Retirement’s Revolving Door

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Tim and Chris Franson.jpg

In his view, Tim Franson utterly failed at retirement. After twenty years as a vice president at Eli Lilly, Franson and his wife, Chris, a real estate agent, thought they were quietly retiring nearly a decade ago. 

For the first month or so, Franson says, he mostly slept. He wasn’t depressed, just mentally and physically exhausted. Then, “I went crazy,” said Franson. “I’m not very good at sitting around.”

He quickly found himself back at work part time after a friend at a small pharmaceutical company asked him for strategic advice. “Things snowballed from there.”

Today, Franson, 66, consults and works about four days a week, while serving on two for-profit boards and two nonprofit boards.

Welcome to the land of the un-retired — people who thought they were leaving the work world only to return because they sorely missed something about it, besides the money. These people in their 50s through 80s retired on pensions or savings — or both — but ultimately woke up to the fact, there’s more to life than watching Florida sunsets.

This “un-retirement” trend continues to build, according to a 2017 Rand Corp. study showing that 39 percent of Americans 65 and older who are currently employed had previously retired. And more than half of those 50 and older who are not working and not searching for work said they would work if the “right opportunity came along,” the study found.

“We have a mistaken image of life, that we go to school, work for 40 years, then say goodbye to colleagues for the last time and embrace the leisure life,” says Chris Farrell, author of “Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community and the Good Life.” “It hasn’t turned out to be the arc of most people’s lives.”

This is not about older people returning to work because they need the money. This is about older people returning to work because they miss the challenges, the accomplishments and, most importantly, the collegiality.

When retirees are asked what they miss most about pre-retirement life, the number one answer is typically colleagues, says Farrell. “What’s constantly underestimated is that work is really a community. As it turns out, it’s much healthier and more satisfying to work for a bad boss than to sit on the couch and watch TV,” he says.

Franson understands all of this and not that it didn’t make perfect sense for him to retire when he did, at age 58. Lilly offered him a year’s pay and a full pension to take early retirement. Franson had prostate cancer while at Lilly — and though the surgery was successful, he says, “that experience made me sit back and revisit how I wanted to experience my remaining days.” At the time, his children were out of college, and he did not yet have any grandchildren.

Then, life derailed him when his wife, Chris, took ill and died within a few years. Four years ago, he accepted another consulting job in the Indianapolis area to be closer to his children and grandchildren. Franson has no plans to retire from his un-retirement anytime soon.

Laurie Caraway retired in 2013, at age 56, as director of clinical data management at Bristol-Myers Squibb. She picked that age because her father died at 56 before he had a chance to retire from private practice as a surgeon.

Her husband, Scott, a longtime American Airlines pilot, retired along with her. Scott adapted quickly and learned to be a potter. It was summer, and Laura spent the next three to four months biking, swimming and treating retirement like a vacation. Some days, she simply sat on her front porch swing.

Then, the weather changed. The cold autumn reminded Caraway that something had to change in her life. So, she started volunteering in Guilford, Connecticut, with a group that works to uplift academically gifted minority women from disadvantaged communities. That expanded into a part-time, paid position managing the group’s consignment shop.

Caraway was presented with an opportunity to go back — on a short-term contract — to Bristol-Myers Squibb. This encouraged her to send her résumé to Your Encore, a retiree return-to-work program co-created by Lilly, Procter & Gamble and Boeing that matches retirees with employers who need their skills. She landed more contracts to which she can always say “No, thanks” and still have time for yoga class.

“There is life after retirement,” she says. “It’s called work.”

Then, there’s Louise Klaber. She retired at age 65 from a 20-year career in organizational development — but is now working again at age 81.

In 2001, the former New Yorker thought she was living the dream when she arranged to retire in New York City with husband Ralph Walde, a college professor.

September 13 was moving day into their apartment on New York’s Upper West Side. But as the horrific events of 9/11 unfurled, they found they were living in a state of shock. Within weeks, they were both signed up to do volunteer work helping prepare meals for the 9/11 site workers. Their shift: 8 p.m. to 6 a.m., chopping squash, carrots and onions. “It made us feel like we were actually doing something to help,” Klaber says.

The prep kitchen shut down shortly after Thanksgiving, and she found part-time paid work assisting people most severely affected by 9/11 find financial aid, mental health assistance or employment. She then contacted ReServe, a national nonprofit that places retired professionals with public service agencies of all sizes, budgets and missions. ReServe linked Klaber with the New York City Law Department, where she has worked part time ever since as an organizational development counselor. What drives her is not the $10-an-hour pay but the professional camaraderie.

A former marathon runner, Klaber still runs almost daily. That, she says, is an important ingredient for staying healthy — but the work is just as important to her vitality.

When will she finally quit working? “Only God knows,” she says. “I’m having way too much fun.”

 

Social Security – As Soon As Possible?

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Couple hikingWhen is the best time to start taking Social Security benefits? The answer is not always so simple. Perhaps this article with provide some things to think about as you ponder your choices. 

