COVID-19 Distribution Tax Forms!!!

If you took a COVID distribution from a retirement account, IRA, 401(K), in 2020, you will have to report it on your taxes. Here are the special tax forms that you will need to report your COVID distribution.

DISCLOSURE: This is for educational purposes only. This is not tax advice. For tax advice, please consult your tax professional.  

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

The GameStop Surge: 5 Investment Lessons

In this video, we will be explaining what is driving the price surge in GameStop, AMC, and other companies in the markets.  More importantly there are 5 very important investment lessons that investors can learn from the recent GameStop anomaly that we will present in the video.  

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Will Moving From New York to Florida In Retirement Save You Taxes?

Will moving from NY to FL For Retirement Save You In Taxes

I am getting the question much more frequently from clients - "When I retire, does it make sense from a tax standpoint to change my residency from New York to Florida?". When I explain how the taxes work between New York and Florida, most people are disappointed to find out that it either makes no difference tax wise, or it is less of a difference than they thought.  I think too many people wrongly assume that changing your state domicile from New York to Florida is a no-brainer. Whether or not it will have a big impact for you depends on your personal financial situation for retirement. For some individuals, it will save them a lot of taxes, but for most, the tax impact may be minimal.  You have to consider:

1. How Social Security is taxed in NY

2. The $20,000 NYS exemption on the distributions from retirement accounts

3. How state pensions are taxed

4. The property tax breaks in NY once you are over 65

5. Hidden Medicare cost if you leave New York

6. How much your NY tax liability would be in retirement

7. Cost of Living

8. Estate tax laws

It probably seems like a lot of factors to consider, but all of them should be factored in before you decide to pack up the car and move to Florida for retirement.

How Social Security Is Taxed In New York

Many people do not realize that when you receive Social Security payments in retirement, it is considered taxable income at the federal level for most individuals.  While most individuals will pay federal income tax on their Social Security benefits, you do not have to pay NYS income taxes on social security.  If you are married, you and your spouse are each receiving $25,000 for social security, and you do not save any state income taxes on the $50,000 by moving to Florida, since New York does not tax your social security benefits.

NYS Tax Exemption On First $20,000 Distributed From Retirement Accounts

If you are NYS resident and over the age of 59½, New York does not make you pay state tax on the first $20,000 distributed from a corporate pension, IRA, 401(k) or other retirement plan.  Married couples get to double that at $20,000 each for a total of $40,000.

If we build on the social security example above, assume you and your spouse are each getting $25,000 in Social Security, and you can withdraw $20,000 each out of your IRA account without having to pay NYS income tax:

Taxes on Retirement Accounts

So, now you are up to $90,000 in annual income without a dime in income tax paid to New York State.

Taxes on Public Pension

If you have a pension with New York State, local government, federal government, or certain public authorities, you do not have to pay state taxes on that pension income in retirement.

Given that we are based out of Albany, NY, we have a lot of financial planning clients that have pensions through New York State.  Building again on the social security and IRA example above, now assume we have a married couple that both worked for New Year State and each have pensions for $50,000 each.  They do not have to pay NYS income tax on the pension income, they have no NYS income tax on social security, and no state income tax on the first $20K each out of their NYS 457 Plan or IRA’s.

Taxes on Public Pension

We are now up to $190,000 in annual income with zero dollars paid in NYS income taxes.

Property Tax Credits

It is no secret that New York State has high property taxes compared to other states which can often be one of the larger expenses in retirement after the mortgage is paid off.  Most New York residents are familiar with the STAR program which reduces the property taxes for homeowners that make less than $500,000 in income.  What many retirees do not realize is that there is something called the “Enhanced STAR” credit once you reach age 65, which can further reduce your school taxes.

However, the income limitation for the Enhanced STAR credit is much lower than the regular STAR program.  The extra exemption is limited to individuals age 65 and older making less than $86,000 per year in income.  A special note: income from annuities and IRA’s do not count toward the $86,000 income limitation.

While Florida may have lower property taxes compared to New York State, if you can qualify for the Enhanced STAR program, the difference in property taxes may be closer than you think.

SNOW BIRDS:  This Enhanced STAR program is a big deal for our clients that are snowbirds that go back and forth from New York to Florida.  If you plan to maintain a residence in New York and the have a second house in Florida, if you formally change your state of domicile to Florida, your are no longer Eligible for the STAR program, because you are no longer a New York State resident.  So, you think you might be saving property taxes by making this move, but your property taxes for your house in New York could actually go up by thousands of dollars since you are no longer eligible for the STAR credit.

Medicare Consideration

When you retire, what is often the largest expenses for retirees?  The answer is healthcare.  While New York is known for its higher property taxes and higher income taxes, not many people realize are lucrative health insurance benefits until after they have left the state.  When you turn age 65, you typically have to enroll in Medicare, which provides you with your healthcare coverage.  But Medicare does not pay for everything, so most individuals will enroll in either a Medicare Supplemental or Medicare Advantage Plan to fill on the cost gaps that Medicare does not cover.  Unfortunately, most retirees do not understand the difference between a Medicare Supplemental Plan and a Medicare Advantage Plan.

If you do not know the difference, here is our YouTube Video on the topic:  Medicare Supplemental Plans (Medigap) vs Medicare Advantage Plans

Here is a quick summary of the issue: Medicare advantage plans can carry a lower monthly cost but you sign up for a Medicare Advantage Plan, you are no longer covered by Medicare.  With Medicare supplemental plans, you are covered by Medicare, and the insurance policy supplements your Medicare coverage.  In New York, we have the luxury that each year you can decide whether you want to switch from a Medicare Advantage Plan to a Medicare Supplement Plan and visa versa if your health needs change.  That is only allowed in two states right now, New York and Connecticut.

If you were to change your state of domicile from New York to Florida, as soon as you become a Florida resident, you no longer have that option available to you.  If you are enrolled in a Medicare Advantage plan, you may not be able to change back to Medicare coverage with a Supplemental Plan in the future if your healthcare need change.  That is a big deal in retirement, so you really to analyze what type of coverage you when you make the move to Florida.

What Is Your New Tax State Liability

It is a given that no one likes to pay taxes and we would all like to pay less, but before you go through all of these maneuvers to save taxes, you should quantify how much you are actually saving.  For example, let us say we have a marriage couple, and their retirement expenses required them to withdraw $30,000 annually from their retirement accounts over and above the NYS $20K exemption amount.  Ignoring for now any standard deduction for tax purposes, they would have a New York State tax liability of approximately $2,200. So you have to ask yourself the question, “Is moving to Florida worth saving $2,200 per year in taxes?”.

