily than you would in less ebullient times into high-flying sectors that are leading the market, like health care and technology this year. But this tendency has two downsides: It can leave you with a portfolio that’s more “di-worse-ified” than diversified as you add more and more investments to your roster; and it can lead to greater losses if the market’s sizzle turns to fizzle.

3. Have you assessed your risk tolerance lately? The only way to really know whether the risk level of your portfolio jibes with your true tolerance for risk is to take a risk tolerance test. For example, answer the 11 questions in Vanguard’s free risk tolerance-asset allocation questionnaire and you’ll get a recommended blend of stocks and bonds based on, among other things, what size loss you feel you could handle without jettisoning stocks and how long you intend to invest your money. An Australian firm that measures investing risk, FinaMetrica, offers a more rigorous 25-question risk profile questionnaire that grades you on a scale of 0 to 100, comes with a detailed report and also suggests a portfolio mix. The cost: $45.

The best way to evaluate how much risk you can take on is to complete a risk tolerance questionnaire. Vanguard has a free one that asks 11 questions designed to gauge, among other things, what size loss you feel you could stand without bailing on stocks and how long you intend to invest your money. Based on your answers, you’ll get a recommended blend of stocks and bonds. FinaMetrica, an Australian firm that specializes in measuring risk, offers a more comprehensive 25-question risk profile questionnaire that’s used by many financial planners and costs $45. It grades you on a scale of 0 to 100 and comes with a detailed report. To translate that score into an appropriate asset allocation, you can go to the asset allocation guide in the Resources and FAQs tab at the company’s site for advisers. – See more at:

After completing such a test, you can then compare the suggested portfolio with how your savings are actually invested—and, if necessary, take steps to bring your holdings in line with your investment goals and tolerance for risk. While you’re at it, you may also want to do a quick portfolio check-up to make sure you know exactly how your portfolio is divvied up among your various holdings and what you’re paying each year in management and other fees. And if you want to get really ambitious, consider subjecting your overall retirement plan to a stress test so you’ll have a sense of how a severe market setback might affect your retirement prospects.

Or you can do what many investors do and put off dealing with these issues until a major downturn is underway. In which case, your options for stemming the damage to your portfolio—and your retirement security—will be limited.

Walter Updegrave is the editor of If you have a question on retirement or investing that you would like Walter to answer online, send it to him at

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MONEY Medicare

This Is the Biggest Mistake People Make When Signing Up for Medicare

calendar with pills on days

To sign up for the right program at the right time, start marking your calendar now.

Most pre-retirees know that Medicare coverage kicks in when you turn 65. But that’s not the whole story. If you want to enroll in Medicare without hassles and costly penalties, you need to know exactly when to sign up for the program you want. There are different enrollment periods, so it’s trickier than you might think. Many older Americans fail to sign up at the right time, which can lead to higher premiums or leave you with coverage gaps, studies have found.

First, though, there are exceptions to the age 65 sign-up date. You may still be covered by your employer’s health care plan, for example, or if you are eligible for Medicare due to a disability, you can sign up earlier. In my column next week, I will discuss strategies for people who won’t be enrolling at 65. But this week we’ll focus on traditional sign-up rules. Now for a quick rundown of the five—yes, five—different enrollment periods for Medicare:

Initial Enrollment Window: Medicare has established a seven-month Initial Enrollment Period, which includes the three months before you turn 65, your birthday month, and the three months afterward. This window applies to all forms of Medicare—Parts A (hospital), B (doctor and outpatient expenses), C (Medicare Advantage), and D (prescription drugs).

Signing up for Medicare Advantage (MA), the managed health care version of Medicare, also requires you to have Parts A and B. You can drop your MA plan anytime within the succeeding 12 months and just use what’s called original or basic Medicare (Parts A and B).

Medigap Enrollment: There is a separate six-month open enrollment period for Medicare Supplement policies (also called Medigap), which begins when you’ve turned 65 and are enrolled in Part B. During this period, insurers must sell you any Medigap policy they offer, and they can’t charge you more because of your age or health condition. This guaranteed access may be crucial because if you miss this window and try to buy a Medigap policy later, insurers may not be obligated to sell you a policy and may be able to charge you more money. (Note: Medigap policies may not be sold to people with Medicare Advantage plans.)

General Enrollment: If you missed enrolling in Part A or B during the Initial Enrollment Period, there is also a General Enrollment Period from January 1 through March 31 each year. Waiting until this period could, however, trigger lifetime premium surcharges for late Part B enrollment, which can end up costing you thousands of dollars. And your coverage won’t begin until July.

