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2022 • Quarter 2 • Issue 2 |
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“I’m considering retiring, but I don’t know what to do, and as I think about it, I’m not even sure what retirement is?” |
Friends,
If you've ever felt this way, you’re not alone. For many who have been working for 30, 40, or even 50 years in a significant and demanding position, you probably feel that you're defined by your work. So, what happens when you stop? Everyone needs a reason to get out of bed in the morning; what will your reason be?
The dictionary defines “retirement” as:
- The time of life when one chooses to permanently leave the workforce behind
- To stop one’s occupation
- The withdrawal from one’s position or occupation, or from one’s active working life
None of these definitions mention the “golden years”.
A recent TV commercial depicted retirement as someone going into the office, flipping over their desk, and yelling “I’m outta here.” Then what?
Many people feel that if you have the financial resources, and you’ve figured out the complexities of Medicare, then you’re ready to step into retirement. Maybe it’s even more complicated than that. Maybe it’s not just about the money and your physical health; maybe there is a psychological component to also consider.
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Maybe you have some questions to work through:
- Who am I without my work?
- What will I do with my time?
- Will my spouse drive me crazy, or will I drive them crazy?
- Most of my friends are my colleagues; what will happen to those friendships?
- What can I do to stay healthy if I’m not as active?
- What will happen when my health changes?
It’s interesting, the Department of Labor has on their website “The Top 10 Ways to Prepare for Retirement.” Surely one of the top 10 ways must address the psychological aspects of retirement …… no, they only discuss the money!
Maybe the answer is simple; maybe you just need a plan!
Be well my friends,
Bob
Principal, LBA
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A woman on the phone with her friend; “I feel like my body has gotten totally out of shape, so I got my doctor’s permission to join a fitness club and start exercising. I decided to take an aerobics class for seniors. I bent, I twisted, I gyrated, I jumped up and down, and perspired for an hour. By the time I got my leotards on, the class was over!”
Some Medicare plans offer free gym memberships.
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LBA 911
Social Security Tips
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If you’ve ever played chess, you know that learning the basic rules of the game is only the foundation of truly excelling in a round. In order to really become a strong competitor, one must not only understand the rules, but the strategy behind playing the game. Understanding the rules and regulations surrounding Social Security is a similar situation; somewhat complicated at first, but the true challenge lies within being strategic enough to properly plan your next move. Here are some examples of where understanding the strategy of Social Security may help you get your next move in "check": |
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- Before you make the decision to start collecting Social Security, be sure to know your “full retirement age,” or “FRA,” determined by your year of birth. If you begin collecting before your FRA, and you continue to work, your Social Security benefit may be reduced depending on your earnings.
- If you begin collecting at your FRA, you will collect your full benefit. You can begin collecting as early as age 62, but your benefit will be significantly reduced for the remainder of your lifetime. If you can afford to wait beyond your FRA, and as late as age 70, you will collect significantly more for your lifetime.
- If one spouse is already collecting, it is sometimes beneficial for the second spouse to elect to take half of what the first spouse is getting. This allows their personal Social Security benefit to grow so the second spouse can then switch to collecting their benefit at age 70, when its is at the highest level.
- Unfortunately, you will never know the perfect age you should have begun taking your Social Security benefit until after you pass away. The break-even point is usually when you’re in your late 70s to 80 years old. If you pass before that age, your best decision would have been to start taking your benefit as early as possible. If you pass after that age, the best decision would have been to wait until as late as possible to collect your highest benefit. Since we don’t know when we will pass, the decision is often based on looking at a number of health factors to make the best plan possible.
- Your decision as to when to begin collecting your Social Security benefit should also be based on a careful evaluation of all your income streams in retirement. Again, if you can afford to wait, given that life expectancies have been steadily rising, it is best to wait as late as possible to maximize your benefit.
- If you made the decision to begin taking your Social Security benefit and realized afterwards it was a mistake, there are provisions to reverse your decision under certain circumstances. It is a complicated scenario, but it can sometimes be the best option.
- Social Security also has complex provisions for current, surviving, and ex-spouses that will need to be taken into account.
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If you’ve watched TV or picked up a magazine lately, you’ve certainly seen many ads for prescription drugs. Most of the medications you see advertised fall under the category of “specialty drugs.” They are typically treatments for illnesses that were previously untreatable. In all likelihood, we will all be taking one or more of these specialty drugs at some point in our lives. While these drugs offer great promise, the problem is they are incredibly expensive with some costing thousands of dollars per month.
When you make the decision at some point to go on Medicare, you will essentially have two ways to get prescription drug coverage. The traditional way is by selecting a Part D plan. The other is to pick a Medicare Advantage plan - otherwise known as Part C - with prescription drug coverage embedded. Most people don’t realize the various choices of Medicare plans offer varying prescription drug coverages, with different deductibles, co-pays, formularies, and even preferred pharmacies. The important point here is that depending on the specific list of medications you are taking at a given time, your total annual out-of-pocket prescription drug cost can differ significantly, thus having an impact on which plan you choose. The advisors at LBA have documented cases where the prescription drug cost savings for an individual were nearly $3,000 per month by choosing one option over another.
