Welcome to today's live chat on retirement planning!
We have three editors from Kiplinger's Retirement Report joining us today: Editor Susan Garland, Managing Editor Rachel Sheedy and Associate Editor Eleanor Laise
Thanks for being here, all.
Hello everyone, we're looking forward to your questions!
To get us started, can you talk a little about the healthcare overhaul will impact seniors and retirees?
I know there are still a lot of unknowns out there, but what provisions should seniors be aware of now?
Hi all...look forward to today's chat.
It will be especially helpful for retirees and the self-employed who are in the individual insurance market. Many older individuals are not covered now because they have preexisting medical conditions. The law requires insurance companies to take all applicants. Also, many older individuals will get subsidies for premuims.
Another point: One study estimates that premium costs will drop for persons 55 to 64 by about 12%.
That's great, Susan. Thanks.
The reason for the possible drop in costs is that the law prohibits insurers from charging older folks more than three times the amount they charge younger individuals. Now insurers can charge older applicants five to six times the amount depending on the state. Of course, this is not great news for younger applicants, who are expected to see an increase in their premiums.
Interesting, Susan. Good news for my parents, but not for me!
And thanks, Rachel. The surtax is certainly something investors should keep in mind.
Alright, let's get started with our first question.
Hi Cindy, great question. Actually we're hearing a lot of financial advisers criticize the "4% rule" lately. One problem: It doesn't respond to investment performance. You're withdrawing a set dollar amount (adjusted for inflation) each year, regardless of your actual investment performance and income needs.
Ah, the "bucket" approach.
If you have a pension, you may not have to withdraw from your retirement plans at all for awhile. You may want to consider structuring your nest eggs into buckets. Set aside about two years of expenses into liquid money, such as money market funds. Then a second bucket could include short-term bond funds, which would replenish the first bucket. The third bucket could include stocks, which you could leave untouched and let grow for a longer term. Maybe once a year, you can take profits from your stocks and replenish the first two buckets.
Speaking of the bucket approach... Thanks, Susan.
Several great ways to approach the "draw-down puzzle. Thanks all. And thanks for the great question, Cindy.
Here's our next question from Mike
That's right Rachel, retirees can use the required minimum distribution rules as a spending guidepost, and recent research suggests this approach beats the old "4% rule." You divide your year-end portfolio balance by the life expectancy factor for your age listed in IRS Publication 590.
There is no earnings limit on Social Security benefits when you hit full retirement age, which for many people these days is 66.
Sounds like a great alternative, Eleanor.
Here's a good question from Joanie.
If you are under full retirement age, you will forfeit $1 of benefits for every $2 you earn over a certain threshold, which for 2012 is $14,640. The good news is once you hit full retirement age, the Social Security Administration will adjust your benefit to make up for those forfeited benefits.
Joanie, you hit the nail on the head. The standard advice for people playing retirement catch-up is "work longer." But workers can't count on having extra years in the work force. Fully half of retirees surveyed this year left the work force earlier than planned. We covered this in a column in the September issue of Kiplinger's Personal Finance Magazine.
Joanie, It definitely is a problem. Many people will not be healthy enough to work into their 70s. And many employers don't want to hire or keep older workers. That makes it a necessity to save as much as possible while you're still working. And if you can, delay claiming Social Security until at least your full retirement age. If you claim early, at 62, your benefit will be reduced by 25% for life. And for each year you delay past 66, you get an 8% delayed retirement credit, until you reach 70.
If you can work longer and delay taking Social Security until age 70, that extra 8% a year boost could make a big difference. Buying a similar inflation-adjusted annuity on the private market is costly.
Working on finding that article you refer to Eleanor.
Older workers should do what they can to brush up on computer skills. If you're not as proficient as you think you should be, perhaps you can take a course at a community college. Many employers have a stereotype that older workers don't understand technology. Prove them wrong!
Oops, looks like that article won't be available until next Tuesday, when the issue hits newsstands (it's already been mailed to subscribers). We will post it on the transcript of this chat when it's available.
Great advice, Susan. Thanks.
Alright, let's see if you have any advice for our next reader, wreckon95.