MONEY working in retirement

Here’s the Best Way to Rescue Your Retirement and Find Happiness Too

A second career can provide income as well as meaning. This advice from retirement expert Chris Farrell can help you plan your next venture.

Chris Farrell has a hot retirement investing tip for you, but it’s not a stock or bond.

Farrell wants you to invest in yourself. In his new book, Unretirement (Bloomsbury Press), he argues that developing skills that can help you earn income well past traditional retirement age offers a better return on investment than any financial instrument—and it can help transform the economy as it continues to heal from the Great Recession.

Farrell is senior economics contributor at public radio’s Marketplace, a contributing editor at Bloomberg Businessweek and a columnist for the Minneapolis Star Tribune. In a recent interview, I asked him to describe his vision of unretirement.

Q: How do you define “unretirement”?

“Unretirement” is about the financial impact of working longer. If you can work well into your 60s, even earning just a part-time income through a bridge job or contract work, you’ll make so much more in the course of a year than you could from saving.

That changes the financial picture—and not just income. You also don’t have to tap your retirement nest egg during those years, and you might be able to add to it. And it allows you to realistically wait to claim Social Security between age 66 and 70, depending on your health and personal circumstances.

Q: What are the essential tools and strategies for people trying to figure out how to unretire? Where should they begin?

The most important thing is to begin by asking yourself what it is you want to be doing—what kind of work. Do informational interviews with people. The real asset that older workers have is their networks—the people who have known them over the years. Talk with them to find out if you need to add new skills.

Don’t romanticize any particular idea—research it. Think about how you can take your existing skills and move into a different sector of the economy with those.

Q: One of the biggest obstacles facing older workers is age bias. Are employers adapting to help older people keep working longer?

The only evidence I’ve seen of that is at companies that face very tight labor markets—typically technology businesses. It’s also true for the nursing profession. For the rest of the economy, I’ve been to conference after conference focused on older workers, where employers wring their hands about all the brain power walking out the door. They’re sincere, but when they go back to the office they really aren’t motivated to do anything about it because the labor market isn’t strong enough

Q: If that’s the case, how will unretirement be able to take hold as a trend?

The economy is getting better, and labor markets are tightening. But this also will be driven by grassroots change. Many leading-edge boomers are negotiating their own deals, starting businesses or setting themselves up for self-employment with a portfolio of part-time jobs. It’s very do-it-yourself.

And attitudes are changing—there will be enormous pressure from society as people push for this. They’re going to be saying, “We’re pretty well educated, and healthier than we were before, and the numbers don’t work for us to go down to Florida or Arizona and retire—and we actually don’t want to do that.”

Q: There’s a great debate under way over whether we are headed for a crisis in retirement security or not. What’s your view?

I don’t think there will be a retirement crisis if we continue to work longer. But we’re going to want to do it with jobs that provide meaning rather than those that make people just miserable enough that they have to continue to work.

One thing that upsets me is that we have a conflation of financial stresses facing the middle class and pretending that the middle class will be in poverty in retirement—and that’s just not true. There is a group that is really vulnerable—they’ve worked all their lives for companies that don’t provide retirement or health insurance benefits. That is the really vulnerable group.

I think two-thirds of our society will be fine, but for this other group, it’s not about investing in a 401(k), because they simply don’t have the money. For them, Social Security will be the entire retirement plan.

Q: That suggests we will need to beef up Social Security, at least for the lowest-income retirees.

Absolutely. If a majority of us are healthy and continue to work and pay into the Social Security system, we will become a wealthier society—and we will be able to afford to be more generous with Social Security.

Chris Farrell’s write columns on second careers for NextAvenue.com, which also appear on Money.com; you can find his articles here.

MONEY Hit Peak Performance

5 Tips For Tapping Your Nest Egg

Cracked egg
Getty Images—Getty Images

Forget those complex portfolio withdrawal schemes. Here are simple moves for making your money last a lifetime.

It used to be that if you wanted your nest egg to carry you through 30 or more years of retirement, you followed the 4% rule: you withdrew 4% of the value of your savings the first year of retirement and adjusted that dollar amount annually for inflation to maintain purchasing power. But that standard—which was never really as simple as it seemed— has come under a cloud.

So what’s replacing it?