Myth No. 1:  If you wait, you get more…

The older you are when you start, the more Social Security monthly income you receive. The Social Security Administration thus entices people to wait longer. But let’s look at this a little deeper.

Let’s use an example. Assume at age 62 a person’s Social Security monthly income will be $1,000 per month. However, if they wait until age 67, this monthly income increases to $1,500. More is better, right?

Remember that in order to get this extra $500 per month, this individual had to wait five years. So if we calculate the income this person did not receive, it comes out to $60,000 ($1,000 per month for five years).

The proper thing to do in this example is analyze the pros and cons of waiting five years for the extra $500 per month.

Using the example, the pros are simple. Waiting earns you an extra $500 per month, which is a good thing.

Now let’s take a look at the cons. How many months does it take someone to simply break even (from a financial perspective)? Well, if you divide $60,000 (lost income) by the $500 (additional income), it comes out to 10 years.

However, the story does not end here. Remember, by waiting five years this person is now 67 years old. Therefore, in order to accurately calculate the lost income and “break-even” point, you also have to add in the five years this person waited (from age 62–67). Therefore, it really takes this person 15 years to simply break even and justify deferring their Social Security income.

But wait, there’s more …

Some other key factors to consider are:

  • Five years of potential lost interest or growth from the monthly income
  • Five years of lost ability to spend and enjoy the extra monthly income
  • Countless years of lost income due to a possible critical illness
  • Countless years of lost income due to a possible premature death
  • Countless years of lost income due to an unexpected illness or death of a spouse
  • Countless years of reduced purchasing power as a result of inflation
  • Countless years of lost income due to the potential for taxes to go higher
  • Countless years of lost income due to potential reductions, changes, or even the elimination of Social Security income

Myth No. 2:  My income and taxes will be lower in retirement…

Far too often individuals/couples make major mistakes as a result of basing a financial decision upon its tax consequences.

Most of us have heard the argument, “I will be in a lower tax bracket when I retire.” This statement seems to be an amazement for several reasons.

First, why do so many aspire to have a significant income reduction once they reach retirement? Retirement is commonly referred to as the Golden Years, right? This implies that you worked hard and long enough to have saved enough gold to live like Kings and Queens.

Second, when are you more likely to spend more money: While you are working or when you are on vacation? Since the obvious answer is while on vacation, isn’t it fair to say that retirement is supposed to be a wonderful, long, enjoyable vacation from work? Retirement is arguably the time when you have earned the right to spend and enjoy your hard-earned wealth and income.

Yes, more income does mean more taxes, indisputably. However, here is a theory on taxes: Make a lot of money, pay a lot of taxes, and repeat the process.

Again, let’s again analyze the pros and cons.

The main pro for deferring Social Security income is simple. More income means more taxes, and nobody likes paying more taxes.

Now, let’s take a look at the cons using an example:

In 2012, Couple No. 1 earns $50,000 per year. Couple No. 2 earns $500,000 per year.

Couple No. 1 paid less in Federal taxes (15 percent) than the couple earning $500,000 per year (35 percent). In fact, on the surface (excluding any deductions and State income taxes) Couple No. 1 paid a mere $7,500 in taxes, while Couple No. 2 paid a whopping $175,000 in taxes.

However, which of the following retired couples would you rather be:

Couple No. 1: Net Income (after taxes) is $42,500 per year, or $3,542 per month. Couple No. 2: Net Income (after taxes) is $325,000 per year, or $27,083 per month.

But wait, there’s more …

Some other key factors to consider are:

  • Today we are in the sixth lowest tax bracket in history
  • A large majority of people today believe tax rates are going higher
  • There are many reasons a person’s (or couple’s) taxable income can actually increase in retirement (employment income, asset and income growth, inheritances, spouse’s death and rental income, IRA Required Minimum Distributions, loss of deductions, and more).

A bird in the hand

When it comes to determining the right time to take Social Security income, too many individuals and couples conclude it’s in their best interest to delay beginning to take Social Security income so as to increase their future income and/or minimize their income tax.

Seniors Need To Know About Life Settlements

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A popular narrative in mainstream news media coverage is that the lack of planning for individuals approaching retirement is pointing the way to a serious national problem. Health care and other costs are on the rise and many seniors are in a state of uncertainty. For many, a state of panic sets in when they realize their resources may not be enough to pay for the comfortable retirement years they once envisioned.

As one of the most overlooked assets in an individual’s investment portfolio, a life insurance policy is often not utilized to its full potential. Why? Because many individuals do not know this asset creates liquidity options. People more generally make the decision to surrender the policy, allow it to lapse, roll it into a paid-up policy, or reduce the death benefit to save premiums.

But what about a life settlement?

Many seniors are not aware that a life insurance policy is personal property and may be sold as a life settlement for a value substantially greater than its cash surrender value. As a result, billions of dollars (face value) of policies that are no longer needed, wanted or affordable are lapsed and surrendered back to life insurance carriers by seniors who might have sold them for a cash payment. According to the Government Accountability Office (GAO) study on life settlements, the number of policyholders who “life settled” their policies received up to seven times the value of a lapsed or surrendered policy. This represents hundreds of millions of dollars in value not given back to insurance carriers.

