SPEIAL REPORT THE SIX RETIRING FITT ONERNS AND 39 RITIAL ... · SIX RETIRING FITT ONERNS Page 3 opyright 2015 Six Retiring FITT oncerns Often people and families have many questions

SPECIAL REPORT

THE SIX RETIRING FITT CONCERNS

AND 39 CRITICAL RETIRING QUESTIONS

TABLE OF CONTENTS

Contents

Jerry and Rita’s Story __________________________________ 1

Six Retiring FITT Concerns ___________________________ 3

Pre-retirement Planning ______________________________ 4

Day-to-day Living in Retirement ___________________ 10

Lifestyle ______________________________________________ 17

Insurance and Health Care __________________________ 20

Investing _____________________________________________ 24

Social Security _______________________________________ 31

Do You Have Additional Questions? ________________ 35

About the Author ____________________________________ 37

Company Information _______________________________ 38

JERRY AND RITA’S STORY

Page 1 Copyright 2015

Jerry and Rita’s Story

Jerry and Rita were 6 months from retiring when I first met them. To really understand where they were coming from, it helps to know that Rita was a Project Manager at a major oil company in town. Jerry and Rita had been good savers and planners for retirement and had put together a nice nest egg. They decided to go ahead and retire because their nest egg was large enough and they wanted to spend more time with their special needs adult daughter who lives out of state. Knowing Rita was a Project Manager, you can probably envision this couple – they planned everything in detail from car purchases to vacations. They’re the couple that goes on vacation with all of the arrangements premade, a nice folder of all of the confirmation reports and webpages in chronological order, a list of important phone numbers, a list of rewards numbers, all while leaving a specific set of printed instructions for the house sitter. They like to think things through and make sure the details are correct. Can you picture them? They approached retirement with the same research, planning and attention to detail that they had used throughout their adult lives. They had attended several seminars and webinars, including the two-day seminar offered by her employer. They had done quite a bit of online research, as well as talked to their HR

JERRY AND RITA’S STORY


departments, co-workers, friends, and family. They felt they had a good understanding about most of the decisions they had to make but were still unsure about a few things. Here’s what they were worried about… They found out that some mistakes were not correctable so they wanted to make sure they didn’t make a mistake that couldn’t be fixed. They knew they were not experts on retiring and were wondering if there was something they hadn’t thought about that they should consider. Lastly, they had conflicting information on some very important topics and weren’t sure who to believe or trust when it came to these items. You see, like most people thinking about retiring, they had questions. Lots of questions! Although there is obviously no report that can answer all your retiring questions for your specific family situation, this report outlines 6 major retiring concerns, and also answers 39 critical retiring questions. This should help you along in the process as you consider what decisions to make when you retire. Best wishes!

Sharon Duncan

SIX RETIRING FITT CONCERNS


Six Retiring FITT Concerns

Often people and families have many questions about retiring and the decisions they will need to make. These questions and concerns typically fall into 6 main topics. These topics are helpful to know in order to get your questions answered. Pre-retirement Planning Day–to-Day Living in Retirement Lifestyle Insurance and Health Care Investing Social Security We’re going to go through each one of these topics and look at some of the more common questions related to each category.

PRE-RETIREMENT PLANNING


Pre-retirement Planning

WHAT IS THE BEST THING I CAN DO TO PREPARE FOR RETIREMENT?

Develop a plan and work the plan.

WHAT IS THE MAIN THING PEOPLE WISH THEY HAD DONE DIFFERENTLY IN PREPARING FOR RETIREMENT?

In the words we hear most often – saved more. I would say that they wished they had a better understanding that there is a real give and take between spending today and saving for tomorrow.

HOW DO I KNOW IF I SHOULD RETIRE?

Many people determine it is time to retire when they are emotionally ready, and they make their finances work regardless. Others seriously consider whether they have enough money set aside to provide for the lifestyle they would like to experience in retirement. Some retire when they become eligible for Social Security and/or Medicare. Deciding when to retire is usually a personal, individual decision whether you are single, in a long-term relationship, or married. If you are a couple, you



should consider this a couple’s decision as well, but don’t underestimate the importance of the individual decision. Many people find themselves prematurely retired because of changes in the family, company or health. If you find yourself unexpectedly retired with fewer resources than you need to support your lifestyle, then compromises have to be given serious consideration. Some couples retire at the same time and some retire one at a time because of age or financial considerations, but also because they want to adjust to their new lifestyle gradually. Each family should do whichever works out best for their family because there is no right or wrong answer.

