Tag: Life Savings

Road Block To Retirement

Sanjiv Gupta CPA - 8 years ago
Have you ever wondered if you may hit a roadblock in your journey to retirement?I will cover some basic strategies that can help you limit the damage caused by an unexpected event or change of lifestyle.A Protracted Illness | 21st Century Major CrisisNursing home care is super expensive both in India and the United States.   The nursing home cost can exceed well over $250/day in the US.  In a recent phone call with Kiser, I was told that paying $500/night for stay at the hospital is a great deal. Well – maybe for Kiser, not for me.If your family has a history of a health problem then you should consider long term care insurance.   At least have a plan in place to deal with such a situation.  You don’t want to end up spending all your retirement savings on nursing homes.Starting or Selling a Business Having a second stream of income during retirement can be very helpful.  Consider buying a business that has a long history of profitable years and has a good management team in place.   A real estate management company and good running restaurants can be great investments.You want to delay collecting from social security as much as possible.  Consider using income from Roth IRA, investment, and businesses during the early part of your retirement.Divorce: Don’t even think about itDivorce can cause all sorts of the problem including major financial issues.  You can do some damage control by purchasing annuity but try to avoid divorce as much as possible.Taking care of Kids or Grand KidsSupporting kids and grandkids during retirement can take a big chunk of your savings.  Carefully plan your retirement with your CPA to see how much you can spare to help your kids.  You can also consider buying a life insurance policy or funding a 529 college saving plan for your grandkids.Volatile Markets Retirement is not the right time to invest in volatile markets.  You want to play safe bets but talk to a financial adviser who can find safe bets with good returns. Thinking about retirement? Here are a few questions you can ask your Financial Advisor?Which income should I draw from first?What other cost should I consider?As I get closer to retirement, how should I adjust my allocation?Which options for covering health care costs make the most sense for my situation?How often should I make changes to the portfolio?

Claiming Social Security Benefits

Sanjiv Gupta CPA - 7 years ago
Workers have a lot of ambiguity while claiming social security benefits as there are too many clauses and conditions to fulfill. Some basic questions are answered in this section, which gives more clarity for the worker about his retirement benefits. It is their hard-earned money, and it is only natural for the workers to have their inhibitions while claiming the benefits for social security.One of the rules explains that if the wife applies for benefits from social security when she turns 66 years, she would be eligible for half of her husband’s benefits as part of spousal benefits. The spousal benefit that a wife would get is the sum of her retirement and an incremental amount that is received as part of a husband’s half benefits.Secondly, the Social security scheme works on the assumption that the husband keeps working until the full retirement age to get the full benefits. If the husband opts for early retirement, the final benefit that comes from social security is lesser than expected. The wife can get spousal benefits at the age of 62 years only if the husband is getting the benefits at the same time. However, the additional clause is that, if the wife has not reached the full retirement age, then she is eligible only for half of the spousal benefits. Delaying the social security claims gives an increase in the final benefits. One can expect increased benefits surely regardless of the market conditions. It gives high returns coupled with low risk on their investment.If the husband is actively collecting a retirement benefit, then the wife becomes eligible for her spousal benefit, by default provided it is higher than her retirement benefit. When the husband completes the full retirement age of 66, the wife starts to receive half of her husband’s benefits as a spousal benefit. If the wife wanted to get spousal benefits before that, then the husband should have started to receive his retirement benefits.The husband also has the option to file and suspend all his benefits once he reaches his full retirement age. In this method, though the wife would still continue to get the spousal benefits at half of the husband’s FRA benefits, the retirement credit could get slightly delayed. This is an option that needs to be considered if either the husband or the wife expects some longevity and also have other sources of money until they reach 70 years. In this option, the retirement benefits rise to 32% in just four years and the widow’s benefits that the wife gets are equal to the husband’s retirement benefits. Benefits paid to the wife does not impact the retirement benefits of the husband in any way.The above explanation was given by Mr. Gupta. These can be used only for knowledge purposes but should not be treated as personal advice. Every company would have an adviser exclusively to look after the retirement needs of the employee. It is advisable to consult this adviser for the best results.

Should You Delay Social Security Benefits

Sanjiv Gupta CPA - 7 years ago
Social Security is a scheme in which employees are encouraged to retire later than their actual tenure. There was legislation that got passed in the year 1983 which had allowed the retirement age to be fixed at 67 for people who were born after the year 1959. Delaying the Social security benefits has been under the scanner for long and researches were conducted by many to check if this scheme was beneficial to the aged people.One idea that came up during analysis was to offer lump-sum amounts to employees who retire later than their actual term. The idea of this bulk payment might motivate the aged people to extend their tenure, without having to compromise on their benefits. This research was conducted by four researchers- Jingjing Chai, Raimond Maurer, Ralph Rogalla (from the Goethe University, Germany) and Olivia Mitchell (from the Wharton School).The basic finding from their research was that the lump-sum payment option did motivate the workers to extend their retirement by 2 years, on average. The number-crunching concept behind this research was simple. It was calculated that a person who retires at 66 years instead of 65 years, would get 1.2 times more benefits than he would have got at 65 years in addition to the normal benefits that he is entitled to, at his actual retirement age.The amount that is calculated as the bulk payment is the expected current value of the extended retirement package. There would not be any increased costs to society or decreased benefits for the worker. Hence this system was found out to be “cost-neutral” to society. The workers reacted well to this delayed social security scheme as results proved that the workers who extended their retirement age rose by 49%. Workers who were lured by this delayed social security package were the ones who gave priority to work than vacations, were risk-takers and who were keen to invest in the stock market for increased returns.Another factor in favor of the delayed social security scheme was that the lump-sum payment paid out by the extended tenure did not directly relate to giving away to legal heirs. This amount was mostly used by the people to take care of them as they grow older. This was the motive of the Social security scheme; to be of help to the retired people as they step into their relaxed lifestyles.Social security schemes are considered as the primary source of retirement fund by around 42% of people whose annual income is less than $30,000 and around 33% of people whose annual income is between $30,000 and $75,000. However, people who earned more than $75,000 did not see Social security as one of the top retirement funds. Around 65% of these people used the options of 401K or IRA, which the workers used to deposit their lump-sum payments in. Delaying the retirement benefits was helpful for people with low class or middle-class income levels.
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