Beni, Bene, Benny?

In remembrance of the ongoing centenary observances of WW I

CDN soldier

Augustus John, A Canadian Soldier, 1918. Tate Britain.

I like to refer to them as benes (pronounced like bennies)

Benes, short for beneficiary or beneficiaries.  The people or organizations who receive something of value from what is left when you pass. (A nice way of saying when you die.  Not if, unfortunately, but when.)  Things benes often receive include money from life insurance, pension plans, 401(k)s, IRAs and the like.

Benes are important because if you’re like me, they mean a lot to you.  Fortunately for my kids as benes, the cat predeceased them.  Benes are also a bit like a car, because they require checking and maintenance.  I read an excellent article on benes this week from Ed Slott, “The No. 1 IRA Mistake”

Put the message first

The message of this post is to check all your beneficiaries, IRA, life insurance, annuities, 401(k), 403(b), other number letter combinations, and any pensions.  Check them at least annually and on any change in family status.  (Although not necessarily after each family disagreement…) Adjust the benes as necessary.

Don’t give the money to the wrong person/people

Apparently, according to Ed’s article, there’s no shortage of people who don’t update their benes after major life events like marriage, divorce, and births.  Strangely, this seems to happen more often than you might think.  The wrong bene issue actually happened to me. A relative of mine did not update their life insurance beneficiary when they got married and the proceeds of the policy went to a relative that was the bene before the marriage.  To compound the issue, bad blood had developed between the deceased and the bene in the period after the marriage.  I guess the good news was that the relative who passed never knew what they had done.  The posthumous cash did not seem to heal the rift on either side.

Double check the plan administrator

One of Ed’s points in his article was that an individual did have their benes arranged correctly, then the plan administrator changed and the new system ‘forgot’ the correct designation and, at death, caused an issue.  Somewhat like another maintenance item on a car, double check the bene designation when the plan (401(k), 403(b), IRA, etc.) administrator changes.  Like if you move from Fi****** to Va******.

Be kind to the insurance company and/or plan administrator

When you update a beneficiary designation, let them know the address and phone number of the beneficiary.  After you’re dead, the company will have to try and track down these people (or organizations), especially if you have not told them they are a bene!  If you make it easier, the transfer of the money goes faster.  The claims people are on your side and want a fast and flawless claim process. (I know as I work with a claims team sometimes.)

Stretch IRAs

If you die with money left in your IRA, your beneficiary may be able to stretch out the receipt of the money, thus delaying taxes and potentially growing the funds even more.  I won’t get into details here, but it’s a good deal and you should discuss it with your tax advisor.  The success of the Stretch IRA concept does depend on having the bene designated correctly.

Trivia

Beni, bene, benny is a play on the Latin, veni, vidi, vici (I came, I saw, I conquered) which used to show up fairly often in cartoons when I was a kid. And no, I don’t know Latin.

And here’s a picture of the delicious hot chocolate at the sidewalk café at Rivoire in Florence, Italy, during the off-season:

Hot chocolate - Florence

Actions you can take include:

Make a list of your assets with beneficiaries – insurance policies, IRAs, pensions, etc.

Use the list to annually check the beneficiaries with the firms that administer the asset.  You can usually check online.

Discuss beneficiaries with your tax advisor so that you don’t put a bene in a bad tax position.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here 

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

Danger, money mirage!

First a picture that’s kind of a mirage.

Okeefe canyon

Georgia O’Keefe, Canyon Country, 1963. Phoenix Art Museum.

Fidelity says

Fidelity Investments recently published their second quarter 2018 Retirement Analysis .  Fidelity administers over 30 million retirement accounts, so my suspicion would be that their results should be reflective of the total population of retirement account holders.  For the second quarter of 2018, Fidelity found average account balances $104,000 for 401(k)s, $106,900 for IRAs, and $83,400 for 403(b)s.

For millennials, Fidelity determined an average IRA balance of $15,150.

So far, very positive, but there’s more. Fidelity has 168,000 401(k) millionaires and 156,000 IRA millionaires.

Money mirage

You may look at Fidelity’s figures, and possibly your own 401(k) or IRA, and feel reasonably good about the state of retirement savings. You are in a money mirage and seeing what is not real.