Depends on whom you ask. Some research suggests that if you really want to avoid running out of money in your dotage, you might have to scale back that initial withdrawal to 3%. Vanguard, on the other hand, recently laid out a system that starts with an initial withdrawal rate—which could be 4% or some other rate—and then allows withdrawals to fluctuate within a range based on the previous year’s spending.

JP Morgan Asset Management has also weighed in. After contending in a recent paper that the 4% rule is broken, the firm went on to describe what it refers to as a “dynamic decumulation model” that, while comprehensive, I think would be beyond the abilities of most individual investors to put into practice.

So if you’re a retiree or near-retiree, how can you draw enough savings from your nest egg to live on, yet not so much you run out of dough too soon or so little that you end up sitting on a big pile of assets in your dotage?

Here are my five tips:

Tip #1: Chill. That’s right, relax. No system, no matter how sophisticated, will be able to tell you precisely how much you can safely withdraw from your nest egg. There are just too many things that can happen over the course of a long retirement—markets can go kerflooey, inflation can spike, your spending could rise or fall dramatically in some years, etc. So while you certainly want to monitor withdrawals and your nest egg’s balance, obsessing over them won’t help, could hurt and will make your retirement less enjoyable.

Tip #2: Create a retirement budget. You don’t have be accurate down to the dollar. You just want to have a good idea of the costs you’ll be facing when you initially retire, as well as which expenses might be going away down the road (such as the mortgage or car loan you’ll be paying off).

Ideally, you’ll also want to separate those expenses into two categories—essential and discretionary—so you’ll know how much you can realistically cut back spending should you need to later on. You can do this budgeting with a pencil and paper. But if you use an online tool like Fidelity’s Retirement Income Planner or Vanguard’s Retirement Expenses Worksheet—both of which you’ll find in the Retirement Income section of Real Deal Retirement’s Retirement Toolboxyou’ll find it easier to factor in the inevitable changes into your budget as you age.

Tip #3: Take a hard look at Social Security. The major questions here: When should you claim benefits? At 62, the earliest you’re eligible? At full retirement age (which is 66 for most people nearing retirement today)? And how might you and your spouse coordinate your claiming to maximize your benefit?

Generally, it pays to postpone benefits as your monthly payment rises 7% to 8% (even before increases for inflation) each year you delay between ages 62 and 70 (after 70 you get nothing extra for holding off). But the right move, especially for married couples, will depend on a variety of factors, including how badly you need the money now, whether you have savings that can carry you if you wait to claim and, in the case of married couples, your age and your wife’s age and your earnings.

Best course: Check out one of the growing number of calculators and services that allow you to run different claiming scenarios. T. Rowe Price’s Social Security Benefits Evaluator will run various scenarios free; the Social Security Solutions service makes a recommendation for a fee that ranges from $20 to $250. You’ll find both in the Retirement Toolbox.

Tip #4: Consider an immediate annuity. If you’ll be getting enough assured income to cover most or all of your essential expenses from Social Security and other sources, such as a pension, you may not want or need an annuity. But if you’d like to have more income that you can count on no matter how long you live and regardless of how the markets fare, then you may want to at least think about an annuity. But not just any annuity. I’m talking about an immediate annuity, the type where you hand over a sum to an insurance company (even though you may actually buy the annuity through another investment firm), and the insurer guarantees you (and your spouse, if you wish) a payment for life.

To maximize your monthly payment, you must give up access to the money you devote to an anuity. So even if you decide an annuity makes sense for you, you shouldn’t put all or probably even most your savings into one. You’ll want to have plenty of other money invested in a portfolio of stocks and bonds that can provide long-term growth, and that you can tap if needed for emergencies and such. To learn more about how immediate annuities work, you can click here. And to see how much lifetime income an immediate annuity might provide, you can go to the How Much Guaranteed Income Can You Get? calculator.

Tip #5: Stay flexible. Now to the question of how much you can draw from your savings. If you’re like most people, an initial withdrawal rate of 3% won’t come close to giving you the income you’ll need. Start at 5%, however, and the chances of running out of money substantially increase. So you’re probably looking at an initial withdrawal of 4% to 5%.

