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March 6, 2021

Federal Employee Retirement and Benefits News

Category: Articles


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What you need to do when eligibility for disability and retirement benefits overlap

Social security provides a disability benefit to people who can’t work due to a confirmed medical condition. This medical condition must last for a minimum of one year or lead to death. When there is high unemployment, there is an increase in applications for disability benefits. Most applications for disability benefits are often denied because the process is long and exhausting.

On the other hand, social security retirement benefits are available automatically at age 62 for employees who have worked for at least ten years. Some people claim their social security before the full retirement age (FRA), which causes a permanent reduction to their monthly benefits.

When recipients of disability benefits are 62 years old, they are eligible for retirement benefits. They have the choice to select the benefit they want to receive. Most beneficiaries often choose to receive disability benefits because, unlike the retirement benefits, it is not reduced based on age by the social security administration. At FRA, the monthly benefits remain the same, but the social security disability benefits automatically change to retirement benefits.


According to the Inspector General of the social security administration, beneficiaries of disability benefits can change to reduced retirement benefits when they are 62, and this will give them more payment over time. Reduced retirement benefits may be higher for disability beneficiaries who receive public disability payments, workers compensation, or have relatives receiving benefits on their earnings record.


The OIG report noted that when disability beneficiaries choose to receive reduced retirement benefits, the reduction is for non-disabled beneficiaries and, therefore, not permanent. Also, for beneficiaries who choose to receive reduced retirement benefits, section 202(q)(7)(F) requires the social security administration to pay increased benefits to the beneficiaries at FRA.

Congress added this provision as part of the social security amendment in 1965 because disability beneficiaries’ spouses don’t have access to Medicare coverage at the time. The provision enables disability beneficiaries to change to reduced retirement benefits so that their spouse can claim Medicare coverage without any adverse effect on the beneficiaries when they reach the full retirement age (FRA).


Your spouse’s eligibility for Medicare coverage is no longer dependent on whether you are receiving retirement or disability benefits. The OIG report calls for eliminating the above provision because it favors disability beneficiaries over non-disability beneficiaries. This is because the provision gives a financial advantage to specific disability beneficiaries, affecting the SSA Trust Fund.


However, the social security administration doesn’t agree with the OIG report. The SSA relies on Congress’s view on whether there is a need for legislative change.


Consider Retiring at Any of These 3 Ages if You Want More Money in Retirement

According to data from the Empower Survey Institute, running out of money in retirement is a major concern for both current retirees and potential retirees. Unfortunately, it’s a valid concern as most seniors face the risk of running out of money in retirement, especially since retirement is now so expensive.

It has become more difficult to save for the future, and most individuals fall behind their retirement savings. A Transamerica Center for Retirement Studies report showed that the average Baby Boomer has only about $152,000 saved for retirement. For most retirees, that amount wouldn’t last more than a few years.

If you are having difficulty saving for retirement, you should consider adjusting your retirement age. Retiring in any of these three ages may benefit you financially.


1. Age 62

You become eligible to claim your Social Security benefits once you hit age 62. But keep in mind that claiming early may reduce your monthly benefits compared to if you wait for a few more years. However, if your goal is to retire as early as possible, then your Social Security benefits can help you reduce the amount you withdraw from your savings.

Moreover, withdrawing from your 401(k) or traditional IRA accounts at age 62 means you won’t pay any withdrawal penalties. Usually, withdrawing from any of those accounts before you reach age 59 ½ will attract a 10% penalty. So waiting until you are above age 60 to retire is a good move.


2. Age 67

Claiming your Social Security benefits at the eligibility age of 62 may make you lose up to 30% of the benefits. To enjoy higher benefits, it is advisable to retire at the full retirement age (FRA), which is 67.

Your full retirement age is dependent on when you were born, and 67 is the FRA for individuals born in 1960 or later. This means that future retirees have to wait until age 67 to receive their Social Security benefits without any reductions.

There’s also a misconception that your benefit amount will increase once you claim early once you reach age 67, but that’s not the truth. Once you file your claims, your benefits cannot go higher; except you refund the benefits you have received and wait until you reach age 67 to make your claims.


3. Age 70

If you wait until you reach 70 to file for Social Security, you’ll receive the highest amount possible—which can give your retirement finances a huge boost. If your FRA is 67 and you wait until age 70 to file your claim, you may receive an extra 24% boost to your monthly Social Security benefit.

Delaying your benefits can be difficult, especially if you want to retire as soon as possible. But it can potentially boost your income by hundreds of dollars, which will better position you financially in retirement.

Keep in mind that you don’t necessarily need to retire at the same age you start claiming Social Security. However, if you retire first and wait a few years to file your claim, you risk draining your retirement savings. So it’s mostly advisable to file your claim the same year you retire.

Deciding the ideal time to retire is a big decision, and it requires careful planning. Retiring in any of these three ages will better position you to ensure your retirement savings last as long as possible.


Covid-19 pandemic has caused billions of dollars to flow out of the TSP

Federal government officials coordinating the 401(k) savings program revealed that about $3 billion flew out of the Thrift Savings Plan (TSP) due to the Covid-19 pandemic. According to the CARES act, TSP participants can take loans up to twice the usual amount. The Act also waived some requirements the participants must meet before taking a TSP loan. Such requirements require the participants to be 59½ years old, take a 10 percent tax penalty or show particular financial difficulty.

The Participant Service Director of the Federal Retirement Thrift Investment Board explained how federal retirees and employees use these loan flexibilities at the Board’s January meeting. This explanation is correct because the Board administers the TSP.

In 2020, TSP participants collected more than 3,000 CARES Act loans above the usual $50,000 cap, and this sums up to $229 million. At the same time, $2.9 billion was withdrawn by 119,720 participants using the CARES Act’s flexibility. Regardless of these huge figures, TSP assets will witness more growth in 2021.

In the last two weeks, legislation that will eliminate the social security provisions enjoyed by many federal employees was reintroduced by bipartisan lawmakers (Reps. Abigail Spanberger, D-Va, and Rodney Davis, R-I11). This legislation, also known as the Social Security Fairness Act, will eliminate the government pension offset and windfall elimination provision from the Social Security Act.

The windfall elimination provision reduces the benefits of government employees who earn from private jobs, where social security isn’t meant to be a retirement income element. Government employees under the civil service retirement system will receive their full security benefits if they don’t engage in a private job together with their government job.

The government pension offset restricts government retirees from receiving their pensions like the social security benefits and CSRS annuity they get from their spouse’s private sector work. Spanberger said that many central Virginians are negatively affected by the outdated provisions because it unfairly reduces their earned benefits. Therefore, introducing the Social Security Fairness Act is crucial so that people are no longer penalized for their public service careers.

The president of the National Active and Retired Federal Employees Association, Ken Thomas, also supported this legislation. He said that he applauds the introduction of this new bill because the existing policies have punished retired civil servants with a reduction in social security benefits for a long time.

The downside of cashing out retirement plan assets

Reasons why you should consolidate your retirement plan accounts


Anytime you change your job, you have the chance to decide whether you will maintain your retirement account or not. You may choose to take out your money, cash it out or even keep your balance in the plan. A report from the Employee Research Institute shows that 4 out of 10 employees with an account balance ranging between $1,000 and $5,000 will cash their money out of their retirement plan accounts.

