Four Strategies to Increase Your Social Security Benefit

One of the most powerful ways that people can increase their income in later life is to maximize their Social Security benefits. Below are four strategies to earn a higher monthly payment:

Earn a Higher Income- The more workers earn during their career from jobs and/or self-employment, the larger their Social Security payments will be. Higher incomes often require additional college degrees or training, increased work hours, and/or managerial responsibilities.

Work at Least 35 Years- Social Security benefits are calculated on 35 years of career earnings. Retirees who fall short of this mark will have $0 averaged into their benefit calculation for years without earned income.

Work Until Full Retirement Age- Full retirement age (FRA) is 66 for people born from 1943 to 1954 and 67 for those born in 1960 or later. In between these two dates, FRA gradually increases in two-month intervals (e.g., 66 and 6 months if born in 1957). Benefits can be claimed before full retirement age, as early as age 62, but they are permanently reduced.

Consider Delayed Retirement Credits- Social Security benefits increase about 8% a year if benefits are delayed beyond FRA up until age 70. After age 70, there is no financial advantage for waiting any longer. Key factors to consider are financial need, health status, amount of retirement savings, and plans to work after retirement.

There are also benefit-planning strategies that people can use with a spouse. A common recommendation is for the lower-earning spouse to claim benefits at FRA and the higher earner to delay up until age 70 to increase the amount that both spouses will eventually receive. For more information about Social Security, visit www.ssa.gov.

Recommended Estate Planning Practices

An “estate” is everything that people own in their own name or with others. Estate planning is the process of anticipating future life events (e.g., incapacity and death), minimizing gift and estate taxes, and distributing assets to loved ones in the manner a donor intends rather than according to state law. Estate planning, ideally, should begin in young adulthood upon the purchase of assets and/or the formation of a family. Below are four estate planning tips to consider:

¨     Write a Will- Ask people to serve in key positions, such as executor and guardian, before you name them in a will. People who die intestate (without a will) default to the “one size fits all” will provided by their state of residence.

 

¨   Avoid Conflicts in Titling of Assets- Don’t make the mistake of wanting assets to go to one person (e.g., child from a first marriage) named in a will, yet owning them with rights of survivorship with someone else (e.g., a second spouse). In cases where a will conflicts with titling, the title almost always determines the asset’s subsequent owner.

 

¨ Make Plans for Untitled Personal Property- Consider how you will distribute items where ownership is not identified with a written document. Examples include tools, furniture, books, dishes, collections, and jewelry.

 

¨ Draft a Durable Power of Attorney- Name an “agent” to handle financial matters in the event of your incapacity. Without one, it may be necessary for your family to seek court appointment as a guardian or conservator if you become incapacitated. This appointment process can be avoided with a durable power of attorney.

 

 

 

Financial Planning Tips to Pay for College

After a house and several cars, college is one of the largest expenses that many families face. In 2017-18, the average cost of tuition and fees was $9,970 for public colleges (for state residents) and $34,740 for private colleges.

Despite the high cost, an investment in a college education is generally worth it. According to a study by Georgetown University, the difference between the lifetime earnings of college and high school graduates is $1 million and the difference between the highest- and lowest-paying college majors is $3.4 million.

Below are three college financial planning tips:

¨      Do the Math- Estimate the cost of a college education with an online college savings calculator. Select a few “representative” types of schools such as a community college, state university, and private college.

 

¨      Match College Savings Time Horizon and Investments- Consider stock mutual funds for college savings for children in elementary school and younger. Once a child enters middle school, gradually shift into fixed-income (e.g., short- and intermediate-term bond funds) and cash (e.g., money market fund) assets.

 

¨      Start at a Community College- Transfer later to a public or private four-year institution. Students have the dual advantages of eventually receiving a bachelor’s degree from a four-year college and saving thousands of dollars of savings on tuition, fees, and room and board expenses. Check with both schools in advance about guaranteed admission agreements, course prerequisites, and requirements to transfer credits.

What are Your Personal Finance Boundaries?

Research indicates that one of the best ways to stick with goals (e.g., New Year’s resolutions) is to set boundaries. In other words, draw a “line in the sand” and develop personal policies to help say “no,” resist temptation, and stay on course.

How can people set boundaries?  Consider this analogy from the world of NASCAR Motor Sports. Ever since a car wreck nearly killed hundreds of spectators in the grandstands at Talladega in 1987, when a speeding car went airborne, races at Daytona International Speedway in Florida and Talladega Super Speedway in Alabama have required drivers to use “restrictor plates.”  According to the official definition on www.nascar.com, a restrictor plate is “A flat device with holes drilled into it designed to limit the amount of air that enters the engine.  This effectively limits the horsepower of the engine and slows the cars down.” 

 

Like Talladega race cars, people also need “restrictors” to slow them down so they can stick to their financial goals.  In other words, cues to limit spending because they’ve “had enough.”  Individuals need to develop, and enforce, their own restrictors.  If someone tries to restrict another person, they will usually resent it and rebel. 

Looking for some specific ideas?  Consider the following examples of financial restrictions:

§  Spending no more than $500 on holiday gifts and parties.

§  Charging no more than $300 per month on a credit card for new purchases.

§  Spending no more than $100 a week at the supermarket.

§  Buying a “new used” car, instead of a new car, to reduce the cost.

§  Depositing 5% of gross income in a 401(k) or 403(b) plan via payroll deduction (to “restrict” income)