Whatever initial withdrawal you start with, be prepared to change it as your needs, market conditions and your nest egg’s value change. If the market has been on a roll and your savings balance soars, you may be able to boost withdrawals. If, on the other hand, a market setback puts a big dent in your savings, you may want to scale back a bit. The idea is to make small adjustments so that you don’t spend so freely that you deplete your savings too soon—or stint so much that you have a huge nest egg late in life (and you realize too late that you could have spent large and enjoyed yourself more early on).

My suggestion: Every year or so go to a retirement calculator like the ones in Real Deal Retirement’s Retirement Toobox and plug in your current financial information. This will give you a sense of whether you can stick to your current level of withdrawals—or whether you need to scale back or (if you’re lucky) give yourself a raise.

MORE FROM REAL DEAL RETIREMENT

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MONEY Social Security

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

Grandfather with family
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 Social Security

Maximize Your Social Security Benefits…By Not Freaking Out

Seniors doing yoga on the beach
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.

—————————————-

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

colored balloons in a question mark formation
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 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.

MONEY Social Security

Here’s How to Avoid Making a Huge Social Security Mistake

Spousal benefits are a crucial Social Security option for millions of couples. But getting extra, and in some cases “free,” spousal benefits is not possible for couples that run afoul of the agency’s tricky “deeming” rules.

Spousal benefits are a crucial Social Security option for millions of couples. But getting extra, and in some cases “free,” spousal benefits is not possible for couples that run afoul of the agency’s tricky “deeming” rules.

To understand deeming, it helps first to understand the best-case scenario for spousal benefits. Take a couple where the wife is about to turn 66 and her husband is about to turn 70. For her, age 66 is considered “full retirement age”, when, among other things, she can claim benefits without any early retirement reductions. For him, age 70 is when he can claim the greatest possible benefit, assuming he has so far deferred filing.

In this example, if the husband files for his own retirement benefit at 70, his filing permits his wife to file only for her spousal benefit, which is equal to half of the benefit he was entitled to at his full retirement age — not, that is, half of the larger amount he can claim at age 70.

But if the wife files what’s called a restricted application for spousal benefits at 66, she can receive these benefits while deferring her own retirement benefit for up to four years until she turns 70. During this time she earns delayed retirement credits so she, too, can claim her highest-possible benefit at that time. During this period, she can receive what essentially are free spousal benefits – free in the sense that collecting them has no adverse effect on her own retirement benefits.

This claiming strategy has been so well-publicized that the Obama Administration has proposed ending it — reportedly because the maneuver is used predominantly by wealthier workers, who are most likely to be able to afford deferring their benefits to age 70. But let’s debate the fairness of this proposal another day.

The problem is that this maneurver doesn’t work at all when people file before reaching full retirement age. Say that our couple is instead aged 62 and 65. And remember that 62 is generally the earliest that people who are married can file for spousal benefits. So our couple figures that the 62-year-old wife will file for spousal benefits on the earnings record of her 65-year-old husband, while she defers her own retirement benefits. This may be a logical assumption based on the ideal claiming scenario of our first couple. But it won’t be allowed by Social Security.

Here’s where “deeming” comes in. Remember that for the wife to file for spousal benefits, her husband first has to file for his retirement benefits. And because she is younger than full retirement age, Social Security’s rules will “deem” her to be also filing for her own retirement benefit when she files for her spousal benefit. There is no way around this if she is younger than 66. And the benefit she will actually receive won’t be both of these benefits but in effect only the larger of either her retirement benefit or her spousal benefit. Further, because she’s filing before reaching full retirement age, both benefits will be subject to early claiming reductions.

And remember her hubby, who filed for his own retirement at 65 to enable her to file for spousal benefits? He will get a reduced early retirement benefit, not the benefit he could get by waiting until full retirement age, let alone the benefit he would get if he deferred retirement until age 70.

Unfortunately, very few people even know deeming exists, so many of them unknowingly file for both spousal and retirement benefits at the same time without realizing it.

In 2012, 6.8 million persons – nearly all of them women – were simultaneously receiving two benefits at the same time, according to Social Security records. But the agency says it has no idea how many of these people were affected by deeming and how many of them were aware their filing action had automatically triggered a claim for a second benefit at the same time.

The bottom line here: You can qualify for two Social Security benefits at the same time but you can only collect an amount that is equal to the greater of the two benefits. In practical terms, the second benefit is lost to you because of deeming. If you can defer one benefit instead, it might be possible to have the best of both benefits.

