Preparing To Adult: Millennials & Money

adulting Well-educated, collaborative, technology savvy and socially conscious are just a few terms that are often associated with Millennials. Their comfort with technology and the incessant pace of change makes them prized employees in many organizations.

Less comforting, however, are the numerous challenges that Millennials face as they become card-carrying adults: crushing student loan debt, the ongoing economic hangover from The Great Recession, and housing prices that are quickly approaching pre-recession levels. Add in an uncertain labor market, and slow economic growth and it’s no wonder many Millennials feel anxious about life and money.

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Employee Benefits: An Open Enrollment Checklist


The final months of the year are a great time to reflect on your accomplishments and plan for the upcoming year. Many employers use this time to evaluate the cost and effectiveness of their employee benefit programs, with the goal of ensuring that they offer the right mix of incentives to attract and retain key talent. Employees, in turn, may be asked to make important elections or decisions that relate to their benefits. Following are some tips to help employees get the most out of their workplace benefits.

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Social Security: Delayed Claiming & Portfolio Longevity

1398969203000-social-security-29Determining the ideal time to begin collecting Social Security retirement benefits is challenging enough, but combining this decision with when to begin drawing from your retirement assets can be positively daunting.  In our most recent blog post, we presented several claiming strategies that, by and large, favored waiting to collect benefits. This week we’ll discuss whether waiting always makes sense and how to pay for it.

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Retirement Planning: Claiming Social Security Benefits


In our most recent blog post, we discussed the import role that Social Security benefits play in the retirement income plan of most Americans, and provided a framework for understanding the various types of benefits. While sometimes dismissed as inconsequential, Social Security benefits provide a critical source of guaranteed income for most retirees. To wit, Social Security benefits comprise over fifty percent of the retirement income for two-thirds of current retirees and, critically, allow many seniors to live independently. In this blog post, we review how Social Security benefits are taxed and provide guidance on how and when to claim benefits. We encourage readers to review our previous blog post, A Primer on Social Security Benefits, as it provides important information that will aid in your understanding of the strategies outlined below. You can find that blog entry by clicking here.

To begin, an understanding of Social Security retirement benefits requires reviewing a few common terms that are key to making informed claiming decisions.

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Retirement Planning: A Primer on Social Security Benefits

social_security_626Social Security benefits represent an important, but often overlooked, component of retirement income planning. As a source of guaranteed income that cannot be liquidated, it is not often thought of as an asset. In fact, it is the single largest financial asset for many retirees, providing benefits for approximately nine in ten individuals age sixty-five and older and covering ninety-six percent of working-age adults.

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Avoiding The Middle Class Retirement Maelstrom

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As financial advisors we devote an enormous amount of time and energy crafting financial and estate planning strategies for our high net worth clients. While our wealthier clients provide us with interesting problems to solve, many of us take great enjoyment in helping clients with fewer resources and options to realize their retirement dreams. Unfortunately, most middle income clients are ill-prepared to retire and are not a target market for the majority of financial advisors.

Middle class clients face many of the same risks that our wealthier clients do: outliving their money, poor stock market performance and rising health or long-term care costs are near universal concerns. Others such as inflation and the death of a spouse may be particularly impactful for those with limited resources. So what are some simple tips that middle income clients might consider in planning for retirement? Continue reading

Ready to Retire? 7 Things You Need to Do Now – As Seen in the Fiscal Times!

Ready to Retire? 7 Things You Need to Do Now


The Fiscal Times

May 31, 2013

You’ve worked hard over many years and finally your retirement finish line is 3-to-6 months away.

But don’t start exhaling just yet – there’s  still plenty of race left to run. Before you take one of the biggest steps of your life, make sure you read this list to understand what you need to do and why:

1. Do the math.
When you first thought of retirement years back, you probably had  a vague idea of what your spending would amount to by the time you actually took this step. But at this point, you should have a much clearer picture of your monthly budget. Be sure to laser in on your fixed expenses as well as on your lifestyle expenses to determine your financial needs.

RELATED: Why Boomers Are Ditching Retirement to Go to Work

Look at your anticipated income to clearly identify how much you’ll be taking in and from what sources.  As part of this step, develop a Social Security strategy. Determining when to start taking Social Security is a pivotal decision that will impact all your other retirement income sources.

While you can start taking Social Security benefits at age 62, your payments will be reduced based on the number of months you take those benefits before you reach full retirement age. And if you take a part-time job in retirement, that could reduce your Social Security payments, says Katie Libbe, vice president of consumer insights at Allianz Life. 