You may have enough reasons to cash out your money and use it to pay your bills. But you need to think about taking a distribution if it will help you because cashing out from your account will cost you a lot of money in the long run.


You will permanently forfeit the earning power on your money


Suppose you cash out from your plan accounts, that distribution is no longer tax-deferred. Therefore, you will lose the future earning potential of the money along with the distribution. This considerable loss will make a huge difference in your retirement savings amount. You will understand this difference when you consider the future earnings you will get if you save $5,000 in your retirement plan.

For example, let’s say you are 30 years old, and you save $5,000 in your retirement plan. Assuming that the annual return rate is 7 percent and the federal income tax rate is 28 percent, you will have about $38,000 in your retirement plan account when you retire at 65. The amount you will get will vary because the annual rate of return changes over time. This example doesn’t account for product-related fees.


You will not get the total amount


Suppose you withdraw your money as a plan distribution before reaching 59½; you will pay a ten percent early withdrawal penalty to the IRS. You are going to pay ordinary income tax in the year you took the distribution. Taking your money as a plan distribution will make you lose some money as taxes and penalties.


You should do this to maximize your future earning potential


Firstly, you must not be tempted to cash out from your retirement account. Instead of cashing out, you can rollover your fund into your current retirement plan. When you consolidate your retirement plan assets, your account management becomes more straightforward, and your money will keep growing till you retire.

You may not want to consolidate your accounts if you are comfortable with your existing retirement plan. You may not be satisfied with the investment options available with the new plans. Thus, you want to receive your money as distribution.

Suppose you want to maintain your retirement savings growth? You need to consider account consolidation.


What you should know about borrowing or withdrawing from your 401(k) plan account

Suppose you plan to take a 401(k) loan; you must be sure that you are qualified to borrow from your plan. You can check your eligibility by reading through your summary plan description or checking with your 401(k) plan’s administrator. Most employers allow you to borrow money when you want to buy a car, furnish your house, and other purposes. Still, some employers give room for 401(k) loans only when facing financial challenges.

Taking a 401(k) loan is easy because the process requires a little paperwork and no credit check. The loan also charges a small fee as the processing fee.


How much 401(k) loan can you take?


You can not borrow the entire amount in your 401(k) plan irrespective of the total amount in your 401(k) account. As a general rule, you can’t borrow more than half of your vested plan benefits or $50,000, whichever is less. However, if your 401(k) account value is below $20,000, you can borrow about $10,000, even if this is your total balance.


Requirements for paying back 401(k) loan


Ideally, you should repay the loan within five years by making regular payments. This payment is usually through payroll deduction. Suppose you use the money to buy a house; you may repay the loan for more than five years.

You must adhere to your loan repayment requirement because if you don’t pay the loan back as required, it will be treated as a taxable distribution. You will pay income tax on your existing loan balance and 10 percent federal penalty tax if you are below 59½. If you have any after-tax or Roth contributions in your 401(k) plan, you will not pay the usual income tax on them.


Advantages of taking 401(k) loan


The following are the benefits of borrowing from your 401(k) plan:

  • As long as you pay the money back on time, you will not pay penalties or taxes on the loan.
  • The interest rates on TSP loans will be consistent with the bank and other commercial institutions’ rates for such loans.


Disadvantages of taking a 401(k) loan


Despite the advantages of taking this loan, there are  pitfalls in borrowing from your 401(k) plan.

  • Suppose you don’t repay the loan on time? It will be considered as a taxable distribution.
  • Suppose you leave your job, and you have an existing loan balance? You must repay the entire loan within 60 days. Suppose you don’t pay back within 60 days? In that case, it will be considered as a taxable distribution, and you will pay the accompanying regular income taxes and penalty tax if you are below 59½.
  • Most of the time, the loan is deducted from your 401(k) plan account, and your bank is credited with the loan payment. Therefore, you will lose those tax-deferred investment earnings that may have accrued on the loan had they been in your plan account.
  • You must pay back the loan with after-tax dollars.


Hardship withdrawals


You can take a hardship withdrawal from your 401(k) plan if you can show that you have immediate and urgent financial needs and don’t have any other means to fulfill your needs. It now depends on your employer to examine if your financial needs qualify for a hardship withdrawal or not.

The majority of employers allow hardship withdrawals if you need to pay you and your relative’s healthcare expenses, burial or funeral expenses of your relative, related tuition and educational expenses, and your principal residence costs.

Your employer may allow you to withdraw funds if you need to pay due taxes and penalties on the hardship withdrawal. Generally, your employer will ask you to submit a written request for a hardship withdrawal.


How much 401(k) withdrawal can you make?


Generally, the maximum amount you can withdraw is equal to your entire 401(k) contribution, minus the existing hardship withdrawals you have made. Sometimes, you may be able to withdraw your contribution earnings. Consult your plan administrator to know the rules applicable to your plan withdrawals.


Advantages of hardship withdrawal


Taking a hardship withdrawal is your best option if you are in urgent need of money and don’t have any assets to rely on, and your plan doesn’t permit you to take a loan since you don’t have a means of repayment.


Disadvantages of hardship withdrawal


Hardship withdrawals will lower your retirement savings because these withdrawals are subject to income taxes. Also, your retirement nest egg will reduce because your growing funds are no longer tax-deferred. The major disadvantage of making this withdrawal is that you may not contribute to your plan six months after taking a hardship distribution.

Suppose you qualify for an employer 401(k) contribution match; you may be able to withdraw these dollars as soon as you become vested. Special rules may apply to you if you begin your active duty after September 11, 2001, and you are a reservist.


These 7 Questions Will Help You Determine Whether You Are Ready For Retirement

The saying that timing is everything is especially true regarding retirement planning. The Covid-19 pandemic has thrown many people’s retirement plans into disarray. Many people wanted to retire in a few years and may have already mapped out their retirement withdrawal strategy. But now, the pandemic and the resulting economic downturn may force most people to remain in their jobs past when they had in mind.

Typically, there’s a lot to consider when deciding the ideal retirement age, from your finances to assets and the support you’ll need. But there are also other non-financial considerations.

Finances are only one aspect of retirement planning. The emotional consideration about what you want to do next in life is also essential. It’s critical to ensure you are not just financially ready but also emotionally prepared for retirement. To get started on your retirement game plan, it’s essential to ask yourself these seven questions.


1. How Much Do You Have In Your Egg Nest?

Age 65 is often considered the appropriate age to retire. But with the current longevity trend, retiring at 65 may mean you may remain retired for many years.

If you love your job and are still physically and mentally capable, nothing stops you from working past age 65. However, if you can’t stand the thought of going back to your workplace, then maybe you need a new responsibility or challenge to keep you going. The idea is to keep earning money to avoid spending your retirement savings.


2. What Will You Do in Retirement?

Retirement provides you with a whole lot of time, so it’s essential to plan what to do with all that time. Planning what to do in retirement will make it exciting and less tedious. You can volunteer for a cause, engage in consulting, travel around the country or world or spend time with family.


3. Have I Saved Enough Money to Retire?

Everyone wants to know if they have saved enough money to cover their retirement. They want to know if their assets can support an income stream that will fund their retirement lifestyle.

If you don’t already know how much you’ll need to save for retirement, then that’s where to start. You can use your current living expenses as a base for your retirement spending or use a retirement calculator. However you decide to calculate your retirement expenses, it’s essential to make provision for inflation.


