Basic Social Security strategies for couples

Social Security is, like many government programs, rife with confusion.

For those nearing retirement age, it would be wise to plan now to create the benefits strategy that will maximize their retirement income while allowing them to enjoy life how they wish.

Most experts, such as those at USA Today, recommend using benefit optimization software or an advisor to find the ideal outcome since there are a myriad of situations that affect benefits.

Maximize Benefits by Delaying (70/70)
Mathematically, delaying social security benefits until both partners have reached the age of 70 will normally maximize potential benefits. This is true because according to the Social Security Administration, benefits rise an average of 8 percent per year (for those born after 1943) for each year delayed past full retirement age until the age of 70.
Delaying will ensure the maximum possible income for both partners.

The 66/70 Strategy
This strategy works best if both partners are about the same age and have earned similar incomes throughout their careers. In this scenario, it could be best to use what’s called a restricted application.

Forbes outlines the plan by explaining that one partner will first file for benefits promptly at age 66. Immediately after that, the other partner will file a restricted application for spousal benefits (50 percent of the other partner) and begin collecting those. Meanwhile, the second partner will receive benefit increases over the next four years while they continue to work.

After four years, the second partner files for their own benefits which will end their spousal benefit and put both partners on their own full retirement amounts. If both partners are destined to live a very long life this strategy may not be ideal, but it does offer a good mix of income and life enjoyment!

An Argument for Claiming Early
Most experts agree that claiming social security benefits early is a poor choice, but Fidelity Investments says it can make sense in some cases. If one or both partners are experiencing health issues or expect to have a shorter life expectancy for any reason it might be worthwhile to take benefits as soon as possible to maximize enjoyment during those non-working twilight years!

Your house pays you back at tax time

When you do your taxes this year, it probably won’t be much of a comfort to know that in February 1913, the personal income tax was born.
Bravo.

But the good news is that if you will be writing out a check this year, you might want to ask yourself if a nice, fat mortgage interest deduction would come in handy next year.

For many people, it certainly will. Mortgage interest is tax deductible. This means it is one of the expenses that reduces the amount of income on which you pay taxes.

Many, if not most, people who do not own houses, also do not itemize their deductions. That makes sense because if they added up all their potential deductions, the deductions would not be greater than the standard deduction. For 2016 the standard deduction for heads of household will also rise to $9,300 (up from $9,250 in 2015) but the other standard deduction amounts will remain the same: $6,300 for singles and $12,600 for married couples filing jointly. Personal exemptions will be $4,050 in 2016, up from $4,000 in 2015.

The beauty of the mortgage interest deduction is that it allows you to deduct all the interest you pay on your home loan. During the first years you pay on a home loan, nearly everything you pay is interest — up to 75 percent of your payment.

That nice deduction can reduce the taxes you owe, while allowing you to live in the house you want.

Owning a home also offers you some subtle protection from inflation. Inflation is an increase in the general level of prices for goods and services over time. So you notice that your grocery bill is going up and your dollars buy less, that is inflation, according to investopedia.com.

According to inflationdata.com, in 2016 inflation was about 1.7 percent. For 2017, Kiplinger’s predicts inflation to head to 2.5 percent.

Meanwhile, mortgage rates are ranging from 4.2 percent to 5.2 percent on 30-year fixed rate. That is an increase of at least 2 point from 2015 and 2016 but still very low.

If you buy a home this year, and inflation continues to increase, you’ll soon be paying off your home with cheaper dollars. Your food will cost more; your luxuries will cost more; rent will cost more. But your mortgage is going to stay the same.

Meanwhile, inflation will also have some effect on home prices, forcing prices up. Right now, in most parts of the country, home prices are low because there are a lot of houses on the market and fewer buyers than five years ago. That means, right now you can get a lot of house for fewer dollars. In coming years, however, as the supply of houses for sale decreases, the pressure of inflation plus a reduced supply of houses, will force home prices up. In 10 years, your home purchase today will be a bargain and you will be living in a home you love while paying prices locked in the past! It’s like being a financial time travel!

Living longer means planning for later life

With Americans living longer than in the past, planning for long-term care has become a priority.

In March, the results of a Nationwide Retirement Insurance survey revealed that many women over the age of 50 are hiding a big retirement worry from those they love: the fear of burdening family if long-term care is needed. But, it doesn’t have to be such a worry, or such a secret. With planning ahead of time, people can feel secure in their futures.

Some of the issues families must consider:
1. Housing: Will Dad sell the house and move to a long-term care facility if he can no longer live alone? Does he agree? Has he chosen some places he likes? If he does not agree, what are the options for the family?

2. Health care: If mom stays healthy and active, she may avoid the move to long-term care. It could be helpful now, while she is strong, healthy and of sound mind, to create a living will or health care directive that lays out exactly what they want to happen if they get sick and need long-term care. Getting that information on paper and signed can help to protect her and ensure that wishes will be followed if they cannot make those decisions on their own.

3. Legal decisions and planning: There are several documents that are helpful and important in situations where long-term care is a possibility. The first of these is a living will or health care directive, as outlined above. The second is a health care power of attorney. This designates a specific person to make medical decisions if a person cannot make them.

4. Financial planning: Long-term care can get expensive. To reduce this expense and stress, it is important to consider purchasing a long-term care policy that will pay for costs when that help is needed. Having long-term care insurance can lessen the financial impact.

Stealing from your future self

According to one investment expert, each $5 cup of coffee you buy at age 30 costs you $225 in retirement.