If you enroll in Part B during the General Enrollment Period, there is another window—April 1 through June 30—during which you can sign up for a MA plan with or without Part D drug coverage. In most cases, coverage also will take effect July 1.

Part D drug coverage is not legally required. But if you don’t sign up for it when you first can, and later decide you want it, you will face potentially large premium surcharges. For example, if you missed enrolling during your initial enrollment period and then bought a policy, a premium surcharge would later take effect if you were without Part D coverage for 63 days.

Special Enrollment: There are lots of special conditions that can expand your penalty-free options for when you sign up for Medicare. And there also are what’s called Special Enrollment Periods for people who’ve moved, lost their employer group coverage or face other special circumstances. These special periods may have enrollment windows that differ in length from the standard ones.

Open Enrollment: If you already have Medicare, there is an Open Enrollment Period every year, when you can select new MA and drug plans, including moving back and forth between basic Medicare (Parts A and B) and MA. It runs from October 15 through December 7.

For those with MA plans, there is also a special MA disenrollment period from January 1 through February 14, when you can move back to basic Medicare and also get a Part D plan if you need one (most MA plans include Part D).

Don’t feel bad if you can’t keep track of so many different enrollment periods. Who could? The A, B, C, Ds of Medicare are confusing enough. Just keep track of this column. And consider using your computer or smartphone’s calendar to enter key Medicare enrollment dates as you approach your 65th birthday .

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at or @PhilMoeller on Twitter.

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MONEY retirement planning

You May Have Already Spent Your Inheritance

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Seb Oliver—Getty Images

More would-be heirs are getting gifts now from older family members.

When it comes to retirement planning, most people talk about the traditional stool with three legs—employer pensions, Social Security, and individual savings. And yes, all three legs look pretty wobbly right now. But there’s an additional leg that no one talks about but many seem to be counting on: an inheritance.

Some 51% expect to inherit money from older family members, according to a recent HSBC survey of 16,000 working-age people. Two thirds of this group believe that windfall will help fund their retirement, and more than 25% expect this money to fund it largely or completely. Perhaps for a few, this is a realistic expectation. But for most of us, the data are starting to suggest that we’d better not count our chickens before they hatch.

Back in the 1980s, economists were predicting a huge inter-generational wealth transfer from the so-called G.I. and Silent Generations (born 1901 to 1945) to the Baby Boomers (born 1946 to 1964). However, a Bureau of Labor Statistics report published a few years ago found that there was little evidence of an “inheritance boom,” and that inheritances as a share of household net worth actually fell from 1989 to 2007.

What has been increasing, both in frequency and in dollar amounts, are so-called “intra-family cash transfers,” all those times older family members help out their children and grandchildren financially during their lifetimes. According to a new study from the Employee Benefit Research Organization, 44% of older households (age 50 or above) gave money to their children or grandchildren during the two years ending in 2010, up from 38% in 1998.

And we’re not talking about just birthday money or graduation checks. Of those older households who gave to their families, the average amount is more than $10,000—enough to be considered a major expenditure in their household budget.

Estate planners often say that it’s smarter for older people to give away their money gradually while they are alive, since those cash transfers can minimize inheritance taxes for their heirs. But here’s the problem: even though those gifts reduce estate taxes, they probably don’t improve the retirement readiness of the younger generation. That’s because the money typically gets spent on immediate needs, such as mortgages, medical care, and college tuitions, or perhaps a few splurges.

In short, if your parents or grandparents have given you major financial gifts, chances are you’ve already spent some of your inheritance. And if those gifts continue, your inheritance may be greatly diminished or even completely gone by the time the will is read. So much for the bailout of your retirement plan.

To be on the safe side, it’s probably wise for anyone still in the “accumulation” phase of saving for retirement to not plan on any kind of inheritance at all. And if you have already received living cash transfers from your older relatives, make sure to keep up your own contributions to your retirement savings, so that you may have enough set aside to do the same for your own children and grandchildren.

Konigsberg is the author of The Truth About Grief, a contributor to the anthology Money Changes Everything, and a director at Arden Asset Management. The views expressed are solely her own.

Read next: This Is the Best Way to Protect Your Retirement Savings

MONEY retirement planning

Retiring? Redefine Yourself

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The happiest retirees say, “I’m so busy now, I don’t know how I ever had time to work.”