4. What Would My Health Care Cost Be in Retirement?

Healthcare is the largest expense for most retirees, yet only a few plan for it. If you plan to retire before 65, it’s important to consider how to cover your healthcare expenses until Medicare kicks in. There are several options, like buying COBRA from your current employees or buying private healthcare insurance. But most of these policies are quite pricey.

Even when you finally have Medicare, you may still have to pay for treatments that aren’t covered by Medicare. This may potentially derail your finances in retirement if not correctly planned.


5. Can I Do Away With My Current Liabilities Before Retirement?

There are several liabilities, such as alimony to ex-spouse and supporting children, that are often affected by retirement. If your kids aren’t all grown up or you’re legally obligated to continue spousal support, you may need to work a few years to support them. But if you still support your adult children, then now would be a good time to stop it, so you don’t run out of money in retirement.


6. Where Will I live?

Would moving to a lower-cost home save you money in retirement? Would moving to a new state lower your tax liabilities? Some states don’t tax income but have higher property sales taxes. Others may not have high taxes but may not have the quality of healthcare or leisure you need.

It’s essential to consider factors like tax and your personal goals in retirement when deciding where to live.


7. Can I Maximize My Social Security

Maximizing your social security involves waiting until the full retirement age to make your claims. Since social security will constitute a huge part of most people’s retirement income, it’s essential to determine if you can wait until age 67 to make your claim. Waiting until age 70 to make your claim can increase your benefits by an additional 8%.



Deciding when to retire can be quite complicated, as there are many financial and emotional decisions involved. Like all good plans, evaluating your options as early as possible may be what you need to attain your retirement goals.

Retirement Planning: How to Prioritize Your 401(K), HSA, and Roth IRA Contributions

Typically, investors are often neck-deep into searching for the ideal stocks, ETFs, or mutual funds. But figuring out the best type of retirement account you should be funding and in what order is just as important, especially if you’re fortunate to have access to an employer 401(k) plan, Roth IRA, and healthcare savings accounts.

Carrying out a personal analysis can go a long way in helping you get a handle on things. But if you want a solid retirement contribution strategy to adapt for 2021, then you should check out the framework below.

It prioritizes contributions based on account types in a waterfall format. This means that you’ll start at the top and continue down the list until you have exhausted all the funds budgeted for retirement savings this year.


1. Contribute Enough to Earn Your Employers Match

If you have access to a workplace 401(k) plan and your employer offers matching contributions, then do all you can to earn that match. Plan Sponsors Council of America reported the average employee 401(k) match in 2019 to be around 5.3%. If your salary is $50,000, that will amount to an additional $2,650 you can add to your nest egg.

Ask the human resources manager at your company or the plan administrator about the matching rules. Some employers may match you dollar for dollar, while some may match $0.50 for each dollar you contribute. Typically, there’s a cap to the percentage of your salary your employer will fund. As mentioned previously, your goal should be to contribute as much as is required to get every dollar available from the matching.


2. Max out your Health Savings Account (HSA)

The next step is to save up to an HSA account if you are eligible for it. HSAs offer triple tax benefits, which makes it an attractive long-term savings plan. Contributions to HSAs are tax-deductible, earnings from the accounts are tax-deferred, and withdrawals used to pay medical expenses are also tax-free.

Furthermore, once you hit age 65, you can make penalty-free but taxed withdrawals for non-medical expenses. That means there’s no risk of over-funding an HSA. If you don’t use the funds in the account for medical expenses, you can withdraw them to supplement your retirement savings. The 2021 contribution limit for HSA is $3,600 for individual plans and $7,200 for a family health plan.


3. Contribute to Roth

If you still have cash left after maxing out your HSA, check if you qualify to contribute to a Roth IRA. The eligibility for a Roth IRA is dependent on your income. To be eligible as a single filer, you should make less than $125,000 annually. Married filers, on the other hand, should earn less than $198,000 annually to qualify. The 2021 contribution limit for Roth IRA is $6,000. However, individuals aged 50 and above can contribute an additional $1,000. If you make less than $140,000 as a single filer or less than $208,000 as a married filer, you may be eligible to contribute a lower amount than the original contribution limit.

Contributions to Roth IRAs are not tax-deductible, but qualified distributions during retirement are tax-free. This provides a very effective retirement withdrawal strategy. Since 401(k)s and non-medical withdrawals from HSAs are taxable, contributing to Roth accounts will be more advisable if you expect to be in a higher tax bracket in the future.


4. Max Out Your 401(k)

Individuals with 401(k)s can contribute to Roth without any income limits. Inquire from your plan administrator if you have the feature and how to set it up. The 2021 contribution to 401(k) Roth, including regular contributions, is $19,500 and $26,000 for individuals aged 50 and older.


5. Save to Traditional IRA or Standard Brokerage

After capturing your employer’s match, contributing to HSA, Roth, and 401(k), consider investing in a traditional IRA or brokerage account. You’ll get tax-breaks when you invest in a traditional IRA. But while there are no tax-breaks with brokerages, you will be able to use your money whenever and however you want.


In Conclusion,

While you may not have $25,000 to $30,000 to save each year, you shouldn’t let it dissuade you. You can still build a large retirement that will enable you to retire comfortably. Just start by contributing enough to capture your full employers’ match, and then consider diversifying across other accounts as your income increases.

What Would a Change in Social Security Retirement Age Mean For Benefits?, by Todd Carmack

For many retirees, Social Security remains an integral part of their retirement income. But the Social Security fund is running low, and a report released estimates that there may only be enough funds to pay 79 percent of Social Security benefits by 2035.

This revelation prompted lawmakers and Social Security experts to start looking for ways to restore the fund’s solvency to cater for future participants.

But the age people can receive Social Security may change as lawmakers look to improve on the program.

The last time the Social Security program was reformed was under President Ronald Regan in 1933. During that period, the legislature increased the age for full retirement from 65 to 67, which is still the FRA today. The latest congressional reforms may again involve increasing the full retirement age to manage the insolvency issue.


Congressional Review

New congressional research looked at how raising the full retirement age can work. Typically, increasing the age of retirement will encourage people to work longer, which will, in turn, delay their benefits to a shorter time than is currently obtainable. But such changes may not be without consequences.

The current rules allow eligible individuals to claim Social Security once they reach age 62. However, making an early claim reduces the benefits you receive. People who wait until full retirement age receive their full benefits.

With the proposed changes, the eligibility age to make Social Security claims may rise to 66 years and ten months. Meanwhile, individuals who wait until 70 to get their benefits would receive their full benefits. Retirees who wait until they hit age 70 get an additional 32% increase to their monthly benefits, while those that make their claim at 67 enjoy a 24% increase.

However, despite the incentive to wait, many people still claim early rather than wait until FRA. In 2019, 32.6% of Social Security beneficiaries were 62. That was followed by 25.3% who were 66 and 12.6% aged 65. Only 7.4% were 70 or older.

But while the full retirement age rose to 67, then 62 years, eligibility doesn’t cease. However, the result is a reduction in the number of people who claimed their benefits between 62 and 67. According to the congressional report, if the full retirement age is increased, like from 67 to 69 years, and the eligibility remains at age 62, the number of claims would reduce by 30 to 40 percent.