What makes the Fidelity figures (or yours!) a mirage has three parts:

  1. Taxes – in a regular 401(k)/IRA/403(b), you will likely owe taxes on your withdrawals and that makes the money shrink, like water in a mirage as you get closer.
  2. Price changes – if you are in mutual funds, your amount could go up but it could also go down. If the market goes down, that makes the money shrink, like water in a mirage as you get closer.
  3. Longevity – the amount may look big, but it may need to last you for a 20 to 30 year retirement. Taking some out, year over year means the money shrinks, like… you get the idea.

Taxes

The problem with taxes on regular 401(k)/IRA/403(b)’s (let’s call them retirement savings), is that the more you withdraw, the more tax you will owe.  Not only more tax, but if you withdraw enough from your retirement savings in a year, you may make your Social Security payments subject to tax.  Depending on how much your MAGI is, you may make 50% to 85% of your Social Security taxable.

The $62,000 example

Now let’s say you’re a couple (the Example family!) with close to the average Social Security of $1400/person per month or about $33,700/year.  The Examples’ budget and retirement income plan (see the RIP here) has them grossing $62,000/year so they will need about $28,300 from their 401(k).  Now the mirage hits.  The Examples are well over the standard deduction of $20,000 for a married couple, so there will be tax on the 401(k) distribution, plus they will exceed the Social Security MAGI so part of their Social Security benefits will be taxable.  I eyeballed it (don’t try this at home if you don’t do a LOT of 1040’s) and it looks like the Examples will have approximately a $1,900 Federal tax liability. The mirage was the $28,300 from the 401(k) that turned out to be about $26,400 after Federal taxes.  There may also be state income taxes that shrink the initial amount.

Price changes

If your retirement savings are in a mutual fund (non-money market) and the price goes up, we’re all happy.  If the price goes down (remember 2007-2008?), we have the mirage of shrinking fund balances.  If you are nearing retirement, this mirage can be a real problem unless you have some cash for the early years of retirement, so you don’t have to sell shares at a low price.  Consult your financial planner to have a plan for this.

But I saw it with my own eyes!

We saw Fidelity’s decent average retirement plan balances and the impressive number of retirement plan millionaires, above. But what happens if they live too long?

Your retirement savings balance, like the average balances above, may sound fairly high, but once you start withdrawing funds, your accounts can deplete rapidly.  Remember the Example family, above.  They were planning to use approximately $28,000 from their retirement plans annually.  Unfortunately, if they have an average 401(k) or IRA balance, that will only be possible for about three to four years before they are out of money and living solely on Social Security and any other sources of income.

And here’s a mirage-like Victor Vasarely (Tridim-mc, 1974) from the Phoenix Art Museum:

Vasarely

Actions you can take include:

Develop a retirement income plan and discuss it with your tax advisor and your financial planner.

Know what the tax impact of withdrawals will be to your income.

Manage your retirement budget with your income plan to avoid bad surprises.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here 

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

Maybe MAGI is not a gift

We got to visit the Aalsmere flower auction facility near Amsterdam a few years ago.  They have a cafeteria for visitors and workers, welcomed by what I call scary Chef!

Scary Chef

The Gift of the Magi

The original Gift of the Magi is an O. Henry story about a young couple sacrificing their individual prized possessions to give the other a special Christmas gift.  For Social Security and Medicare, MAGI is a whole different ballgame that gives you the potential opportunity to plan (a gift to yourself!) to avoid sacrificing (money.)

This blog post will be a little technical, but could contribute to tax savings when you plan for MAGI.  I will try to keep it as entertaining as possible given the subject matter.

What is MAGI

MAGI is Modified Adjusted Gross Income and is calculated by taking your Adjusted Gross Income (AGI) and adding in tax-free income, like interest on state and municipal bonds.  There are some other, less common items, that get added back also, for example savings bond interest excluded from income because it was used for post-secondary education; check with your tax advisor.

Why is MAGI important?

For pre-retirees, a higher MAGI may restrict your ability to contribute to a traditional pre-tax or a Roth IRA.

For retired people, a higher MAGI may subject some of your social security income to taxation and may cause you to pay higher Medicare Part B premiums.  The Medicare higher premium, the Income Related Monthly Adjustment Amount, is called IRMAA (I pronounce it like the name, Irma.)  The wind is called Mariah. (The Mariah link is fun, really.)

But I’m not rich!

