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One of the most critical decisions you can make regarding your retirement is when you choose to claim Social Security. Deciding when to claim Social Security can make a difference in your monthly bottom line.

Before You Retire

Your monthly Social Security Benefit amount is calculated based on the number of years you have worked and the taxes you have paid into the Social Security Benefits program. Social Security counts the years you have paid taxes as “credits” for years that you have worked. For example, if you were born in 1929 or afterward, you must have 40 credits to receive Social Security benefits when you retire. This is equal to about 10 years of work.1

Your benefit amount is also calculated by the number of credits you have earned during your working years. Fortunately, the Social Security Administration has made it easier for you to verify your expected benefits by setting up an online account. It is worth double-checking your earnings to catch errors, if any, and factor in your expected benefits as you strategize for retirement.1

What Age Should You Claim?

There are several ages that should be considered when deciding when to claim Social Security.

• Early Retirement Age: The earliest age you can claim Social Security benefits is 62. However, if you claim Social Security early, you will be penalized for not waiting until the full retirement age.1,2
• Full Retirement Age: This is the age when you are eligible to receive the full amount of your Social Security benefits. The full retirement age is calculated based on the year you were born. For example, for those born between 1943 and 1954, the full retirement age was 66. If you were born between 1955 and 1960, the full retirement age goes up to 67.1,2
• Delayed Retirement Age: You can also delay the claim of your retirement benefits until age 70. If you wait until then, you will continue earning benefits. However, benefits stop accruing at age 70, so there may not be any reason to delay the claim of benefits past age 70.1,2

Deciding when to claim Social Security benefits is an important decision to make as you approach your retirement age. Talk with your financial advisor to make sure that you work together to decide the best time for you to apply for Social Security.

“Will I outlive my retirement money?” This is one of the top fears for people who are starting to prepare for their retirement years.

Determining how much money you need in retirement is a process. It shouldn’t be a number that you pull out of thin air.

The process should include looking at your current financial situation and developing an approach based on your goals, time horizon, and risk tolerance. The process should take into consideration all your potential sources of retirement income, and also may project what your income would look like each year in retirement.

We all have our “blue sky” visions of the way retirement should be, yet our futures may unfold in ways we do not predict. So, as you think about your “second act, you may want to consider some life and financial factors that can suddenly arise.

You may see retirement as an extension of the present rather than the future.

This is only natural, as we all live in the present, but the future will arrive. The costs you have to shoulder later in retirement may exceed those at the start of retirement. As you may be retired for 20 or 30 years, it is wise to take a long-term view of things.

You may have a health insurance gap.

If you retire before age 65, what do you do about health coverage? You may shoulder 100% of the cost.

Suppose you become disabled or seriously ill, and working is out of the question. How will you make ends meet?

Age may catch up to you sooner rather than later.

You may stay fit, active, and mentally sharp for decades to come, but if you become mentally or physically infirm, you need to find people you can trust to manage your finances.

You could be alone one day.

As anyone who has ever lived alone realizes, a single person does not simply live on 50% of a couple’s income. Keeping up a house or even a condo can be tough when you are elderly. Driving can also be a concern. If your spouse or partner is absent, will someone be available to help you in the future?

These are some of the blind spots that can surprise us in retirement.

They may quickly affect our money and quality of life. If you age with an awareness of them, you will be able to manage the outcome better.

Your workplace retirement account can play a critical role in your overall retirement strategy. However, some people have gone further with such accounts than others, especially recently.

Much has been written about the classic financial mistakes that plague start-ups, family businesses, corporations, and charities. Aside from these blunders, some classic financial missteps plague retirees.

Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment. However, whether they result from ignorance or fate, we need to be aware of them as we prepare for and enter retirement.

Timing Social Security.

As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for higher retirement income. Filing for your monthly benefits before you reach Social Security’s Full Retirement Age (FRA) can mean comparatively smaller monthly payments.

Managing medical bills.

Medicare will not pay for everything. Unless there’s a change in how the program works, you may have a number of out-of-pocket costs, including dental and vision care.

Underestimating longevity.