Meanwhile, the benefits credit for delaying until 70 may reduce by 8% to 24%. The best approach to minimize the impact of early claims is to increase the eligibility age. But that would create problems for individuals who cannot continue working from age 62 to the new retirement age, the report said.

Raising the full retirement age also comes with its share of issues. While life expectancy and employees’ health has increased, it’s not the same across the board. As a result, low wage earners could be put in a vulnerable and challenging spot. The change can also make more people file for Social Security disability changes, which would further stress the program’s solvency.

According to the Bipartisan Policy Center, the way forward is to put a minimum benefit in place at age 62. This way, early claimants can be sure of some form of funding.


Still a Process

Currently, there aren’t any plans to increase the retirement age or make massive changes to Social Security. But efforts to strengthen the program may come now that the new administration has been inaugurated. The Biden camp has called for Social Security changes, but not an increase in retirement age, a plan which most people are opposed to, as it amounts to a benefit cut.

But the fact that people are living longer now means they are receiving enhanced benefits than what was intended for the program. If the benefits are adjusted based on today’s lifespan, the retirement age would be 70.

As longevity increases, the Social Security age also needs to be increased to account for the additional years.

These Three Retirement Expenses Can Derail Your Budget, by Leslie “Kathy” Hollingsworth

Housing, transportation, and food often take prime position in retirement planning. But while these expenses may often be predictable, some could end up costing more than expected. Here are three expenses that can wreck your retirement budget.


1. Taxes

A person’s tax liabilities are calculated by their total income. If your cash inflow from social security, withdrawals from retirement plans, and other sources are large, your tax bill may be higher than anticipated.

You must read up on the various retirement income types and the associated taxes, so you aren’t caught off-guard. For instance, Roth IRA is tax-free; however, traditional retirement plans are taxable. Moreover, if social security isn’t your only source of income, then you’ll likely pay taxes on that income as well.

To avoid surprises, it’s essential to plan ahead. Consider saving to a Roth retirement plan and move to a state with lower or no income taxes in retirement.


2. Healthcare Costs

Medicare Part A is free for enrollees, but it only covers special hospital care. To enjoy more coverage like outpatient services, you have to enroll for Medicare Part B, which charges a monthly premium. The same goes for Medicare Part D, which covers prescriptions.

You may also be required to pay for deductibles under both Medicare parts A and B, coinsurance, and other related costs. So while it may seem your healthcare costs may be lower in retirement, that’s not often the case. In fact, the average healthy retiree may spend as much as $662,156 on healthcare expenses in retirement.

To avoid being hit with unexpected medical expenses, consider setting aside funds to a health saving account (HSA). You are eligible to save to the HSA if enrolled in a high deductible health insurance plan.

If you are ineligible to save to the HSA, consider maxing your IRA or 401(k), so the extra savings can cover your retirement healthcare costs.


3. Long-term care

There’s a 70% chance of an average 65-year-old needing long-term care during retirement. While the cost may differ based on location, needs, and duration, an average retiree may spend up to $172,000 to cover it.

To avoid financial issues later in life, consider applying for long-term care insurance in your 50s. While it may cost you more, you’ll have a policy in place in case you need long-term care in the future. Also, consider padding your IRA or 401(k) accounts to save up for long-term care expenses that may arise in the future.


Conclusively, you can have the best retirement strategy in place, but once you fail to account for unexpected expenses, then your plan may collapse right before your eyes. Now that you know the costs that are likely to arise, prepare accordingly to avoid future issues.

Can You Retire With a Nest Egg of $100,000 or Less?

The goal of every potential retiree is to have enough saved up to be able to retire comfortably. But this is often very challenging. A report by the Employee Benefit Research Institute shows that around 65% of Americans have less than $100,000 saved up for retirement, and more than a quarter of those individuals have less than $1,000 in their nest.

It’s challenging to make up if you fall short in your retirement. But do you need to save so much to retire? Is it possible to retire with less than $100,000? Let’s find out.


Utilizing Every Dollar

Everyone’s financial needs are different because of the difference in lifestyle. So whether you can retire with $100,000 or less is dependent on your lifestyle. Some retirees may spend the whole sum in a year, while it can last several years for others.

The general rule of thumb for retirement withdrawal is the 4% rule. The rule suggests withdrawing 4% of your savings in your first year of retirement and then adjusting subsequent withdrawals to account for inflation. Your retirement savings can last up to 30 years if you abide by this rule.

The 4% rule may not be perfect, but it provides an excellent benchmark to gauge your withdrawal each year. If you retire with $100,000, following the 4% rule, your first annual withdrawal will be $4,000.

It’s nearly impossible to live on $4,000 in a year, but most retirees are entitled to Social Security benefits. According to details from the Social Security Administration, the average monthly benefit is around $1,543 and $18,500 annually.

Unless you have other income sources like pension, you may need to survive on only Social Security and your retirement savings, which amounts to around $22,500 annually.


What Happens if That Isn’t Enough?

While some retirees may live on $22,500 annually, most may find it challenging to live comfortably and pay their bills with that amount. Fortunately, there are several things you can do to boost your retirement income.

One of the options available to you is to hold off Social Security to increase your benefits. If you can hold off filing for a claim until you are age 70, you can increase your monthly benefit by up to 32%.

If you aren’t retiring in a few years, consider picking up a second job or starting a side hustle to earn more money to put towards retirement. Also, consider moving to a smaller home to save costs. While it may be challenging to live on $22,500, lowering your living costs can provide you with more money to put into your retirement savings.

Furthermore, it would be best to consider investing in dividend stocks to boost your retirement earnings. With dividend stocks, you’ll be paid a specific percentage as a quarterly or annual dividend. For instance, if you invest $1,000 into a share with a 5% yearly dividend, then you’ll receive $50 annually in dividend earnings. This doesn’t mean you should put all your money into individual stocks. There’s still a need to strategize and identify the best stocks to include in your portfolio.


In conclusion, it isn’t easy to plan for retirement, especially considering the current economic downturn. But regardless of your financial position, these steps can help you plan towards a successful retirement.


Are You Enrolled in the Medicare Advantage Plan? Here Are Four Reasons You May Want to Switch Your Plan

If you are a retiree or a potential retiree, healthcare may probably be one of your largest expenses. And it’s not an expense you can choose to avoid or settle for less. If a retiree enrolls in Medicare Part D during the open enrollment, they may be stuck with it for the rest of the year, even if it’s not working for them. But it’s a different case if you enroll in the Medicare Advantage plan and are unhappy with the plan.

Medicare Advantage has an open enrollment period that runs from January 1 – March 31. Here are some reasons why you should consider switching your coverage during this period.


1. If Your Plan Has Changed

Keeping your old Advantage plan can be a good deal, but you may regret the decision if that plan has changed. It may be that the specific care you need is now costly. In that case, you should consider moving to another plan. Usually, Advantage plans are required to inform enrollees of any changes that will occur from time to time—so they can’t just increase costs without notifying you. However, you might miss such notices and be left with an expensive bill.


2. You Can’t Seem to Find a Provider You Like

A Medicare Advantage plan typically limits you to healthcare providers’ networks, which may make it difficult to find a doctor you can trust or want to use. In that case, it will make sense to consider switching to another plan—perhaps one with a network of recognized healthcare providers.


3. You Can’t Find a Good Pharmacy

Just as some Advantage plans limit the doctors you can access, it also limits you to a network of pharmacies. If you can’t seem to find a pharmacy within a convenient distance, then it’s worth considering switching to a different plan.


