Working past age 65? Do you need to sign up for Medicare?

This is a common question that many folks have:

“[I]f I am working, do I need to sign up for Medicare when I turn 65?”

And, yep, you guessed it, the natural follow-up question is, what parts do I need to sign up for, Part A, Part B, Part D, Part C, Part G…some, none, or all of the preceding?

Despite the alphabet soup of Parts A, B, C, D, and G of Medicare coverage, Medicare.gov has done a good job of providing an interactive tool for helping one determine when they need to sign up for Medicare if working past age 65. Please find Medicare’s interactive tool here (https://www.medicare.gov/basics/get-started-with-medicare/medicare-basics/working-past-65).

If you have questions about your particular retirement planning needs or your investment portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about your Medicare options, please click on the link here.

Financial advice boiled down to fit on an index card…

This PBS news report (https://youtube.com/watch?v=JdUKhgW1gOo&feature=shared) resurfaced again the other day on one of my news feeds - “All the financial advice you’ll ever need fits on a single index card.” It’s an oldie but a goodie. Sure, finances can be more complicated, but, do they really need to be? The precept proposed here makes me think of a quote often attributed to Albert Einstein, “If you can’t explain it simply, you don’t understand it well enough.” Thank you Harold Pollack for your contribution, “[A]s simplicity is the ultimate sophistication” - Leonardo da Vinci.

When is the Right Time for You to Start Social Security Benefits?

We always hear that you should delay Social Security benefits as long as possible.  But the right time to take Social Security benefits will be different for each person. The one thing that is the same for each person is the formula used to determine your benefit.  By determining your benefit, you can then run the numbers to determine when the best time is for you to start taking your benefit, based on your specific situation.

Your Social Security benefit is based on your primary insurance amount (PIA). PIA is the amount a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age (NRA – also known as Full Retirement Age (FRA)).  The NRA varies by year of birth for retirees.  Currently, most retirees have an NRA ranging from 66 to 67 years of age.

To calculate your PIA, the government uses your average indexed monthly earnings (AIME), which is the sum of the 35 highest-earning years divided by the total number of months in those years.  The formula also has two dollar amounts that are called “bend points.” The bend points change annually and are based on the changes in the national average wage index.  For 2022, the bend points are $1,024 and $6,172. The table with these annual changes can be found here on the Social Security Administration website (link here).  The year of eligibility is the year in which the worker turns 62 years of age. 

Now that we have all the pieces, we can plug them into the PIA formula:

a)       90% of the first $1,024 of his/her AIME (multiply $1,024 x .90), plus

b)      32% of his/her AIME over $1,024 up to $6,172 (multiple this amount x .32), plus

c)       15% of his/her AIME over $6,172 (multiply this number x .15).

The sum of these three numbers rounded down to the nearest dollar is your PIA.

The amount of the PIA that you receive depends on when you retire.  See the table below for how much you receive depending on when you start your benefit.

Age You Start Your Benefit Percentage of PIA You Receive

62 (NRA of 66) 75%

62 (NRA of 67) 70%

66 (NRA of 66) 100%

67 (NRA of 67) 100%

70 (NRA of 66) 132%

70 (NRA of 67) 124%

With all this information, you can now run the numbers to see how much you are leaving on the table by taking your benefit early, or gaining by holding off.

As an example, if your NRA is 66 and your PIA is $1,000 per month or $12,000 per year, by starting your benefit at 62, your PIA will be $750 per month or $9,000 per year.  By delaying until you are 70, your PIA will be $1320 per month or $15,840 per year.  You can now compare the numbers to determine what works best for you.  For example, at Intelligent Investing we commonly discuss with clients when their break-even points occur for different Social Security claiming strategies.

But the numbers should not be your only consideration.  Life expectancy is important.  If you are ill and have a short life expectancy, then it would be best to start your benefits earlier.  Sometimes your work situation or lack of one may require you to start your benefits at 62.  On the other hand, if you have a long life expectancy, then it may behoove you to delay until 70 to begin your benefits.

Now that you have these formulas, you can work with the numbers to see when the best time for you to start your retirement benefits is.