Cost of Living

There are a few other factors that should be considered in this decision.  The first being the difference in the cost of living between New York and Florida. It is not uncommon for the cost of living to be lower in the southern states compared to the northeaster so your retirement dollar may go further.

Estate Planning

While it is kind of morbid to think about, estate laws vary state by state, meaning, depending on the size of your state, your state tax liability may vary depending on whether you're a resident of New York versus Florida.  For individuals that have large estates, this could me a bigger factor in their decision of whether or not to make the move.

People That Save Taxes By Moving

All things considered, for some individuals, making the decision to change you state of domicile from New York to Florida, could save them a tremendous amount of tax dollars but it depends on what your income picture will look like in retirement.   For individuals that plan to take larger distributions out of retirement accounts and may have earned income in retirement, it could give more weight did the decision to change your state of domicile but it is important to talk with a tax professional to fully evaluate all the moving pieces before making the decision.

Changing Your State of Residency

If you plan to maintain houses in both New York and Florida but plan to change your state of domicile to Florida for tax purposes make sure you know all of the rules. It is not as easy as just declaring that I am a Florida resident because I spent more than half of the year in Florida.  Below is our video that details all of the items that need to be consider when changing your state of domicile from New York to Florida.

Video: How Do I Change My State Residency For Tax Purposes

Disclosure: This is for educational purposes only. It is not tax advice. For tax advice, please consult your financial professional. 

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future. 

The Process of Selling A Business - Pitfalls To Avoid

For business owners, selling the business is often the single most important financial transaction in their lifetime.  Since this is such an important event, we created a video series that will guide business owners through the selling process. Dave Wojeski, a partner at Greenbush Financial, has spent years in the merger acquisition space, focusing on business transaction between $5M and $100M in value.  Over the course of these 3 videos, Dave will share the following information about the sell side of these business transactions: 

Video 1: Valuation & Prepping Your Business For Sale

• Knowing when it’s the right time to sell your business

• How to determine the value of your business

• The returns that buyers typical expect from the acquisition of your business

• Prepping your business for sale to command a higher valuation

Video 2:  The Process of Selling Your Business

• The steps associated with selling your business

• Professionals involved in the selling process

• Letter of Intent (LOI), Due Diligence, and Purchase Agreement Terms

• Special considerations when selling the business to your children

Video 3:  Pitfalls To Avoid When Selling Your Business

• Common pitfalls to avoid when selling your business

• Employment agreements post sale

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

A CFP® Explains: Wills, Health Proxy, Power of Attorney, & Trusts

When we are constructing financial plans for clients, we inevitably get to the estate planning portion of the plan, and ask them “Do you have updated wills, a health proxy, and a power of attorney in place?”  The most common responses that we receive are: 

• “I know we should have but we never did”

• “I did but it was over 10 years ago”

• “I have a will but not a health proxy or a power of attorney”

• “I have heard about trusts, should I have one?”

The Will, Health Proxy, and Power of Attorney are the three main estate documents that most people should have.  In this article I will review: 

• How Wills work and items that you should include in your Will

• Why you should have a Health Proxy and how they work

• Power of Attorney

• The probate process

• Considering a testamentary trust

• Assets that pass outside of the Will

• Revocable Trusts & Irrevocable Trusts

• Estate planning tips

• How much does it cost to establish a will, health proxy, and a power of attorney

Establishing A Will

The most basic estate document that most people are aware of is a written Will.   The Will provides specific guidance as to who will receive your assets after you have passed away.  The Will also establishes who would be the guardian of your minor children should you pass away prior to your children reaching the age of majority.  Without a Will, state laws and the court system that know nothing about you, will decide who receives your assets and who will be the guardian of your minor children; not a situation that most people want. 

The Will can be a very simple document.  If you are married and have children, the Will may state that if you pass away everything goes to your spouse but if both you and your spouse were to pass away simultaneously, the assets go to the children.  For individuals or married couples without children, or for married couples that have been divorced, it’s also critical to have a Will to provide direction as to what will happen to your assets if you were to pass away. 

You can engage an estate attorney to complete a simple Will or if your Will is very simple and straightforward, you may elect to use a do-it-yourself option through a platform like Legal Zoom.   We typically encourage clients to meet with an estate attorney because when it comes to estate planning many people don’t know what questions to ask to get the right documents and plan in place.  If you are married with minor children, and you and your spouse were to pass away leaving all the assets to the kids, with a simple Will, they would have access to their full inheritance at age 18.  An 18 year old having access to large sums of money may not be an optimal situation.   In those cases, you may want to include a testamentary trust or revocable trust in your estate plan to put some restrictions in place as to how and when your children will have access to their inheritance. 

Probate

I'm going pause here for a moment and explain what probate is and the probate process. When someone passes away, all of the assets included in their estate go through what's called a “probate process”.  The probate process is a legal process of accounting for all of your assets, debts, and transferring your assets to the beneficiaries of your estate.  The person listed in your will as the “executor” is responsible for coordinating the probate process.  Depending on the size of the estate, your executor will usually work with an attorney, an accountant, and possibly appraiser, to: 

• Value the assets in your estate

• Work with the courts to process your estate

• Pay outstanding expenses or debts

• Coordinate the transfer of assets to your beneficiaries

Since the probate process is a legal process involving the courts, the process often takes longer than beneficiaries expect.  Individuals will make the incorrect assumption that when you pass away, they just read the will, and your beneficiaries receive the assets within a few days or weeks; unfortunately that's not that case.  It’s not uncommon for the probate process to take 6 to 12 months and there are expenses involved with probating an estate.  If it’s a complex estate, it could take over a year to complete the probate process. 

For these reasons, it’s a common goal with estate planning to find ways to avoid the probate process and pass you assets directly to your beneficiaries.  I will explain more about these strategies later on.  But circling back to our discussion about the Will, if all you have is a Will, when you pass away, the assets in your estate will pass through this probate process. 

Testamentary Trusts

There are a lot of different types of trusts within in estate planning world. One of the most basic and common trusts, especially for individuals with children under that age of 25, is a testamentary trust. A testamentary trust is a trust that is built into your will.  With at testamentary trust, you are not establishing a trust today , but rather, if you pass away, a trust is established during the probate process and you can direct assets to the trust.  Building a testamentary trust into your Will gives you some control over how the assets are distributed to the beneficiaries after you have passed away. 