4. If You Are Going Out of State

Typically, Medicare Plans allow you to access healthcare services anywhere around the country. But with Medicare Advantage plans, you are generally limited to a network of local healthcare providers and pharmacies. This could become an issue if you want to spend time outside your state.

In such a case, it will be advisable to drop your Advantage plan. But instead of switching to a different one, you should enroll in the original Medicare plan. Thankfully, you can still take this option up until March 31.


Ensure That You Make the Right Decision

The ideal Medicare plan won’t only save you money,  it would also ensure you get the perfect healthcare coverage and avoid problems.  If your Medicare Advantage plan isn’t working for you, then consider making a switch. You have the option to get a new Advantage plan or move to the original Medicare. Still, it’s essential to only make these changes during the Medicare Advantage open enrollment period.



Everything You Should Know About Saving For Retirement in 2021

Each year, the IRS adjusts the retirement contribution limits. Keeping up with these changes is essential for your saving progress, especially if you qualify for catch-up contributions or if you are flirting with the imposed limits.

Below are some essential retirement saving facts for 2021. This information will help you maximize your contributions as you take steps towards a comfortable retirement.


401(k) Contribution Limits For 2021

If you have a 401(k) plan, you can contribute up to $19,500 into the account. Retirement savers aged 50 or older are allowed an additional catch-up contribution of $6,500. These limits are only applicable to the number of contributions deferred from your paychecks, including contributions to Roth 401(k) accounts.

There are separate limits for the combined contributions, which includes non-elective employer deposits and employer matches. These are primarily for businesses and self-employed individuals with their own 401(k)s. For 2021, the total contribution limits for 401(k) accounts can’t exceed $58,000 and $64,000 for savers aged 50 and older, including those who would be 50 years old before the end of the year.

Furthermore, your total contributions can be higher than your salary. That means if you earn $50,000 for 2021, your 401(k) contributions for the year should not exceed $50,000.


HSA Limits For 2021

A health saving account (HSA) offers three tax benefits. Contributions are tax-free, earnings are tax-deferred, and withdrawals for medical expenses are also tax-free. You can also get an employer match with an HSA account.

To be eligible to contribute to an HSA, an individual must be enrolled in a high-deductible health plan (HDHP). The IRS often defines the minimum insurance deductibles for a plan to be considered HDHP. The minimum deductibles for 2021 are $1,400 for individual coverage and $2,800 for family coverage.

For a traditional IRA, you can make your contributions with any income; however, your salary can affect your contributions’ tax-deductibility. This is usually the case when you or your spouse contribute to a workplace 401(k).

While you will still be able to make contributions up to the limit, your income will determine your contributions’ tax deductions.

You’ll have to decide where to invest your retirement dollar. Ensure that you save enough to capture your employer’s matching contributions. After that, consider investing in HSAs if you qualify. An HSA can be the secret weapon to maximize your retirement savings, as you can make taxable withdrawals for nonmedical purposes after hitting age 65, so it can function as a backup for your 401(k).

If you don’t have a workplace plan, then an IRA is your best option. It’s also a smart move to save to taxable brokerage accounts since IRA contributions are limited.

Workers Could Lose $100,000 Through 3 Simple Social Security Mistakes

In 2021, millions of Americans will again rely on Social Security for a significant portion of their retirement income. In addition to retired workers, many disabled Americans also see Social Security as a much-needed lifeline. Despite the popularity of this program, it still causes lots of confusion among the masses. With a simple mistake, it’s possible to lose out on money (three mistakes, in particular, can cost up to $100,000!).


Don’t worry, we’re going through these mistakes in this guide so that you can avoid them!


1. Divorcing Before Ten Years


For those unaware, claiming doesn’t just happen through your own work history because you can claim through a spouse’s work history too. If your partner earns more money, the better option might be to claim through their record instead of yours; you won’t be able to claim both under any circumstances.


Even if you divorce, this doesn’t rule out spousal (or divorce) benefits. However, divorce benefits are only available after ten years of marriage. With this rule, there’s no leeway either; nine years of marriage won’t count. If possible, delay the divorce proceedings so that you reach the ten-year milestone and have access to greater benefits.

Of course, we would never recommend staying in a bad marriage just for the sake of money. Yet, waiting a short while can make a huge difference considering $787 is the average spousal benefit.


2. Early Claiming


Social Security is an interesting premise because the policyholder decides when to start claiming; in theory, we can make this decision at age 62. Unfortunately, penalties come with claims made before FRA (full retirement age). In either case, claiming at age 62 or at FRA, it’s actually better to wait if you can.


By claiming early, you secure a low monthly benefit for the rest of your life. For every year you wait, your prospective monthly benefit actually increases by around 8%. If you have other assets you can use while leaving Social Security alone, it may be worth considering (not many investments can guarantee an annual growth of 8%!).


What’s the difficulty with claiming Social Security? For most, it’s the uncertainty of life. Nobody knows when their life will come to an end, so you’ll need to consider your health, life expectancy, retirement costs, and other important factors. When choosing a claiming age, speak with a financial professional, and use an online calculator to determine the break-even point.


3. Lack of Understanding Benefits


Finally, another mistake that can cost money with Social Security is a lack of understanding when it comes to benefits and eligibility. According to one study, as many as six in ten were unaware of survivor benefits for divorced partners. As long as the marriage lasted ten years, you could be entitled to survivor benefits, as we saw earlier. To be eligible, you also can’t have remarried before 60 years of age.


Depending on the circumstances, survivor benefits can be larger than spousal benefits, so it’s critical to understand how it all works. The monthly average for survivor benefits is currently $1,220; this amount soon builds up over several years. Over a retirement of 18 years, we’re talking about over $250,000. What’s more, one good thing about survivor benefits is that they’re often available from a younger age. For example, this is true for those raising a child or those who are disabled after the loss of a spouse causes more financial implications than normal.


Thanks to a report from the Inspector General, we know that $194 million was lost recently by over 15,000 retirees because they simply didn’t understand the rules. Even if you’re expecting Social Security benefits yourself, survivor benefits could lead to extra payments.




Don’t miss out on significant payments by making one of these three errors: try to avoid getting divorced when close to the ten-year mark, learn the eligibility rules, and choose your claiming age carefully!

2021 Changes for Medicare, Social Security, and Retirement Plans, by RICK VIADER

As if learning all about Social Security and Medicare wasn’t hard enough, each new year brings with it several changes. Well, 2021 is no different, regardless of the global pandemic and a messy presidential election. Don’t worry, we’re going to make things easy to understand in this short guide. To start, what’s happening with Medicare?




The industry was eagerly anticipating Medicare Parts A and B coinsurance amounts, deductibles, and premiums. Eventually, the CMS (Centers for Medicare and Medicaid Services) delivered back in November. For enrollees of Medicare, most premiums will jump by $3.90 to $148.50 this year. There were some concerns about the premium increase, but it was limited as a result of Congressional intervention; it was limited to 25% of normal increases.


Social Security COLA might only be 1.3% this year, but the tiny increase for Medicare Part B premiums has negated this impact. There’s now a ‘hold harmless’ provision included with Medicare, which means that the premium increase for Medicare can never exceed the same increase in Social Security benefit.