HOW DO I DETERMINE HOW MUCH MONEY I WILL NEED TO LIVE ON IN RETIREMENT?

There are a host of websites that allow you to calculate this. They are not very robust but they mostly give a reasonable answer if you use reasonable assumptions. Use several and see if you get different answers. If so, throw out the outliers. When you need a robust answer, visit a true planner who will take a good look at this. Resist the



temptation to interpret quick plans put together by a product salesman as being anything more than a quick plan similar to what you can do on the internet.

SHOULD I PRACTICE LIVING ON A REDUCED INCOME BEFORE RETIRING?

We do recommend this approach when there are concerns about an underfunded retirement. Many people just naturally approach their retirement-spending level prior to retirement.

SHOULD I DO WHATEVER IS NECESSARY TO CUT MY EXPENSES NOW, SO THAT I CAN ENJOY MY RETIREMENT?

The answer is maybe yes and maybe no. I am always a fan of prudent spending, but austerity is not always prudent. We have all heard the story of the miser who dies with millions. On the other hand, we all know plenty of people who have overspent in their working years and wish they had more in retirement for basic things like food and travelling to see the grandchildren. If you don’t know the mathematical definition of prudent for your family, visit with a true planner.



SHOULD I PURCHASE LONG-TERM CARE INSURANCE?

As a whole, I am a huge fan of long-term care insurance because it can change people’s lives. We generally see three groups of people when it comes to long-term care insurance: those who can’t afford the premium on their retirement income, those who can afford the premium and are not able to adequately self-insure against the risk, and those who can afford to self-insure. (Self-insure means you have enough money available to pay for any long-term care needs should they arise.) If you can afford the premium and cannot reasonably self-insure, then by all means give purchasing long-term care insurance serious consideration. When considering whether you can self-insure, think over this scenario: Say the first spouse, sadly, experiences early onset Alzheimer’s and stays 6 years in an Alzheimer facility costing $5,000-6,000 per month. At the end of the 6 years, they die, leaving the remaining spouse alone for another 20 years. Is there enough money and income to support the surviving spouse in this scenario? If not, you should carefully reconsider the idea of self-insurance or know that you are okay with the possibility of running out of money. There is likely no perfect answer here because of life’s uncertainties.



If you can afford to self-insure then you simply have a purchasing decision to make. In other words, is this how you would like to spend your money? I would like to offer my two cents about this: I see long-term care insurance as a tremendous gift to your children. You have probably spent decades teaching your kids to not spend your money. When there is insurance, the kids are quick to call in the needed help. When there is no insurance, we see kids exhaust themselves and their families trying to avoid spending the parent’s money. Consider buying long-term care insurance to relieve your kids of some of your care burden. If you cannot afford to pay the premium payment out of your retirement income for years to come, I offer two strategies for you to consider. The first is to just not even start the insurance because you lose all of the premiums paid if you have to cancel coverage. The second strategy is to involve the kids in this decision because sometimes the kids prefer to help with the premium as opposed to helping pay for the care later. Many parents are hesitant to discuss this with their children. If you have a parent between 50-70 years old, I encourage you to have this discussion with them if they haven’t already brought it up with you.



HOW EARLY SHOULD I BEGIN WITHDRAWING FROM MY 401K?

The answer to this question depends on your retirement plan or retirement analysis. If you don’t have one, get one done that takes an honest, detailed look at your situation. Be leery of making important financial decisions based on a quick financial plan done using only simple spending and earning goals. These are often completed by a product salesman primarily interested in having you open accounts with them. Visit with a true financial planner even if the answer seems obvious.

ARE THINGS DIFFERENT IF I HAVE A SPECIAL NEEDS CHILD?

Yes, special needs children, whether they are still young or adults, require special planning considerations. Inheritance may be different as you seek to provide for the special needs child. Other aspects of planning may also be different such as Social Security Disability issues, long-term care needs, and emotional and financial protection for the special needs children, as well as any other children in the family.

