Get What’s Yours – The Secrets To Maxing Out Your Social Security

Important Changes in New Two-Year Budget Agreement

According to a report in today’s (10/29/15) Wall Street Journal on page C1, the two-year budget agreement, passed by the House of Representatives on October 28th and headed to the Senate will eliminate the ability of social security recipients to elect and suspend benefits at age 66 (described below under Take Advantage Of Spousal Benefits At Age 66) and have their spouse claim spousal benefits while continuing to benefit from delaying their own social security benefits until age 70.

Start of Original Post

I purchased and read the book Get What’s Yours – The Secrets To Maxing Out Your Social Security after seeing a generally favorable book review.   The authors are Laurence J. Kotlikoff, Philip Moeller and Paul Solman; respectively an economics professor at Boston University, a journalist who writes about retirement for Money and the PBS website Making Sen$e and a business and economics correspondent for PBS NewsHour.

In an effort to make the details of social security entertaining and approachable, I thought the authors relied on somewhat tortured personal anecdotes and repeated and repeated key points, indicating in my view a condescending attitude toward their readers.   The book nevertheless has some very useful information for those trying to assess their best options for Social Security and some helpful cautions.

Key points include:

Know The Basic Facts and Terminology – For most baby boomers (those born between 1946 and 1954) 66, not 65, is now the “Full Retirement Age” and 70 is the “Maximum Retirement Age”.   You can elect to begin collecting Social Security for retirement as early as 62, but if you do your monthly distributions are reduced by 25% of your full retirement benefit at age 66. Your benefits will grow by 8% of your full retirement benefit per year if you wait from age 66 to age 70.   The book explains a lot of other Social Security terminology, some of which may be critical to you maximizing your benefits, and also presents a lot of information on survivor, spousal and disability and dependent child options under Social Security. The Social Security website ssa.gov is also full of information.

View Social Security An Annuity To Protect Against Exhausting Other Assets – One of the great benefits of Social Security is that the payments last as long as you live and may provide survivor options to your spouse and children. The authors argue, and I agree with them, that assuring yourself a higher annual income from Social Security for as long as you live late in retirement, when there is a chance you might exhaust your other resources, is more important than starting benefits early, unless you have no other retirement income available to you or know for certain that you will die early.

The Financial Incentives To Delay Claiming Benefits Are Compelling – If your full retirement benefit at age 66 were to be $1,500 per month, your benefit if you claim benefits early, beginning at age 62, would be only about $1,125 per month.   By starting benefits at age 62, you would get four more years of payments, totaling $54,000, than waiting until age 66. But by waiting for the higher payment you would receive $31,500 more in total benefits before inflationary adjustments if you were to live to age 85.   More important, is that by waiting you would have a substantially higher annual income, $18,000 vs. $13,500 before inflationary adjustments, late in life when there is chance your other forms of retirement savings are exhausted and inflationary adjustments will magnify this difference over time.

Wait Until 70 To Take Social Security Benefits If You Can – Using the same example of a $1,500 monthly retirement benefit at age 66, by waiting to age 70, rather than starting retirement benefits at age 66, you would boost your annual retirement income to approximately $1,980 per month, $23,760 annually (by approximately 32% compare to your standard age 66 full retirement benefit).   Since these figures would be adjusted for cost of living, the absolute differences between the lower and higher figures would be even greater on a post-inflation basis.

Take Advantage Of Spousal Benefits At Age 66 – One of the key opportunities for maximizing your Social Security benefits concerns the Spousal Benefit. You will want to consult the book or another resource for details but in essence if one spouse is several years older than the other and was the higher wage earner, it is possible for the older, higher wage earner to file for Social Security retirement benefits at age 66 and suspend benefits for up to four years until age 70 in order to create the opportunity for the lower wage earning spouse to claim restricted spousal benefits (50% of the higher wage earners full retirement benefit) without triggering retirement benefits for the higher wage earner and without reducing the growth in the higher wage earner’s social security benefit between age 66 and 70.   There are penalties, if this maneuver is started before the younger spouse reaches age 66.