Most of us aren’t rich, but MAGI can still affect us.  A MAGI as low as $25,001 for a single person (or $32001 for a married couple) will start to subject Social Security payments to income taxes.

How can I plan around MAGI?

First the disclaimers – If you’re a wage earner, like me, your planning possibilities are limited.  Small business owners have more control over wage versus business income and can exercise some control over timing of income.  I have to warn you again to discuss planning with your qualified tax advisor; we are discussing generally available information here that will not directly apply to your personal tax situation.

For pre-retirees, you may be able to use a technique called the ‘backdoor Roth’ to fund a Roth IRA, regardless of MAGI.  A good article from Ed Slott, an IRA expert, on backdoor Roth IRAs is here.

For both pre-retirees and retirees, the ways to lower MAGI are fairly straightforward:
-lower your W-2 and/or 1099-R income
-lower your tax-exempt income.

One way for retirees to lower 1099-R income is to take out less from the retirement accounts you have control over (IRA, SEP, 401(k), 403(b), etc.), subject of course to the Required Minimum Distribution (RMD) for those 70 ½ and over.  If you have a Roth IRA, withdrawals from the Roth won’t count towards MAGI.

Zero coupon municipal bonds exist that would pay out no tax-exempt interest until maturity.  Your financial advisor could help you plan the use of municipal zeros, instead of municipals paying semi-annual interest, to support MAGI planning.

If you have bank accounts, you could use withdrawals from savings accounts or CD’s as a substitute for the 1099-R income that you are avoiding.

Finally, selling mutual funds or stocks that have capital gains will contribute to AGI and MAGI only to the extent that you have a gain when you sell.

MAGI – gift or not?

I guess there are similarities to the Gift of the Magi because MAGI planning and executing requires you to give up something special, your time and perhaps payments to a tax advisor.  The gift you get back (a gift to yourself and loved ones) is the tax and Medicare Part B premium savings from your efforts that could be significant.

Citroen

When I was a child I lived in France for a while courtesy of the USAF.  Citroen cars were popular and this model of a DS in the window of a toy car shop in Haarlem, NL brought back memories.

Citroen

Actions you can take include:

-Consider how MAGI can affect your tax situation pre- and post-retirement.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here.

A correction

Back in the post Why not make money on your groceries? I thought a quote was from the movie ‘An Officer and a Gentleman’.  A reader informed me it was from ‘A Few Good Men’.  Thank you for the correction!

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

Old and dangerous?

The Minnesota Marine Art Museum (Winona, MN) is hosting an ‘eagle’ collection for the National Eagle Center (Wabasha, MN).  MMAM is an outstanding museum which usually does not allow pictures, however they did allow the eagle collection to be photographed.  One of the eagle items that caught my eye was this 1918 WW I logistics poster from James H. Daugherty for the Emergency Fleet Corporation:

ships are coming

The AAA says…

Per the AAA, “With the exception of teen drivers, seniors have the highest crash death rate per mile driven, even though they drive fewer miles than younger people.” Part of this is due to the more fragile physiology of the older person, but part is from driving skill (or lack thereof).

Good news, there’s a class

A number of organizations offer senior driving classes which allow you to refresh your driving knowledge, learn some new tricks, and save some money.  AARP notes, “By taking a driver refresher course you’ll learn the current rules of the road, defensive driving techniques and how to operate your vehicle more safely in today’s increasingly challenging driving environment. You’ll learn how you can manage and accommodate common age-related changes in vision, hearing and reaction time.”

You save money, too

In my state, completing a state approved defensive driving course (8 hours) saves to 10% off your auto insurance for three years, and then you can take a renewal course (4 hours) to extend the savings.  The discount is on applicable coverages, which I think means collision.

More good news, you save you and others

Even more important than the cash you will save on your auto insurance is the flesh you’ll save by not getting in a vehicle accident.  At the minimum accidents are a huge inconvenience and eat up time and money.  At the worst, accidents maim and kill.  A defensive driving refresher could save someone’s life or limb.

Some defensive driving course links

The National Safety Council (Green Cross for Safety!)

(Look for discounts on the NSC class.  I know that the GEICO and the Minnesota Safety Council links to NSC cut the cost.)

AARP Smart Driver  There’s a 25% discount of the AARP class right now with the code ‘25OFF’.

Check with your agent to make sure a given course works for a discount with your insurer.