Actuaries at the Social Security Administration project that around a third of today’s 65-year-olds will live to age 90, with about one in seven living 95 years or longer. The prospect of a 20- or 30-year retirement is not unreasonable, yet there is still a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.

Withdrawing strategies.

You may have heard of the “4% rule,” a guideline stating that you should take out only about 4% of your retirement savings annually. Some retirees try to abide by it, but others withdraw 7% or 8% per year. Why is this? In the first phase of retirement, people tend to live it up. More free time naturally promotes new ventures and adventures and an inclination to live a bit more lavishly.

Talking About Taxes.

It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming your retirement will be long, you may want to assign this or that investment to its “preferred domain,” which means the taxable or tax-advantaged account that is most appropriate for it as you pursue a better after tax return for your entire portfolio.

Retiring with debts.

Some find it harder to preserve (or accumulate) wealth when you are handing portions of it to creditors.

Putting college costs before retirement costs.

There is no “financial aid” program for retirement. There are no “retirement loans.” Your children have their whole financial lives ahead of them.

Retiring with no investment strategy.

Expect that retirement will have a few surprises; the absence of a strategy can leave you without guidance when those surprises happen.

These are some of the classic retirement mistakes. To help you avoid them, take some time to review and refine your retirement strategy with the help of a trusted financial professional.

Do you dream of retiring before you turn 60? How about before you turn 50? If so, you might want to think twice before you make the move. If your heart is set on leaving work early, be sure you leave with the right mindset and the right estimation of your financial potential.

Retire with a realistic picture of your income needs.

In late 2006, the Center for Retirement Research at Boston College surveyed 400 private sector employers. Those employers estimated that 25% of their employees between 50 and 60 years old lacked the financial resources to retire even at the traditional retirement age. If you’re like most Americans, your retirement expenses will be roughly 75–80% of your pre-retirement expenses. So, you need to determine if the income derived from your 401(k), 403(b), pension, or other sources can generate that. Remember, you can’t receive any Social Security benefits before age 62.

Retire with the idea that you’ll live to be 100.

With recent advances in health care, you might become a centenarian. That means your income streams may need to last 20, 30, 40, or even 50 years. Any income streams that you have today may need to be supplemented or adjusted due to unforeseen needs and inflation. Many new retirees make the mistake
of withdrawing income at too high a rate in the first few years after leaving work. They live “high on the hog” for a while, only to discover, to their chagrin, that their retirement nest egg is shrinking because they are spending more than their portfolios can earn back. Additionally, you may also have to pay for health insurance if you retire before age 65. All of this may point you in the direction of part-time employment rather than total retirement.

Retire with purpose.

Leaving work behind can be exhilarating. But after the first few months of fun, you may also face the question, “Now what?” Early retirement is better with a plan for purposeful and meaningful living regardless of your finances.

If you do a Google or Yahoo! search with the right keywords, you’ll come across a number of articles about people who chose to retire late. They kept working out of passion or necessity. If that’s not for you, and you don’t want to work much longer, talk to me, and we’ll take a look and see if you are financially prepared to retire. I’ll share my professional insight and discuss your options.

How do you picture your future?

If you are like many people who are contemplating retirement, your view is likely more pragmatic compared to your parents. This doesn’t mean you must have a “plain vanilla” tomorrow. Even if your retirement savings are not as great as you would prefer, you still have lots of potential to design the life you want.

With that in mind, here are some key things to think about.

What do you absolutely need to accomplish?

If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a short list of life goals. While they may have nothing to do with money, the financial decisions you make may be integral to achieving them.

What would revitalize you?

Some people retire with no particular goals at all. Others are simply burnt out. After weeks or months of respite, ambition inevitably returns. They start to think about what pursuits or adventures they could embark on to make these years special. Others have known for decades what dreams they will pursue, and yet, when the time to do so arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones.

In retirement, time is your most valuable asset. With more free time and opportunities for reflection, you might find your old dreams giving way to new ones. You may find yourself called to volunteer as never before or motivated to work again in a new context.

Who should you share your time with?

Here is another profound choice you get to make in retirement. The quick answer to this question for many retirees would be “family.” Today, we have nuclear families, blended families, extended families; some people think of their friends or their employees as family. You may define it as you wish and allocate more or less of your time to your family as you wish (some people do want less family time when they retire).