For example, if you’re under 66, you can only earn up to $15,120 in 2013 without it impacting your Social Security. Once  you exceed that, you’ll lose $1 in benefits for every $2 in wages you earn (which doesn’t include investment income like dividends or capital gains), according to Jonathan Gassman, CPA with The Gassman Financial Group. But if you wait until full retirement age, you can earn as much as you want and your benefit won’t be affected.

Either way, meet with a representative at your local Social Security office as well as your financial planner to discuss your options.

If the numbers don’t add up in your favor when you’re doing your budget – you  may need to delay retirement by a year or two in order to ramp up savings.

2. Tell your employer.
There’s no set rule for when it’s best to tell your employer you plan to retire.

Some employers have the advance notice time you must give written into your contract, so read over company policies carefully. If you’re high up on the corporate ladder or occupy a critical role in the company,  it’s typically recommended to give your boss at least six months notice, according to Joyce Goila a management consultant with The Herman Group. But  for most people, one to three months will suffice. “It’s important to look at what others have done [in your company] when giving notice for retirement,” she says.

3. Meet with your human resources department.
If you’re lucky enough to have a pension in 2013, understand it. What is it going to pay you? Are there any advantages to waiting to take your money? While most employers offer a lump sum option, for many people an annuity might be better if it is coordinated with overall retirement income. Furthermore, consider any possible rollover options to IRAs or Roth IRAs, depending on your retirement income goals, advises Jamie Patrick Hopkins, a professor of taxation at American College.

If you have a 401(k), what are your distribution options? What benefits may be portable or convertible, such as health, life, or long-term care insurance? Look through all of your benefits and compensation information – some employees find they have deferred compensation they never knew about. Verify everything to prevent any surprises.

4. Get a handle on health care costs.
Health care is a wild card in retirement. A recent Fidelity Investments survey estimates that a couple retiring at age 65 this year will need $220,000 to cover health care expenses – and that’s with traditional Medicare coverage.

Well before you leave your job, research Medicare and look at all your health care options. Are you  and your spouse eligible for Medicare, and what supplemental insurance might be best for you? You might need to continue private insurance if you aren’t  eligible for Medicare yet. Or  perhaps your spouse is under 65 and separate decisions will need to be made, says Roy Laux, president of Synergy Financial Services.

Do a thorough analysis of your current health care needs as well as potential future needs based on your health history and your family’s history. Look into long-term health care insurance and see if it’s right for you. This will help you determine how much of your savings to set aside for potential medical expenses. Schedule your dental, vision and annual visits while you still have employer-sponsored health care.

5. Eliminate as much debt as possible.
The fewer debts you have going into retirement, the better. If possible, it’s a good idea to pay off any lingering debt, says Rita Cheng, a certified financial planner with Ameriprise Financial. But you also don’t want to drain your retirement savings just to enter your golden years debt-free.

Start by paying off any credit card debt, since you’re likely paying a higher interest rate on the balance (the national average is 13 percent for fixed-rate credit card). Your mortgage is the last type of debt you should pay off. If you don’t have the luxury of paying it off before you retire, consider refinancing. It’s easier to qualify for a refinance while you’re still employed, and though mortgage rates are currently low, they’re likely to rise soon. Today’s 30-year fixed-rate mortgage is 3.77 percent, but they’ve been inching higher and are likely to continue doing so. By 2014, the rate is expected to be 4.5 percent, according to the Mortgage Bankers Association.

6. Review your investments.
“This close to the [retirement] finish line, you don’t want to leave your savings to chance. Moving investments out of volatile stocks and mutual funds into more stable options [like annuities] is a smart move when you don’t have time to recoup losses,” says Dan White, a certified financial planner with Daniel A. White & Associates.

Not only should you check to see if your asset allocation is appropriate as you enter this next life stage, you also want to take a good look at all fees associated with your investments. White recommends moving some funds into low or no-fee CDs. “While [interest rates] are low today, we’ll see them start to rise on these accounts sooner rather than later,” he says.

7. Develop a strategy for withdrawals.
Drawing down retirement savings can be incredibly complex – it requires a thorough analysis of all sources of income to ensure assets are utilized in the correct order, taking into account Social Security and tax implications, says Libbe at Allianz Life.

The trick is knowing how to turn those assets into income. “There’s a rule that says you can safely withdraw 4 percent of your assets annually, adjusting the amount upward for inflation each year,” says James Poe, founder of Texas Retirement Specialists. But that’s not engraved in stone, he says. Speak to your financial advisor to determine how much you’ll need to begin withdrawing from your portfolio to meet your needs, then set up a monthly disbursement.

Of course, as much as you can prepare, sometimes even the best-laid plans need to be changed.  Be ready to make big adjustments or small tweaks if there are developments in your life or the economy that warrant those changes. Six months or so into retirement, many people realize their financial needs are different than they expected. “While it’s never too late to start preparing, the sooner you start, the more choices you’ll have,” says White.

