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Tag: Retirement

  • 2025: What will your Social Security benefits be when you retire?

    2025: What will your Social Security benefits be when you retire?

    What will your Social Security benefit be when you retire? Knowing how much you will receive from Social Security can help with your retirement planning. Two-thirds of Americans rely on Social Security for most of their income in retirement, and one third rely on it for virtually all (90 percent or more) of their retirement income.

    The Social Security Administration cannot tell you exactly what you will get.  But, it has a calculator that will provide you an estimate. What you receive depends on the average of your top 35 earnings years, as well as on the age at which you choose to claim Social Security.

    You can sign up to get benefits before the full retirement age (age 66 today, i.e. for those born between 1943 and 1954, and rising to age 67 for those born in 1960 or later). But your benefit will be reduced by around 6 percent for each year you retire prior to your full retirement age — up to a 25 percent reduction if you retire at age 62, the earliest possible age you can claim benefits. If you wait until after your full retirement age to claim benefits, your benefit is increased by 8 percent each year — up to a 24 percent increase if you wait till age 70.

    Your benefits will be protected against inflation by cost-of-living increases. And, of course, if Congress changes the Social Security Act, that could affect your benefits as well. In January 2025, the average monthly benefit for a retired worker is just over $1,976 and just over $3,089 for a retired couple.

    To qualify for benefits, you need at least 40 credits of earnings, i.e. 10 years of either working four quarters or paying enough into Social Security during the year to satisfy the four-quarters requirement. To understand how credits are calculated, click here. Or, you might qualify based on the earnings record of a current or divorced spouse (if the marriage lasted 10 years or longer).

    SSA also provides calculators to estimate survivors and disability benefits. And the AARP has a calculator to help you decide when to sign up for benefits.

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  • Denmark just named happiest country for retirees

    Denmark just named happiest country for retirees

    This year, the World Happiness Report names Denmark the happiest country for retirees. Denmark ranked second in the world for overall happiness. Two other Scandinavian countries, Finland and Norway, placed second and third respectively on happiness for older adults. 

    People in Denmark have a much longer life expectancy than people in most other countries. It has been growing over the last 75 years. Before long, it should be 87 for women and 85 for men. Health among older adults in Denmark is relatively good. More than six in ten of them between 65 and 74 said they had high overall satisfaction with their health.

    Danes typically retire at 65. Though in six years time, 2030, the retirement age will increase to 68. Denmark has a pension system for all Danes. The pension system can take care of many costs for some Danes, including heat, and health costs.

    The US ranks tenth in the World Happiness report for people over 60. But younger Americans are far less happy than younger Americans in other countries. The US ranks 23rd overall.

    The US ranks 62nd on happiness among adults under 30.  Happiness improves as we age. We rank 42nd on happiness for people between 30 and 44. And, we rank 17th on happiness for people between 45 and 59.

    Overall, as people age, the World Happiness Report says that people’s happiness declines a bit. But, “the prevailing negativity bias of younger ages is on average across the world increasingly offset as age leads people to focus more on positive news and memories, to accumulate enriching life experiences, to think better of others, and to rate their lives more highly.” 

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  • Nearly three in 10 Americans opt to forgo medical care because of the cost

    Nearly three in 10 Americans opt to forgo medical care because of the cost

    A Federal Reserve report released last month on the economic well-being of Americans finds that nearly three in 10 Americans opted to forgo medical care because of the cost in 2022. And, the plight of Americans struggling to afford their health care appears to be getting worse, even though more had health insurance in 2022 than in the past. People in retirement are struggling.

    Now that continuous Medicaid coverage has ended with the end of the public health emergency and with health care costs continuing to soar, unless Congress acts to fix our broken health insurance system, it’s fair to assume that a larger and larger cohort of Americans will become uninsured and underinsured. They will struggle to pay for the health care they need.

    In the single year between 2021 and 2022, four percent more Americans said they were concerned about health care costs and went without getting care. In 2021, 24 percent of Americans reported skipping care. In 2020, 23 percent of Americans reported skipping care. Shockingly, 2020 represented a “historical low.”  People skipped dental care more than any other medical service, likely because a lot of people do not have dental coverage.

    Of note: Skipping care was high even though 91 percent of Americans had health insurance in 2022. However, because so many of them are underinsured, nearly one in four adults had big medical costs in the 12 months prior to the October 2022 survey that they had not foreseen. Their costs averaged between $1,000 and $1,999.