Unfortunately, somewhere between 5% and 10% of Medicare Part B participants face the IRMAA (Income-Related Monthly Adjustment Amount). For those retiring, financial professionals suggest appealing the IRMAA. Since you’re leaving the world of work, your income is set to decrease, and premiums shouldn’t be calculated using previous high earnings.


Elsewhere, there’s a $76 change in the amount beneficiaries pay as an inpatient deductible through Medicare Part A when visiting a hospital. In 2021, this amount is now $1,484. For beneficiaries in Medicare Part B, the annual deductible has jumped a small amount from $198 to $203.


Finally, Medicare Advantage participants received good news with a small decrease in average monthly plan premiums. In total, the average will fall to $21.


Social Security


This year, the Social Security Administration revealed changes to SSI (Supplemental Security Income) and Social Security benefits. As a result, around 72 million people in America should experience a jump of 1.3%. In January, this increase will make its way to 64 million beneficiaries of Social Security. Meanwhile, a smaller number of 8 million should have seen this change to their SSI benefits on the last day of 2020.


What do these changes mean for Social Security benefits? The average for retired workers will rise to $2,596 for a couple and $1,543 for individuals. Other groups and limits include:


  • Widowed mother of two children – $3,001
  • Aged widower – $1,453
  • Disabled workers – $1,277


When retiring at FRA, the most any worker can receive is set to $3,148 in a single month. Now that we’re in January, all beneficiaries should have received a notice from the Social Security Administration regarding COLA; the same is also true for representative payees and SSI recipients. If you haven’t received the notice, or if you’re unsure, your Social Security account online should contain everything you need.


Other Changes


In truth, there are a few different changes to note, and this includes the increase to earnings limits for anybody underneath the FRA; this is now $18,960. What if you earn over this amount? For every $2 over, the Social Security Administration deducts $1. If you’re expecting to reach FRA this year, the earnings limit is set to $50,520. This time, every $3 over the amount leads to a $1 deduction.


Currently, $137,700 is the earnings maximum with regard to Social Security tax. In 2021, the new maximum amount will be $142,800.


Another interesting change comes with earnings limits for those at FRA; in fact, it’s the lack of an earnings limit drawing attention. With this in mind, even those working can get Social Security if 2021 is the year they reach FRA.


As always, choosing when to claim is important for those reaching full retirement age or turning age 62. Some are eligible to claim at age 62 in 2021, but it could lock monthly benefits at 70% until death. Alternatively, delaying the start will boost monthly benefits each year. Beyond FRA, growth is even more significant because you receive the boost for waiting and a boost in line with the cost of living.


If you can afford it and have other sources of income, experts recommend delaying Social Security to enjoy larger monthly payments later in life. Early claiming is still the best option if you have health problems or can’t afford to wait.


Retirement Plans


We promised information on retirement plans, so this is where we’ll finish. To keep things simple, the 2020 ‘dollar limits’ are exactly the same this year. This applies to the 457(b), 401(k), and 403(b) for catch-up contributions and elective deferral contributions. The latter is set to $19,500, and the former (for over 50s) is $6,500.


How much can you contribute to an Individual Retirement Account? $6,000; this contribution limit applies to Roth IRAs and traditional IRAs. Meanwhile, there’s a $1,000 catch-up limit for over 50s to bring the total to $7,000.


High-deductible health plans and health savings accounts (HSAs) have also changed with limits for family coverage at $7,200 and limits for self-only plans at $3,600. While the minimum annual deductible isn’t changing for 2021, there is a slight adjustment to maximum annual out-of-pocket expense limits (for family coverage and self-only plans).

4 Reasons Why Saving Solely to a 401(k) is a Bad Idea

Investing in a 401(k) plan is amongst the simplest ways to save for retirement. Once you decide on the amount of contributions to be making monthly, the amount is automatically deducted from your paycheck each month. You are building wealth without having to second guess or overthink it. There’s also the benefit of an employer’s match, which can help speed up your progress.

Despite its advantages, it’s advisable to have a stash of your retirement savings outside a 401(k). Here are four setbacks of investing solely in a 401(k) plan.


1. No Tax Diversification

401(k) distributions in retirement are taxed like regular income. That’s how the IRS takes back the tax deductions you received on contributions to the plan and the tax-deferral on your earnings. It’s a beneficial trade-off provided you remain in the same income bracket you are now when you leave the workforce.

The fact is that you can’t predict what your income and, subsequently, your tax situation will be in the future. You can earn less, or you can earn higher, which can increase your income bracket.

Similarly, one can’t predict what the future holds for U.S income taxes. Most experts have argued that taxes will mostly be increased considering that the government has spent trillions on coronavirus relief.

To address the uncertainty, it’s advisable to invest in a Roth IRA alongside your 401(k). Contributions to Roth IRAs are not tax-deductible, but in turn, you’ll enjoy tax-free distributions in retirement.


2. It’s Never Too Early To Retire

Withdrawals from a 401(k) account attract a 10% penalty if you are not up to 59½ years old. This penalty is waived if you happen to leave your job in the year you hit 55 or older (50 for public safety workers). It’s important to note that said waiver will only apply to your 401(k) balance with your most recent employer. So if you have enough funds in that account, you can retire in your 50s.

If you plan to retire early, diversifying your retirement savings to Roth IRAs or taxable brokerage accounts will increase your options. Contributions to Roth IRAs are not tax-deductible so that you can withdraw your contributions from the account without any tax or penalties. Just ensure you don’t withdraw the earnings on your contributions. You can only withdraw your earnings when you are 59½ years old.

On the other hand, a taxable brokerage has no restrictions on withdrawals, but it also has no tax benefits. So contributions are not tax-deductible, and you’ll pay taxes yearly on your interest, dividends, and gains to the account.

You can lower the tax burden by buying and holding growth stocks. Provided you are not realizing any profit or earning dividends, your taxable income won’t rise high.


3. Your Investment Options Are Limited

401(k) plans typically offer a selected group of funds, which could limit your investment options. Some plans offer a brokerage window that provides a broader selection of securities to invest into. But if your plan doesn’t have a brokerage window, then consider putting part of your savings into Roth IRAs, traditional IRAs, or taxable brokerages. These investment options will allow you to get what’s unobtainable with your 401(k).


4. You Could End Up Paying More in Fees

One of the drawbacks of 401(k) accounts is that the plan administrator can charge as much as 1% or 2% as operating fees for the plan. In addition to that, you’ll still pay the operating expenses mutual funds charge. While these percentages look smaller, they can still eat into your earnings over time.

If you consider the typical stock market annual return of 7%, you’ll realize that a 2% cumulative yearly fee is over the edge. If your investment charges you 2%, you’ll be left with 5%.

The solution available to you is to invest in stocks in a low-cost brokerage or IRA account outside your 401(k) plan. Alternatively, you can invest in low-cost index funds like the Fidelity 500 Index Fund (NASDAQMUTFUND: FXAIX).


Diversifying Your Savings

While using automation to contribute to your 401(k), it’s also essential to take extra steps to save elsewhere. For most retirement savers, investing in Roth IRA or brokerages complements their 401(k).

The benefit is that you get tax diversification and greater freedom to retire earlier than normal.