Ironically, when we researched the classes we found we’re both out of date, as you need to take the refresher within three years of completing the full class!  Mrs. NoSurprisesRetirement is signing up for the 8-hour AARP class right now.

We had the chance to visit the French monastery island of Mt. St. Michele in the off season. Here’s a picture of Mt. St. Michele with a helicopter ferrying out detritus from the cloister garden as it was renovated.  Last time they did it with hundreds of monks on the steps…

mt st michele

It turns out that Nationwide actually is on your side…

A friend of mine told me about a professional development class he took from Nationwide on their retirement health care estimator.  It is a free and interesting tool that your agent can have the Nationwide home office run for you. Nationwide worked with some actuaries to have a minimal set of questions that give some quality results back to you, like your overall monthly Medicare and supplement costs. Oh, and your life expectancy.  (Humming Nationwide tune…).

What, you don’t want to call an agent?  Nationwide also has a decent, free DIY tool to estimate your healthcare costs in retirement (and your life expectancy).  This one has a lot less detail, but you don’t have to talk to anyone.

Actions you can take include:

-Take a defensive driving class (or a refresher) and go get those auto insurance discounts.

-Try the Nationwide healthcare cost estimator.  Then call your financial professional and have them do the full version for you.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

Why not make money on your groceries?

First, Happy Bastille Day, here’s Raoul Dufy’s 1905 ‘July 14th at Le Havre’ (Fridart Foundation):

Dufy cropped

Why pay more if you don’t have to?

A friend of mine is travelling in Europe.  Before he left, we were discussing using credit cards while travelling. As it turns out, he has credit cards that charge foreign transaction fees.  Ouch, that’s pay to pay.  Not only that but the credit cards gave him zero cash back.   Let’s examine how to avoid that retirement (or pre-retirement) bad surprise and even turn it to our advantage.

As a retiree, you’ll want to stay within your budget and as a pre-retiree, who can still get raises, you’ll want to increase your retirement savings. Properly used, credit cards may be able to help with that by:
-paying you cash back when you make purchases
-not charging you foreign transaction fees when you travel
-providing other benefits like extended product warranties, travel emergency assistance, and your FICO score.

Not for credit card souvenir purchases – a gold marten head (Northern Italy, 1500’s) from the Musee de Cluny in Paris:

Early Famous Dave's.

Examine your credit

First, examine your credit.  Do you pay off your balance in full monthly?  Do you at least pay off all new charges in full monthly?  If yes, you’re a candidate for credit cards to pay you.  (If not, please Google techniques to pay off credit cards so you can avoid paying the bank before yourself.)

Check out your cards

Sign on to your card website(s) and look at your cards’ benefits. Are there fees that you are paying that you should not be – annual fee, foreign transaction fees?  Are you getting cash back for purchases?  If you’re paying fees or not getting cash back, it’s time to examine your cards, unless you really love the credit card issuer and want them to make more money.  Legitimately, you may have an affinity card (Friends of the Siamese Cat Foundation! spot cropped ) that has costs and they benefit – no problem as long as you have made an informed decision.

Does your card help you by providing:

  • cash back
  • no fees
  • product warranties
  • travel assistance
  • chip/chip and pin?

Look for card advantages

Cash back can be a big one. Capital One is 1.5% on everything.  Costco Visa gives 4% on gas, 3% on restaurants and travel (travel when purchased through their agency), 2% at Costco (makes that hotdog and pop $1.47 instead of $1.50!), and 1% on everything else.  Amazon Visa is 5% on Amazon purchases, 2% on gas, restaurants and drugstores, and 1% on everything else.  Discover has 1% on everything, but 5% on quarterly specials. USAA Visa has a chip/pin combo which can be helpful when traveling in Europe.

None of the above have foreign transaction fees.  Interesting fact, I ordered some delicious essential Waitrose sugar-free bitter lemon juice for Mrs. NoSurprisesRetirement from the British Corner Shop , used the wrong card and ended up with a foreign transaction fee. Ouch – that card is now gone.

The cards? You can’t handle the cards. (A play on An Officer and a Gentleman)

What can you handle? An extreme carder (is there such a word as carder?) would have:

  • Amazon card for 5% at Amazon and 2% at drugstores
  • Discover card for the 5% quarterly cash back special
  • Costco card for 4% on gas (anywhere!), 3% at restaurants, 2% at Costco
  • CapitalOne for 1.5% on anything not on the above
  • USAA for the chip/pin combo.