Evaluating Your Options – There are a multitude of potential Social Security benefits and options for getting them. To help you understand the specific Social Security options available to you, the lead author, Laurent Kotlikoff , also offers an online Social Security software planning tool at maximizemysocialsecurity.com, which gets good press reviews but which I have not tried.   At times the book is only a promotional tool for the software playing up the risks of making an error in claiming Social Security and warning against relying on the Social Security Administration for advice.   Anecdotal feedback I have gotten from other Social Security recipients seems much more favorable about the advice available from Social Security offices than the impression you get from reading Get What’s Yours – The Secrets To Maxing Out Your Social Security but the book is a useful resource.

 

 

Signing Up For Medicare

I have a group of friends who first came together in a special 6th grade class and continued in school together through high school.   About 10-year ago we began having informal reunions every two or three years.   This year, since I am one of the first to turn 65 and have some background in healthcare, I have been asked to provide some tips on signing up for Medicare to the group, which I summarize in this blog.

Many of us who previously worked in the private sector generally have a negative view of government programs.   But, my experience strong suggests Medicare is easier than you think.   In signing up for Medicare I found the government website (Medicare.gov) and dealing with the Centers for Medicare and Medicaid Services (CMS) to be much better than dealing with the private health insurance companies, including those offering employer sponsored plans and individual policies and the companies that administer Medicare Supplemental and Part-D drug insurance.

The Basics

  • You are eligible for Medicare on the first day of the month in which you turn 65 unless your birthday is the first of the month, in which case you start the first day of the prior month.
  • You are required to sign up for Medicare within a seven-month period before and after your 65th Ideally you should sign up in the three months before the month in which you turn 65. You may face higher premiums if you delay signing up unless you remain covered by an employer’s insurance policy.
  • There are two main parts to Medicare – Part A (Hospital Insurance) that covers inpatient and post-inpatient services and Part B (Medical Insurance) that covers medically necessary doctor and outpatient services.
  • Because co-payments for Medicare Part A and Part B can be significant with a long hospital stay or prolonged illness, most Medicare members also purchase a Medicare Supplemental Insurance policy from a private insurance company to help cover deductibles and co-pays.
  • Many insurers offer Medicare Supplemental policies and you will be inundated with offers as you approach 65 but all must offer a standard set of plan options (A – N) from which you can choose.
  • Medicare offers a prescription drug benefit, Medicare Part D, for which you must sign up through a private company separately from Part A and B.
  • Medicare members also have the option of combining A, B and D coverage into a single policy call a Medicare Advantage Plan, or Part C, which is a Medicare Managed Care or HMO/PPO type policy.  These policies can offer cost advantages, additional benefits and better-integrated services but may also restrict options for healthcare providers and drugs.

The  Cost

Medicare Part A is generally free to those that have paid Medicare taxes over the year.   Medicare Part B has a sliding fee scale tied to income with monthly premiums ranging from $104.90 for individuals with incomes of $85,000 annually or less up to $335.70 for individuals with income above $214,000 annually (income based on most recent tax return on file). Supplemental insurance premiums range from about $70 per month to $225 per month depending on the plan you choose.

Part D also has a sliding monthly premium fee scale based on income but it is essential in selecting a Part D Plan to consider the annual deductible and co-pays for the drugs you use, not just the monthly premium, to determine the total costs you can expect to pay.   The base monthly premium for a Part D Plan is generally less than $50 with income based additions of $12 to $71 per month in 2015 for individuals with incomes over $85,000.   Medicare and others provide on line tools that will assist you to select the most cost effective Part D Plan based on the cost of insurance and the deductible and co-pays for the specific drugs that you take and you can change plans annually.

In some cases Medicare Advantage or Part C plans may offer lower costs or more comprehensive coverage than an A-B-D plan with supplemental insurance but Medicare Advantage plans can limit the caregivers or medications you may be able to use.

Key Decisions

Unless you remain covered under an employer’s healthcare plan, or are covered by certain other approved exceptions, you need to sign up for Medicare or face significant penalties for delay.

The key question is whether to sign up for Original or Traditional Medicare – Part A, Part B and Part D with supplemental insurance or for a Medicare Advantage (Part C) Plan.   The key advantage of Original Medicare is that you have full choice over your physicians, hospitals and other care providers while a Medicare Advantage Plan may restricted the care providers you can see and otherwise limit or direct utilization.

