Planning, Honeymoon, Disenchantment , Reoirentation and Legacy of Retirement Planning

I have a secret for you. I don’t blog. I was asked if I’d write one on the stages of financial planning, and given the constant nagging from my marketing director to start blogging, I agreed.  In this blog we’ll cover those stages and hopefully a few insights along the way.

Obviously there’s a 30,000 foot view stretching from adolescence to death, but I felt that folks reading this wouldn’t be too concerned with the youth of today, or paragraphs talking about the compounding effect for 20 year olds vs 30 year olds.  After all, most folks reading this were probably the youth of yesterday and you’re just now getting around to reading about this stuff yourselves.  So I thought I’d do a slightly more micro approach on the later stages. I’ll try to offer some ideas that I’ve come across in the 10 plus years I’ve helped clients navigate through their later years, in the hopes that you find some things useful or applicable to your own situations.  I’ll call these stages The Planning Time, Honeymoon Phase, Disenchantment, Reorientation, and Legacy.

Planning:

Our first stage ‘The Planning Time’ usually takes place somewhere around age 50. It’s when folks start looking at the balances of their 401K’s and begin wondering “Hmm, is that going to do it?”  People fortunate enough to have pensions start adding up their expenses and doing to math.  I cannot express how important these years are for your future.  The decisions you’ll make set the foundation for the rest of your life. I tell my teenagers that exact same line, but something tells me that you may be more receptive.

The general school of thought for retirement has been that you can safely pull 4% from your moderately invested savings with only a slight risk of your account hitting zero before your blood pressure does. (However, this has been under some scrutiny in the last 4-5 years due to volatile markets and low interest rate environment).  So keep in mind that it anything but a ‘rule’ when planning.  A few pointers for planning would be to ensure that your allocations haven’t gotten out of whack over the years of raising kids and not monitoring accounts.  Going over a detailed budget is going to be vital for you.  Notice I didn’t say create a budget, or to budget yourself.  I’ll leave telling you not to have a cup of coffee every day to the Suzie Orman’s of the world. Simply put, you need to know what your expenses will be once you retire to effectively plan for it. Common sense right? You’d be surprised at the amount of people that thought they just won’t spend as much during retirement. When in fact I’ve found that people often spend more than they did the years they were working (more on that later).  You also want to understand that diversification is more than just a healthy mix of stocks and bonds, it’s also understanding how having tax diversity can impact you.  The decision to invest money into tax free accounts or looking into Roth conversion strategies should involve more than, “Should I pay taxes now or later?” One important factor most everyone overlooks is the effect this has on their social security income. The difference between taking money from a taxable vs tax free account could mean paying tax on up to 85% of SSI. The bottom line for this stage, there are a lot of variables and you have to be diligent. Do your homework and lots of it.

Honeymoon:

The Honeymoon phase is where you allow 30+ years of stress to proverbially roll off your back. You did it! You’re the boss now, your time is yours again. Everything’s new, fresh, and exciting. Your dreams become possibilities and hobbies. You’re also the healthiest you’ll be throughout your retirement (assuming one of your hobbies isn’t a health make over). I encourage folks to plan for an increased budget during this initial phase because hopefully you’ll take advantage of it. Travel, start a new hobby or business, finish your bucket list because unfortunately there’s no telling just how long we have left. 

For those that retire prior to social security or pension benefits, this can be a time when you pull significant amounts from your savings. I suggest allocating your accounts into 3 separate buckets (figuratively or literally depending). Funds you’ll use the first 1-6 years in retirement. Funds from 7-15, and money you’ll need 15 years and beyond.  The reason is of course you would invest these accounts in a very different manner.  If you have 15 or 20 years until you need to use a certain account, you may be able to tolerate a few more fluctuations with the goal of receiving higher average returns along the way.

Disenchantment:

I hope this phase doesn’t happen for you or at the very least that being aware of it will help to shorten its stay.  Disenchantment comes when we become stagnant.  Feelings of let down or uselessness can creep in.  For some, and I’ve seen it happen to my very own clients, unhealthy spending can occur here.  We may tend to impulse buy or depression shop to find our self-worth or to just flat out make us feel better.  It is vital to recognize this and stick to your plan…you know that one you created in the planning stage! 