DAY-TO-DAY LIVING IN RETIREMENT


Day-to-day Living in Retirement

WHAT PERCENTAGE OF OUR EXPENSES SHOULD WE LIVE ON IN RETIREMENT?

There are sound bites out there about how, during retirement, you should live on 65% or 80% of your pre-retirement income. There are other sound bites that say you can withdraw 4% from your investments each year. These are good sound bites and are helpful in starting the conversation. As planners, we find the sound bites too generic for actually making decisions, because everyone’s story is different and specific to them. For example, if you are spending $4,000 per month before retirement then you should plan to live on close to 100% of your pre-retirement income. But, if you are spending $12,000 per month before retirement, then 65%, 80%, or some other percentage might be the right answer. We prefer to work through a budgeting process when planning for retirement spending, rather than trying to plan something so important using sound bites.



HOW SHOULD I HANDLE MAJOR UNEXPECTED EXPENSES?

Everyone should have funds readily available in case of an emergency. Pre-59½ we recommend an emergency fund of 3-6 months’ worth of expenses. Post 59½ we sometimes reduce the emergency fund if we have quick access to IRA funds. When planning for your retirement spending needs, remember to factor in unexpected expenses such as annual tax bills, infrequent car purchases, and emergencies like fire or hurricane damage.

WHAT HAPPENS IF I RETIRE AND THEN I RUN OUT OF MONEY?

Running out of money typically means that you have used up your savings. It may not be obvious, but most people still have a regular income when they run out of money. The regular income may not be as sufficient as you would like it to be, but it is typically life sustaining. I know of a lady in her mid-90s who lives on an $800 per month Social Security check. She has rent-assisted housing and eats on a limited budget, but it is life sustaining. She certainly approaches entitlement and waste much differently than many middle class Americans! Obviously I am a huge fan of proper preparation and prudent decisions to help stave off such an outcome. If this is a concern for you,



think in terms of what your regular income from Social Security, pensions, etc. will be, and then factor in that your income won’t really inflate as fast as prices will, and you’ll begin to get the picture. My Dad says that his first house cost him $100/month in payments, while today, he can’t air condition his house for $100/month in Houston. It’s hard to conceive that today’s house payment will be the future electric bill amount! Inflation, poor planning and impulsive decision making are the factors we see that most frequently contribute to running out of money. If you don’t want to run out of money, you should pay attention to these three factors in particular.

HOW DO I HANDLE TITHING IN RETIREMENT?

Most tithers that we see tithe from their retirement income as well. Technically, if you have tithed from your gross income while working, and saved into your 401(k) plan, then some of your IRA income in retirement has already been tithed. Although the amount can be calculated, most tithers ignore this and just continue to tithe on their gross income. Some people modify their tithing in retirement when subsistence is a concern. I think it is best to avoid this problem through proper planning and preparation.



HOW MUCH DOES THE REAL BUDGET DIFFER FROM THE PROJECTED BUDGET IN RETIREMENT?

One major difference between the projected budget and the real budget is that life happens, and real budgets have fluctuations that projected budgets don’t. For example, the projected budget may be for a steady $4000 per month in spending, but then an air conditioner goes out and a major expense is incurred. With proper planning and budgeting, the money is available, but it does alter the budget. In other words, real budgets are rarely smooth because real life is bumpy. The realism in the projected budget matters. If your projected budget is realistic then the real budget tends to track pretty closely. If you were idealistic with the projected budget, the difference can be life changing in a bad way. We see this happen most when trying to squeeze excess spending into a limited-income budget. When funds run short in the budget we begin to believe we can air condition less or eat less, but in real life we find some of this more challenging.



WHAT DO YOU USE TO DETERMINE THE PERCENTAGE OF FUNDS TO WITHDRAW FROM MY INVESTMENTS?

There are quick rules of thumb that vary between 3-5%. As is true with sound bites and quick tips, this may or may not be true in your case. We recommend a retirement analysis to determine a range of spending that balances out your goals.

IF IN RETIREMENT I WANT TO WINTER AND SUMMER IN DIFFERENT LOCATIONS, SHOULD I BUY OR RENT?

