MONEY MONDAY 7/23/18
TOPIC A: Budgeting / kids and money
Myth: You have to claim benefits at retirement: You could retire at age 62 or 65 and delay your payments until age 70. Claiming late is usually the best strategy, but could change based on your health history and lifestyle.
You also should not confuse the different retirement age thresholds. Age 65 is the deadline of when you have to decide on your Medicare coverage but not the deadline for deciding Social Security payments.
Social Security benefits increase by as much as 8% for each year you delay collecting until age 70.
Myth: Claiming Social Security is easy to figure on your own: A typical couple will receive more than $1 million in Social Security over their lifetime. The difference between a good and bad claiming decision can mean a difference of $250,000. Get the help of a Certified Financial Planner or a Chartered Financial Consultant.
Myth: Marital status does not matter for your claiming strategy: If you are married and claim early, you or your spouse could receive less in "spousal or survior benefits." It's not fun to talk about but the average length of widowhood is 11 years. Divorce and remarriage also affects your claiming strategy.
We keep harping on delaying benefits, but delaying benefits until age 70 can mean a 40-to-50% increase in survival benefits.
Myth: Your Social Security Record is always accurate: Your benefits are based on your highest 35 years of earnings. The Social Security Administration may not have a correct record of your earnings.
To create an account and see what the Social Security Administration has for your earnings record, go to SSA.gov, click "Sign in/up," then click the "My Social Security" tab.
(And your My Social Security account can help you detect fraud -- like it did for me! Because someone in Philly tried filing for benefits under my name)
HERE'S THE SIMPLY MONEY POINT
Social Security is not simple! For a secure and sustainable retirement, make sure you have a clear and thought-out claiming strategy.
Every Sunday, Simply Money is answering your money questions in the Cincinnati Enquirer.
Joyce and James in Alexandria: What’s the best way to vet a financial advisor?
No immediate eligibility: Ideally, you should start saving in a 401(k) plan with your first paycheck, but some employers won't let you. Only 67% of 401(k) plans offer immediate eligibility, according to a recent Vanguard analysis.
If you start a new job but can't contribute for a while, you should still save money SOMEWHERE -- for instance, a taxable investment account or a Roth IRA (if you're eligible)
No employer contributions: In that same study, almost all Vanguard 401(k) plans (96%) offer an employer contribution. The best 401(k) plans immediately provide employer contributions to workers, but just under half of the 401(k) plans impose a waiting period before new employees are eligible for a match or other company contributions.
If you don't get a company match, it generally doesn't make sense to make saving in your 401(k) your first priority. Instead, if you have a Health Savings Account, start saving in that -- this account will allow you to save money/taxes on healthcare costs, plus, once you turn 65, the money can be used for ANYTHING and you'll just pay income tax on withdrawals (like you would have with your 401(k)).
Long vesting schedule: There's immediate vesting, "cliff" investing, and "gradual" investing. From your perspective, it's better to have immediate investing. That way, if you leave your job, you can take all your money with you. Otherwise, you're potentially leaving money on the table.
Poor investment choices: The average Vanguard 401(k) plan offered 27 investment options in 2017, up from 24 in 2008, many of which are target-date funds. But in this case, having MORE choices isn't always better because it causes an "paralysis by analysis." Index funds are usually cheaper than actively managed funds.
High fees: When it comes to 401(k) fees, you need to be looking at what you're GETTING for those fees. Because if you're paying more than average, that might be ok if you're actually getting some financial advice in return.
HERE'S THE SIMPLY MONEY POINT
Take a look at your 401(k) plan. If you don't like what you see, this is something to mention to your HR department.