What’s in your wallet?

You’re probably not an extreme carder, so figure out what is most important to you and get cards that pay you for using them.  Even if you just had one paying you back 1% and not charging foreign transaction fees, that’s a win.  Remember, perfection is the enemy of the good.

Be careful

Even if you have cards with benefits, please do not get carried away. Stay within the budget, pay the balance off monthly, and enjoy that percent.

Actions you can take include:
-Review your budget and make sure you’re either not paying interest on credit cards every month or you have a plan to get to not paying interest.
-Examine your cards and see if you are getting benefits or paying fees that you don’t need to pay.
-Determine how much of a ‘carder’ you want to be and obtain cards to optimize your  percents back and no fees.  Cancel cards you will no longer use.
-Use the card website to check your FICO credit score monthly.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

A short, valuable Medicare primer

First, a picture of the world’s best raspberry-iced Bismarck from Grandma’s Bakery, White Bear Lake, MN:

The roll - c

I’ve been a little busy with work and the holiday this week, so you’re getting an abbreviated but meaty post, 99.8% created by one of the website ‘Seeking Alpha’ contributors who goes by Tipswatch (from Treasury Inflation Protected Securities).  The article is titled, “Nearing 65? Don’t Get Caught By Medicare’s ‘Money Traps’”.

I think it’s a definite read, so here’s the link: Don’t get caught by Medicare’s money traps.

Now, ‘In the Lenin Mountains’, (1958), B. Talberg & Y. Korolev; The Raymond & Susan Johnson Collection of Russian Art; The Museum of Russian Art, Minneapolis, MN:

Lenin Mountains

 

Note – outstanding smaller museum in south Minneapolis. Make it a stop if you’re visiting.

Actions you can take include:

-Think about your medical needs and budget and make a Medicare plan.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

Mid-year Check Point – Dollars & Sense

First, a picture of the best Ile Flottante in Paris, from Restaurant Georgette:

ile flottante

We travelled to Paris in the off-season, and before we left I checked Trip Advisor for the best Ile Flottante because that is Mrs. Nosurprisesretirement’s favorite French dessert. Ile Flottante is basically a delicious soft meringue (the ile or island) floating (French flotte – to float) on an even more delicious custard.

The overwhelming sentiment on Trip Advisor was for Georgette and they were right.  Take a walk from the Left Bank Sorbonne area across the Jardin du Luxembourg and you’re there.

Check Point One – Budgeting (Dollars)

Thinking back to our budgeting post,  ‘Oops, or New Year Fiscal Fitness’, we discussed using a spreadsheet for budgeting and tracking.  We ended up trying the ‘Personal Budget Planner – Extended’ and have been satisfied, especially because I did not have to develop the spreadsheet myself.

Positives:
-we have been tracking a very high percentage of expenditures, so the ‘actual’ portion of the budget v. actual tracking is accurate
-the budgeting experience was enlightening (a polite word for occasionally opposing and sometimes loud opinions) as we determined what to include and at what amount
-actual v. budget tracking is available for any given month.

Negatives:
-the comparison feature does not support a year to date comparison of spending to budget
-the available rows for budgeting may cause you to combine budget items on a single row (likely not a problem for most people, but I wanted a lot of individual tracking).

The tracking has been going well and I would recommend this spreadsheet.  In areas where we go over budget, we often learn we under-allocated at the budget level. Surprisingly, since we track ‘everything’, the ‘pocket money’ budget line is always almost 100% under budget!

So far it seems like our retirement budget could be appropriate and achievable, barring any bad surprises.

And now a picture of the finest Indian Taco in Phoenix from The Fry Bread House:

Indian taco

The Fry Bread house is a small but popular establishment in central Phoenix.  We can definitely recommend any of their fry-bread tacos (or ‘fry-bread sweets’ desserts!) and the rich and spicy green chile stew.

Check Point Two – Fitness (Sense)

In the ‘What Was I Thinking’ post I talked about exercise and flexibility.  On the plus side, I have been relatively active, especially with walking in the neighborhood since the weather got nicer.  I document my activity on a free phone app called Microsoft OneNote, so I actually know where I stand v. my goals.   On the minus side, I have not met my goal of 30 minutes 4 times per week as much as I wanted.