    Not surprisingly, survey participants in October 2022 had a much lower sense of financial well-being than in the years prior. The Federal Reserve found their sense of financial well-being was as low as it had been in 2016. Twenty-seven percent of adults surveyed reported that they were not doing OK financially, up from 22 percent in 2o21.

    Only 63 percent of Americans said they would pay for an emergency expense of $400 with cash or a cash equivalent. In 2021, 68 percent said they would pay with cash. What’s even more troubling is that 32 percent of Americans reported that the largest expense they could pay for with savings was under $500. More than half of them, 18 percent, reported that the largest expense they could cover with savings was less than $100.

    As for retirees, the report was bleak. More than one in five retirees, 21 percent, reported that they were not doing okay financially. They were just getting by or finding it difficult to get by. Those retirees who received wage, pension or investment income fared better than those without this type of income.

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  • 2023 federal spending bill promotes health and financial security of older adults

    2023 federal spending bill promotes health and financial security of older adults

    Dena Bunis writes for the AARP Bulletin on how the 2023 federal spending bill promotes the health and financial security of older adults, strengthening Medicare, Social Security and retirement savings.

    Expanded Medicare coverage: 

    • Telehealth coverage: The federal spending bill continues Medicare coverage of telehealth services for two years, through December 2024.  People in traditional Medicare and Medicare Advantage are covered for video and telephone visits while at home.
    • Hospital at home: In some cases, Medicare will cover care from hospitals in people’s homes, rather than at the hospital.
    • Behavioral and mental health: Starting in 2024, Medicare will cover a wider range of behavioral and mental health care providers, including intensive outpatient mental health services.

    More Social Security funding: 

    The Social Security Administration gets $785 million more for its operations.

    Social Security pays for itself. But, Congress has year after year failed to appropriate enough money from its Trust Fund to cover its administrative costs. As a result, customer service is underfunded. People must wait an average of 35 minutes to reach the Social Security Administration by phone. And, claims for disability benefits take significantly longer to be processed than ten years ago.

    This federal spending bill appropriates $14,1 billion for Social Security, which is 5.9 percent more than last year, though less than the $14.8 billion that the administration requested.

    Easier retirement savings:

    Secure 2.0 provisions in the federal spending bill make it easier for workers to get retirement plans and for older adults to have retirement accounts.

    • The spending bill raises the age at which people must take minimum distributions from IRAs and 401(k)s from 72 to 73.
    • The spending bill includes a new tax benefit for low and middle-income adults, effective 2027, that can lower their tax bills if they  contribute to qualified retirement plans. They can get a federal matching contribution of as much as $1,000.
    • The spending bill includes a new national database for to help people find retirement accounts from previous jobs.
    • In some cases, the spending bill increases contributions to 401(k) and 403(b) accounts beginning in 2025, for people 60 t0 63.
    • Reduces the time part-time workers must wait to join a retirement plan from three years to two years beginning in 2025.

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  • Retirement Reboot: What you should know and how to plan ahead

    Retirement Reboot: What you should know and how to plan ahead

    Once you retire, how will you replace your working income to maintain your standard of living? In his new book, Retirement Reboot, Mark Miller offers simple, practical guidance to help ensure that you are prepared for retirement. Miller’s book is an excellent primer on the big questions and uncertainties retirees face. And, it offers smart guidance. Here’s an overview of many of the topics Miller covers:

    1. Retirement planning: Make a plan as to how you will have what you need to live on in retirement. Calculate what you spend each year now, how much is non-discretionary and how much is discretionary. Remember that you will likely have swings in your expenses, depending upon your health care needs. As a rule of thumb, people need about 70-80 percent of their pre-retirement income to maintain their standard of living in retirement.
    2. When to retire: It’s a different calculation for everyone, depending upon a number of factors.
    3. When to claim Social Security benefits: The longer you can wait before turning 70, the more you will receive. The question is how long you should wait?
    4. What to do about Medicare and health care costs. Fidelity estimates that a 65-year old will need $285,000 to cover health care expenses that Medicare does not pay for. Another expert agency estimated that a 65-year old couple will need nearly $400,000 for medical expenses. Miller explains why, if you can afford it, traditional Medicare is the “gold standard.” He advises to be leery of insurance agents who make their living off commissions.
    5. Growing your savings. Miller offers many tips for investing wisely, including avoiding paying fees, which can seem minor but can amount to a lot of money.
    6. Your home as a source of cash. You might want to consider downsizing. If not and you need money, you could borrow against your home.
    7. New work options. Think outside the box about the jobs you could take on. It’s not easy to do, but it’s important to keep in mind that your skill set could fit with jobs other than the job you had pre-retirement. You could even become a successful entrepreneur.
    8. Where to live as you age. Miller advises that you consider the amount and kind of space you will need. For example, should it be single level. How big should it be? How close is it to friends and family, the hospital and medical care?
    9. Plan for long-term care needs. There’s a high likelihood that you will need help with bathing, toileting, dressing, transferring and the like as you get older. Depending upon how much help you need, care can be very expensive. How will you get this assistance?
    10. Take advantage of financial advice. You should have a formal financial plan for retirement. You want an advisor who has a fiduciary duty to you, putting your needs ahead of his or her income. Miller recommends you get a Registered Investment Advisor, who charges a fee for his or her services. He suggests the qualities you should look for in a good advisor.
    11. Ways to reduce your taxes. Miller explains how to time your contributions to different types of accounts and how to coordinate income from retirement savings and Social Security. He also warns about the cost implications for you of large payments, for example, from the sale of a home.
    12. Find purpose in your life. Look back and ask yourself which activities have brought you the most joy and which the most misery. Focus on what brings you pleasure. Purposeful living has positive physical and mental health benefits.

    There’s a whole lot more practical guidance in Retirement Reboot. It’s chock full of helpful advice that even I have not spent much if any time thinking about. If you have a few hours a week to work your way through the book, you will likely get a nice return on your $19.95 investment. Pub. date January 10, 2023.

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  • The Elder Index helps you see the cost of growing old

    The Elder Index helps you see the cost of growing old

    Lots of older adults are able to manage the cost of aging with some combination of Social Security income and retirement income, and some manage on Social Security income alone,. But, the cost of growing old quickly becomes unaffordable for most when they have health issues. Judith Graham reports for Kaiser Health News on the Elder Index, a web tool that helps you see what it will cost to grow old based on where you live.

    The Elder Index reveals the income that older adults require to live independently. Social Security benefits do not cover a big chunk of their basic needs, even if they are in good health, 68% for people who live alone and pay rent and 81% for couples.

    The Elder Index also shows that both nationally, and in every state, older Americans need far more to live than the federal poverty level might suggest. Nationally, older adults in good health who rent their homes need annual incomes of more than twice the federal poverty level to cover their basic needs, $27,096 v. $12,996.

    The majority of older women (54 percent) are living on annual incomes that are inadequate to cover the cost of basic necessities including health care. Forty-five percent of men are in a similarly fragile predicament.

    Researchers at the Gerontology Institute, University of Massachusetts, developed the Elder Index. You enter your location and your health status–poor, good or excellent–and the Elder Index tells you how much money you need to cover basic necessities in old age. Costs are significant, more so for people living alone than for couples, as well as for home homeowners with mortgages than renters and people in poor health.

    Last year, pre-inflation at nine percent, the data show that around 11 million older Americans could not afford basic necessities. Almost five million single older women, two million single older men, and more than two million older couples are economically insecure as a result of their low incomes. Now, the numbers are certainly higher.

    In New York City, where I live, the Elder Index reports that, each month, a single person in good health who does not own a home, needs $3,056: $1,682 for rent, $454 for health care, $252 for transportation, $275 for food and $393 for miscellaneous. Someone in poor health needs $3,300, an additional $244. Someone in excellent health needs $2,921.

    In New York City, single homeowners in excellent health without a mortgage spend the least, $2,224. If they have a mortgage, their monthly costs soar by nearly $2,000 to $4,203.Couples in excellent health and without a mortgage fare best, $3.068 in monthly costs. That amount rises to $3,826 if they are in poor  health. It rises further to $5,805 if they have a mortgage.

    Congress needs to do better for older Americans, among other things, through relief on property taxes and expanding eligibility for programs that lower people’s health care costs, including Extra Help and Medicare Savings Programs.