I have seen it be the best solution both ways, depending upon the circumstances. It is important to consider how frequently you really travel from one place to the other, and your level of financial resources. It is easy to see the convenience factor in owning two locations. The key question is whether the convenience is worth the cost, and whether there is a more cost effective means of obtaining the convenience. Think in terms of rental cars. I am traveling to San Diego as I write this and I have not purchased a car in San Diego for the trip. I just won’t be there long enough to make it worth the money. Rather, I will rent a car for the three days and then I am done with it. This seems like an obvious example, but we lose sight of the same idea when it comes to vacation homes, motor homes, boats, etc. I have seen



more than one couple retire and spend large sums on their retirement dream lodging for a few trips a year when they could have rented. Like I said, each solution works but they work in different circumstances. I focus on the renting choice because in our culture we don’t need any encouragement to buy. Rather, I want to highlight reasonable alternatives to purchasing when they make sense.

HOW MUCH TRAVELING DO PEOPLE DO IN RETIREMENT?

Many people travel more in the early years of retirement to visit family and to see sights they have always wanted to see but never had the time to see before retiring. For example, we see a lot of trips to Alaska during the early retirement years because of the time needed for such a trip. How much you travel does typically depend upon your resources, at home responsibilities, stamina, health, purpose, finances, interest, etc. Travel tends to diminish as we enter our mid-70s so you should do it while you can.

HOW FAR DOES $1,000,000 REALLY GO?

Certainly not as far as we think it will go! On a more serious note, it depends on your spending level, your retirement income from other sources like Social Security and pensions, and whether tax is still owed on this money. Inflation really impacts your finances



as well. A loaf of bread used to cost 25 cents, now you can spend $2.50, and it may hit $10 or more in your lifetime. We see plenty of people retire on less than $1,000,000 successfully when their expectations are in line with their resources. One thing we do know is that you cannot retire on $1,000,000, spend with abandon, live to 100, take no risk in your investing and have a good outcome. It seems like something always has to give regardless of how much you have saved.

WHAT DO YOU THINK ABOUT THE NEW SENIOR COMMUNITIES WHERE I CAN CHANGE MY LIVING ARRANGEMENTS AS MY NEEDS CHANGE?

We have seen a number of unique living/financing arrangements in senior communities. Some offer interesting alternatives and we have clients who love these living arrangements. One often overlooked benefit of these communities is the socialization benefit, which can really impact quality of life. Be sure to shop around, consider the options and do the math before making a decision.

LIFESTYLE


Lifestyle

SHOULD I DOWNSIZE TO A SMALLER HOUSE?

It depends upon your resources and your preferences. Like many financial decisions, there is an emotional and mathematical component to the decision. It is usually easy to know what we want to do. Be sure and do the math to see if you should do something different.

HOW DO I ADJUST TO THE SLOWER PACE OF RETIREMENT AFTER WORKING FULL TIME MY ENTIRE LIFE?

It is important for you to have a purpose in retirement. The purpose can be anything that gets you up in the morning and lets you go to sleep at night feeling good about how you used the day you were given. If you get this right, the pace of retirement seems to settle in naturally. You may be surprised to know that many people do not slow down in retirement, they simply change focus. Instead of going to work 40 hours a week, now they spend more time on home projects, grandchildren, volunteer activities, reading, etc.

LIFESTYLE


HOW DO I KNOW WHAT MY PURPOSE WILL BE IN RETIREMENT?

I believe that people thrive when they have purpose and languish when they don’t. In fact, I am convinced that purposelessness in retirement is a significant factor in early, unexpected deaths that occur in the first two years of retirement. It’s something like dying from a broken heart. If you are having trouble determining your purpose in retirement, you should consider different ideas until you succeed in finding one that fulfills you. Here are a few of my favorite ideas for finding purpose. Ask your loved ones and best friends because they probably already know the answer. Look at how you have spent your purposeful, nonworking hours during your working years. Keep in mind that you will probably not have one answer for the rest of your life, or even a perfect answer. Changing your purpose in retirement is much easier than changing your major your freshman year in college. Pick a place to start and alter your purpose as things change. Look beyond the honey-do list. What you are really looking for is a reason to get up each morning with enthusiasm and a way to lay your tired head down on the pillow at night and know that you used each day wisely.