Here is ‘The Drummer’, (1989-90), B. Flanagan (Wales); Hirschhorn Sculpture Garden, Washington, DC:

The Drummer

Note – not a great sun angle on the photo, because we were there in the off-season!  No crowds, so it was like a private sculpture garden on the Mall!  Also, it seems like all the museums in DC are free – excellent deal!

Funtirement!

Funtirement is my daughter’s name for when I take a Friday off for my own three-day weekend.  This week for Funtirement, I used the firm’s preventive care benefit and went to the clinic for a science experiment. It turned out well and it looks like I only need the ‘experiment’ every five years now.

Actions you can take include:

-Do your own mid-year checkpoint.  What’s going well and what could you improve? Remember, perfect is the enemy of the good.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here.

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

 

Carp time! (a play on Carpe Diem)

Well golly, we had a couple of bad retirement surprises this week.  One was that a father of some of the kid’s high school classmates passed away at a young age, only 66.  The other, less bad, was finding out that a relative would need surgery at a much younger age that we thought.

If you’ve followed No Surprises Retirement for a while, you know that we focus on avoiding bad retirement surprises.  No one can avoid every bad surprise (but you should be trying!), so remember to enjoy some carp time.  Carp time would be fishing for those who enjoy it, but others can carpe diem (seize the day) and enjoy their favorite activities.

There is a balance

One could completely abandon planning and work and instead seize enjoyment until the money runs out, then live like a pauper.  On the other hand, one could work like a dog, scrimp and save, plan, buy annuities, wait until FRA or 70 ½ for Social Security and then not live to enjoy it.  There is a happy median of enjoying what you have while judiciously planning for the future.

Savor what you have

Those of us who are not retired usually have to go to work.  Since it’s a requirement, what are you doing to savor and enjoy it?  Without going all Zen on you, I can tell you that in my job, I look for the good parts to savor in several areas:
-colleagues – their banter, their admirable traits which include technical skill and adaptability, their quirks which can be irritating and endearing at the same time
-customers – their ability to collaborate, their humor, their gratitude when we deliver for them
-routine – the gift of routine which provides a sense of stability
-change – the excitement of something new, like a new project (admittedly, not all changes have been fun over the past thirty some odd years…)
-coffee – our cafeteria makes a perfect Starbucks Pike Place and I REALLY savor that with half and half daily.

If you’re already retired, you likely have established some routine that meets your needs and, hopefully, provides opportunity for savoring.

I’d like to hear from you in the comments or by email to nosurprisesretirement@gmail.com on what you do to ‘carp time’ (or carpe diem) in your usual life.

A reader wrote in!

A couple of weeks ago a reader wrote in and shared Barry Ritholz’ ‘Retirement Pyramid 2.0’.  Thanks, reader, for sharing.  Barry’s pyramid focuses a little differently than mine, more toward financial behaviors, but it is excellent and I recommend that you click on the link and review it.  Barry and his team usually give very sound advice – I follow a number of them on the Twitter.

Funtirement!

Funtirement is my daughter’s name for when I take a Friday off for my own three-day weekend.  This week, the three days of Funtirement found us waking up about the same time as a work day, enjoying lunch at a British pub style restaurant, and cleaning up some paper work at home.  We also got our license plates updated, watched two episodes of Live PD, and had a pizza from the pizza place in the old neighborhood.  I read the latest issue of The Economist, economically sourced from my local library, an article on Faroe Islands food in The New Yorker, also from the library, and a retirement study from Aegon. (The Faroe article used the words ‘rank’ and ‘fermented lamb tallow’ in relation to the food – not going there soon ever.) Finally, we enjoyed a Father’s Day ice cream sundae gathering at my daughter and son-in-law’s house.  All the kids and wonderful grandchildren were there.

Next week’s Funtirement will be scientific!  I’ll be headed over to the clinic for some routine maintenance.  For those of you old enough to remember, it will be a replay of Fantastic Voyage…

Actions you can take include:

-Pause, reflect, and see what you can find to savor in life.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here.