It's common for individuals or married couples with children under that age of 25, to build these testamentary trusts into their Wills.  I will illustrate how these trusts work in the example below. 

Example: Jim and Sarah have two children, Rob age 14 and Wendy age 8.  Between the value of their house, life insurance policies, and other assets, their estate would total $1.5M.  Jim & Sarah realize that if something were to happen to them tomorrow, they would not want their kids to inherit $1.5M when they turn age 18 because they might not go to college, they may try to start a business that fails, buy a Corvette, etc. In their Will they establish a Testamentary Trust that states that if both parents pass away prior to the children turning age 25, all of their assets will flow into a trust, and that Sarah’s brother Harold will serve as the trustee. Harold as the trustee is able to distribute cash from the trust for living expenses, education, health expenses, and other expenses deemed necessary for the well being of the children. The children will receive 1/3 of their inheritance at age 25, 30, and 35. 

You can design these testamentary trusts however you would like. In the Will you would designate who will be the trustee of your trust and the terms of the trust. 

IMPORTANT NOTE: Testamentary trusts do not avoid probate like other trusts do.  The trust is established as part of the probate process. 

Revocable Trusts & Irrevocable Trusts

It's also common for individuals and married couples to consider establishing either a Revocable Trust or Irrevocable Trust as part of their estate planning.  These are separate from Testamentary Trusts.  Revocable Trusts and Irrevocable Trusts are being established today and assets owned by the trust pass in accordance with the terms set forth in the trust document.   There are material differences between these two types of trusts but some primary reasons why people establish these types of trust are to: 

• Avoid probate

• Protecting assets from a long term event

• Control how and when assets are distributed beyond the date of death

• Reducing the size of the estate

• Advanced tax strategies

Assets That Pass Outside of The Will

There are certain assets that pass outside of the Will.  Many of these “other assets” pass by “contract”, meaning there are beneficiaries designated on those accounts. A common example of assets that pass by contract are 401(k) accounts, IRA’s, annuities, and life insurance.  When you set up those accounts you typically designate beneficiaries for each account and your Will could say something completely different. The assets that pass by contract do not have to go through the probate process unless the beneficiary listed on the account is your estate which is usually not an advantageous election for most individuals. 

Transfer On Death Accounts (TOD)

One of the estate planning strategies that we use with clients is instead of holding an individual investment account in the name of the individual, we will register the account as a “transfer on death” (TOD) account.    If you have an individual brokerage account and you pass away, the value of that account will have to go through probate.  By simply adding the TOD feature to an existing individual brokerage account which lists beneficiaries similar to a 401(K) or IRA account, that account now avoids probate, and passes by contract directly to the beneficiaries.

Depending on the assets that make up your estate, you may be able to setup TOD accounts as opposed to going through the process of setting up trusts but it varies from person to person. 

Power of Attorney

Let’s shift gears now over to the Power of Attorney document.  A Power of Attorney document is important because it allows someone to step into your shoes and handle your financial affairs, should you become incapacitated.   Some common examples are: 

Example 1: If you're in a car accident and end up in a coma, for accounts that are held only in your name, such as a checking account, investment account, or credit card, they will only speak to you.  Being married does not give your spouse access financially to those accounts while you are still alive but your spouse may need access to them to continue to pay your bills or get access to cash to pay expenses while you're incapacitated.   Having a power of attorney document would allow your spouse or trusted individual named as your “agent” to act financially on your behalf. 

Example 2:  Having a power of attorney in place is key for Long Term Care events.  If you have a spouse or parent and they have a stroke, develop dementia, or another health event that renders them unable to handle their personal finances, you could step in as their agent and handle their personal finances.  In long term care situations that can often mean paying a nursing home, applying for Medicaid, paying medical bills, or shifting the ownership of assets to protect from a Medicaid spend down. 

The Power of Attorney can also be built so your agent is not given that power today but rather it would only be given if a triggering event happened sometime in the future.   With this document you really have to name someone you 100% trust.   As financial planners, we have seen cases where there is abuse of the Power of Attorney powers and it’s never pretty.  It's not uncommon for a power of attorney to allow the agent to make gifts as a planning tool, but that might also include gifts to themselves, so you have to fully trust your agent and the powers that you provide to them. 

Health Proxy

The health proxy is usually the least fun estate document to complete but is equally important.  In this document you are naming the individual that has the right to make your health decisions for you if you are incapacitated.  This document spells out what you want and don’t want to have happen if certain health events occur. While it's not uncommon for individuals to be a little uncomfortable completing this document due to the nature of the questions, it's a lot better to complete it now, versus your family members trying to determine what your wishes would be when a severe health event has already occurred. 

The health proxy will list items like: 

• Would you be willing to be put on life support?

• If you could not eat, would you allow them to use a feeding tub

• Resuscitation preferences

• Willingness to accept blood transfusions

Again, not fun things to think about but by you making these decisions while you are of sound body and mind, it takes away the difficult situation where your family members have to decide in the heat of the moment what you would have wanted.  That situation can sometimes tear families apart. 

Keep Your Estate Plan Up To Date

All too often, we run into this situation where a client will acknowledge that they have estate documents, but they were established 20 years ago, and they never made any changes.  It makes sense to meet with your estate attorney and revisit your estate plan: 

• Every five years

• If you move to a different state

• When Congress makes major changes to the estate tax rules

The estate laws vary state by state.  If we have clients that are planning to move and they plan to change their state of domicile to another state, we will often encourage them to meet with an estate attorney within that state once the move is complete.    Congress has also made a number of changes to the federal estate tax laws over the past few years, with potentially more in the works, and not revisiting the estate plan could end up costing your beneficiaries tens of thousands of dollars in estate taxes that could have been avoided with some advanced planning. 