Far more than merely an economic event, retirement is a life redefining milestone. Leaving work and transitioning to a different way to spend your time and money can change your identity. One trick: an open mind regarding leisure, learning, family and, believe it or not, even more work.

Many unhappy retirees have enough money. They simply failed to come up with a new idea of who they are and what they do after the working years ended. Planning finances to understand how you can afford to live — and how long you can support the lifestyle you want — looms large. You needn’t retire just because you reach a certain age or a certain dollar amount of savings.

Retire because preparation for the next phase of life leaves you eager for new pursuits.

Such reinventing takes many forms. Children and grandkids can fill more of your calendar. You may become a nearly full-time volunteer. The golf course may call you or you may further develop a long-lost hobby.

Maybe you’ll return to formal learning, a great way to keep your mind active and expand your knowledge or skills. Especially given the mushrooming of online education, you can audit classes, watch the lectures via the Web or participate in research, homework and earn credits. You may even qualify for financial aid.

Couples face special considerations about retiring. Do you each intend to retire at the same time? Do your individual visions of retirement include the same or very different pastimes?

Frankly, don’t rely on your spouse to share all your interests — or to want to spend all day every day with you. I once heard a colleague, talking about retirement plans, share this perspective from his wife: “I married you for better or worse, but not for lunch.” Get out of the house and find something to occupy your time.

Planning remains as important in retirement as before it. You can travel, depending on your financial situation, yet even heavy travelers wind up filling a lot of at-home days. Catching up on that stack of books on your nightstand or your long-overdue garden project may initially occupy your golden years. Beware eventual bouts of boredom.

One option: Don’t fully retire. Simply cutting back on work may be in order, more vacation, part-time hours and a slow transition rather than you on the job one day and retired the next. Try a month of vacation, living as if retired to see how it suits you.

Of course, you might not get to pick your retirement date: Job loss, health problems or other unexpected troubles can end your career before you expect. If this happens to you, a ready plan in place can help give you a sense of your options financially and occupationally.

Plan for different stages of retirement; your first retired decade may differ a lot from the following 10 years. In general, I find that the happiest retirees say, “I’m so busy now, I don’t know how I ever had time to work.”

Staying engaged in life and socially connected can help keep you from worrying about finances – suddenly the least interesting topic in your newly defined life.

Gary Brooks is a certified financial planner and the president of Brooks, Hughes & Jones, a registered investment adviser in Tacoma, Wash. Read more at his blog The Money Architects.

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MONEY Ask the Expert

Can Debt Collectors Go After My Retirement Savings in Court?

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: My wife retired late last year and we are thinking about rolling some of her 401(k) assets into an IRA account. We live in California and understand that the protections from creditors and in bankruptcy vary. Does this move make sense for us? —Max Liu

A: There are a lot of good reasons to roll money from a 401(k) plan into an IRA after retiring. In an IRA, you have greater control over your assets. You can own individual stocks, ETFs, or even real estate, and not be bound to the often-limited menu of investment options in your company’s plan. Since you are not working any longer, there is no concern over getting an employer match. If the fees seem high or you just don’t like maneuvering the plan’s website, a rollover may make sense.

But you are right to consider protection from creditors. In general, all assets inside a 401(k) plan are out of reach of creditors, both inside or outside of bankruptcy. That’s often true of 401(k) assets rolled into an IRA, as well—though you may be required to prove that those assets came from a 401(k). For that reason, never co-mingle rolled over assets with those from a self-funded IRA, says Howard Rosen, an asset protection attorney in Miami, Fla. He advises opening a new account for the roll over.

Federal law sets these protections. But through local bankruptcy code, 33 states have put their own spin on the rules—and California is one of those. “You need to understand that when you move assets from a 401(k) plan to an IRA, you are moving from full protection to limited protection,” says Jeffrey Verdon, an asset protection attorney in Newport Beach, Calif.

States like Texas and Florida make virtually no distinction between assets in a 401(k) and those rolled into an IRA, he says. Assets are fully protected from creditors in both types of retirement account. Further, in such states the distributions from such accounts are also protected.

But in California, creditors may come after any IRA assets not deemed necessary for living expenses. They may also come after any distributions you take from your IRA. You can protect up to $1.25 million through bankruptcy, a figure that resets every three years to account for inflation. But that is a total for all IRA assets, not each account, says Cyrus Amini, a financial adviser at Charlesworth and Rugg in Woodland Hills, Calif. And note, too, that a critical ruling last year determined that inherited IRAs are no longer protected.