LIFESTYLE


DO PEOPLE REGRET RETIRING?

Some people do regret retiring. We see this to be especially true when they retired before they were emotionally and/or financially ready. You would likely be surprised how many people retire because someone or something else forced their hand. Companies downsize, illness happens, spouses change their minds, life happens. I think most people expect to retire on their terms and in their time frame, although this is frequently not the case. Others think they are ready to retire and find themselves bored or at loose ends after a few months. The good news is that if you find yourself regretting your retirement, there are more options than ever for returning to the work force.

WHAT IF MY CHILDREN WANT OR NEED TO COME BACK TO LIVE WITH ME?

Sometimes having the kids come back is the right answer, frequently it is not. If I had a simple answer to this question, I would be a hero. May I suggest the book Boundaries by Dr. Henry Cloud and Dr. John Townsend as you consider your options?

INSURANCE AND HEALTH CARE


Insurance and Health Care

WHICH IS BETTER? MY RETIREE HEALTH OPTION, MEDICARE, MEDICARE ADVANTAGE OR THE AFFORDABLE CARE ACT?

Like most planning questions, the answer depends upon your individual circumstances. There are a variety of health insurance options available and they differ in several regards, including the obvious differences in pricing and coverage. There is also the less obvious difference in the amount of risk you may be taking and the quality of the provider network. Medical insurance is becoming increasingly more complex and expensive as our country tries to reshape the medical services system. When considering which plan to utilize, you should take into account the risks and who is assuming which risks. Instead of only thinking of the hopeful scenario, consider bad situations and what they would mean to your plan. For example, what happens if someone gets a prolonged cancer or Alzheimer’s? How will the medical bills, including the deductibles and co-pays, get covered? What impact would this have on the family budget? Will extra money be needed for extra costs like parking in a downtown parking garage each day, buying all of your food in the hospital cafeteria, and paying someone to walk the dogs?



HOW SHOULD I HANDLE MEDICAL BILLS FOR A MAJOR ILLNESS DURING RETIREMENT?

Excuse the cliché, but an ounce of prevention is worth a pound of cure. The best way to handle medical bills in retirement is to have already put aside the provision to handle the bills before you get there. There are a number of ways to get there before the need arises and one should not overlook the possibility of fully funding a Health Savings Account when you are still working. If you are already in retirement and unexpected medical bills arise, then they should be funded according to your current funding program. For example, if you are utilizing one of your IRAs for retirement expenses, then this may be how you handle the unexpected medical bills as well. Many retirees we see live off of a set amount each month from their investing program. Then, when unexpected expenses arise, an additional check is requested to cover the additional expenses. If you don’t have enough provision for the medical bills, then compromises and/or alternatives should be considered. As humans we naturally put more weight on the needs of today than the needs of tomorrow. If today’s needs and wants impact tomorrow’s medical bills, consider your options and make an informed



decision, even if there is no perfect decision available to you.

HOW DO YOU PLAN FOR THE UNKNOWN MEDICAL COSTS OF THE FUTURE?

The uncertainty of future medical costs and medical insurance is becoming more discussed with both the changes in our medical systems and the aging of the baby boomers. As with any cost, we typically recommend a conservative planning approach. This means plan for high costs and if you’re wrong it is more likely to work in your favor. The opposite is to be too aggressive, or optimistic, in your assumptions. If you are wrong, you may be faced with spending more on medical insurance and care than you expected, even though your plan will look and feel better today. At Selah, we tend to plan on the high side for medical insurance and expenses.

SHOULD I PURCHASE LONG-TERM CARE INSURANCE?

I discussed purchasing long-term care insurance in the pre-retirement planning section because most people should address this prior to reaching retirement age.



WHAT IS THE BEST WAY TO PREPARE FOR RETIREMENT WHEN AN UNEXPECTED DISABILITY DECREASES WORKING YEARS?