Cost of Estate Documents

The cost of establishing a Will, Health Proxy, Power of Attorney, and Trusts, often varies based on the complexity of your estate plan.   A simple Will may cost less than $1,000 to establish through an estate attorney.   Establishing all three documents: Will, Health Proxy, and Power of Attorney may cost somewhere between $1,000 - $3,000.  While it's not uncommon for individuals to be surprised by the cost of setting up these estate documents, I always urge people to think about the cost of not having those documents in place.  The probate process with professionals involved could cost thousands of dollar, your beneficiaries could lose thousands of dollars in taxes that could have been avoided, not to mention the emotional toll on your family trying to figure out what you would have wanted without clear guidance from your estate documents. Revocable Trusts and Irrevocable Trust

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

How Much Life Insurance Should You Have? Top 8 Factors

how much life insurance do you need

When we are assisting clients in building their personal financial plan, inevitably one of the most frequent questions that comes up is: “How much life insurance should I have?”  It's an important question to ask because if something unexpected were to ever happen to you or your spouse, it could put your family in a very difficult financial situation.  To help mitigate this risk, people buy life insurance to guard against this type of unfortunate event but it’s important to know how much life insurance protection you should have. If you have too little, the coverage might not be enough to meet your family’s financial needs. If you have too much, you might be wasting money on insurance that you don’t need. 

In this article we're going to go over the top 8 variables that factor into how much life insurance you should have, as well as, what type of insurance might make sense for you. 

#1:  Amount of Debt

First, you should tally up the total value of all of your outstanding debt. 

• Mortgage

• Student Loans

• HELOC

• Credit Cards

• Car Loans

• Any other debt…………..

If you have dependents and something were to happen to you, the goal is to minimize the future annual expenses for your family.  If you are married and you are used to having two incomes in the household to pay the mortgage, student loans, and car loans, if one spouse passes away, the family loses that income stream and it could be very difficult to meet the monthly payment on the debt with only one income.  The life insurance would payout at the death of the insured spouse and those proceeds can be used to wipe out all of the debt which in turn reduces the monthly expense burden on the family. 

#2: Income Level of Each Spouse

If you are married, the income level of each spouse will factor into how much life insurance each spouse should have.  If spouse 1 makes $200K per year and spouse 2 makes $40K per year, typically you will need more insurance on spouse 1 than spouse 2.  If Spouse 1 passes away, over the next 5 years, that’s $1 million in income that would need to potentially be replaced ($200K x 5 Years). However, if spouse 2 passes away, there would only need to be $200K to cover the next 5 years of income ($40K x 5 years). 

A common mistake that married couples make is they blindly go in and purchase two insurance policies with the same death benefit without taking the different income levels into account.  For possibly the same combined premium amount, in many but not all cases, couples can be better served by shifting more of the insurance coverage to the spouse with the higher income. 

#3:  Future College Expenses

If you have children and you expect those children to attend college, if you do not expect to receive large amounts of need based financial aid, it's important to factor in future college expenses into the amount of the insurance coverage.   If you have 3 children and you planned on paying for their first 4 years of college, assuming college tuition with room and board is $25,000 per year, that’s $100,000 per child, multiplied by 3, for a grand total of $300,000 in anticipated college costs. 

#4: Household Expenses

Everyone has a different lifestyle.  One couple that has a combined income of $300,000 may need $250,000 to support household expenses if one of the spouses were to pass away.   But another couple making the same $300,000 per year may only need $150,000 per year in income to support the household if one of the spouses passes away. You have to determine how your annual expenses would be impacted based on the untimely death of each spouse. 

#5:  Outside Savings

The amount of wealth that you have already accumulated absolutely factors into the amount of insurance that you may need.  For example, if you sold your business and have $2 million in cash and non-retirement investment accounts, you may essentially be self-insured, meaning if something happened to you, you have accumulated enough savings to meet all of your family’s future financial needs without the need for additional insurance coverage. 

However, if you and your spouse are both below the age of 50, have 2 children, and all of your wealth is tied up in 401(k)’s or retirement accounts, if you or your spouse were to pass away, the surviving spouse would have to withdrawal that money from the retirement accounts to meet expenses and pay tax on those distributions. So that $200,000 in their 401(K) may only be $150,000 after the taxes are paid but it depending on your tax bracket.   By comparison, personal life insurance policies that you pay for out of pocket, the insurance proceeds are received tax free when paid to your beneficiaries. 

So it’s not just a question of how much you have accumulated but also how accessible are those assets to your beneficiaries if they need to use those assets to supplement their income. 

#6:  Retirement Savings

You also have to consider the impact of an untimely death of a spouse on your retirement projections.  If you or your spouse are covered by an employer sponsored retirement plan, like a 401(k) or 403(b), your retirement projections probably have you both making those regular annual contributions up until your retirement date.  If one spouse passes away, those retirement contributions that were supposed to be there, no longer will be, which could force the surviving spouse to work longer than they wanted too. 

You have to pay close attention to individuals that have pensions.  Some pensions require the employee to turn on their pension benefit to reserve the survivor benefit for their spouse.  If the employee passes away prior to their pension start date, the generous pension benefit which the family was depending on could be replaced by a much lower lump sum death benefit.   In addition, retirees that elect a pension benefit with no survivor benefits to their spouse will sometimes use life insurance to cover the risk that they pass away and the pension stops within the early years of retirement. 

#7:  Adult Children with Disabilities

For families that have adult children with disabilities, it's not uncommon for the parents to be providing some form of continued financial support for their disabled child for the duration of their adulthood.  If the parents were to pass away, the concern is that there has to be enough assets inherited by the child to provide them with support for the remainder of their life.  Parents will often set up a Special Needs Trust to serve as the beneficiary of these life insurance policies so if the policies do payout it does not jeopardize the Social Security, Medicaid, Medicare or other government assistance that the disabled child may be receiving. 

#8:  Estate Plan

For some clients, it’s part of their estate plan that no matter what happens they want to know that $500,000 will go to each child, their favorite charity, to a trust for their grandchildren, or for clients with larger estates to pay the anticipated estate tax.  To guarantee that those amounts will be available to meet their estate wishes, individuals can purchase permanent life insurance that will payout at the death of the insured. 

Case Study

Let's run through a simple example given the following fact set: 

Spouse 1 Income:  $200,000  (Age 30)

Spouse 2 Income;  $50,000   (Age 31)

Children:  Susan Age 4 and Rebecca Age 2

Mortgage:  $250,000

Student Loans: $20,000 

The couple above has the college savings goal to pay for the first 4 years of the kid’s college expenses which is anticipated to be $25,000 per year. 

Total Debt:  $270,000

Total Estimated Future College Expense: $200,000 ($25K per year for each child) 

From an income replacement standpoint, we would be looking to provide this family with a minimum of 5 years of income replacement.  For the coverage on Spouse 1 that would be: 

$200K Annual Income x 5 Years = $1M

Total Debt and College Costs =   $470K

Total Insurance Coverage on Spouse 1:  $1.5M (round up) 

For the coverage on Spouse 2 that calculation would be: $50K Annual Income x 5 Years = $250KTotal Debt & College Costs = $470KTotal Insurance Coverage on Spouse 2 = $750K (round up) 

How Much Does Insurance Cost?