To understand IRA protections in other states, you may need to speak with the office of the state securities commissioner or state attorney. Many of the state rules have been shaped through case law, and so you may want to consult a private attorney, says Amini. Another good starting point is the legal sites and

MONEY retirement planning

This Is the Best Way to Protect Your Retirement Savings

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John Kuczala—Getty Images

Tip one: Don't let market pundits scare you.

When investors feel especially anxious, they may be tempted to move all their wealth into cash, bonds, gold, or some other “conservative” investment. But over the long run, the best way to protect your life savings is through diversification, not concentration. Every asset class—even cash—has its own vulnerabilities, and could be risky under certain conditions. Fixating on a single version of the future, and holding your wealth in a single investment, generally reduces your financial security.

Here is why: The biggest threat to your portfolio is an unexpected crisis. The crisis you already anticipate—the one some pundit is warning against, and the one that has you looking for safety—probably won’t matter much in investment terms. Remember the Y2K bug? Computer programs contained an error in date handling as we approached the millennium 15 years ago. Some observers predicted widespread catastrophe, with computerized systems failing in unison. But governments, companies, and markets had ample warning. The bug was fixed. Investors who went overboard preparing for the worst, wasted time and money.

As for those unexpected market eruptions, history tells us that investments generally bounce back. If you avoid panic, you can prosper anyway. I retired at 50, because I held on to investments through the late 1990’s dot-com bust and the 2008-2009 Great Recession. It didn’t matter that my financial path had steep ups and downs: It still led me to the summit.

And this is where where owning a diverse set of assets really helps you out: It keeps you from panicking, since you’ll likely have some assets doing well or at least holding up while others are falling.

Another problem with building your portfolio around the possibility of a crisis is that you may ignore other less dramatic, but far more likely, risks. Among them:

You could pay too much in taxes. We all lose a portion of our assets to the government regularly, via the tax system. The essence of legally avoiding taxation is to reduce your taxable income. The best approach while still working is to maximize tax-sheltered savings plans and associated employer matching. And, since nobody can predict the future tax environment, tax diversification — holding a mix of taxable, Traditional retirement, and Roth accounts — is a wise strategy. Once retired, you can live frugally in a low tax bracket, and enjoy a zero percent long-term capital gains tax rate.

You could take a hit to your income. Recessions are an inevitable part of the business cycle. The best preparation is to have plenty of cash on hand, and live frugally. An emergency fund gives you flexibility and protection during any kind of economic hardship. Fixed income from bonds or annuities provides cash flow and peace of mind. Avoiding debt is always advisable, and can be critical to your financial survival during a recession: Loss of job or income can threaten your ability to make payments.

Inflation could erode the value of your cash. Inflation of some sort is “baked in” to the modern monetary system. Policymakers target about 2% annually. That means the playing field for cash, which most investors assume is “safe,” is tilted against you. Many argue that higher future inflation will be the only way to dispose of our massive public debt. But, for all the fear and loathing it inspires, many forms of inflation are relatively easy to defend against. By definition, almost any asset other than cash or fixed income will increase in value with inflation: stocks, real estate, commodities, Treasury Inflation-Protected Securities (TIPS). Owning low-cost stock-based index funds and maximizing Social Security are the best inflation hedges available to most of us.

Financial security means surviving and prospering under any scenario. Proven behaviors will help: live frugally, exercise patience, maintain liquidity, and remain flexible. But one principle trumps them all: Diversification is your single most powerful tool against widespread risk.

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog

MONEY retirement planning

9 False Moves That Could Derail Your Retirement

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Biehler Michael—Shutterstock

For many of us, retirement is a great unknown. In your 20s, it seems so far away that it’s easy to figure you’ll start saving when you have more money. Of course, if you wait until you have “extra money,” you might never start at all.

But 20-somethings aren’t the only ones who do things that sabotage their retirement. Their parents may be putting their own retirement at risk by, for example, borrowing money to pay for a wedding, just when they should be turbocharging their own savings, especially if they started late.

So what are we to do? We don’t know that we’ll live to be 85 and still healthy enough to travel, or that the stock market will crash just before we retire. And yet we hope to plan as if we do know. Some of us dream about retirement — and many of us sabotage it at the very same time. Here are some money moves you may regret down the road.