Regardless of how you define “family” or whether or not you want more “family time” in retirement, you probably don’t want to spend your time around “dream stealers.” If you have a grand dream in mind for retirement, you may meet people who try to thwart it and urge you not to pursue it. (Hopefully, these people are not in close proximity to you.) Reducing their psychological impact on your retirement will increase your happiness.

How much will you spend?

We can’t control all retirement expenses, but we can control some of them. The thought of downsizing may have crossed your mind. You can also lose one or more cars (and the insurance that goes with them) and live in a neighborhood with extensive, efficient public transit. Ditching landlines and premium cable TV (or maybe all cable TV) can bring more savings. Garage sales or making donations can have financial benefits while also helping you reduce clutter, either generating cash or a federal tax deduction.

This article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your overall tax strategy.

How are you preparing for retirement?

This is the most important question of all. If you feel you need to prepare more for the future or reexamine your existing strategy in light of recent changes in your life, conferring with a financial professional experienced in retirement approaches is a smart move.

August is National “Make a Will” Month, and it’s a great annual reminder to update your will if needed and create a will if you don’t have one already. A will is an important estate-planning document that can help you transfer your assets with ease. Having a proper will can make the difference between a smooth transfer of assets and a probate nightmare.

Let’s learn more about what wills are, why you need one, and some tips on how to create or update your will during National “Make a Will” Month.

What Is a Will?

A will, or a Last Will and Testament, is a legal document that outlines your intention for the distribution of your assets after your death. It is an integral part of a comprehensive estate plan and helps your loved ones avoid legal and financial loopholes and know what to do with your assets. These explicit instructions are essential and can help everyone avoid a lot of headaches.

Wills vs Trusts

When you’re researching estate planning documents, you have likely come across both wills and trusts. While both documents can help dictate what you want to do with your assets when you’re gone, there is one main difference.

The primary difference between a will and a trust is that a trust takes effect as soon as it’s created and signed, while a will does so only after you pass away.1 There are also two different types of trusts to consider: irrevocable and revocable.

• Irrevocable trusts are trusts that can’t be changed or canceled after they have been signed.
• Revocable trusts can be changed, and the grantor has the right to change the terms or even end the trust.

Some other differences between wills and trusts are that a will requires probate to transfer items to beneficiaries, but trusts can avoid probate. In addition, wills are public record and trusts can remain private. Because a trust takes effect right when it’s created, it can be used if you become incapacitated and unable to make decisions independently.

Do You Need a Will?

We face so many financial obligations every day, so should creating a will be at the top of your list? Most financial experts say yes, you need a will. Even if you don’t have substantial assets to transfer, a will can still help your family feel more confident about your wishes. In addition to making the transfer of assets
easier, here are a few benefits of having a will2:

• It allows you to distribute your property and protect your loved ones after you pass away.
• It can provide peace of mind to you and your family.
• You can plan for those in your care (e.g. naming a legal guardian for your children or pets).
• It may prevent family conflict.
• It can eliminate confusion over assets.
• It can ensure that your assets go to the people you want to have them.
• It can help you build a lasting legacy.
• You can use your will to benefit charity.

These are just a few of the many benefits of having a will. To celebrate National “Make a Will” Month, let’s look at how to create a will.

How to Create a Will

Creating a will can be a straightforward process, or it can involve the help of attorneys and financial advisors. Also, the process will depend on where you live because every state has different requirements for creating a will.

Generally, the first step in creating a will is to determine what you want to include. You should include instructions for passing along your assets after your death, including ownership and other instructions. You may consider working with an attorney to ensure that your will contains everything it needs.

Next, you will likely sign your will in front of two witnesses, and these two witnesses will also sign your will. Some states require a self-proving affidavit that you sign in front of a notary, other states require your will to be notarized, and some states don’t require any special self-proving documentation as long as
you sign and witness your will correctly.3

Whether you have $10 worth of assets or $10 million, creating a will is a good idea to give your family more guidance after you pass. Wills help make the transfer of assets easier and give you and your family more peace of mind. Consider creating or updating your will this August for National “Make a Will” Month!