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 First-Time Dad

Why Millennials Aren’t Lazy, Spoiled or Entitled…

Luke Tepper

...At least not any more than other generations are.

Mrs. Tepper and I spent the better part of the past week trying to induce our six-month old son Luke to sleep through the night. After a parade of co-sleepers, swings, night feedings and magic sleeping suits, it was time — our doctor told us — to go medieval and let the little guy cry in his room until he woke up the next morning.

The (seemingly) endless sobbing was difficult to endure, but within a few nights, Luke slept all night. He did it! And so did we.

Luke’s accomplishment not only put our minds at ease, it helped stroke our parenting egos. Now when other parents ask us how he’s sleeping, we’ll be able to look them dead in the eyes and with not a small amount of satisfaction say, “We got him to sleep like a log.”

Parenting, much like sports and everything else, is competitive. If you think your kid is cuter than mine, well, we might just have a problem. Of course, this is silly. Whether a kid sleeps through the night, rolls over, or cries incessantly is largely a matter of luck and circumstance. Some parents happen to have a newborn that sleeps well, while others don’t and there are millions in between.

The mistaking of luck for skill, the conflation of happenstance for personal achievement, is pervasive in our society. You even see this play out in the management of mutual funds. In fact, I think this natural phenomenon is one reason that older generations think mine is narcissistic, instead of simply unlucky.

More than a few readers have responded to my articles with a common refrain that kids today are given much more than older generations — and thus are much more willing to spend and less principled in saving. And that this deficit accounts for Millennials’ current economic struggles.

Fine, though older generations complaining about the lives lead by their children and their children’s children is just as much a cliché. Nevertheless, a few facts and figures may help to enlighten the perception of today’s young adults and help align the views of those from different ages.

We Grew Up During the Great Recession

Millennials graduated college in the teeth of the worst economic downturn since the Great Depression. While people of all ages felt its impact, Millennials were a little more vulnerable — if not economically, then psychologically — than other groups.

In a recent speech, the chairman of the White House’s Council of Economic Advisers highlighted just how rough the Great Recession was on Millennials. “While the unemployment rate for those over 34 peaked at about 8%, the unemployment rate among those between the ages of 18 and 34 peaked at 14% in 2010 and remains elevated, despite substantial improvement,” Furman said.

Graduating into a recession leads to lower wages, which has been especially true for those who had the misfortune of turning 22 in 2008. In fact, per a recent Pew Research Center survey, “Millennials are the first in in the modern era to have higher levels of debt, poverty and unemployment, and lower levels of wealth and personal income than their two immediate predecessor generations had at the same time.”

We Pay More to Raise Our Kids Than You Did

If you had kids in 1985, and the mother of those kids worked, you paid on average $87 (in 2013 dollars) a week in child-care expenses, according to Pew. In 2010, the figure grew to $148. That means, on average, working mothers today pay over $3,000 more a year on child care than their mothers paid for them.

Of course, child-care expenses, like real estate, differ zip code to zip code. We live in Brooklyn and teamed up with another family to hire a nanny. The total cost to us? Almost $400 a week.

And it doesn’t look like families like ours well get help anytime soon. A few months ago, the International Labor Organization put out a report which found that the U.S. and Papua New Guinea are the only two countries in the world that have “no general legal provision of maternity leave cash benefits.”

Not only is it more expensive to raise your kids now, but we live in one of the two countries in the entire world that doesn’t offer any help.

You Are More Entitled Than We Are

Despite the fact that some think that seniors have earned their Social Security and Medicare benefits, entitlements have always been a transfer of wealth from the working to the elderly. Ida May Fuller was a legal secretary who retired in the end of 1939 having paid $24.75 in social security taxes. A couple of months later, she received the first retirement check and would go on to accumulate almost $23,000 in Social Security benefits.

Ida is not alone. According to the Urban Institute, a couple that earned $71,700 (in 2013 dollars) a year from 22, and retired in 2015, will receive more than $1 million in lifetime benefits (including Social Security and Medicare.) This despite paying nearly $650,000 in lifetime entitlement taxes.

Now, I’m fine paying taxes to fund a social program that has so effectively reduced elderly poverty and improved the lives of millions of people. I just don’t want those recipients of public funds to think of my generation as entitled.

Look, so much of our success is defined by luck.

