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

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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).

Can you fix a missing beneficiary designation?

If your loved one failed to name a beneficiary on their retirement plan, must the assets revert to the estate? Short answer, not always.

Unfortunately, this mistake still happens. A loved one or spouse passes and it comes to light that they forget to name their husband/wife as the primary beneficiary or their children as contingent beneficiaries on their 401k plan or their IRA. This is a mistake you should never make. Always name your beneficiaries on retirement plans, bank accounts, investment accounts, etc.

But, what if your loved one has already passed and beneficiaries were not designated. You may still have some options:

• Check the “default beneficiary” provisions of your retirement plan or your IRA documents - the Employee Retirement Income Security Act (ERISA) of 1974 requires qualified employer plans to automatically name a surviving spouse as the beneficiary after one (1) year of marriage;

• Consider a spousal rollover if the “estate” was the named beneficiary or the default provision under the plan documents names the “estate” - in such cases, if the surviving spouse is the sole or residuary beneficiary of the estate, the IRS will allow the surviving spouse to rollover the account to their own IRA; and/or

• Consider a disclaimer if two spouses die within a relatively short period of time for IRA assets - that way a contingent (younger) beneficiary can utilize their longer life expectancy payout period for the IRA assets.

If you have questions about the effects of a missing beneficiary designation, 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).

What happens to your Social Security Benefit when you claim early?

A recent article by FOX Business provided the below listed percentages for how much your Social Security Benefit is reduced by claiming early. Before you claim early, it is important to realize that these reductions can be pretty significant. For example, in the case of someone claiming Social Security at age 62, their benefit can be reduced by as much as 25%. That’s a lot money lost towards your annual income. So, accordingly, think carefully before taking your benefit early.

Percent of Social Security Benefit lost by claiming early:

• at age 62 - benefit reduced by about 25%

• at age 63 - benefit reduced by about 20%

• at age 64 - benefit reduced by about 13.3%

• at age 65 - benefit reduced by about 6.7%

Now, when you contrast this with the fact that each year you wait past your full retirement age your benefit will increase by 8% a year, you can see why it pays to delay taking Social Security. Not only by waiting to claim at age 70 did you gain 8% per each year you delayed, but you did not lose 25% of your full retirement age benefit. To provide a rough example, if your benefit was $2,000 per month at full retirement age, it would be reduced to $1,500 per month if you claim at age 62, or rise to approximately $2,600+ if you wait to age 70.

If you have questions about when it is best to claim your Social Security Benefit, 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.

A financial to-do list for the surviving spouse (3rd post in a series) . . .

In our last post (click here for prior post) we talked about making funeral arrangements, notifying employers and setting up a system to handle the household bills.

This post will cover the next steps of dealing with banks, insurance companies, and creditors. At this point, you may begin to feel overwhelmed by the sheer volume of things to handle. And, when you do (it is OK, as it is bound to happen), don’t forget to do this one thing: make a master “to-do” list in a notebook.

Keep your “to-do” list/notebook with you at all times, as it will act not only as your log of events “to-do,” but also as your record of the events completed. Keep notes on this master “to-do” list, such as: names of people you spoke with, dates, notes from the conversation, and any resolution, if achieved. Keep this notebook as a reference, as you can easily flip back through the pages at a later date to verify what you have done and who you spoke with.

As for the next steps regarding banks, insurance, and creditors:

• Contact all banks/credit unions about changing account holder information;

• Contact administrators of spousal investment and/or retirement accounts about transferring assets to beneficiaries - consult with a financial advisor before cashing out any investments;

• Contact the providers of active life insurance policies held by you and your spouse to initiate the death benefits process, as well as, to determine any continued needs for life insurance;

• Contact other insurance providers (e.g., auto, home, disability, etc.) to either close, modify coverage, or change the name on the policy;

• Procure necessary health insurance coverage for yourself and any dependents;

• Contact creditors to close any accounts that were in your spouse’s name only;

• Contact creditors to remove your spouse’s name from joint accounts;

• Destroy any credit cards issued in your spouse’s name; and

• Send a letter to TransUnion, Experian, and Equifax requesting your spouse’s credit report, as well as, a request to no longer issue credit to you spouse.

The next post in the series called “A financial to-do list for the surviving spouse” will cover applying for benefits, beneficiary designations, and various odds-and-ends. Although there are a lot of things to keep track of, your master “to-do” list will act as your North Star during this difficult journey. Please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients if you have questions about “what to do next” after the loss of a significant other.