In general, term insurance is cheap and permanent insurance is more expensive.  For 90% of the individuals that we work with for their financial plan, term insurance typically makes the most sense.  To give you an idea, a $1M 30 Year Term policy with William Penn Insurance Company, for an individual with the following fact set: 

• Age 30

• Gender: Male

• Resident of New York

• Non-Smoker

• Preferred Health Class

The monthly premium would only be $70.46 per month as of July 2020. 

New York Residents: We Can Help

Michael Ruger & Rob Mangold are independent insurance agents which means we are not tied to a single insurance company. If you are a resident of New York, we can consult with you, help you to determine the amount of insurance that you need, evaluate you current life insurance coverage, and run free quotes for you across the major life insurance carriers in NY to determine the most appropriate carrier for your insurance policy. Contact Us

Michael Ruger

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Coronavirus RMD Relief: Ability To Waive Mandatory IRA Distributions In 2020

Congress passed the CARES Act in March 2020 which provides individuals with IRA, 401(k), and other employer sponsored retirement accounts, the option to waive their required minimum distribution (RMD) for the 2020 tax year.  This option is available to both individual over the age of 70½ and non-spouse beneficiaries of inherited IRA’s.   In this article we will review: 

• The new RMD waiver rules

• RMD’s for individuals age 70.5

• RMD’s for beneficiaries of Inherited IRA’s

• What happens if you already took your distribution for 2020?

• Options for putting the RMD back into your IRA

Who Qualifies For The RMD Waiver?

Unlike other provisions in the CARES Act that require an individual to demonstrate that they have been impacted by the Coronavirus to gain access, the waiver of 2020 required minimum distributions is available to everyone.  If you were age 70½ prior to December 31, 2019 or are the non-spouse beneficiary of an IRA, you are typically required to take a small distribution from your IRA each year, called an “RMD”, and pay tax on those distributions.  However, for 2020, if you want to keep that money in your IRA in 2020 and avoid the tax hit associated with taking the distribution, you have the option to do so. 

What If You Already Took Your RMD for 2020?

If you already received the RMD amount from your IRA for 2020, you may be able to return it to your IRA, and avoid the tax hit. 

If the distribution came from your own personal IRA, not an inherited IRA, you will have two options: 

OPTION 1:  If the distribution happened within the last 60 days, you can simply return the money to your IRA. For this option, you are utilizing the 60-day rollover rule which allows you to take money out of an IRA, return it within 60 days, and avoid the tax liability.   You are only allowed one 60-day rollover every 12 months. 

OPTION 2:  If the distribution took place more than 60 days ago, you will only be allowed to return it to your IRA if you qualify based on one of the four Coronavirus-Related Distribution criteria: 

• You, your spouse, or a dependent was diagnosed with the COVID-19

• You are unable to work due to lack of childcare resulting from COVID-19

• You own a business that has closed or is operating under reduced hours due to COVID-19

• You have experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced because of COVID-19

If you qualify under one of these items, then you will have 3-years from the date of the distribution to return the money back to your IRA and avoid the tax hit. However, while you have 3-years to return it to the IRA, if you don’t return the money to your IRA prior to December 31, 2020, you will have a tax liability in 2020 for all or a portion of that IRA distribution.  It’s only when you actually return the money to your IRA that the tax liability is nullified. If you return it in a future tax year, you would have to go back and amend your 2020 tax return to recapture the taxes that were paid. 

Inherited IRA – Non-spouse Beneficiary

However, if you are a non-spouse beneficiary of an IRA, the rules for returning the money to your IRA are different.  If you are a non-spouse beneficiary of an IRA and you already received your RMD for 2020, you cannot return that money to your IRA to avoid the tax liability. Why is this? Beneficiaries are not eligible to make rollovers, so that disqualifies them from return the money to the IRA under the rollover rules in the CARES Act. 

A Note To Our Greenbush Financial Clients

If you wish to waiver your RMD to 2020 or if have already received your RMD, and wish to process a rollover back into your IRA, 401(k), or employer sponsored plan, please contact us. 

Michael Ruger

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

When To Enroll In Medicare

Medicare has important deadlines that you need to be aware of during your initial enrollment period. Missing those deadlines could mean gaps in coverage, penalties, and limited options when it comes to selecting a Medicare Supplemental Plan.

Many people are aware of the age 65 start date for Medicare, however, it’s not uncommon for individuals to work past age 65 and have health insurance coverage through their employer or through their spouse’s employer.  For many of these individuals working past age 65, they are often surprised to find out that even though they are still covered by an employer sponsored health plan, depending on the size of the employer, and the insurance carrier, they may still be required to enroll in Medicare at age 65.

In this article we will cover:

• Enrollment deadlines for Medicare

• When to start the enrollment process

• Effective dates of coverage

• Special rules for individuals working past age 65

• Medicare vs. employer health coverage

Initial Enrollment Period

For many individuals, when they turn age 65, they are required to enroll in Medicare Part A and Part B which becomes their primary health insurance provider.  The Medicare initial enrollment period lasts for seven months. This period begins 3 months prior to the month of your 65th birthday and ends 3 months after that month.  

medicare initial enrollment period

Example: If you turn age 65 on June 10th, your initial enrollment period begins on March 1 and ends on September 30. 

Retired and Collecting Social Security

If you are retired and you are already receiving Social Security benefits prior to your 65th birthday, no action is needed to enroll in Medicare Part A & B. Your Medicare card should arrive in the mail one or two months prior to your 65th birthday. 

However, even though you are automatically enrolled in Medicare Part A and Part B, if you are not covered by a retiree health plan through your former employer, you should begin the process of enrolling in either a Medicare Supplemental Plan or Medicare Advantage Plan at least two months prior to your 65th birthday.  Medicare Part A and Part B by itself, does not cover all of your health costs which is why most retirees obtain a Supplemental Plan. If you wait until your 65th birthday, the effective date of that Supplemental coverage may not begin until the following month which creates a gap in coverage. 

As soon as you receive your Medicare card, you can enroll in a Medicare Supplemental Plan or Medicare Advantage Plan to ensure that both your Medicare coverage and Supplemental Coverage will begin as soon as your employer health coverage ends. 