If you graduated college during the Carter or Reagan presidencies, you entered an economy that was adding between 150,000 and 250,000 jobs a month. Over the past 14 years? Not so much.

Of course, you can’t do much to control your macroeconomic environment. The only thing non-policy makers can do is hope — hope that in 28 years your son is luckier than you were.

So when you think about Millennials in terms of living at home and deifying self-aggrandizing behavior, remember the economic hardships that we endured and you didn’t. Remember that others who receive Social Security and Medicare may not have really earned those funds. Remember “there but for…” and appreciate the luck you have in this world.

Taylor Tepper is a reporter at Money. His column on being a new dad, a millennial, and (pretty) broke appears weekly. More First-Time Dad:

MONEY Health Care

Why the Good News for Retiree Health Care May Not Last

With overall health-care costs in check, Medicare didn't hike the premiums seniors pay again this year. But once economic growth picks up, rising prices could come back too.

Medicare turned 49 years old last week, and the program celebrated with some good financial news for seniors: Premiums will not rise in 2015 for the third consecutive year.

The question now: How long can the good news persist? Worries about Medicare’s long-range financial health persist, but for now persistent low healthcare cost inflation will translate into a monthly premium of $104.90 next year for Part B (outpatient services), according to the Medicare trustees. Meanwhile, the Centers for Medicare & Medicaid Services (CMS) says the average premium for a basic Part D prescription drug plan will rise by about $1, to $32 per month.

The Part B premium has been $104.90 since 2012—except for 2011, when it actually dropped by about $15, to $99.90. The moderation is good news for seniors, since premiums are deducted from Social Security checks. Beneficiaries will keep all of next year’s Social Security cost-of-living adjustment, which likely will be about 1.7%.

Meanwhile, the average Part D premium has been $30 or $31 since 2011. That’s because of a dramatic shift to cheap generic drugs, and innovation by plan providers competing for customers.

“Seniors can expect to see more of what they’ve been getting over the last few years, which is increasing effort by Part D insurers to offer very-low-premium plans,” says Matthew Eyles, executive vice president of Avalere Health, a consulting firm specializing in healthcare.

As in recent years, Eyles says, the best deals will be found in plans that require enrollment in preferred pharmacy networks. Those plans offer lower premiums and co-pays. “We’ll also see plans limiting or eliminating deductibles, and encouraging the use of generics by offering them free or at nominal prices,” says Eyles.

But the average figures mask a more complicated story. Part D enrollees will find significant regional variations in premiums around the country. CMS data shows average premiums will be as low as $21.19 in New Mexico, and $25.83 in Florida—but as high as $39.74 in Idaho and Utah.

Eyles says it is not entirely clear why premiums will vary so extensively, although the prices tend to track the overall cost of healthcare, and are related to the overall healthiness of seniors by state.

“The plan providers have to submit bids for regions that take into account differences in the enrolled populations, including prescribing and utilization patterns,” he says. “It could be that one state tends to have more people using statins, or a diabetes medication.”

Another complication in Part D is the “doughnut hole,” the gap in coverage for Part D enrollees with high drug costs. Higher-cost plans are available to provide gap coverage, but the hole’s size is being shrunk under a provision of the Affordable Care Act (ACA), and the gap is set to disappear in 2020.

The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs. Next year the gap starts at $2,960 (up from $2,850 this year) and ends after you’ve spent $4,700 (up from $4,550 this year).

Seniors who enter the gap also get discounts on brand-name and generic drugs, and those breaks will be larger next year. Enrollees will pay 45% of the cost of brand-name drugs in 2015 (down from 47.5% this year) and 65% of the cost of generic drugs (down from 72% this year).

Can the recent good news on lower healthcare costs continue indefinitely? Medicare spending reflects our overall health economy, and the big picture is that the United States does not have effective controls on spending growth. Healthcare outlays have quadrupled since the 1950s as a percentage of gross domestic product, to 17.7% in 2011. What’s more, our spending is more than double any other major industrialized nation, according to the Organization for Economic Cooperation and Development.

Still, our per capita Medicare spending growth averaged 2% from 2009 to 2012, and it was nearly zero last year.

The Obama administration often points to the ACA, but outside experts are more skeptical. Research published this month by Health Affairs, a leading health policy and research and journal, credited 70% of the recent spending slowdown to the slack economy. Absent further changes in the structure of our healthcare system, the researchers expect higher healthcare inflation to resume as the economy improves.