7 Things You Need to do if You Want to Retire in 2021

Many people want to have a comfortable retirement, and you’d like your retirement to be free from major snags. Planning for retirement is challenging due to factors such as the affordability of healthcare, market volatility, and even COVID-19 risks. You may not be financially flexible during retirement because you will rely more on a fixed income. Since many people now live longer, retirees will be surprised that they will spend a long time in retirement.


Because of this, it’s crucial to be adequately prepared for retirement. It would be best if you made some plan for unexpected events. Below are the seven things you should do if you want to spend your golden years comfortably.

1. Review your existing retirement financial plan


Building a good retirement plan is the first step toward having a good retirement. You must ensure that you have a solid plan before leaving your source of steady income or salary. It will help if you tailor your retirement plan according to your goals. Also, you must consider factors like medical expenses, cost of living, and Social Security benefits. When making your retirement plan, make sure that you pay off your debt before you retire. Paying off your debt will give you more financial flexibility when you retire.


Suppose you don’t have a plan already. In that case, it is time to start building yours now. If you have an existing retirement plan, ensure that you review it to conform with the trending estimates and figures. Reviewing your plan will give you detailed insight into how prepared you are for retirement. When you do this, you will be assured that your savings are enough to cover your expenses.


Retirement planning is tasking, especially with the complexities surrounding Social Security earnings, Medicare costs, and potential returns on investments. You can avoid mistakes by employing a financial advisor who will guide you about asset allocations during retirement and your income level. If you want to be financially secure when you retire, you need a specialist because your cost of living will increase when you retire.


However, your retirement income will not increase as much as your cost of living. Ensure that your financial retirement plan is not too conservative because this can affect your money’s growth during your retirement period. You may not have enough money if your plan is too conservative.


2. Consider the effect of COVID-19 on your plan


The pandemic may disrupt your retirement plan, both financially and otherwise. The economic impact of the COVID-19 pandemic can affect your asset value or disrupt your long-term plans. It can also hurt your estate planning or caring for a beneficiary who might be ill. You need to review your retirement plan because COVID-19 pandemic concerns will remain significant for the next few years. The pandemic has helped many people determine if they should retire or not.


3. Protect your assets from the stock market


While it is nice to live on your investment earnings without dipping into your principal, this is not an option for many retirees. Therefore, it is crucial to protect your future needed income from the market. It would help if you did not rely on stock market conditions before you fund your expenses.


4. Plan your healthcare


Suppose you are retiring this year; you may be surprised to know the current health insurance cost. Healthcare costs have caused many people to delay their retirement until they are eligible for Medicare or when they see a cheaper healthcare alternative.


Before you retire, make sure that your healthcare plan is affordable. You need to note that it is not easy to know your healthcare options and set up your healthcare plan when you retire from your job. Although setting up a health insurance plan is possible after retirement, it is time-consuming and frustrating. A good financial advisor will help you find quality, affordable health insurance options and evaluate the insurance costs’ effect on your plan.


5. Shift your perspective toward spending


You have spent your entire life working and saving for retirement, but it is time to spend your savings when you retire. At retirement, your mentality will shift to spending mode.

Before you retire, you might think that spending your savings is terrible, but when you retire, you will only be spending from your savings. When you retire, it is customary to spend and not save. This may appear simple enough, but it is a big emotional change for many retirees. Many people feel like they are breaking the rules by spending, but this feeling will change after a few months of staying in retirement.


6. Redefine your purpose


Being successful during retirement doesn’t rely on only financial details. It also depends on defining a new purpose apart from the work world. This new purpose can be with new individuals or in a different context entirely. Everyone has a purpose for each life period. Since retirement comes with flexibility and freedom, you can define a new purpose anytime you want.

When you establish a purpose, your vitality, health, and happiness will improve because you will not live a boring life.

7. Manage your finances during retirement


Retiring with a solid financial plan is essential, but it’s also necessary to manage your finances in retirement. You must manage your finances at retirement because a change in the law can affect your finances since you now rely on a fixed income. Due to a potential change in taxes, and Social Security, you must ensure that you know what’s best for you and your relatives when you retire.


If you don’t know these rules, you may need to consult a financial advisor because you are in the best position possible when you know the rules.


Retirement planning may be daunting to many employees, especially if they don’t have enough retirement savings. You may have more savings than you need, and if you don’t have sufficient savings, you can maximize your savings by adjusting your plan.


Suppose you don’t know if you can retire or not. In that case, you should employ a financial advisor to run a retirement projection for you. With the right projection, you will learn how well you are preparing for retirement.


Should You Retire in 2021? These Four Reasons Suggest You Should, by Leslie “Kathy” Hollingsworth

Should you retire this year? This is a big question, and one we know is playing on the minds of many. There’s uncertainty in the economy and a pandemic that doesn’t seem to be going anywhere; this is planting seeds of doubt. However, there are also four reasons why 2021 could be the right time to leave the world of work.


1. Unsafe Working Conditions


First and foremost, it could be time to put your health first. Some people can work from home, but others are being asked to work in an office where there’s a risk of picking up COVID-19. Recently, news surfaced of a new variant of the virus, which is more transmissible than the first (as if the first wasn’t enough!).


It’s easier to isolate and stay safe during what is a difficult time for all Americans by leaving the workforce. You could save your health, your money, and more.


2. Steady Stock Market


Over the years, plenty of near-retirees have been forced to take from their 401(k) or IRA during a dip. When this happens, we’re securing the loss and will never gain the lost amount back again. Fortunately, the stock market is actually relatively steady right now, and experts aren’t predicting any major changes in 2021. In fact, Americans are enjoying high stock values and have been since the end of 2020. Even as the pandemic continues, it seems the stock market will remain consistent, which is great news for our retirement portfolio.


3. Incoming Vaccines


Every day, news breaks that we’re moving closer to a vaccine for the coronavirus. Although we’re still in the early stages, we’re likely to make more progress in the coming weeks, and older generations are likely to receive the vaccine first. For those worried about retiring and then spending every day stuck at home, we needed the positive step in the country. After the vaccine, you’ll feel safer outside and this could open the door to entertainment and travel.


4. Stress Relief


Lastly, wouldn’t it be nice to have one major thing off the to-do list during this stressful time? You’re worried about family members, you’re concerned about the health of others, you’re fearful about stepping foot outside the front door; the last thing you need is to be worrying about work deadlines too.


Retirement could be perfect for 2021 with incoming vaccines, a steady stock market, an end to work stress, and unsafe working conditions. Of course, your decision depends on retirement savings and many financial factors too. Be sure to speak with a financial professional if you need assistance this year.

2021 Increase for Medicare Surcharges and Premiums, by Todd Carmack

As we enter 2021, it’s sometimes difficult to keep up with all the changes to Medicare. Don’t worry, we have everything you need to know in this guide. For example, it starts with a $4 increase to all Part B premiums in 2021. At the same time, the Centers for Medicare and Medicaid Services has revealed an increase in high-income surcharges.


Part B Premiums – Designed for outpatient services such as visits to the doctor, monthly premiums will rise for Part B from $144.60 to $148.50.


High-Income Surcharges – All based around MAGIs (modified adjusted gross income), married couples earning more than $176,000 could face surcharges of up to $356.40. Meanwhile, the same is true for individuals earning over $88,000. Unfortunately, a married couple both enrolled in Medicare should expect double payments.


This year, all IRMAA (income-related monthly adjustment amount) changes are based on federal tax returns for 2019. There’s a small increase to IRMAA surcharges for those in income brackets that trigger them with inflation adjustments.