Disability insurance works best in many disability cases. Many self-employed people self-insure against disability instead of buying disability insurance, which can be expensive. A head-in-the-sand approach is not recommended. Many people are surprised to find themselves disabled although few expected it to happen to them. It may happen to you. Disability insurance is typically more affordable through an employer than through an individual policy. If you need an individual policy, consider your options honestly and don’t just react to the premium shock.

INVESTING


Investing

HOW WILL MY INVESTMENTS BE ABLE TO KEEP UP WITH THE COST OF LIVING?

In order for your investments to keep up with the cost of living, they have to out earn inflation over the long run, if you keep your spending level the same. If you have trouble with your investments keeping up with the cost of living, you may need to make some changes. One challenge is that investment returns vary from year to year to a greater degree than inflation. For example, in one year inflation may be 2% while your investment return is -10%. That means inflation went up 2% while your investments lost money. The order in which inflation and investment returns occur will also impact your results. It is important to have an investment approach that balances your goals – all of your goals. Your investment goals should include obvious ones like honoring your concerns about the risk of losing money. They should also include the equally important but harder to balance goals like not running out of money in your lifetime. In order to balance your goals, it is important to take time and consider what your goals should be—even the more difficult long-term financial goals.

INVESTING


Once the goals are understood, it is time to look at the different investment options available. Every investing option has advantages and disadvantages. There is no perfect solution and there is no one right answer. Take a careful, realistic look at the options and find the program that gives you the best chance of meeting your goals, including keeping up with the cost of living.

WHAT KIND OF INVESTMENT SHOULD I USE?

There are many different types of investments and they all have different advantages and disadvantages. Each of the advantages and disadvantages need to be considered in terms of what you need, what’s important to you, your resources, and the other investing options available to you. In our opinion, some types of investments are over used because they have a compelling sales story that tends to minimize the disadvantages. We prefer to use investments that have advantages and disadvantages that work in your particular situation and disagree with the one-size-fits-all investing approach.

AT WHAT AGE IS IT TOO LATE FOR ME TO CONTRIBUTE TO MY ROTH?

Roth contribution rules require that there be earned income. There is no age limit on contributions, only the requirement for earned income.

INVESTING


As a side note, income from rental properties is one of the types of passive income that doesn’t count. If you are in retirement and all of your income is from IRAs, pensions, Social Security, or rental houses, you may not have what the IRS considers to be earned income and may not be able to contribute to a Roth. Alternatively, you may consider a Roth conversion, which is moving money from your IRA to your Roth IRA. Like all things, there are advantages and disadvantages to be carefully considered. As always, you should check this out with your tax professional.

WHAT IS A GOOD STRATEGY FOR ROTH VERSUS NON-ROTH, AND IS IT AN OPTION FOR MY 401(K)?

Roth and non-Roth accounts differ in taxation as well as a few other items. We like well-planned retirements to have some funds available in different types of accounts, including Roth accounts, because it allows for more tax planning during retirement. We use individual circumstances to determine the desired balance between these two types of accounts and since this is a tax consideration, your tax professional should be consulted as well. Many 401(k)s now offer a Roth option. Lots of people don’t realize the income limit on Roth contributions does not apply to 401(k)s. That means that high

INVESTING


earners can contribute to Roth 401(k)s if offered by their employers, regardless of their income.

HOW MANY YEARS BEFORE I RETIRE SHOULD I QUIT BEING AGGRESSIVE IN MY INVESTMENTS?

We get this question frequently and there are certainly more than a few sound bites out there around this question. It depends upon your individual circumstances and goals. Some people need to become more conservative about their investments before retirement and some remain aggressive investors all their lives. It’s important to remember that your risk level is one of many decisions to be made in conjunction with all of your other decisions. It is important to make sure your decisions work together to help you achieve your goals. Decisions made without consideration of all of your goals can sometimes turn out to be short-sighted decisions. Decisions made based on a sound bite you may have heard on T.V., in a seminar, from a friend, or on the Internet, may not turn out as well as you had hoped.

WILL THE BOND MARKET IMPROVE SOON?