Retired But Not Collecting Social Security Yet

If you are retired, about to turn age 65, but you have not turned on your Social Security benefits yet, action is required. Medicare is not going to proactively notify you that you need to enroll in Medicare Part A & B.  The responsibility of enrolling at the right time within your initial enrollment period falls 100% on you.

Three months prior to your 65th birthday you can either enroll in Medicare online or schedule an appointment to enroll in Medicare at your local Social Security office. 

Note: If you plan to enroll in Medicare via an in-person meeting at the Social Security office, it is strongly recommended that you call your local Social Security office two months prior to the beginning of your initial enrollment period because they may require you to make an appointment. 

If you decide to enroll online, it’s a fairly easy process, and it should only take you 10 to 15 minutes.  Here is the link to enroll online: https://www.ssa.gov/benefits/medicare/ 

If you are simultaneously applying for Medicare and Social Security to begin at age 65, there is a separate link where you can enroll in both online: https://www.ssa.gov/retire

Working Past Age 65

If you or your spouse plan to work past age 65 and will be covered by an employer sponsored health plan, you may or may not need to enroll in Medicare at age 65. Unfortunately, many people assume that because they are covered by a company health plan, they don’t have to do anything with Medicare until they officially retire.  That assumption can lead to problems for many people when they go to enroll in Medicare after age 65.

The following factors need to be taken into consideration if you have employer sponsored health coverage past age 65:

1. How many employees work for the company

2. The insurance company providing the health benefit

3. Does the plan qualify as “credible coverage” in the eyes of Medicare

4. The terms of your company’s plan

At Age 64: TAKE ACTION

I’m going to review each of the variables listed above but before I do, I want to make a blanket recommendation.   If you plan to work past age 65 and will be covered by your employer’s health insurance plan, right after your 64th birthday, go talk to the person at your company that handles the health insurance benefit and ask them how the company’s health plan coordinates with Medicare.  Do not wait until a week before you turn 65 to ask questions.   If you or your spouse are required to enroll in Medicare, the process takes time. 

19 or Fewer Employees

Medicare has a general rule of thumb that if a company has 19 or fewer employees, at age 65, employees have to enroll in Medicare Part A and B.  Medicare becomes your primary insurance coverage and the employer’s health plan becomes your secondary insurance coverage.  Your open enrollment period is the same as if you were turning age 65 with no employer health coverage. 

20 or More Employees

If your company has 20 or more employees and the health insurance plan is considered “credible coverage” in the eyes on Medicare, there may be no action needed at age 65.  As mentioned above, you should go to your human resource representative at your company, after your 64th birthday, to verify that the health plan that they have is considered “credible coverage” for Medicare. If it is, then there is no need to sign up for Medicare at age 65, your employer health coverage will continue to serve as your primary coverage until you retire.

However, if your company’s health plan does not qualify as “creditable coverage” then you will have to enroll in Medicare Part A & B at age 65 to avoid having to pay a penalty and avoid gaps in coverage once you officially retire.

Action: 90 Days Before You Retire

If you work past age 65 and have credible employer health coverage, 90 days before you plan to retire, you will need to take action regarding your Medicare benefits.  This will ensure that your Medicare Part A & B coverage as well as your Medicare Supplemental coverage will begin immediately after your employer health insurance coverage ends.

When you retire after age 65, Medicare provides you with a “Special Enrollment Period”.  You have 8 months to enroll in Medicare Part A & B without a late penalty:

63 Day Enrollment Window: Medicare Supplemental, Advantage, & Part D Plans

Even though the Special Enrollment Period lasts for 8 months, you only have 63 days after your employer coverage ends to enroll in a Medicare Supplemental, Medicare Advantage Plan (Part C), or a Medicare Part D Prescription Drug Plan.  But remember, you are not eligible to enroll in those plans until after you have already enrolled in Medicare Part A & B which is why you need to start the process 90 days in advance of your actual retirement date to make sure you meet the deadlines. 

COBRA Coverage Does Not Count

Some individuals voluntarily elect COBRA coverage after they retire to extend the employer based health coverage.  But be aware, COBRA coverage does not count as credible insurance coverage in the eyes of Medicare regardless of the plan that you are covered by.  If you do not enroll in Medicare within the eight months after leaving employment, you may face gaps in coverage and permanent Medicare penalties once your COBRA coverage ends. 

Spousal Coverage After Age 65

You have to be very careful if you plan to be covered by your spouse’s employer sponsored health insurance past age 65.  Some plans with 20 or more employees will serve as primary insurance provider for the employee but not their spouse.  In these plans, the non-working spouse is required to enroll in Medicare at age 65. 

We have even seen plans where the health insurance for the non-working spouse ends on the first day of the calendar year that they are scheduled to turn age 65.  This creates a whole other issue because there is a gap in coverage between January 1st and when the non-working spouse turns age 65.  Again, as soon as you or your spouse turn age 64, you should start asking questions about your health coverage. 

The Insurance Company Matters

There are a few insurance companies that voluntarily deviate from the 19 or less employees rule listed above. These insurance companies serve as the primary insurance coverage for employee that work past age 65 regardless of the size of the company.  Medicare does not fight it because the government is more than happy to allow an insurance company to foot the bill for your health coverage.  In these cases, even if your company employs less than 20 employees, you do not have to take any action with regard to Medicare at age 65. 

You Cannot Enroll Online

If you work past age 65 and have employer based health coverage, you do not have the option to enroll in Medicare online.  You have to prove to Medicare that you have maintained credible health insurance coverage through your employer since age 65, otherwise you face penalties and potential gaps in coverage.  You will need to make an appointment at your local Social Security office to enroll. Your employer or the health insurance company will provide you with a letter which serves as your proof of insurance coverage. 

Enrolling in Medicare Supplemental or Medicare Advantage Plans

Once enrolled in Medicare Part A and part B, individuals that do not have retiree health benefits, will enroll in either a Medicare Advantage Plan or Medicare Supplemental Plan. You have to be enrolled in Medicare Part A & B, before you can enroll in a Supplemental or Advantage Plan.

It’s extremely important to understand the differences between a Medicare Supplemental Plan and Medicare Advantage Plan which is why we dedicated an entire article to this topic:

Article: Medicare Supplemental Plan vs. Medicare Advantage Plan

Retiree Health Benefits Through Your Former Employer

For employees that have retiree health coverage, you still need to enroll in Medicare Part A & B which serves as the primary insurance coverage and the retiree health coverage serves as your secondary insurance coverage.