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Disability Insurance (Part 2): The 9 Things You Need to Know Before Buying Disability Insurance

Most people don’t have sufficient disability coverage. 

Disability insurance is a contract between you and the insurance company that will replace your wages when you become sick or injured and cannot work for a long time.

According to the Social Security Administration, nearly 1 in 4 of today’s twenty year-olds will become disabled before age 67.  Most people think that Social Security will provide the benefits that they need, but often that is not the case:

  1. Social Security does not provide a person’s full wages as benefits.
  2. Social Security has a very strict definition of what “disability” is and is not.
  3. Social Security has a 5-month waiting period before you can receive any of the benefits.  Even in the face of medical costs that are associated with disability income, it means forgoing income for 5 months.

Social Security should only be used as a supplement to your own long-term disability policy.

Many employers offer disability coverage as an additional fringe benefit, but as we mentioned in Part 1 of our posts on the topic, employer coverage only covers you while you’re working there and become disabled while you’re working there.  Additionally, most group plans do not typically cover more than 60% of your salary.  It is not portable.  If you lose your job, your next employer may or may not have a long-term disability plan.  Unlike health insurance where you can get coverage under COBRA for a period of time, once you leave your employer’s plan, you no longer have any coverage as a safety net.

To the extent you have employer coverage, if you are applying for personal, the insurance company will take that into account and decrease your benefit accordingly.

Q: How much disability should you obtain?

A: At least 80% of your before tax earnings. 

When choosing a long-term disability insurance plan, these are some aspects of the fine print about which to ask:

  1. Check the definition of ‘disability’ (there are 3 potential options)
    1. Own occupation: this is the best definition of disability because it is the most broad. Under this definition, an insured person is considered entirely disabled if he is unable to do any or every duty of his occupation.  For example, if you can get a job in a different industry, you can still collect benefits under this policy.
    2. Any occupation: this is the strictest definition of disability. Under this definition, an insured person is considered disabled only when he is unable to do every duty for which he is trained.
    3. Split definition: frequently used by insurance companies, this is some sort of combination of the two previous definitions.
  2. Make sure that your contract is NonCancelable and Guaranteed Renewable. This guarantees that after you place a policy in-force that there will be no changes to your premium schedule, your monthly benefits, or your policy benefit. No one can guarantee that their incomes will never go down, under a Non-Cancelable policy even if your income goes down later in life, if you become totally disabled the insurance company will pay you the total disability benefit you originally placed in-force. Under a Non-Cancelable policy for example, if you changed jobs from being professional worker (a low-risk occupation) to a professional weight lifter the company could not change your benefits for the worse.
  3. Ensure that your monthly benefit coverage replaces between 50-80% of your pre-disability income.
  4. Make sure you get a cost of living rider, which is an inflation hedge for your benefits.
  5. Ask for a FIO (future increase option), which allows you to increase your insurance benefits as income rises, regardless of health. Without this rider, there is no way to protect your future earnings. A disability insurance policy by itself only protects the amount of income that you make at the time when you take out the policy. It does not grow automatically unless you have this.
  6. Check that the policy eliminates any requirement for you to pay any premium payments while you’re disabled.
  7. Ask about a residual benefits clause, which is a partial payout due to partial disability.  For example, receiving partial benefits if you’re only able to work part-time.
  8.  Evaluate and choosing the waiting period or elimination period as its sometimes known as.  The elimination period is the period of time between the onset of a disability, and the time you are eligible for benefits. It is best thought of as a deductible period for your policy. The most common waiting period is 90 days, but it can be less or more time. Examples include 30, 60, 90, or 180 days to 1 year to 2 year waiting period.
  9. Length of time or Benefit period. Think of the benefit period as the period of time you are eligible to collect benefits while on a disability insurance claim. The shortest period of time is coverage for 2 years up to life time benefits.

The underwriting for disability insurance is significantly different than the underwriting for life insurance.  As you get older, there is a higher probability of getting disabled and many people begin to develop ailments.  Therefore, over time it becomes more challenging and difficult to obtain reasonably priced long-term disability coverage.

It will depend on your overall health and what your doctors have put in your files.

Note that many insurance companies exclude coverage for Mental & nervous disorders, alcohol & drug claims, acts of war, and payments of claims caused during a crime.

Lastly, there are tax consequences for long-term disability insurance.

  1. If you pay the premium as an individual with after-tax dollars:  if/when you were collect insurance benefits, the benefits are tax-free.
  2. Benefits under an employer group plan are taxable if the employer paid the premium and the premiums were not taxable income to the employee.

If you’d like to set up an appointment to discuss your financial plan, we look forward to hearing from you.