1. Raiding Your Home Equity

Home equity can seem like a a piggy bank when you’re short on cash. And a “draw period” on a home equity line of credit before repayment of principal is due can make it feel almost like free money. Worse, it feels like you are borrowing from yourself. After all, you built up that home equity, right? But if you spend it now, you won’t have it later. And should you decide you want to sell or get a reverse mortgage at some point, that decision can come back to haunt you. You will walk away with less from a sale or be eligible for lower payments from a reverse mortgage. Either way, Retired You could suffer from the decision.

2. Unplanned Roth IRA Withdrawals

Some experts recommend Roths as vehicles to save for a first home or as a place to park an emergency fund because the money grows tax-free. If you have planned to use the money for a first home, you can withdraw up to $10,000. It can also come to your rescue for unforeseen expenses (particularly tempting because, after five years, you can withdraw principal penalty-free). Its flexibility is both an advantage and a temptation, since raiding your retirement account now robs you of those funds and their compounding interest down the road.

3. Failing to Put Away Anything

For many of us, it’s easier to wait to save until we’re “more established” or until we’re making a little more money. Why aren’t we saving? Because there’s no extra money! The problem, of course, is there may well never be any extra money. Most of us don’t come to the end of the month and try to figure out what to do with all the money that’s left. Saving needs to be in the budget from the beginning. It’s often easiest to automate this.

4. Helping Adult Kids Financially

But they’re your children. And everyone makes mistakes. (Or maybe they think you did when you didn’t save thousands for a wedding.) There are exceptions, of course, but if you do help out financially, be sure you minimize your own costs or that you do not jeopardize your own retirement. It’s not usually a good idea to let them grow accustomed to a parental supplement. Relationships and money can be fraught, too. So think very carefully before you make your help monetary.

5. Co-Signing for a Child or Grandchild

They are just starting out and don’t have much of a credit history. Or they want to take out private student loans, and all that’s standing between them and next semester is your signature. The car they are financing, the lease they are signing … if your signature is on it, you are on the hook. If they pay late, your credit could be affected. And should you need a loan, this obligation will count as your debt for purposes of determining eligibility. Student loans can be particularly risky. In many cases, they can’t be erased in bankruptcy. If you have already co-signed on a loan, it’s important to check your credit regularly to see how it’s affecting your credit.

6. Failing to Have a Plan B

You probably hope or assume your good health (and that of your spouse, if you are married) will continue. You may be planning to stay with your current employer until you reach full retirement age. But people fall ill, or they get laid off before they planned to leave the workforce. Do you have a reserve parachute? Your standard of living won’t be as high, but knowing that you have a plan can make the situation a little less worrisome.

7. Poor Investment Choices

Even if you’ve managed to sign up for the 401(k) at work or to open an IRA for yourself, choosing the wrong funds or failing to diversify can set you up for failure. A target-date fund can be useful, but only if you choose the appropriate target. (If you’re in your 50s and choosing a 2050 target retirement date, you may get really lucky and see big gains — but you could also see big losses and not have much time to recoup them.) Likewise, it’s smart not to put all your nest eggs in the same investment basket. Do your own research or find a planner to find a mix you are comfortable with and that is appropriate for your age and goals.

8. Not Making Changes When Needed

Are your investments changing with your goals? And are you keeping track of all of your investments? If you’ve had several jobs (and several 401(k)s), it’s a good idea to do some consolidation. Keeping track of funds in several investment houses can make figuring out minimum withdrawals much more difficult once you are retired. Keep accounts organized.

9. Taking Social Security As Soon As You Can

In many cases, it’s better to wait. Your payment will be higher, although if you take it younger, you will get it for more years. Claiming it the minute you can may be tempting, but if you come from a family with a history of people living well into old age, consider whether you think the smaller checks will be worth it. (You can calculate a “break-even” age of how long you would have to live to collect as much as you would have had you started younger — so that checks from then on truly are additional money.) Conversely, if no one in your family has ever turned 80, you may want to opt for the earlier payout. And, of course, your financial situation when you retire will have a say. If you can’t make ends meet without Social Security, then you should take it.

Another mistake? Making all your plans — including retirement — for later. A life of sacrificing for a “later” that may or may not come is not much of a life. They key is balance. We’re not suggesting you never take a vacation, never give to a cause that is close to your heart or buy the car you’ve desperately wanted (and can now afford) so that years of self-denial will pay off someday … maybe. But it is good to know that if you live a long life, you’ll have the financial resources you need.

Read next: Can You Pass This Retirement Quiz?