There are also important choices to be made about which Medicare Supplemental Plan to select, with a broad range of premiums and deductibles, some offering coverage outside the US and some not.   The best Part D Plan for each person will vary based on the drugs they use, so using an online tool to evaluate plans is key to making this decision.

I selected an Original Medicare Plan with Parts A, B and D and a Medicare Supplemental Insurance Plan from AARP/United Healthcare.   I wanted to preserve the ability to use my present primary care doctor, so I did not consider Medicare Advantage options.   My choice of a Medicare supplemental insurance provider was influenced by many frustrations in dealing with CareFirst (the Blue Cross/Blue Shield provider in Maryland) and by a consultation with former stock analyst colleges that follow health insurance providers.   I also decided to purchase my Part D Plan through AARP/United Healthcare but, because I take few drugs, I did not spend a lot of time shopping for a Part D Prescription Drug Plan.

Other Resources

This short introduction to Medicare should be supplemented with information from Medicare and supplemental insurance providers.   See particularly “Medicare & You 2015” available free at Medicare.gov and available online and downloadable to e-readers for free.   AARP (aarp.org), among others, also offers a general Medicare Guide and sponsors a Medicare Supplemental Insurance Program offered through United Healthcare.   In the Medicare & You guide, Medicare also indicates you can contact your State Health Assistance Program (SHIP) or call 1-800-MEDICARE (1-800-633-4227) and say Agent to get individual help but I did not try either of these.

 

Managing Your Investment Portfolio

As a former stock analyst, I often get questions about what stocks to buy or how to manage an investment portfolio. I am not going to recommend specific stocks in this blog because I believe there is already an overwhelming amount of financial advice on the web and because I no longer follow individual companies closely enough to make recommendations with conviction. But I do have some suggestions on how to manage your investment portfolio.

  1. Know what you own – Older adults with upper middle incomes or higher have typically amassed a portfolio pre or post retirement that includes cash, stocks and bonds. But the portfolio is often spread across a variety of bank and brokerage accounts, certificated of deposit (CDs), investment retirement accounts (IRAs), 401k’s and other investment vehicles. In my experience it is not unusual for individuals or couples to view each of these investments as discrete investments, perhaps focusing on the one or two largest account, rather than taking a complete inventory of their total investment portfolio at least once or twice a year.
  2. Limit the number of accounts in which you hold assets – While shopping on line for the best CD rates and using an online brokerage account to trade stocks, while maintaining other accounts for IRAs and 401ks, may save you fees, I have found the complexity multiple accounts adds to managing a portfolio often leads to less well informed decisions on your overall portfolio and often represents false economy. If you insist on using multiple accounts, and particularly if you have six or more, it is essential that you keep a financial inventory where all accounts and passwords are kept, regularly update it and share it with others. It is also essential that you brief your spouse and heirs on where this information is located and be sure they can readily access it in the event of your death or disability.
  3. Decide on an asset allocation that works for you – Even though I made my living for many years recommending stocks to institutional investors, I was generally prevented from owning any of the stocks that I followed as an analyst. The primary way I managed my own portfolio was to focus on an overall asset allocation – the percentage of stocks, bonds and cash I wanted to hold. Then within the stock portion of the portfolio I considered the percentage of large, small and mid cap and international stocks I wanted to hold and whether I wanted to own individual stocks, managed funds, or exchange traded or index funds. In the bond portion of the portfolio I considered the maturities I wish to hold and again how I wished to gain exposure to bonds. There are many suggested asset allocations by age online, as well as asset allocation tools that allow you to enter your age and other information before recommending an allocation for you. One traditional rule of thumb is that the amount of bonds in your portfolio should equal your age but with increased longevity and current low interest rates many advisors consider “Percentage of Bond = Age” be too conservative. The conservative end of the T. Rowe Price asset allocation model, to use one example, suggests 60% stocks/30% bonds and 10% short-term investments (cash or cash equivalents) for an investor in his or her 50s, 50% stock, 35% bonds and 15% short-term investments for an investor in his or her 60s and 20% stock, 50% bonds and 30% cash for an investor in his or her 70s. But even within the T. Rowe Price model the mix of bonds and stocks can vary a good deal dependent on your risk tolerance and your life expectancy and I am more aggressive in my personal allocation to stocks than the conservative end of the T. Rowe model suggests. Asset allocations can also address the mix of large cap, small/mid cap and international stocks in a portfolio but an in depth discussion of stock allocations is too long for this blog post. The best way to get a sense of the asset allocation that is right for you is to review a number of different allocation models and think about how your own personal circumstances and risk tolerance fit with one or more of these. Discussing asset allocation with a broker or financial advisor in which you have confidence can also be very helpful.
  4. Use asset allocation to reallocate your portfolio at least once a year –I highly recommend using asset allocation as a tool to rebalance your portfolio on a regular basis.   This forces you to avoid the pitfall of most investors, which is an unwillingness to buy when valuations are low and sell when valuations are high.  There are three steps in using asset allocation to rebalance your portfolio.  The first is to determine the mix of stocks, bonds and cash or cash equivalents in your existing portfolio.    This is not as easy as you may think because many mutual funds may combine both stocks and bonds within an single account and may also hold a portion of cash at any given time.    Getting the details on each account can sometimes get difficult, particularly if you want to do a more refined asset allocation, separating out large cap from small, mid-cap and international funds and perhaps separating out real estate investment like REITs from other types of stocks.    This is one of the reasons I prefer fewer accounts and it is something a full-service broker can do for you.    The second step is to compare your actual asset allocation to the allocation that you believe works for you and the third step is buying or selling stock or bonds to move your allocation back toward the model allocation you selected.    Shifting the allocation does not have to be done all at once but you should have the discipline to implement it over a relatively short period of time if you want to use  asset allocation to manage your portfolio.