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  • A bear market is jeopardizing people’s retirement security

    A bear market is jeopardizing people’s retirement security

    The stock market is in a downward plunge, and there’s no sign that it will be heading in the opposite direction any time soon. As bad as it is for working people fortunate enough to have savings, it is jeopardizing the retirement security of millions of retirees. Martha C. White writes for the New York Times about the risk some retirees take when they must rely on their retirement savings in a bear market.

    According to IRS rules, everyone must take money out of their retirement accounts beginning April 1 of the year after they turn 72. And, that’s not easy to do in a down market. Less money in retirement accounts means less income and a need to rethink spending.

    Many retirees don’t have adequate income and savings to cover their costs in retirement, even in a bear market. Today, some experts believe people need $150,000 in savings just to pay healthcare costs in retirement. For many people, Social Security income alone does not even cover basic necessities. We need Congress to increase Social Security benefits.

    The bear market, combined with inflation, is taking a toll on people’s retirement security. At the same time that the market has fallen, prices for consumer goods are climbing fast, which makes retirement living all the more difficult. It goes without saying that retirement insecurity is rising.

    Today, people with investments fully in the stock market already could have seen losses as great as 40 percent, especially if they had invested heavily in tech stocks. But, they still must withdraw money from their retirement accounts if they’re over 72.

    The value of investing retirement savings in bonds. Bonds are a much safer bet with retirement savings. But, the return on the investment is much smaller. Many retirees took a gamble on stocks with the hope of building a bigger nest egg. While the stock market was going up, it was a smart risk, now they have to deal with the consequences.

    The value of holding cash in a retirement account. Some financial planners say it’s wise for people to hold some of their savings in cash, so that they are best able to make it through a plunge in the stock market. Of course, that option is easier said than done.

    Unretirement and lines of credit. Some retirees are now forced to return to work to manage–what some are calling “unretirement.” Others were forced back to work before the bear market took hold because of high out-of-pocket health care costs. Some people are getting lines of credit and borrowing money based on the value of their homes, as a means of making it through this market downturn.

    How much must you withdraw from your retirement account? How much you are required to withdraw depends on how much savings you have in your retirement account and your age. You must pay income tax on this money.

    What if you don’t withdraw the money when required? You pay a steep penalty. The IRS imposes a 50 percent tax.

    Congress is looking to delay the time that people are required to take money from their retirement accounts to 75. But, whether and when a law is passed to that effect is an open question.

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  • Beginning at age 72, you must withdraw money from your retirement accounts

    Beginning at age 72, you must withdraw money from your retirement accounts

    If you have money in an individual retirement account, once you turn 72, the Internal Revenue Service requires that you withdraw money from this account every year, even if you still work. (Note: The Secure Act of 2019 made changes to this rule. “If you reached the age of 70½ in 2019 the prior rule applies, and you must take your first Required Minimum Distribution by April 1, 2020. If you reach age 70 ½ in 2020 or later you must take your first Required Minimum Distribution by April 1 of the year after you reach 72.”)

    In effect, once you turn 72, the IRS requires you to stop saving all your money in your individual retirement account “IRA” or most other employer-based retirement accounts, such as 401(k), 403(b) and 457(b) plans. You must withdraw it over time. Unfortunately, when you withdraw the money, the government gets to tax it. Remember that any money that you put into these accounts went in tax-free, before taxes. And, any money in an IRA can appreciate without any taxes on the appreciation until you withdraw the money.

    • How much must you withdraw from your retirement account? The amount you are required to withdraw before the end of each year depends upon the amount in your IRA and your life expectancy. It is called the RMD or required minimum distribution. The total distribution can come out of one or more of your IRA accounts, if you have more than one. It does not have to come out of each one of them. But, the 401(k) and 457(b) distributions must come out of those accounts.
    • Can you withdraw more than the required minimum distribution amount? Yes. You will be taxed on whatever amount you withdraw that was deposited pre-tax; it will be counted as part of your taxable income and taxed at your income tax rate. It will not count towards your RMD for the following year.
    • Are there any retirement accounts not subject to the RMD? Any retirement accounts you have with after-tax contributions are not subject to the RMD and you are not required to withdraw money from them. This would include a Roth IRA, unless you inherited it.
    • When must you take your first distribution? You are permitted to take your first distribution in the April of the calendar year following the year you turn 72.  Put differently, you do not need to take a distribution in the calendar year you turn 72. But, you must then take another distribution by the end of that calendar year.
    • What if you forget to take a distribution? If for any reason you forget to take a distribution when you are required to, do so as soon as possible and complete an IRS form explaining why you forgot. Unless the IRS accepts your explanation, you may have to pay a big penalty if you do not take a distribution when you are required to. That penalty can be as much as half of the amount you should have withdrawn.
    • Must you spend the money you withdraw from your retirement account? You are not required to spend the money from your IRA after you withdraw it. You can reinvest it in a different taxable account if you do not need it, but not into a tax-deferred account. And, if you want to give the money in the IRA to a charity, you may distribute up to $100,000 from the IRA to the charity without paying any taxes on it.