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MONEY Social Security

Why Social Security’s Advice Is Often Wrong

man with too large pants
Freudenthal Verhagen—Getty Images

Following even the agency’s most basic instructions may be a bad idea.

Social Security advice is always well-intentioned, usually helpful—and often wrong. That was one of the most eye-opening findings of doing two years of research on Get What’s Yours, the recent book on Social Security that I co-authored.

In trying to provide advice that is easily understood and applies to most people, the agency often glosses over complex program rules and claiming scenarios. Unfortunately, if people make bad claiming decisions as a result, they are the ones who pay the price, not some representative at a Social Security office or on the other end of the phone line in a huge call center.

Most recently, I came across this online advice in the frequently asked questions section of the Social Security website:

“How far in advance can I apply for Social Security retirement benefits?”

“You can apply for Social Security retirement benefits when you are at least 61 years and 9 months of age.

“You should apply three months before you want your benefits to start.

“Even if you are not ready to retire, you still should sign up for Medicare three months before your 65th birthday.”

On first glance, what could be wrong with these statements? After all, the earliest age at which retirement benefits begin is 62. So coming in three months earlier makes sense, right? And every Baby Boomer has known for a long time that Medicare, the federal health insurance program, begins at age 65. So what could be wrong with reminding people to sign up when they turn 65?

In fact, there are lots of Social Security benefits that do not start at age 62. Broadly defined, “Social Security retirement benefits” include all benefits provided by the agency, not just a worker’s own retirement benefits. Retirement and spousal benefits generally can’t be started younger than age 62. But survivor benefits may be taken as young as age 60.

Social Security Disability Insurance benefits can be triggered at any age for the disabled person. Disabled persons also can collect survivor benefits as young as age 50 if they are disabled and either their spouse or divorced spouse dies.

Waiting until 61 years and 9 months is thus not the right advice for everyone. Applying three months before you want benefits to start may be accurate but, as we’ve found, many people have no idea about the earliest age they may begin benefits. Often, they also have no idea of the latest or best age at which they should begin benefits.

Social Security does address many of these issues elsewhere, including providing an extensive questionnaire to help people know the various benefits to which they are entitled. But, of course, you have to know where to look. And if you have already made an ill-informed claiming decision, you won’t be motivated to even look.

Likewise, in the case of Medicare, following the agency’s advice can be very costly. To most people, signing up for Medicare at 65 means exactly that. Basic Medicare consists of Part A for hospital care and Part B for doctor and other outpatient expenses. Part A premiums are steep—more than $400 a month—but are waived for anyone who has paid Social Security payroll taxes for 40 or more quarters of work during their lifetime. The Part B monthly premium is $104.90 a month in 2015 for most people but can be a lot higher for big wage earners.

If people reach age 65 and continue to be covered by an employer group health insurance plan, they usually do not need to sign up for Medicare. (People covered by plans at small employers with 20 or fewer employees normally do need to sign up.)

What happens to people who do sign up, even though they have an employer plan? Usually, nothing. Either Medicare or their employer lets them know that they do not need Part B, so they save that premium. For a long time, however, people have been told to sign up for Part A anyway. Even if they never use it, it’s free, so what’s the harm?

Well, the harm is that signing up for Part A of Medicare prevents a person from participating in a health savings account, which is offered in increasingly popular high-deductible health plans. Most people are unaware of this rule. But once it’s been triggered, they not only can lose a valuable tax benefit but also face penalties for unintentionally continuing to participate in their HSA.

Social Security often explains its benefits in a “one size fits all” way. But this is not a one-size fits all program. It entails a complex mix of multiple benefits, claiming decisions, and penalties for not following the rules—rules that Social Security needs to do a much better job of explaining.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at or @PhilMoeller on Twitter.

MONEY early retirement

Why Retiring Early May Be More Affordable Than You Think

You don't need a whopping pile of cash.

How soon can I retire?

For some, this question is as tantalizing as it can be vexing. After many years of saving and planning for a secure, fulfilling, and comfortable retirement, it’s natural to wonder, “How much is enough?” From my experience helping people answer this question over 25 years as an adviser, researcher, and writer, the answer is quite often, “Less than you may think.” Obviously, it depends on many factors. But a key takeaway is that what you believe and how you think about the financial resources already available to you is likely what matters most of all.