“A significant amount of it is due to the economic slowdown,” says Eyles, “although we know that changes in the way providers deliver care, and how providers are being paid are also making a difference in the overall rate of growth.”

MONEY retirement planning

9 Steps to a Successful Retirement Plan

These time-tested moves can help you achieve a retirement that meets your financial goals and is emotionally satisfying too.

Your retirement will benefit from an informed understanding of key numbers, as I explained last week. How big is your nest egg? How much money will you need to live on? How much should you draw from your funds each year? How long do you expect to live?

Whether your retirement is successful, however, will depend not so much on these numbers but on whether your later years fulfill your emotional needs.

Money is important to happiness, of course. But there are other requirements here, including feeling secure about your future, not being exposed to investment risks you consider excessive, satisfying your concerns and goals for the legacy you wish to leave behind, and, when all is said and done, feeling you’ve run the best race of your life.

These are emotional and aspirational goals and you can’t put numbers to them. Yet, everyone has them, so it’s important to factor them into your retirement savings, investing and spending plans.

I’ve written gobs of stories about “can’t miss” and “best practices” retirement plans, speaking with retirement experts across the spectrum. From them, I’ve fashioned an approach to retirement that I like so well that I’ve adopted it for my own retirement plan. Here it is.

My advice to you, as with pretty much all financial advice, is to use this approach as a starting place. Adopt it, modify, or toss it out. But by all means, think about it and use it to help you make your own retirement plans.

My plan is shaped by my risk tolerances (low) and desire for financial security (high). It creates a 100% likelihood that I will not outlive my money. It is also a strategy that includes the needs of myself and my wife. We are willing to leave some money on the table in the interest of security. And we also are willing to defer some retirement income and thus “lose” money should we die earlier than we hope.

Step One: Add up sources of guaranteed retirement income—Social Security and pensions. In terms of longevity risk, the odds favor at least one member of a 65-year old couple living into their 90s. Therefore, give serious thought to deferring Social Security until age 70, when it has reached its maximum value.

Beyond being guaranteed, Social Security payments also increase each year to reflect the prior year’s inflation. They are, quite simply, the very best retirement dollars around. And I don’t buy all the gloom-and-doom stories about the program’s demise. Social Security will be here for a long, long time.

Step Two: Unless you know a shorter life is in the cards, opt for joint survivorship payments on any pension proceeds. They will be smaller than payments that would stop upon you or your spouse’s death. But both pensions will continue so long as either of you live. The goal here is to maximize security, not dollars.

Step Three: Tote up how much guaranteed money you will receive every month once you stop working. This could be a long time off or, depending on an adverse health or other life event, just around the corner.

Step Four: Build a detailed record of household spending, perhaps divided into major spending buckets—mortgage, utilities, good, cars, insurance, out-of-pocket healthcare, etc. Make note of required versus discretionary spending.

Step Five: Compare your projected guaranteed retirement payments with your current required spending needs. The goal here is for the two numbers to match. If they do, then in a worst-case world, you will always have enough money to keep a roof over your head and maintain a lifestyle that is close to the one you now have.

Step Six: If your fixed income today is projected to be smaller than your current fixed expenses, you will need to downsize. This might involve your home. Getting out from under mortgage and upkeep costs is the largest downsizing opportunity for most people.

Step Seven: If downsizing doesn’t get you there, consider using a portion of your nest egg to get more guaranteed lifetime income by purchasing an immediate annuity that will close the gap. This would reduce your savings, of course, but it scores very, very high on the “Sleep at Night” scale! Consider a longevity annuity as part of your solution.

Step Eight: Having balanced your fixed income and expenses, you can tap your investment portfolio to fund the gratifying things you want to do during your retirement years. If market returns are good, you will be able to do more. And during the inevitable periods of poor market performance, you can reduce discretionary spending without putting your basic standard of living at risk.

Step Nine: Set aside a portion of your savings against the day when one of you dies, so that it can compensate for the loss of one Social Security benefit. If you want to leave a financial legacy, set it aside here as well. If you still own a home after downsizing, use your equity as a piggy bank you hope never to break open. But it will be there for healthcare and other unforeseen emergencies.

That’s my plan. What’s yours?

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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