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

Risky retirement talk

Remember that the goal of No Surprises Retirement is to help you minimize or eliminate surprises that can damage your retirement.  A risk is defined as “exposing something valued to…loss”.  We’ll discuss a couple of risks today, both involving healthcare; inflation and coverage.  The goal here is preparation and risk mitigation or avoidance, not fear and depression.  We will review a change in the Federal government direction on pre-existing conditions that may affect your retirement date.  On the inflation side, we will look at the healthcare inflation trend and see what that does to your retirement lifestyle.  Let’s start with the pre-existing conditions situation.

Pre-65 retirement risk – pre-existing conditions coverage is unstable

If you are planning on retiring before Medicare (pre-65) and don’t have retiree medical care from your employer, this might be a good time to consider continuing to enjoy your work colleagues and workplace a little longer, until a potentially expensive change to individual health insurance is more settled.

The Patient Protection and Affordable Care Act, sometimes called PPACA or nicknamed Obamacare, mandated that insurance companies take all applicants regardless of any pre-existing conditions and charge them on a community-rated basis.  Since the general audience of No Surprises Retirement is likely in the retirement age range, a lot of us likely have pre-existing conditions.  Examples here could include a diagnosed knee condition, heart problem, cancer treatment in the past, or abnormal liver test results.  Basically, under PPACA, pre-existing conditions were not a problem for anyone.

But, there’s a change!

It’s kind of a long, involved story, but there are a number of states who are suing in Federal court to have the PPACA declared unconstitutional. Winning was not a slam dunk, but if they won, all of the PPACA could go away, including the coverage of pre-existing conditions part. Risk level – moderate.

Just this week, the Federal Government’s Department of Justice decided to not defend the PPACA against the state lawsuit. This makes it much more likely that the PPACA will go away.  Risk level – high.

If the PPACA goes away, pre-existing conditions would then come back in to individual health insurance underwriting.  People (think pre-65 retirees here) applying for individual health insurance could be rejected or have exclusions for their pre-existing conditions.

What can I do, you ask?

Remember that without health insurance or with insurance with limitations on pre-existing conditions, you could be liable for some very large medical bills if you have a serious illness or accident.  I had a knee infection that cost about $25,000 (and is now a pre-existing condition!).  If you incur a large medical bill without coverage because of a pre-existing condition, that money would likely have to come from your retirement savings and potentially lower your retirement income for the remainder of your retirement, a bad retirement surprise

In my case, I am very concerned about what will happen to coverage for pre-existing conditions.  I have decided to avoid the risk of a change to the way pre-existing conditions are insured and now plan to do my best to stay employed and covered under my employer’s plan until we are eligible for Medicare. If, for some reason, the risk for pre-existing conditions coverage improves, I can always re-plan.

What does FRED say about healthcare inflation?

Remember that inflation is “a general increase in prices and fall in the purchasing value of money”.  You’re paying more for the same thing.

FRED is Federal Reserve Economic Data.  The St. Louis Fed, using FRED data, states, “…Going back as far as the series are available, since 1948, the price of medical care has grown at an average annual rate of 5.3% while the entire basket, headline CPI, has grown at an average annual rate of 3.5%. In the past 20 years, in the regime of stable inflation, headline CPI has grown at an average annual rate of 2.2%, whereas the price level of medical care has grown at an average annual rate of 3.6%—about 70% faster.”

What does that translate to?

Let’s be optimistic and assume that healthcare inflation will stay toward the lower side at 4%.  That means that healthcare costs will double approximately every 18 years, or once or twice over the span of a typical retirement.  Inflation is reverse compound interest working against you.  If you retire at 62, by the time you’re 80, your insurance premiums and out of pocket costs will likely have doubled; they increase a little each year.

The question here is what will have happened to your income in the same time period?  While Social Security is inflation adjusted, that inflation adjustment may not keep up with healthcare inflation.  US Government and Military pensions are inflation adjusted, but most defined benefit plans are not inflation adjusted. Depending on your investments, IRA investment returns can offset some inflation.  In any case, you will likely need to plan to spend more on healthcare and less in other areas.

What can I do, you ask?

Use less healthcare by getting in and staying in the best shape you can.  Proper exercise, diet, and sleep.

Monitor your personal healthcare prices and shop around for the best non-emergency prices.

Learn about healthcare prices and different approaches.  When you find one that you like, register and vote for political representatives who will represent your position in state legislatures and the U.S. Congress.  As an example, some people want Medicare to negotiate prescription drug prices while others want Medicare to stay away from negotiating.  Whatever your position, if you don’t vote, you are letting others decide your health insurance inflation fate.