Consider the situation of one typical client; let’s call her Sally. She recently turned 59 and earns $114,000 as a corporate manager with 27 years’ experience. She loves her work and assumed she’d do it for another five to seven years. Her career has been rewarding, but there have also been challenges along the way, including becoming a single mom to her two children. But the kids are now launched (more or less), and since becoming an empty-nester Sally has pursued outside interests that have added new balance and meaning to her life.

One of these is photography. Turns out Sally has a real talent; in fact, she’s already been paid for some of her work. All this has helped her realize she’d much prefer trading her job for a part-time career in commercial photography. “But there’s no way,” she tells herself. “I’m only 59; people can’t retire that early these days. And my mortgage won’t be paid off until I’m 65.”

Lately, though, Sally has begun to get impatient. She looks forward to more time for herself and photography much sooner than seven years from now. She could use accumulated vacation time to take much of the summer off, but she’d still have to return to work full-time come fall. Or does she? Let’s look more closely.

Sally lives comfortably on her $5,700 monthly take-home pay after deducting taxes, benefits, and her 15% 401(k) contribution. She makes a $1,500 payment (principal plus interest) against her remaining $110,000 mortgage and saves another $500 for travel. Her retirement savings include $575,000 in her 401(k) and $150,000 in an after-tax brokerage account. Her company pension would pay $1,500 monthly, and Social Security credits will provide a $2,500 monthly benefit if she works into 2022 ($2,250 if she goes part-time now).

Though Sally clearly has an exciting vision for her life’s next chapter, several key questions remain. At the age of only 59, how much sustainable after-tax income is available? How should she bridge the gap to Social Security? How can she afford discretionary extras that are sure to arise, especially in the next 10 to 15 years? And what about future health care costs?

The key to letting Sally consider retiring to this new life is understanding that not all her expenses must be sustained for her entire future. She won’t have that mortgage payment forever, nor will she likely travel as much beyond her mid-70s; cutting out the mortgage payment and the $500 saved monthly for travel will knock $2,000 off her monthly expenses. Some research convinces her to add back $550 for health insurance (later Medicare and a supplement) plus out-of-pocket needs, and another $250 for long-term care insurance. So in today’s terms, she’ll have to sustain only a $4,500 monthly income for life, not her current $5,700.

So how can Sally get rid of her mortgage? One option is to pay it off with a lump sum from her brokerage account. The problem with draining that account so quickly, however, is that most of her remaining money would be in her taxable 401(k)—money that, upon withdrawal, would be subject to ordinary income taxes likely higher than the capital gains rate on money pulled from her brokerage account. A better option, which Sally will explore, is to refinance into a new 30-year mortgage. Based on a back-of-the-envelope calculation, she’d pay $550 monthly. That would bring her core monthly lifetime expenses to $5,050.

Sally could also stop treating travel as a monthly expense. Instead, she could cover it by carving out a $100,000 ‘travel fund’ from her brokerage assets, supplementing it with photography earnings in good years. Together, this could provide $6,000 to $8,000 of yearly travel (or other discretionary expenses) for at least 12 to 15 years when she’s in her 70s.

So in retirement, Sally will need to cover $60,600 in annual expenses—$5,500 per month.

What she’ll really need, though, is $70,000 total income, since she’ll also have to cover federal and state income taxes.

How can she do that? Start with her pension, which will cover $18,000. Seven years from now, when she reaches her full retirement age of 66, she plans to start taking Social Security, which would give her another $27,000 in annual income. Between now and then, she plans to come up with $27,000 annually by tapping $125,000 of her retirement savings (invested conservatively) at the rate of $18,000 a year and netting $9,000 a year from her photography business.

For the final $25,000 a year she needs in lifetime income, she’ll draw upon her remaining $500,000 in retirement savings. That means pulling out 5% of the initial amount annually ($25,000 divided by $500,000). If Sally is willing to cut back on expenses during tough economic times, this withdrawal rate will work over a 40-year period, as shown by research here and here.

Financially, Sally is ready for early retirement—and so are many who dream about it. Although diligent saving is a prerequisite, you don’t necessarily need a whopping pile of cash. What you do need is some planning, some creativity, some flexibility, and an understanding that you may have to draw upon multiple financial resources.

MONEY retirement planning

3 Ways to Boost the Odds Your Savings Will Last a Lifetime

watering can watering a topiary piggy bank
Sarina Finkelstein (photo illustration)—Getty Images (2)

Ease your worries about running out of money in retirement by making these relatively simple moves.