The prescription drug coverage choices you will have on Medicare differ slightly by your state of residence, but on average you will have more than 20 Part D plans, and more than 30 Medicare Advantage plans to select from. Fortunately - or unfortunately - our health status is not stagnant, and the prescription drugs we are taking at any point in time will change. Additionally, since companies offering drug coverage for Medicare can and do make changes each year, your total prescription drug cost can change dramatically from one year to the next. Are you certain you’re getting the most prescription drug coverage for the lowest cost right now?
At LBA, our services include a no-cost annual review of your Medicare coverage choices, including your prescription drug coverage options. The savings from one choice to another can be significant! Since selecting a Medicare plan is not a “one and done” process, we strongly recommend an annual review of your prescription drug coverage with an unbiased professional.
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Let LBA be your trusted advisor for these important health decisions. Call an expert for help. |
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SECURE 2.0 - Will it happen? |
The Securing a Strong Retirement Act of 2022 (SECURE 2.0) which was recently passed by the House and is headed for the Senate, looks to have better than a 50/50 chance of passage. Expanding on the 2019 retirement bill, SECURE 2.0 aims to further expand Americans' ability to save for retirement and increase their options for doing so. With retirees living longer and longer, the bill offers flexibility to help prepare and manage that longer retirement. |
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For instance:
- The bill raises the age to begin taking RMDs (Required Minimum Distributions) from 72 to 75, with some suggesting that the age requirement be removed completely
- For those who may not have prepared well enough financially for retirement, the bill has provisions for “catch-up” contributions of up to $10,000 per year, depending on your age
- Provisions are included which make annuities a more easily accessible option for retirement saving accounts (401K, 403B, 457B, etc.)
- Whereas employees who are now offered participation in retirement accounts have to make the choice to “opt-in,” new changes would make the new default “opting in,” with employees having to “opt-out” if they chose not to participate
- Inducements are included to help small employers and nonprofits with the daunting task and cost of setting up a retirement plan. Some employers can also receive credits for matching employee contributions
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- For employees who don’t participate in employer sponsored retirement plans because student debt payments are leaving little discretionary cash available, an idea being considered is to have employers match an employee’s student loan payment with a contribution to their retirement account
- The SAVERS credit, which lets certain low-income workers get additional tax credits for saving for retirement, would be streamlined, and military spouses would have an easier time saving for retirement
- A clearing house would be established to help workers who have switched employers find retirement savings balances which may have been lost along the way
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A recent study showed that half of adults have taken no steps to prepare for the likelihood that they could live for much longer than expected, and could run out of money. The bottom line is that a bill like this could help, but it won’t repair years of inaction by itself.
From the information available so far, the bill makes sense and should receive bipartisan support; however, “the devil is in the details” as the adage goes. Unless you plan to read hundreds of pages of “legalese” when the full bill comes out, you may miss a thing or two that’s relevant to your situation.
Stay in touch and we’ll keep you informed. The advisors at LBA are always available to answer any questions you might have.
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AGE APPROPRIATE INVESTING: REVISITED |
We were excited to get lots of feedback regarding the "Age-Appropriate Investing" piece in our last newsletter's It’s Your Money segment. It turns out that lots of people are looking for the perfect place to store their nest egg during these unprecedented times when the stock market is very volatile, bank investments are paying essentially nothing, and inflation is running wild.
If you are like most people, your top priorities during your money “accumulation” phase were financial growth and, to a lesser degree, safety. You knew the stock market would swing in both directions, but over time you felt you would come out ahead. The reality is we’ve always put our money in a place where we expected to get it back one day, hopefully with some nice growth. Now that you’re retired, or nearing retirement, and you’re in the “preservation and dispersion” phase, the game is different.
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So, what might a solution look like? Maybe it would be an option that is first and foremost safe, with no risk of principal loss, and offers an opportunity to grow at a pace much better than what banks are offering. It would also give you a chance of keeping up with inflation, allow some withdrawals in compliance with the contract terms, and might even offer an up-front premium bonus, bumping your contract value on day one by as much as 10%.
Yes, these solutions do exist. Sounds too good to be true, huh?
You may ask yourself, 'Why can’t I just stay with the old, standard, tried-and-true investment techniques that we were taught to believe were the key to financial freedom?" As we often say at LBA, the game has changed given these unprecedented times!
In 2021 alone, inflation was over 7%, with most projections exceeding 10% in 2022. Most bank CDs and Money Market accounts
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are paying much less than 1%, the stock market was up 18% in 2021, and is now down about 12% so far in 2022. Sound confusing? By our math, being complacent and accepting what used to work is just not sustainable anymore!
At LBA, we care about helping folks solve problems which are diverse and specific to each individual and their family. Our services are at zero cost to the retiree, and we are not and will never be about selling cookie-cutter products, rather offering tailored solutions.
As it turns out, many people in their 60’s and beyond have a similar problem, perhaps you can relate; they’re looking for a return that will ideally keep up with inflation, but where their principle is not at risk. They’re looking for peace of mind!
If money questions or problems are keeping you awake at night, maybe the advisors at LBA can help. Please contact us for a no-cost consultation.
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LBA consultants are members of OPEIU Local |
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Robert Dumais, Principal
275 West Natick Road
Suite 450
Warwick, RI 02886
401-868-1400 (O)
774-991-3369 (M)
401-737-0330 (F)
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P.S. Add me to your contacts so we can continue to keep you in the "know" and don't hesitate to hit "reply" to contact us. |
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