The following links give more details about the topics in this blog.

https://www.ssa.gov/oact/progdata/nra.html

https://www.ssa.gov/oact/cola/piaformula.html

https://www.fool.com/investing/2022/03/31/how-much-will-starting-social-security-early-cost/Age You

Best state to retire in...

Looking for the best state to retire in the U.S., then click on this Yahoo article link: here.

Well, the SECURE Act was signed into law yesterday (20Dec2019)...

What is the SECURE Act? Beyond the acronym (Setting Every Community Up for Retirement Enhancement), it is the most sweeping retirement legislation that Congress has enacted within the past decade. Is this new legislation good or bad? While there are potentially some benefits, I am not the hugest proponent of it. Let’s cover why.

Here are some of the major provisions of the SECURE Act:

• Required Minimum Distributions will now begin at age 72 (versus 70.5 years of age), as long as you turn 70.5 years of age after 01Jan2020 - I LIKE this provision!!;

• You can contribute to your traditional IRA after age 70.5 as long as you have earned income - I LIKE this provision, but it does mean folks are working longer;

• Most inherited IRAs will now need to be distributed within 10 years - I really DISLIKE this provision (the SECURE Act funds its passage through this revenue provision);

• You may see more annuity options through your 401k provider - I generally dislike this provision because annuities often carry high charges and expense ratios, which benefit the insurance companies and NOT the investor (although annuities can have their place for a select few investors).

With the elimination of the stretch IRA and the addition of higher cost annuity options for 401k participants, some of the beneficial SECURE Act provisions are seeming outweighed by these less beneficial provisions.

If you have questions about the effects of the SECURE Act upon your retirement plan or investment portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

Are not all bond funds the same?

There are a lot of different bond funds available to investors. But, are they the same or are they really different? Morningstar broke down bond funds into four (4) major categories (sure, there are more, but this is a good start). The four (4) bond categories are as follows:

Intermediate Core

• Invests primarily in investment-grade U.S. fixed income issues including government, corporate, and securitized debt.

• Holds less than 5% in below-investment-grade exposures.

Intermediate Core-Plus

• Invests primarily in investment-grade U.S. fixed income issues including government, corporate, and securitized debt.

• Has greater flexibility than core offerings to hold non-core sectors such as corporate high-yield, bank loan, emerging markets debt, and non-U.S. currency exposures.

Multi-sector

• Seeks income by diversifying their assets among several fixed-income sectors, usually U.S. government obligations, U.S. corporate bonds, foreign bonds, and high-yield U.S. debt securities.

• Typically holds 35% to 65% of their assets in securities that are not rated or are rated BB and below by a major agency such as Standard & Poor's or Moody's Investors Service.

Nontraditional

• Seeks returns uncorrelated with those of the overall bond market.

• Has the flexibility to invest tactically across a wide swath of individual sectors, including high-yield and foreign debt, in addition to the potential for significant usage of derivatives.

It goes without saying that most individuals would do best if they placed the majority (if not the vast majority) of their bond portfolio holdings within an Intermediate Core Bond Fund. This type of bond fund generally exhibits a correlation that protects investors during a down stock market - as noted below by the graphic from Morningstar about bond fund correlations with the S&P 500 Index. Please also note that a correlation value of 1.00 means the fund perfectly matches the S&P 500 Index, while a correlation value of 0.00 means there is no correlation and a correlation value of -1.00 means they are inversely correlated (as one goes down, the other goes up).

Ten-year return correlation of Morningstar bond categories with the S&P 500 Index

S&P 500 Index 1.00

U.S. High-Yield Bond 0.72

U.S. Nontraditional Bond 0.50

U.S. Multisector Bond 0.56

U.S. Intermediate Core-Plus Bond 0.15

U.S. Intermediate Core Bond –0.03

Sources: Vanguard and Morningstar, Inc. as of July 31, 2019.

So, the next time you are thinking about stretching out on the yield curve to obtain a little more return from you bond fund portfolio, don’t forget why you invested in bonds in the first place (to smooth out the ride of your investment returns over your portfolio’s lifespan).

To learn more about dividend paying stocks versus bonds, see my earlier post (Dividend Paying Stocks versus Bonds).

If you have questions about how to invest your bond portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).