Bond prices fluctuate between the time they are first issued and the day they mature. For example, if you have a $10,000 bond it is worth exactly $10,000 the

INVESTING


day it is issued and the day it matures. In between the bond price will fluctuate depending upon how in demand that bond is to other investors. For example, if your bond is paying 5% and new bonds are only paying 2%, people will pay extra to purchase your 5% bond. Bond prices typically change in the opposite direction of interest rates. When interest rates were falling this helped raise bond prices. As interest rates begin to rise, bond prices are more likely to fall. If you have a good amount of your funds in bonds, you should have a serious discussion with your advisor about what this might mean to you. This is not to say all bonds will fall or you should change your strategy. I am simply saying that the bond market of the next 3 decades is not likely to look as nice as it has for the past 3 decades and you should consider this when determining your bond strategy going forward.

WHAT AGE CAN I START TAKING MONEY OUT OF MY RETIREMENT ACCOUNT WITH MINIMAL TAX IMPLICATIONS?

If you are over 59 ½ you can take money out of your IRA without paying the 10% penalty. If you separated from your company at 55 or older you can take money

INVESTING


out of your 401(k) without paying the penalty. Notice that if you move your 401(k) to an IRA, the age goes from 55 to 59 ½. This means if you need money from your 401(k) after retiring and before you turn 59 ½, a rollover from your 401(k) into your IRA may not be in your best interest. (Each 401(k) plan can put limits on how you can take money out for 55 and older so be sure to check the rules before counting on this idea working in a particular way for you.) There are two other means of taking money out of an IRA before 59 ½ without a penalty – the 72(t) exemption and net unrealized appreciation. They are both restrictive and may not apply to your situation, but can make all the difference in the right situation.

SHOULD I TAKE A LUMP SUM FROM MY COMPANY PENSION OR SHOULD I TAKE MONTHLY PAYMENTS?

We see the lump sum as the most frequently chosen path. We generally agree that for many people the lump sum makes sense, but for many other people the lump sum is not the right answer. As in any investing choice, there is no perfect answer and both choices have advantages and disadvantages. It is important to match your needs with these advantages and disadvantages. We find it is equally important to be honest with yourself about how you spend and invest money.

INVESTING


When considering your pension payout options, remember to consider your spouse. Think through what your spouse will have in resources if the pensioner dies first. Although the higher monthly check has its appeal today, in some circumstances, the loss of the check for the surviving spouse may be problematic or even devastating.

SOCIAL SECURITY


Social Security

IF BOTH SPOUSES WORKED AND CONTRIBUTED TO SOCIAL SECURITY, DOES EACH SPOUSE GET AN AMOUNT FROM THE OTHER SPOUSE’S SOCIAL SECURITY?

If you meet the qualification requirements, you are each entitled to both your own Social Security benefits and your spousal benefits. You are allowed to collect one or the other at any given time, but not both at the same time. If you are divorced, currently single and previously married for more than 10 years, you should also consider your spousal benefits under your ex-spouse’s work record. An individual’s benefit is not impacted by any spouse or ex-spouse claims. In fact, multiple ex-spouses can claim spousal benefits simultaneously if they all meet the criteria. If more than one person is claiming spousal benefits from the same person’s work record, you won’t see one person’s Social Security reduced because someone else is also claiming against the same work record.

SOCIAL SECURITY


WHEN DO YOU RECOMMEND APPLYING FOR SOCIAL SECURITY?

Deciding how best to take your Social Security is complex, but should be given careful consideration. The alternatives that you have are called your Social Security Claiming Strategies, and the different strategies favor different goals. Be sure to work with a professional that truly understands the claiming system and knows how to match your choices with your goals. When figuring out the best time to take Social Security, don’t forget to consider the impact on each spouse if the other spouse dies first. When a spouse dies, the remaining spouse will typically receive the higher of the two Social Security checks, but the small check does go away. That means there is less monthly Social Security income coming into the household and many people don’t realize this will happen. Let’s look at an example. Let’s say the husband has been the primary breadwinner so he has the larger Social Security check and it’s $2000. Often, the wife gets half of his check, $1000, as his spouse. Sadly, he dies. Her Social Security check actually increases to $2000 so it seems like she is “getting a raise.” While this is true in a sense, she is still going to lose the $1000 check so the monthly income is still going to go down from $3000 to $2000.\

SOCIAL SECURITY


HOW WILL MY TEACHER RETIREMENT SYSTEM (TRS) AFFECT MY SOCIAL SECURITY?