What is the overall reaction to the $4 increase for Part B premiums? In many corners, it’s a relief. At one point in 2020, the COVID-19 pandemic was causing higher spending for Medicare, and many people thought this would pass down to participants. With concerns rising, the emergency spending legislation was introduced by Congress as a measure to prevent large premium increases.


With the drug plans available on Medicare plans, private insurers generally take control, and this means higher monthly surcharges for many high-income retirees in 2021. Depending on the circumstances, this extra fee could be $12 or reach $77.


Rather than finding and paying the IRMAA surcharges and Part B premiums, the system is designed to deduct all charges from Social Security benefits. Therefore, it takes place automatically. When Social Security isn’t an option, the individual receives a bill from Medicare.


What is the wider implication of these changes for Americans? Well, it comes at a difficult time with only a small COLA announced by the Social Security Administration. At just 1.3%, the average retiree will receive $1,543 this year (just $20 more than 2020); this same amount is $2,596 for couples (a $33 increase). With such a small increase in Social Security payments, it makes the Medicare Part B premium change more noticeable.


While not everybody will pay income-related surcharges, it’s believed that 7% of people will. Let’s look at a yearly comparison for Part B premiums for somebody earning between $88,000 and $111,000:


  • 2020 – $202.40 (surcharge of $57.80)
  • 2021 – $207.90 (surcharge of $59.40)


For married couples earning more than $750,000 and individuals above $500,000, premiums alone could reach nearly $12,120 per year. Why? Because there’s a surcharge of over $350 on top of individual monthly premiums of $505.


Can I Appeal an IRMAA Surcharge?


Yes, and there are a couple of scenarios where this is applicable. For example, it might be that your IRMAA premium was calculated using the wrong numbers. If you can prove that their information is incorrect, a recalculation is likely. On the other hand, it could be that your income has decreased as a result of a specific life event. Social Security will consider the following:


  • Marriage
  • Passing of a partner
  • Annulment/divorce
  • Reduced work hours (for either partner)
  • Retirement
  • Pension loss
  • Natural disaster (affecting a property used for income)


According to Social Security, not all events are considered ‘life-changing’, which includes portfolio distribution, sale of a vacation property, or Roth IRA conversion. In these events, Medicare premiums will increase. The changes come into effect for all reductions in income two years after the event for Medicare premiums.

5 Steps for Checking Your 401(k) This Year, by Aaron Steele

The beauty of a 401(k) is that you don’t really need to think about it once it’s set up. Regardless of stocks, you’re investing automatically into this retirement account and building for the future. In fact, it’s easy to forget you’re investing when it’s taken from your payroll automatically. However, it’s not wise to completely ignore your 401(k). Considering the account is important for retirement, you should check that it’s actually working for you at all times.


Here are five things you should check each year!


1. Your Retirement Goals


The younger you are, the more difficult it is to consider retirement. When in your 20s, it’s depressing to think about being old and gray. It doesn’t matter how far away you are; there’s nothing wrong with planning in advance. Many experts recommend planning to replace 80% of income before retirement.


These days, there are lots of high-quality retirement calculators online that should help with your retirement goals. As you near retirement, estimations get more accurate, and you’ll get a clearer picture of how much you’ll need, when to claim Social Security, etc.


2. Beneficiary


You might have a will, but this doesn’t mean you should ignore the beneficiary on all retirement accounts. In most cases, the beneficiary listed on retirement accounts is prioritized over anything in a will. If you want the right people to receive your 401(k) money, make sure the beneficiary is correct with your account. Even if you divorced the beneficiary many years ago, your ex-spouse could still receive everything because of this rule even if the will is up to date.


As well as checking this information every year, we also recommend getting into the habit of checking the beneficiary after big life events; this includes marriage, new children, divorce, and others.


3. Asset Allocation and Risk Tolerance


As any financial expert will tell you, looking at short-term market changes when deciding risk tolerance is never a good idea. This being said, you should consider your risk every year. Sometimes, it’s worth sacrificing returns by choosing bonds over stocks when retirement is close or a crash is expected in the market.


In terms of allocation, we recommend starting with the ‘110 rule’. Essentially, you start with 110 and then subtract your age to decide what percentage should be in stocks. For a 50-year-old, they should have 60% stocks and 40% bonds. Meanwhile, a 25-year-old should have 85% stocks and 15% bonds.


4. Actual vs. Expected Contributions


It’s normal to sometimes fall behind our goals, and the important thing is that we make a plan to recover as soon as possible. Of course, this starts with getting the full match from your employer. If you’re already getting this, review your finances and see if there’s room for maneuver. Can you start saving an extra 1%? This might seem small, but it’s better than nothing and makes a difference over a long period.


Some people invest the minimum for full employer contributions and then invest the excess into an IRA. Here are the contribution limits for 2021:


  • 401(k) – $19,500 (over 50s – $26,000)
  • IRA – $6,000 (over 50s – $7,000)


5. Fees


As the final step for checking your 401(k) this year, it’s always wise to assess the fees you’re paying. The more you pay in fees, the more it reduces your retirement portfolio. You might have heard about all the advantages of target-date funds, but did you know it has a 0.51% expense ratio? This means $5.10 for every $1,000 investment.


The expense ratio is often FIVE TIMES smaller with a passively managed index fund. With a reduction in fees, you could actually save yourself tens of thousands by the time retirement comes.


After following these five steps, you can breathe a sigh of relief that your 401(k) is working for you throughout 2021!

Are You Ready to Claim Social Security Benefits? Can You Wait?, by RICK VIADER

As we welcome a new year, a whole new group of people is about to reach the age of 62 (a significant milestone for those with one eye on Social Security!). At the same time, those born in 1955 will finally reach FRA (full retirement age). But, before you make any big decisions, you should ask one question:


Can I wait?


For those who wait to start claiming Social Security, they are normally rewarded handsomely. Why? Because the monthly benefit you receive increases every single year until you hit the age of 70. Even after FRA, this 8% per year makes a huge difference to your comfort in retirement. By claiming before FRA, you permanently reduce the monthly benefit.


Whether you’re reaching FRA or turning 62, we encourage you to reconsider immediately claiming Social Security. Just because you can claim, it doesn’t mean you should. By waiting, you increase the monthly benefit for when you eventually do start claiming.


We know, waiting to start receiving an important source of income is easier said than done. However, some can achieve it by staying at work for longer. Of course, your ability to do this all depends on your employer and health status. If you still enjoy work, this is a great excuse to continue.


Don’t worry; there are other options for those who want to stop full-time work. Perhaps you can rely on a 401(k), IRA, pension, or a part-time job for income rather than Social Security?


Before Claiming, Ask the Important Question


Before claiming at these two important ages (and in between), ask whether you can wait. For every year you wait, your potential monthly benefit from Social Security increases by 8%. Often, we see workers claim their Social Security and then leave money in a 401(k) or IRA. But this is the wrong way around. Instead, you should leave your money in the vehicle guaranteed to grow, which is Social Security.


If you can wait, the extra money you receive per month could just come in handy if you live beyond life expectancy. Of course, it’s always good to speak to a financial professional before making huge financial decisions for retirement. With a simple move like waiting to claim Social Security, you could just enjoy a healthier retirement.

Not affiliated with The United States Office of Personnel Management or any government agency