Phil Davis, author of the investment newsletter philstockworld.com, writes that $10,000 invested at 10 percent can turn into a half million in 40 years.

And how do you get to the $10,000? Look at your lifestyle: A $10,000 cheaper car, fewer fancy vacations, and maybe a less expensive cup of coffee.

It’s a good lesson to remember that each $10,000 spent at age 30, costs about $450,000 at age 70.

Companies hope to retrieve the business knowledge of pre-retirees

Companies across the country from defense contractors to General Motors and General Electric are scrambling to ensure that millions of younger managers are ready to step into leadership roles as baby boomers retire.

About 10,000 boomers reach retirement age every day, according to Bloomberg Businessweek. Companies large and small are often unaware of how much company knowledge the retirees will take with them.

Dorothy Leonard, Professor Emeritus at Harvard Business School, and her firm Leonard-Barton Group, have developed knowledge-transfer programs at several GM divisions.

Until last year, boomers made up the largest portion of the U.S. population, and Generation X represented the biggest share of the workforce. Now millennials lead in both categories. They hold 20 percent of all management jobs, up from 3 percent in 2005, according to U.S. Bureau of Labor Statistics.

“In the next 10 to 15 years, we’re going to have the greatest transfer of knowledge that’s ever taken place,” says Chip Espinoza, Director of Organization Psychology at Concordia University Irvine. He says to handle the shift, companies need to create relationships between the generations.

Multinational defense and aerospace company BAE has been preparing for the retirement cliff for several years. They adopted a NASA program developed when the space agency started to lose expertise from lunar landings as individuals retired.

When BAE learns that an employee with deep institutional knowledge plans to retire, even in a couple of years, a knowledge transfer group of about a half-dozen people working in the same area is formed. The teams meet regularly to talk and exchange advice.

Younger workers get tips and older workers learn how to gradually hand off duties to junior employees.

Employers want you to leave your 401(k) behind

American employers are urging employees to keep savings in their corporate plans when they leave the company or retire.

The move fits with an effort by companies to improve the terms of their plans and to encourage more workers to save. The goal is to ensure that older workers can afford to retire, which makes room for younger hires.

A huge pool of money is at stake. Baby boomers now in their 50s and 60s hold about $4 trillion in defined-contribution retirement plans, according to The Wall Street Journal. Some companies say that in 2013, for the first time, 401(k) withdrawals exceeded contributions.

Companies like International Paper tell employees that it’s easier and cheaper to keep their money in the company fund. Robert Hunkeler, V.P. of investments, says it costs workers just 0.45 percent of assets when they stay in the company’s 401(k) plan. By comparison, he estimates that it would cost 1.5 percent if withdrawn and invested elsewhere.

Financial advisors, who have been eyeing an influx of baby boomer wealth, stand to lose business and fees if companies succeed in persuading employees to leave their savings with their companies when they leave.

More than a third of American households with people age 50 to 64 have saved nothing for retirement.

Check these 5 simple ways to catch up on retirement savings

The best way to save for your retirement is to start investing early and let compound interest work for you. But what if you started late or had financial problems at middle age that ate into your nest egg?

If you have a nest egg at all, you’re better off than more than a third of Americans who haven’t saved a penny for retirement. That includes a quarter of those aged 50 to 64.

When you’re behind on your savings, these tips can help you catch up:

  1. First, focus on debt. Having little or no long-term debt can help keep monthly expenses low. Pay off the house if you can and keep your cars longer.
  2. Reduce advisory fees. Choose low-cost index funds over high-fee annuities or actively managed funds. A Morningstar study estimates that the expense ratio across all mutual funds was about $64 per year on every $10,000.
  3. Max out tax-deferred accounts. Take full advantage of IRAs and 401(k) plans, says an advisor at Bankrate.com. And pay yourself first by having money taken directly out of your paycheck, which ensures that the money is saved.
  4. Work longer. Many people do. A survey from MerrillLynch found that 80 percent of those employed in their golden years work because they want to, not because they have to.
  5. Don’t fall for risky bets. Never bet on aggressive investments or put all your eggs in one basket because you think you’ve found a sure thing, says Jeff Reeves writing inĀ USA Today.

Many ups and downs to consider before downsizing

Among retirees who move, half of them choose smaller digs, finds a new study by Merrill Lynch and Age Wave. Less home and yard work, cost cutting and accessing their home equity were the chief reasons for the move.

The rise in real estate values have made the payoff even bigger, say experts at MONEY.com. Home equity, for many baby boomers, far exceeds the value of their 401(k) or IRA.

* Go or stay? Swapping a home in a cold city for a condo in a warm climate should save on your retirement funds. But it takes due diligence to calculate the monthly savings. Moving alone will cost about 10 percent of the price of your old place.
Jan Cullinane, author of The Single Woman’s Guide to Retirement, says one couple saved on property taxes and heating but their homeowners insurance was far more expensive.

* Single-family or condo? You’ll save on moving expenses by staying in your present area and by having a place with fewer bedrooms. Condos cost less than single-family homes, but you’ll pay for shared maintenance and homeowners association fees, which may cover water and yard work. These costs are usually higher than buyers expect.

* Buy or rent? Sometimes renting is better than buying, especially if you want to stay closer to your kids. But the kids themselves might move in a few years. Don’t buy unless you want to be there for five years or more.
Instead of buying a home, you might rather put the proceeds of your home sale into your investment portfolio.

* Now or later? Now is better than later. You’re likely better equipped for the physical and emotional stress of a move in your sixties than in your eighties.