If you are eligible for a government pension, like TRS, and Social Security, your Social Security benefits will be calculated using the Windfall Elimination Provision, or WEP. When WEP is applied to many teachers’ TRS accounts, it results in receiving no Social Security check because the TRS payment is large enough to offset all of the Social Security check. This is where the rumor comes from that you cannot collect both TRS and Social Security. Although it is true that you will not receive all of your Social Security and all of your TRS, many people do, in fact, receive both TRS and Social Security. So assuming that you will not receive Social Security may not be correct, depending upon your circumstances. Spousal and survivor benefits are affected by the Government Pension Offset, or GPO, similar to the way WEP affects employees who have worked for 2 or more employers when one of the employers did not contribute to the Social Security system. Sometimes it is easier to just think about GPO and WEP being the same type of program, and they each affect a different kind of Social Security benefit. Either way, this point is the same – if you have worked for 2 or more employers and one of the employers did not contribute to the Social Security system, you may

SOCIAL SECURITY


still be entitled to collect some Social Security benefits.

DO YOU HAVE ADDITIONAL QUESTIONS?


Do You Have Additional Questions?

Although this seems like so much information, you may have more questions, or questions that are specific to your circumstances and family. So now what? Here are three more thoughts for you to consider: Keep in mind that it is impossible to know everything. Watch out for the pitfall of failing to make a timely decision because of analysis paralysis. As people, we generally prefer to research and consider tough decisions. This means we put off actually making tough decisions because we’re worried that there might be more for us to know or that we may not make the right decision. Although this may feel right, sometimes not making the decision can become a problem. Keep in mind that in order to get results, we actually have to make a decision to take action. Retiring is scary, overwhelming and confusing for most people. Know that you are not alone if this is how you are feeling. You have probably had to face other scary, overwhelming and confusing situations in your life whether they be for legal, medical, or relationship reasons. When these happen, it can be helpful to have the assistance of a specialist that has been through your type of experience numerous times before. Years ago, when Princess Diana visited the minefields of

DO YOU HAVE ADDITIONAL QUESTIONS?


Angola, she had an experienced guide who knew where the unexploded landmines were located. When my dad faced cancer, we found an experienced oncologist who thought his type of cancer was rather routine. Don’t hesitate to use a real specialist when it makes sense to do so. Most importantly, carefully consider your individual circumstances, goals and options, rather than relying on general statements, sales presentations, and articles written for the general public. Actively seek out what is best for you and your family because your financial future is at stake. High-caliber specialists that offer even-handed recommendations are available, you just have to be a discerning consumer. Jerry and Rita provided us with a good example of how to go about doing this. Retirement is the doorway to the next exciting chapter in your life, much like graduation and marriage are doorways into new chapters. Embrace the journey and enjoy the experience. I wish you all of the best as you approach and experience retirement. May your retirement be all that you hoped, or, as my grandmother would say, your golden years.

ABOUT THE AUTHOR


About the Author

Sharon Duncan, MBA, CFP® is a nationally recognized Financial Educator, Author, Speaker and Creator of The Retiring FITT System, a retiree-centered process created out of her frustration by the financial company myths and misinformation and the traditional advisor “rollover your money and

buy my product” process. Duncan was chosen by N.Y. Times and Wall Street Journal Best Selling Author and nationally syndicated radio host, Dave Ramsey, as one of Ramsey’s Endorsed Local Providers. She is a Master Elite Advisor with Ed Slott, CPA, seen on PBS. Sharon is an avid fan of the Houston Astros and Texans and loves to ride her John Deere tractor.

COMPANY INFORMATION


Company Information

Selah Financial Services 1550 W Bay Area Blvd., Suite 101 Friendswood, TX 77546 Tel 281-990-7100 www.selahfs.com

Securities and Advisory Services offered through Commonwealth

Financial Network®, Member FINRA/SIPC, a Registered

Investment Advisor.

SPEIAL REPORT THE SIX RETIRING FITT ONERNS AND 39 RITIAL ... · SIX RETIRING FITT ONERNS Page 3 opyright 2015 Six Retiring FITT oncerns Often people and families have many questions

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