Some larger employers even give employees access to multiple retiree health plans.  You have to do your homework because some of those plans are structured as Supplemental Plans while others are structured as Advantage Plans.

Medicare vs Employer Health Coverage

Once you turn age 65, if you plan to continue to work, and have access to an employer based health plan, you still need to evaluate your options. A lot of companies have high deductible plans where the employee is required to pay a lot of money out of pocket before the insurance coverage begins.  In general, Medicare Part A & B, paired with a Supplemental Plan, can offer very comprehensive coverage at a reasonable cost to individuals 65 and old.  You have to compare how much you are paying in your employer health plan and the benefits, versus if you decided to voluntarily enroll in Medicare and obtain a Supplemental policy.

The results vary on a case by case basis and each person’s health needs are different but it’s worth running a comparison.  In some cases, it can save both the employer and the employee money while providing the employee with a higher level of health insurance coverage.

Contact Us For Help

If you have any questions about anything Medicare related, please feel free to contact us at 518-477-6686. We are independent Medicare brokers and we can make the Medicare enrollment process easy, help you select the right Medicare Supplemental or Advantage Plan, and provide you with ongoing support with your Medicare benefits in retirement. 

Other Medicare Articles

• Introduction To Medicare

• Medicare Supplemental Plans (“Medigap”) vs. Medicare Advantage Plans

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

How Do Social Security Survivor Benefits Work?

Social Security payments can sometimes be a significant portion of a couple’s retirement income.  If your spouse passes away unexpectedly, it can have a dramatic impact on your financial wellbeing in retirement.  This is especially true if there was a big income difference between you and your spouse.   In this article we will review: 

• Who is eligible to receive the Social Security Survivor Benefit

• How the benefit is calculated

• Electing to take the benefit early vs. delaying the benefit

• Filing strategies that allow the surviving spouse to receive more from Social Security

• Social Security Earned Income Penalty

• Social Security filing strategies that married couples should consider to preserve the Survivor Benefit

• Divorce: 2 Ex-spouses & 1 Current Spouse: All receiving the same Survivor Benefit

How Much Social Security Does A Surviving Spouse Receive?

When your spouse passes away, as the surviving spouse, you are entitled to receive the higher of the two benefits. You do not continue to collect both benefits simultaneously.

Example: Jim is age 80 and he is collecting a Social Security benefit of $2,500 per month.  His wife Sarah is 79 and is collecting $2,000 per month for her Social Security benefit.

If Jim passes away first, Sarah would begin to receive $2,500 per month, but her $2,000 per month benefit would end.

If Sarah passes away first, Jim would continue to receive his $2,500 per month because his benefit was the higher of the two, and Sarah’s Social Security payments would end.

Married For 9 Month

To be eligible for the Social Security Survivor Benefit as the spouse, you have to have been married for at least nine months prior to your spouse passing away.  If the marriage was shorter than that, you are not entitled to the Social Security Survivor Benefit. 

Increasing Your Spouse’s Survivor Benefit

Due to this higher of the two rule, as financial planners we work this into the Social Security filing strategy for our clients.  Before we get into the strategy, let’s do a quick review of your filing options and how it impacts your Social Security benefit. 

Normal Retirement Age

Each of us has a Normal Retirement Age for Social Security which is based on our date of birth.  The Normal Retirement Age is the age that you are entitled to your full Social Security benefit: 

Should You Turn On The Benefit Early?

For your own personal Social Security benefit, once you reach age 62, you have the option to turn on your Social Security benefit early.  However, if you elect to turn on your Social Security benefit prior to Normal Retirement Age, your monthly benefit is permanently reduced by approximately 6% per year for each year you take it early. So, if your normal retirement age is 67 and you file for Social Security at age 62, you only receive 70% of your full benefit and that is a permanent reduction.

On the flip side, if you delay filing for Social Security past your normal retirement age, your Social Security benefit increases by about 8% per year until you reach age 70.

There is no benefit to delaying Social Security past age 70.

How This Factors Into The Survivor Benefit

The decision of when you turn on your Social Security benefit will ultimately impact the Social Security Survivor Benefit that is available to your spouse should you pass away first.   Remember, it’s the higher of the two.  When there is a large gap between the amount that you and your spouse will receive from Social Security, it’s not uncommon for us to recommend that the higher income earner should delay filing for Social Security as long as possible.  By delaying the start date, it increases the monthly amount that higher income earning spouse receives, which in turn preserves a higher monthly survivor benefit regardless of which spouse passes away first. 

Example:  Matt and Sarah are married, they are both 62, they retired last year, and they are trying to decide if they should turn on their Social Security benefit now, waiting until Normal Retirement Age, or delay it until age 70.  Matt’s Social Security benefit at age 67 would be $2,700 per month.  Sarah Social Security benefit at age 67 would be $2,000 per month. 

They need $7,000 per month to meet their expenses.  If Matt and Sarah both took their Social Security benefits at age 62, Matt’s benefit would be reduced to $1,890 per month and Sarah’s benefit would be reduced to $1,400 per month.  At age 75, Matt passes away from a heart attack. Sarah’s Social Security benefit would increase to the amount that Matt was receiving, $1,890, and Sarah’s benefit of $1,400 per month would end.  Since Sarah’s monthly expenses are still close to $7,000 per month, with the loss of the second Social Security benefit, she would have to withdraw $5,110 per month from another source to meet the $7,000 in monthly expenses. That’s $61,320 per year!!

Let’s compare that scenario to Matt waiting to file for his Social Security benefit until age 70 and Sarah turning on her Social Security benefit at age 62.  By turning on Sarah’s benefit at age 62, it provides them with some additional income to meet expense, but when Matt turns 70, he will now receive $3,348 per month from Social Security. If Matt passes away at age 75, Sarah now receives Matt’s $3,348 per month from Social Security and her lower benefit ends.   However, since the Social Security payments are higher than the previous example, now Sarah only needs to withdraw $3,652 per month from her personal savings to meet her expenses. That equals $43,824 per year.

If Sarah lives to age 90, by Matt making the decision to delay his Social Security Benefit to age 70, that saved Sarah an additional $262,400 that she otherwise would have had to withdraw from her personal savings over that 15 year period. 

Age 60 - Surviving Spouse Benefit

As mentioned above, with your personal Social Security retirement benefits, you have the option to turn on your Social Security payments as early as age 62 at a reduced amount.  In contrast, if your spouse predeceases you, you are allowed to turn on the Social Security Survivor Benefit as early as age 60.