Galapagos

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National Geographic Islander

Our 2015 trip to the Galapagos was my wife’s choice.   While I had an interest in the ecology and evolutionary history of the islands, my preferred vacation would have been more urban and more culturally focused.   But both my wife and I found the Galapagos to be a spectacular trip.   Never before had we been immersed in a natural environment where the animals were so oblivious to your presence and the range of geology, plants, animals, marine life and sheer beauty of the islands were spectacular.

The Galapagos Islands are located about 1,100 kilometers/600 miles west of Ecuador and are easier to reach than most people realize.   You will need to look at a map to believe this, but Ecuador on the west coast of South America is south of the U.S. east coast and in the Eastern Time Zone.   The Galapagos are in the Central Time Zone.   Travel time from Miami to Guayaquil, Ecuador (its largest city and a port from which many Galapagos trips depart) is about 4.5 hours and the flight time from Guayaquil to one of two spartan but relatively modern airports in the Galapagos is about 2 hours on modern 737s.

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Sea Lion Pup

The entire Galapagos Islands group and all of the waters surrounding them are a national park and marine reserve administered by Ecuador, of which they are part. From what we could see, the park is very well managed despite pressures from a booming tourism-based economy which accommodated about 220,000 visitors in 2014.   Since 1998, when Ecuador passed a constitutional amendment giving the government greater power over the Galapagos, the number of ships visiting the islands have been monitored and the visits to individual islands and islets by each ship is controlled on an hour by hour basis.   This limits the number of visitors on any given island at any given time.   The Park Service limits visits to certain islands, requires all visitors to stay on designated paths and requires well-trained licensed guides to accompany all visitors on land.   Fishing around the islands is largely limited to what is needed to support the local population and immigration to the islands of foreigners and Ecuadorians from the mainland  is controlled to prevent over-population and over-development. Several of the islands are inhabited with the largest city having a population of about 25,000.

Fees paid by tourist to visit the islands are used for research and breeding programs, to improve tourist facilities and to eradicate non-native species, such as goats and donkeys, improving prospects to unique native species to survive.   Special efforts are taken to limit contamination from additional non-native species to the islands and from island to island.

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Tortoise

There are both land-based and ship based options for seeing the Galapagos but since the land-based options require day trips by ship to see the diversity of the Islands, the ship-based options allow you to see more and seemed generally more attractive than the guest houses and hotels on shore we saw during our visit.   There are a wide ranges of ships, from one’s accommodating a dozen or fewer to one’s with about 100 passengers.

We visited the Galapagos on a National Geographic tour on the Islander managed by Lindblad Expeditions, which operates ship-based tours for National Geographic.   The Islander can accommodate up to 48 passengers, comes with a tour director and three guides/naturalists who lead excursions and the ships crew.   It is a well-appointed ship that you can see on www.expeditions.com.