    (Note: This article was updated to reflect the new withdrawal age of 72. It used to be 70.5)

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  • 2022: What will your health care costs be in retirement?

    2022: What will your health care costs be in retirement?

    A new study by Paul Fronstin at the Employ Benefits Research Institute finds that people’s out-of-pocket health care costs in retirement have increased significantly in the last year. Ginger Szala reports for ThinkAdvisor that older and disabled Americans will be expected to spend more on health care.

    Medicare only covers about two-thirds of people’s health care costs. Unless your income is low enough to qualify you for Extra Help, you will pay premiums, deductibles, coinsurance and copays as well as the cost of services that Medicare does not cover. Medicare does not cover long-term care services, nor does it cover vision, hearing or dental benefits.

    In 2021, health care costs increased significantly. To cover these higher costs, EBRI projects that people will need to put aside between three and eight percent more money for their health care in retirement.

    If Congress does not pass the Build Back Better Act, there will continue to be no out-of-pocket cap on Medicare  prescription drug expenses. As it is, Medicare does not have an out-of-pocket cap. Consequently, people in traditional Medicare need supplemental coverage, Medigap to pick up their out-of-pocket costs and limit their costs.

    How much will you need to cover health care costs in retirement?

    It depends. Women typically need to set aside more than men. They tend to live longer. Women who are 65 now and have set aside $103,000 have a 50-50 chance of covering their health care costs in retirement. If you want to minimize your risk of not having enough money, women need to set aside $159,000. That is up about $15,000 from 2020.

    Men who are 65 have slightly lower costs than women. $142,000 in savings should give them a 90 percent chance of having the money they need in retirement. $79,000 in savings affords them a 50-50 shot.

    Couples with typical prescription drug costs need slightly less than single people. EBRI projects that $296,000 in savings—up about $26,000 from 2020– gives them a 90 percent likelihood of being able to cover their health care costs. With $182,000, they would have a 50-50 chance of being able to pay their health care costs. For a 50 percent chance of having enough to cover health care expenses in retirement, a couple with median prescription drug expenses needs $182,000 in savings.

    At 65, couples with very high drug costs will need a whole lot more to cover their health expenses.  EBRI projects that savings need to be $361,000, up $36,000 from 2020.

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  • Healthcare costs drive retirees back to work

    Healthcare costs drive retirees back to work

    A new survey finds that health care costs are driving retirees with Medicare back to work. Yes, Medicare may offer some of the best health care coverage in the US, but it still leaves enrollees with high out-of-pocket costs.

    One in seven older adults have gone back to work in order to pay their health care bills. Medical costs can be substantial, even with Medicare. Medicare typically only covers about half of a person’s health care costs. It has deductibles, coinsurance and does not cover dental, vision, hearing or long-term care services.

    Many older adults rely on Social Security as their sole or principal source of income. They can no longer depend on defined benefit plans are pensions. Consequently, some older adults have taken part-time jobs and others full-time jobs.

    Motley Fool advises that, to protect yourself, you should set aside funds to cover your healthcare costs in retirement before you retire. Understandably, given the high cost of living and typically low salaries, it is hard to make ends meet as a working person, let alone save. But, if you can put some money aside for retirement, you should consider an IRA or 401(k) plan.

    Money you put into an IRA or 401(k) plan is tax-free at the time you save it, as is money you put in a health savings account. And, if you’re lucky, the money will grow tax-free. You could easily need it in retirement.The latest Fidelity projection is that a 65-year old newly retired couple will need $300,000 to cover their health care costs this year. One way to maximize your savings is to delay taking Social Security benefits. You receive larger Social Security benefits if you do not enroll in Social Security until after your full retirement age.  Click here for more information.

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