Actions you can take include:

-Plan your risk strategy around pre-existing conditions and health insurance.

-Spend some time on healthcare inflation and potential solutions, then register and vote.

If you have not seen the “Why you should read this blog…WIIFY” post, it’s here.

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

Interesting question – take two

Last post we took a detour to discuss travel.  Travel is the most cited ‘want to do’ activity in retirement.  This week we’ll really spend time on the interesting question.

The interesting question

I was reading a practicing financial advisor’s article in a financial planning magazine and ran across an interesting question; “Is your goal to be the richest person in the graveyard?”

If you’re like me, the first place you went with the question was money, particularly a legacy to heirs of money.  Your legacy is important and financial planning around a monetary legacy is critical if it might be large. However, let me suggest that while money is a consideration, perhaps money should be the lesser part of your legacy.  You have already built a part of your legacy, cash and non-monetary, over the course of your life.  You now have the chance to add to your legacy in your pre-retirement and retirement years.  Let’s consider legacies.

What’s in your legacy?

In my case, my family members left me the values of honesty, hard work, perseverance, adaptability, and continuous learning.  I hope and believe that we passed these on to our children and that they will pass them on to the grandchildren. I have some friends that are retired teachers.  They are childless, but I hear stories of how even today former students will stop them in stores and remind them of the values and lessons they learned in their classes.  The legacies of some of my coworkers (many still living) to me included exemplary work ethics, technical excellence, generosity, sharing, caring about, and humor.

Values

You have already left a value legacy.  You can build on it by making it explicit; consider writing an autobiography and pointing out the values you were trying to pass on.  One of my most treasured possessions is a copy of a typed transcription of my great-great-grandfather’s diary from several months in the 1860’s.  Your autobiography could connect multiple generations with your values legacy.  Don’t worry about the grammar and spelling, they will treasure your history and memories.

Actions

A number of our friends continue to create their legacy in pre-retirement and retirement by contributing to the community.  Some are committed to environmental causes; one keeps an entire mile of street free of litter as part of an adopt-a-highway program.  Another group helps with youth development by volunteering for Scouting.  Some friends do genealogy to document their family lineage. Still another set helps with anti-poverty and disaster relief through religious institutions and non-profits. Others help maintain our democracy by volunteering with their political parties.

I have attended a number of funerals where “the dash” was read.  Think about your ‘dash’ and consider how you might engage in the community.  Here’s a link to Volunteer Match which can help you find opportunities to meet your interest and abilities.

Back to the money

“Is your goal to be the richest person in the graveyard?”  The financial advisor indicated that he strongly encourages clients to definitely not be the richest person in the graveyard.  A different way of saying this is, ‘die broke’.

Why not be the richest person in the graveyard? A few reasons come to mind:

-quality of life

-estate tax

-smaller gifts instead of a large inheritance.

Hopefully your RIP is set up to provide you with a lifetime retirement income, regardless of how long you live.  If you spend too frugally, you could end up with a lower quality of life than you could afford, leaving a larger estate that was necessary.  Consider the balance in your retirement spending between quality of life and monetary legacy.

Even though the Federal estate tax limit has been raised, that does not mean your state’s estate tax has followed.  Dying with a large estate and no estate tax plan can cost a literal fortune.  I know of one middle-class family that wrote a $40,000 estate tax check because of poor planning.  With minor planning and gifting they would have had no estate tax due – ouch.  Charitable donations and gifting are a couple of techniques for avoiding any estate taxes.  If you will have retirement income outside of Social Security and/or a defined benefit pension, a checkup with an attorney specializing in estate planning will likely be well worth your time.

If you are fortunate enough to have some financial assets that you think might pass on to your heirs, consider multiple smaller gifts while you are living.  One advantage here is that you will get to see the next generation enjoying the gift, which may have been used for a home, car, or vacation.  One key rationale for smaller gifts is that they are less likely than a large inheritance to enable sloth or other moral hazards of wealth without work.

Consider what legacy strategies fit best for you, including dying broke.

Actions you can take include:

-Consider how you might answer the question, “Is your goal to be the richest person in the graveyard?”

-Consult an estate planning attorney to see what, if any, estate plan you might need.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.