We found the Lindblad/National Geographic tour to be very well done, with comfortable accommodations, good food, excellent tour staff and crew.   However, it is important to understand that this is an active tour, with twice-a-day hikes sometimes over hilly and rocky terrain, snorkeling and transfers to and from shore on zodiac boats.   You don’t have to do everything and in a number of instances there were less strenuous options for those that did not want to do the full hike. But if you are not at least an active walker, you will miss much of what the tour has to offer.

One travel magazine recently indicated visiting the Galapagos is the number one bucket list trip for tourists worldwide.   I would definitely have it on my bucket list and as a near-retiree when I took my trip to the Galapagos I was glad I did the trip sooner, rather than later, while you I was still able to handle the physical demands of the trip.   Ages of those on our trip ranged from about 8 to 80 with most in their 50s and 60s.

Downsizing

My experience indicates there are two times in the lives of many seniors when downsizing is most likely to be considered.   The first occurs in one’s late 50s or 60s after the kids have left home and the second in one’s late 70s or 80s when care needs may dictate a move to a more manageable setting with greater options for care and support.   The first move may start with or incorporate a second home or may only involve a move of a primary residence.

Thanks to the creativity of America’s homebuilding and seniors housing and care industries and the substantial buying power of affluent seniors there are a wide array of housing and location choices for seniors to consider.     In this blog post I focus on the first downsizing move, that undertaken by many in their late 50s or 60s.   See the section of this blog on seniors housing and care for a discussion of moves to supportive environments at a later age.

Let me start with my own downsizing decision.   When I was 55, and my wife a year younger, we moved to a 2,700 sq. ft. three bedroom condominium from our 3,300+ sq. ft., cedar shake, four bedroom home in a well established neighborhood where we had lived for over 12 years and raised our son. Our decision to downsize was driven by my belief that there would be strong demand from baby boomers as they aged for well-located condominiums and we it would be better to buy ours before competition from other boomers increased prices.

The condominium we selected is in a mid-century modern highrise building designed by Mies van der Rohe.   We found our downsized home after a about a year of looking for a condominium and a couple attempts at bidding. It took this long for us to understand our options and think through the location and environment we wanted. We looked at both townhouse type and multi-story condominium units in a variety of neighborhoods.

When we began looking for a smaller home in the Baltimore market we found that while 1,500 to 2,000 sq. ft. two bedroom condos are very prevalent there are relatively few large units better suited to baby boomers downsizing from a single family home.   Our key criteria for a downsized home included:

  • Having everything on one floor
  • Three bedrooms, one for us, one for a guest room and one for an office
  • An accessible location, near restaurants, medical care and public transportation
  • Enough space to entertain
  • Covered parking
  • Security

In the end there were relatively few units that met all of our criteria. We could choose between a number of high-rise buildings near the established neighborhoods where we had lived for many years and new and converted buildings on or near the waterfront in downtown Baltimore.   We also found some very nice detached and luxury townhouse units but some of these were bigger than we needed and were not in accessible locations. We opted for a multi-story condominium building closer to the established neighborhood where we previously lived rather than a building near the water because it was closer to friends and, while the water was nice, it came with about a 50% price premium for a unit of similar size.

The building we choose offers one story living, has a doorman who can deliver your groceries, dry cleaning and packages, is on a bus line and is walking distance to restaurants, some shops and The Johns Hopkins University’s Homewood campus with its library, book store, cultural and sporting events and green space. It is a home where we should be able to live for many years, even if we become less mobile or have to give up driving.

Mistakes, from my perspective, I see others making in downsizing include choosing:

  • Multi-story townhouses when the ability to negotiate stairs could become an issue in future years, if even for temporary periods
  • Locations where no public transit or even decent cab or ride service options, like Uber or Lyft, exist
  • Locations remote from family, friends, social and cultural activities and medical care
  • Designs poorly adapted to aging even when offering first floor master bedrooms, such as laundry rooms on another floor or just enough stairs to make the home inaccessible for wheelchairs without expensive and unsightly renovations

Even though baby boomers in their 50s and 60s may be in very good health, able to drive and have few cares about temporary or ongoing physical limitations, I would not purchase a downsized-home in which it may be difficult to age with but I welcome your views.