Reorientation:

Thankfully the letdown phase doesn’t last forever, at least not for you right?! You’re resilient, you’re a boomer for Pete’s sake! With the help of time, friends, family, or a combination thereof we ultimately discover our purpose of who we are now that we’re not working. We find and settle into routines. This may also be when we downsize our home if necessary, or simply start accepting a different outlook.  This is probably the truest test of our plan thus far and the best time to revisit its vitals and make sure it’s still healthy and preforming in a way that will support you.

Legacy:

This is something that comes naturally to some. “How do you want to be remembered?” Let that sit for a moment. If we’ve done a good job with other phases, chances are you have some tough decisions to make. How will you leave what you have in the simplest, most tax efficient way that will preserve your legacy?  There are so many ways to accomplish this that I could write posts for 6 weeks and still not cover them all.  Just know that you want your financial planner to have a good working relationship with an estate planning attorney so they can collaborate to identify all possible avenues for you to accomplish this. Whether it is charitable interests, passing wealth to your grandchildren, or meeting the maker with your last nickel, chances are the US government wouldn’t be a choice.

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The Area Agency on Aging would like to thank Jason Stroede , President of Clarus Wealth Management for this week’s blog.  Jason and his team specialize in retirement planning strategies in the St. Louis Metro East Region.  To contact Jason or one of his team you can call 618-398-6861 or 800-257-5046 or check out their website at www.claruswealthmanagement.com.

Social Security: Know before you go

Social Security: Know before you go!

According to the Pew Research Center starting January 1st 2011 "Roughly 10,000 Baby Boomers will turn 65 today, and about 10,000 more will cross that threshold every day for the next 19 years."  Most of those turning 65 and many more approaching that age are thinking about retirement.  The sad truth is that most retirees have very little understanding of Social Security benefits and can make decisions that will affect their income for the rest of their lives.  Retirement, retirement planning and strategies seem to be on the front page of Yahoo and other sites every day.  Some of the stories help; some of them are just confusing.

Fortunately, there are great tools available for free from Social Security to make the decision making process easier.  SSA offers publications and retirement tools on the www.ssa.gov website.  Make sure the page you are on is the .gov webpage, it is the official Social Security site, there are many predators on the web that will try and charge you for the information and filing of benefits.  Social Security does not charge a fee for filing for retirement benefits. If you are just beginning your plan for retirement SSA offers a great basic primer publication (www.ssa.gov/pubs/EN-05-10035.pdf).  The webpage also offers a variety of free tools that can be used to see the different monthly amounts based on your own earnings as you look at the difference between filing for early benefits at 62, 65, 67 or even 70 years old.  These tools are valuable for making the decisions for the rest of your life. You can also file for benefits on the SSA.gov webpage when you are ready. You can also file over the phone or in person at your Social Security office, but you will need to contact SSA and make an appointment well in advance. Appointments can be made by calling 1-800-772-1213.

Regardless of filing electronically or in person you are going to have to provide SSA with information and documentation to make the process go smoothly.  Using the tools SSA provides will make the process move very smoothly.

Documents you need to have in order to retire.

• Your Social Security number;
• Your birth certificate;
• Your W-2 forms or self-employment tax return for last year;
• Your military discharge papers if you had military service;
• Your spouse’s birth certificate and Social Security number if he or she is applying for benefits;
• Children’s birth certificates and Social Security numbers, if you are applying for children’s benefits;
• Proof of U.S. citizenship or lawful alien status if you (or a spouse or child applying for benefits) were not born in the United States; and
• The name of your financial institution, the routing number and your account number, so your benefits can be deposited directly into your account. If you do not have an account at a financial institution or prefer receiving your benefits on a prepaid debit card you can receive a Direct Express® card. For more information, visit www.GoDirect.org.

You will need to submit original documents or copies certified by the issuing office. You can mail or bring them to Social Security. They will make photocopies and return your documents.

Any time money and complex or confusing government programs are combined; there are people who will take advantage of the situation.  To avoid fraud many companies now offer retirement counseling as do many financial services firms.  It is important to understand that Social Security does not train or endorse anyone outside of SSA in retirement.  If you choose to use assistance in your retirement make sure you are dealing with a company or individual that at least is trained and certified is some type of financial planning recognized by major financial institutions.  By using the SSA webpage, publications and tools you will be more informed. You will know something about retirement, if the answers you are getting from your advisor do not sound like what you have read on Social Security’s documents you should be very cautious.  There are no secrets or tricks to getting the most from your retirement. No one can offer a "secret" to get more than you could on your own.  Remember you are providing very sensitive information, information that in the wrong hands could be used to steal your identity.