Similar to turning on your personal Social Security benefit at age 62, if you elect to receive the Social Security Survivor Benefit prior to reaching your normal retirement age, Social Security reduces the benefit by approximately 6% per year, for each year that you start receiving the benefit prior to your normal retirement age.

Advance Filing Strategy

There is an advanced filing strategy associated with the Survivor Benefit.   Social Security allows you to turn on the Survivor Benefit which is based on your spouse’s earnings history and defer your personal benefit until a future date.  This allows your benefit to continue to grow even though you are currently receiving payments from Social Security.  When you turn age 70, you can switch over to your own benefit which is at its maximum dollar threshold.  But you would only do this, if your benefit was higher than the survivor benefit.

Example:  Mike and Lisa are married and are both entitled to receive $2,000 per month from Social Security at age 67.  Mike passes away unexpectedly at age 50.  When Lisa turns 60, she will have to option to turn on the Social Security Survivor Benefit based on Mike’s earnings history at a reduced amount of $1,160 per month.  In the meantime, Lisa can allow her personal Social Security benefit to continue to grow, and at age 70, Sarah can switch from the Surviving Spouse Benefit of $1,160 over to her personal benefit of $2,480 per month.

Beware of the Social Security Earned Income Penalty

If you are considering turning on your Social Security benefits prior to your normal retirement age, you must be aware of the Social Security earned income penalty.  This is true for both your own personal Social Security benefits and the benefits you may receive as the surviving spouse. In 2020, if you are receiving Social Security benefits prior to your normal retirement age and you have earned income over $18,240 for that calendar year, not only are you receiving the benefit at a permanently reduced amount but Social Security assesses a penalty at the end of the year which is equal to $1 for every $2 of income over that threshold.

Example:  Jackie decides to turn on her Social Security Survivor Benefits at age 60 in the amount of $1,000 per month. She is still working and will receive $40,000 in W-2 income. Based on the formula, of the $12,000 in Social Security payments that Jackie received, Social Security would assess a $10,880 penalty against that amount. So she basically loses it all to the penalty.

For clarification purposes, when Social Security levies the earned income penalty, they do not require you to issue them a check for the dollar amount of the penalty; instead, they deduct the amount that is due to them from your future Social Security payments.  This usually happens shortly after you file your tax return for the previous year because the IRS uses your tax return to determine if the earned income penalty applies.

For this reason, there is a general rule of thumb that if you have not reached your normal retirement age for Social Security and you anticipate receiving income during the year well above the $18,240 threshold, it typically does not make sense to turn on the Social Security benefits early. It just ends up creating more taxable income for you, and you end up losing most or all of the money the next year when Social Security assesses the earned income penalty against your future benefits.

Once you reach normal retirement age, this earned income penalty no longer applies. You can turn on Social Security benefits and make as much as you want without a penalty.

Divorce

We find that many ex-spouses are not aware that they are also entitled to the Social Security Survivor Benefit if they were married to the decedent for more than 10 years prior to the divorce. Meaning if your ex-spouse passes away and you were married more than 10 years, if the monthly benefit that they were receiving from Social Security is higher than yours, you go back to Social Security, file under the Survivor Benefit, and your benefit will increase to their amount.

The only way you lose this option is if you remarry prior to age 60. However, if you get remarried after age 60, it does not jeopardize your ability to claim the Survivor Benefit based on your ex-spouse’s earnings history.

If your ex-spouse was remarried at the time they passed away, you are still entitled to receive the Survivor Benefit. In addition, their current spouse will also be able to claim the Survivor Benefit simultaneously and it does not reduced the amount that you receive as the ex-spouse.

There was even a case where an individual was divorced twice, both marriages lasted more than 10 years, and he was remarried at the time he passed away.  After his passing, the two ex-spouses and the current spouse were all eligible to receive the full Social Security Survivor Benefit based on his earnings history. 

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

A New Year: Should I Make Changes To My Retirement Account?

A simple and easy answer to this question would be…..Maybe?  Not only would that answer make this article extremely short, it wouldn’t explain some important items that participants should take into consideration when making decisions about their retirement plan.Every time the calendar adds a year we get a sense of reset.  A lot of the same tasks on the to do list get added each January and hopefully this article helps you focus on matters to consider regarding your retirement plan.

Should I Consult With The Advisor On My Plan?

At our firm we make an effort to meet with participants at least annually.  Saving in company retirement plans is about longevity so many times the individual meetings are brief and no allocation changes are made.  Even if this is the result, an overview of your account, at least annually, is a good way to keep retirement savings fresh in your mind and add a sense of comfort that you’re investing appropriately based on your time horizon and risk tolerance.

These individual meetings are also a good time to discuss other financial questions you may have.  Your retirement plan is only a piece of your financial plan and we encourage participants to use the resources available to them.  Often times these meetings start off as a simple account overview but turn into lengthy conversations about various financial decisions the participant has been weighing.

How Much Should I Be Contributing This Year?

This answer is not the same for everyone because, among other things, people have different retirement goals, financial situations, and time horizon.  That being said, if the  company has a match component in their plan, the first milestone would be to contribute enough to receive the most the company is willing to give you.  For example, if the company will match 100% of your contributions up to 3% of pay, any amount you contribute less than 3% will leave you missing out on retirement savings the company is willing to provide you.

Again, the amount that should be saved is dependent on the individual but saving anywhere from 10% to 15% of your compensation is a good benchmark.  In the previous example, if the company will match 3%, that means you would have to contribute 7% to achieve the lower end of that benchmark.  This may seem like a difficult task so starting at an amount you are comfortable with and working your way to your ultimate goal is important.

Should You Be Making Allocation Changes?

The initial allocation you choose for your retirement account is important.  Selecting the   appropriate portfolio from the start based on your risk tolerance and time until retirement can satisfy your investment needs for a number of years.  The chart below shows that over longer periods of time historical annual returns tend to be less volatile.

When you have over 10 years until retirement, reviewing the account at least annually is   important as there are a number of reasons you would want to change your allocation.  Lifestyle changes, different retirement goals, or specific investment performance to name a few. Participants tend to lose out on investment return when they try to time the market and are forced to sell low and buy high.  This chart shows that even though there may be volatility in the short term, as long as you have time and an appropriate allocation from the start, you should see returns that will help you achieve your retirement goals. 

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally , professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, pleas feel free to join in on the discussion or contact me directly.