A recent report by the Insured Retirement Institute shows that only 27% of baby boomers are very confident they will have enough money to see them through retirement. That fear is justified when you combine overall low levels of savings with forecasts for low investment returns in the years ahead. Still, there are ways to improve your retirement income prospects. Here are three relatively simple steps you should consider.

1. Get the most out of Social Security. Even though we’re living longer, 62 is still the most popular age for claiming Social Security, according to a Government Accountability Office report. But by taking benefits earlier rather than later, you may end up collecting a lot less than you otherwise could over your lifetime, putting teven more strain on your nest egg to maintain your standard of living.

Here’s a quick summary of what you need to know: Every year you delay claiming benefits between age 62 and 70, your payment rises roughly 7% to 8%, and that’s before inflation adjustments. If you’re married, you and your spouse may be able to ramp up your potential lifetime benefit even more than individuals can by adopting any of a number of claiming strategies.

One example: If a 62-year-old man who earns $100,000 a year and his 60-year-old wife who makes $60,000 both start taking benefits at 62, they might collect a projected $1.1 million or so in lifetime benefits, according to Financial Engines’ Social Security calculator. But if the wife starts taking her own benefit at 64, the husband files a “restricted application” at age 66 to take spousal benefits and the husband then files for his own benefit at age 70, they can potentially increase the amount they’ll collect over their joint lifetimes by almost $300,000.

Given the money at stake and the complexity of the Social Security system, you’ll want to rev up a good Social Security calculator or work with an adviser who knows the ins and outs of the Social Security program before you sign up for benefits.

2. Buy guaranteed lifetime income you can begin collecting immediately. If you decide you want more assured income than Social Security and any pensions alone might generate, you may want to consider devoting some of your savings to an immediate annuity. Essentially, you invest a lump sum with an insurer in return for monthly payments you’ll receive for as long as you live, even if the financial markets perform abysmally.

Today, for example, a 65-year-old man who puts $100,000 into an immediate annuity might receive about $550 a month for life, while a 65-year-old woman would would get roughly $515 a month and a 65-year-old couple (man and woman) would receive about $425 a month as long as either is alive. (This annuity calculator can estimate how you might receive for different amounts of money and different ages.)

The downside is that you agree to give up access to your money, so it’s not available for emergencies or to leave to heirs. (Some annuities provide various degrees of access to principal, but they typically pay less at least initially and often come with onerous fees.) Which is why even if you decide an immediate annuity is right for you, you want to be sure you have plenty of other savings invested in stocks, bonds and cash equivalents that can provide capital growth to maintain purchasing power and provide extra cash should you need it for emergencies and such.

3. Buy lifetime income you can collect in the future. If you don’t feel the need to turn savings into guaranteed income early in retirement but you worry you might run short of income late in life if your investments fare poorly or you simply overspend, you may be a candidate for a relatively new arrival on the annuity scene: a longevity, or deferred income, annuity. Like an immediate annuity, a longevity annuity provides income for life, except that you don’t start collecting payments until, say, 10 or 20 years down the road. So, for example, a 65-year-old man who invests $25,000 in a longevity annuity today, might receive $320 a month for life starting at 75 or $1,070 a month if he waits until age 85 to start taking payments. The idea is that you put up less money upfront than you would with an immediate annuity—leaving more of your savings for current spending—and by waiting to collect you receive a hefty payment in the future.

The rub? You could end up collecting nothing or very little if you die before the payments start or soon thereafter. (Some longevity annuities have a cash refund feature that gives your beneficiary any portion of your original investment you didn’t collect in payments before dying, but the payment is much lower.) This annuity calculator can show what size payment a longevity annuity might make based on the amount you invest, your age when you make the investment and the number of years you wait before collecting payments.

Buying a longevity annuity with money from a 401(k), IRA or similar account was pretty much a non-starter until recently because of regs generally requiring minimum distributions starting at age 70 1/2. But as long as the longevity annuity is designated a QLAC (Qualifying Longevity Annuity Contract) under new Treasury Department rules, you can invest up to $125,000 or 25% of your 401(k) or IRA account balance without having to worry about minimum withdrawals on that amount as long as your payments start no later than age 85. Just a handful of insurers offer QLACs today, but if the longevity annuity concept catches on, that number should grow.

There are other things you can and should do to make your savings last, ranging from smart lifestyle planning so you have a better idea of the expenses you’ll face in retirement to being more judicious about how much you pull from your nest egg each year. But the three steps above are certainly a good place to start.

Walter Updegrave is the editor of If you have a question on retirement or investing that you would like Walter to answer online, send it to him at

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