The key to a successful retirement is prior planning and education. SSA has made every effort to provide an easier to understand system.  Yes, it is still very complicated. Yes, it can be confusing. Yes, you can take charge of your retirement by spending some time with family or friends going over the information provided by the agency to make you better informed.  You are looking at a decision that will play a role in your life for decades, doing it fast and easy may not always be the best choice.

Resources

·         Guide for Spouse benefits: www.ssa.gov/retire2/yourspouse.htm

·         Guide for Divorced Spouse benefits: www.ssa.gov/retire2/yourdivspouse.htm

·         Social Security Retirement Planner: http://www.ssa.gov/retire2/

·         SSA FAQs for Retirement:  faq.ssa.gov/link/portal/34011/34019/ArticleFolder/237/Retirement

The Area Agency on Aging would like to thank Steve Fulton for contributing this blog.  Steve is a former Social Security Claims Representative, who is trained in both retirement and disability claims.  Steve can be reached at sfultonz72@gmail.com.

Observation Status and What you need to know

Many people are confused as to what observation status is and how it can affect them.  Today we will look at what hospital admission status is and what it means in terms of hospital care and long term skilled nursing care.

When a person enters a hospital for treatment they are be placed into one of two admission categories, outpatient or inpatient.  Inpatient status means that they have been formally admitted to the hospital by a doctor’s order.  Outpatient status means that you are there for emergency department (ER) service, outpatient surgery, lab tests, X rays or observation.  When a person is  in the hospital under outpatient they do not have a doctors order for admission.

Observation status covers many different circumstances, the following are examples.  One example of observation stats: A person who has outpatient surgery but is kept at the hospital for 24 hours in order for medical staff to address any complications from surgery that may occur.  In these circumstances the patient has been told beforehand that they will be kept for 24 hours after their procedure.  Another common example is someone enters  the Emergency Department and is put under observation to determine if they are sick/injured enough to require inpatient treatment.

Observation status has been in use  for a very long time, until recently the observation status was usually short term, less than 48 hours, most often 24 hours.  But, now a person can be kept in the hospital under observation status for days.  Many people do not understand the importance of admission status and how it can significantly affect the way needed long term skilled care is paid for.

When a person requires skilled care, such as rehabilitation, in order for Medicare to pay for that care the person has to have a qualifying hospital stay.  A qualifying hospital stay is one where a person has been admitted as an inpatient to the hospital for 3 midnights.  If they have a qualifying hospital stay prior to transfer to a skilled care facility, than Medicare covers the first 20 days of rehab at no cost to patient, and covers days 21-100 with a 2014 daily co pay of $152.  If a person goes into a rehabilitation setting at a skilled care facility and does not have a qualifying hospital stay, than Medicare covers nothing.    This is why it is so very important for patients and their families to understand the patient’s admission status.  A patient may enter a hospital through the emergency department and be placed in observation status for 3 nights and then be told there is nothing more the hospital can do they need to go to rehab.  The problem is the patient will be responsible for the entire rehab bill because they did not have a qualifying hospital stay.

So, how do you know what admission status a patient is under?  You ask and keep asking until someone tells you.  A person cannot presume that they are admitted just because certain things happen.  Observation status and inpatient admission status really do not look any different from the patients view point.  In both situations the nurses ask the same question about health, lifestyle etc.  If you are told that the patient is under observation status then the patient/patients advocate has the right to ask why they are not fully admitted as an inpatient.  Never assume that someone has inpatient status, always ask.

Additionally, the way Medicare covers self-administered drugs (prescriptions that the patient normally takes at home) for patients in outpatient status is much different.  To learn more about observation status, Medicare Prevention and Wellness benefits, as well as other Medicare topics, you can go to  www.medicare.gov/publications.  You can always contact your local SHIP (Senior Health Insurance Program) Counselor.  To find your closest SHIP counselor in Southwestern Illinois you can call the Area Agency on Aging at 618-222-2561 or 800-326-3221.