Planning for Earned Income in Retirement Adapted from Broadridge Investor Communication Services
Adapted from Broadridge Investor Communication Services
If you’re like a lot of people, retirement won’t be the world of gardening, golfing, traveling, and tennis you once envisioned. Rather, retirement will mean relaxing and working. Maybe you’ve retired from your “regular” job and started a business, or perhaps you want to work part-time to stay busy. However, if you work after you start receiving Social Security retirement benefits, your earnings may affect the amount of your benefit check.
How your earnings affect your benefit
Your earnings in retirement may increase your retirement benefit
Your monthly Social Security retirement benefit is based on your lifetime earnings. When you become entitled to retirement benefits at age 62, the Social Security Administration (SSA) calculates your primary insurance amount (PIA) upon which your retirement benefit will be based. Later, your PIA will be recalculated annually if you have had any new earnings that might substantially increase your benefit. So if you continue to work after you start receiving retirement benefits, these earnings may eventually increase your PIA and thus your retirement benefit.
What Are the Warning Signs of Financial Scams Targeting Older Individuals?
If you or someone you know has been targeted by a scam artist who is trying to steal
money or personal information, you’re not alone. According to the Senate Special
Committee on Aging, older Americans lose an estimated $2.9 billion annually to fraud and
exploitation, a number that is probably substantially underreported.
Most scams start with a call, an email, a text, or an official-looking letter that appears to be
from a government agency or a legitimate company. Sometimes the scam artist will go
door-to-door soliciting business or donations to charity.
Scam artists are very good at gaining the trust of well-meaning people by convincingly
impersonating someone authoritative, knowledgeable, or trustworthy — such as an IRS
agent, a tech repair person, or even a relative. They play on your sympathy or make
convincing threats to pressure you to go along with a scam. “Send money or provide
personal information right now, if you want to help someone or prevent something bad
from happening” they say.
Here are some typical scenarios:
- IRS scam: “You owe back taxes and penalties. Send payment immediately via a wire
transfer, or you will be arrested.”
- Sweepstakes scam: “Congratulations, you’ve won a prize! To collect it, provide us with
your bank account number so we can deposit a check.”
- Grandparent scam: “Hi Grandma, it’s me. Don’t you recognize my voice? I’ve been in an
accident and need money for car repairs. Send gift cards, and don’t tell anyone because
- Home repair scam: “I was just doing some work down the street for your neighbor,
Bob, and I saw that you need some shingles replaced. I can do that for half the price I
usually charge if you pay me in cash today.”
If you are targeted, never give out personal information or send money. You don’t need to
make a quick decision. Call a friend, a relative, or the police for advice. Report the scam
immediately to a fraud hotline such as the Senate Committee’s toll-free hotline, (855) 303-
Source: U.S Senate Special Committee on Aging, 2019
Teaching Your College-Age Child About Money
When your child first started school, you doled out the change for milk and a snack on a daily basis. But now that your kindergartner has grown up, it’s time for you to make sure that your child has enough financial knowledge to manage money at college.
Lesson 1: Budgeting 101
Perhaps your child already understands the basics of budgeting from having to handle an allowance or wages from a part-time job during high school. But now that your child is in college, he or she may need to draft a “real world” budget, especially if he or she lives off-campus and is responsible for paying for rent and utilities. Here are some ways you can help your child plan and stick to a realistic budget:
- Help your child figure out what income there will be (money from home, financial aid, a part-time job) and when it will be coming in (at the beginning of each semester, once a month, or every week).
- Make sure your child understands the difference between needs and wants. Your child should understand how important it is to cover the needs first.
- Determine together how you and your child will split responsibility for expenses. For instance, you may decide that you’ll pay for your child’s trips home, but that your child will need to pay for art supplies or other miscellaneous expenses.
- Warn your child not to spend too much too soon, particularly when money that has to last all semester arrives at the beginning of a term.
- Acknowledge that college isn’t all about studying. While you should include entertainment expenses in the budget, encourage your child to stick closely to the limit you agree upon.
- Show your child how to track expenses by saving receipts and keeping an expense log. Knowing where the money is going will help your child stay on track.
- Encourage your child to plan ahead for big expenses (the annual auto insurance bill or the trip over spring break).
- Caution your child to monitor spending patterns to avoid excessive spending, and ask him or her to come to you for advice at the first sign of financial trouble.
Inflation Doesn’t Retire When You Do
The need to outpace inflation doesn’t end at retirement; in fact, it becomes even more important. If you’re living on a fixed income, you need to make sure your investing strategy takes inflation into account. Otherwise, you may have less buying power in the later years of your retirement because your income doesn’t stretch as far.
Your savings may need to last longer than you think
Gains in life expectancy have been dramatic. According to the National Center for Health Statistics, people today can expect to live more than 30 years longer than they did a century ago. Individuals who reached age 65 in 1950 could expect to live an average of 14 years more, to age 79; now a 65-year-old might expect to live for roughly an additional 19 years. Assuming inflation continues to increase over that time, the income you’ll need will continue to grow each year. That means you’ll need to think carefully about how to structure your portfolio to provide an appropriate withdrawal rate, especially in the early years of retirement.
Teaching Your Child and Teen About Money
Ask your 5-year old where money comes from, and the answer you’ll probably get is “from the bank!” Even though children don’t always understand where money really comes from, they realize at a young age that they can use it to buy the things they want. So as soon as your child becomes interested in money, start teaching him or her how to handle it wisely.
Facing the Possibility of Incapacity
Incapacity means that you are either mentally or physically unable to take care of yourself or your day-to-day affairs. Incapacity can result from serious physical injury, mental or physical illness, advancing age, and alcohol or drug abuse.
Even with today’s medical miracles, it’s a real possibility that you or your spouse could become incapable of handling your own medical or financial affairs. A serious illness or accident can happen suddenly at any age. Advancing age can bring senility, Alzheimer’s disease, or other ailments that affect your ability to make sound decisions about your health, or to pay your bills, write checks, make deposits, sell assets, or otherwise conduct your affairs.
Famous People Who Failed to Plan Properly
It’s almost impossible to overstate the importance of taking the time to plan your estate. However, a 2017 survey from Caring.com estimates only 42 percent of American adults have a will or estate plan. Over 80 percent of those 72 and older have made these preparations, but that number drops significantly with younger demographics.
You might think that those who are rich and famous would be way ahead of the curve when it comes to planning their estates properly, considering the resources and lawyers presumably available to them. Yet there are plenty of celebrities and people of note who died with inadequate (or nonexistent) estate plans.
What’s Your Risk Tolerance?
Investing always involves a degree of risk. If you plan to buy securities such as stocks, mutual funds, ETFs, or bonds, it is important to realize you could lose some or all of the money you invest. Finding an investment profile that fits your risk tolerance while still allowing you to reach your goals can be a challenge, but it’s not impossible. The first step is finding out what type of investor you are.
Will Medicare alone be enough to cover my healthcare needs in retirement?
No. Medicare coverage comes with deductibles and significant co-payments or coinsurance costs for many types of treatments, including hospitalizations. Typically, the deductible amounts are increased each year.
If you’re not prepared to pay these expenses out of pocket, you may want to consider a Medigap policy (a supplemental medical insurance policy). Medigap insurance policies are sold by private health insurers. These policies are standardized and regulated by both state and federal law.
How often should I review my estate plan?
Although there is no hard-and-fast rule about when you should review your estate plan, the following suggestions may help:
- You should review your estate plan immediately after a major life event.
- You’ll probably want to do a quick review each year because changes in the economy and in the tax code often occur on a yearly basis.
- You’ll want to do a more thorough review every five years.