Studies show that nearly 80 percent of baby boomers and seniors are interested in life settlements as a means to supplement retirement finances. 

So, let’s talk about a senior’s right to know about life settlements. Specifically, they should have a right to know there are other options to consider before lapsing or surrendering a policy.  Six states – Kentucky, Maine, New Hampshire, Oregon, Washington and Wisconsin – have already passed various versions of a life insurance disclosure requirement, thereby requiring insurance carriers to notify seniors, in certain circumstances, of the alternatives to lapse or surrender their policy. These alternatives may include options such as:

– accelerated death benefit or available riders

– assignment of policy as a gift

– life settlement

– policy replacement

– maintenance pursuant to terms or riders

– maintenance of policy through a loan

– conversion of term to a permanent policy

– conversion of long-term care insurance or a long-term care benefit plan

A reasonable question may be: who has this obligation to inform? All those, in some capacity, serving as insurance advisors to seniors need to know about the options available for policies that may be used as a financial resource. It is about educating and informing to help people evaluate their options.

Life insurance companies should also join in the effort to inform and educate policyholders of their rights and options for the policies they sold to a consumer in the first place.

An ongoing case in California, Larry Grill, et al. v. Lincoln National Life Insurance Company, illustrates an example of the potential liability for a life carrier who did not inform the policyholder of all the options available for a policy that was no longer affordable. While the outcome of the case is pending, the primary message is that a policyholder who buys a life insurance policy should be informed by that carrier about the options available to them if there comes a time when the policy is no longer needed, wanted or affordable.

It’s understandable why insurance carriers are concerned about the impact of lapse rates on their profitability, but they have a moral obligation to do what is in the best interest of those who invest significant amounts of their life resources in their life insurance products. Seniors do have a right to know; it’s a collective obligation to inform and educate policyholders about the potential value available to them and the alternatives to lapsing a policy.

This article is for informational purposes only.

 

 

 

The Social Security Mistake

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After decades of paying into the Social Security system, many retirees are eager to start collecting that monthly check as soon as possible. But that may be a costly mistake.

While you’re allowed to start claiming Social Security benefits at age 62, holding off for several years can add thousands of dollars to your payments over a lifetime. That’s because you don’t qualify for all of your earned benefits until you reach “full retirement age,” which is 66 for most Baby Boomers and 67 for those born in 1960 or later.

So checks claimed at age 62 are about 25% smaller than if you wait until your full retirement age. And if you wait even longer, your annual benefits will grow by another 8% for each year you wait up to age 70.

For example, let’s say 61-year-old Mary, who currently earns $55,000, is deciding when to retire. If she were to file for Social Security benefits next year at 62, she would receive around $15,400 a year, according to T. Rowe Price’s Social Security benefits evaluator. If she waits until 66, however, her annual benefits would grow to around $20,500 per year. And if she is able to hold off for several more years, until age 70, her annual benefits would climb to roughly $27,100 per year.

The difference can really add up. If Mary lives to be 95 years old, claiming her benefits at age 70 would result in roughly $677,000 in cumulative Social Security benefits (in today’s dollars), compared to the $500,000 or so in benefits that she would receive if she’d filed eight years earlier.

We think for most people that’s really startling because they’ve never really thought about it,” said Christine Fahlund, a senior financial planner at T. Rowe Price. “They don’t appreciate that waiting would make such a difference.”

Still, waiting until 70, or even 66, is not for everyone. For example, you may be concerned that you won’t live long enough to reap the benefits of waiting for the larger checks. In Mary’s case, she would need to live to at least 80 before waiting until age 70 to collect Social Security which would result in greater lifetime benefits.

Another potential obstacle: Due to health issues or unemployment, you may not be able to work any longer and don’t have enough savings to tide you over.

“Just because it’s better doesn’t mean it’s necessarily going to be the best option for you,” said David Richmond, president and founder of Richmond Brothers, a Michigan-based financial advising firm. “You may not be able to afford to maximize Social Security.”

Living off credit cards to ensure a larger check is never going to be a good idea, for example.

While singles are only able to control the age at which they file for benefits, married couples (and divorced couples who were married for at least 10 years) have a variety of strategies to consider. Each married partner is typically eligible for three kinds of benefits, depending on circumstances:

  • A retired worker benefit, which are the benefits you accrue over your own working years.
  • A spousal benefit, which entitles you to half of your spouse’s benefits while he or she is still alive. If you have not hit full retirement age, you are only eligible to receive a portion of those benefits.
  • A survivor benefit, which entitles you, once you reach full retirement age, to a deceased spouse’s full benefit. If you have not hit full retirement age, you are only eligible to receive a portion of those benefits.

Couples can increase their annual benefits by coordinating when and how they file for Social Security. In many cases, for example, it makes sense for the lower-earning spouse to file first, while the higher-income earner waits as long as possible.

Not only does this strategy result in larger annual benefit checks, it also locks in a higher “survivor benefit” for the lower-earning spouse. According to Fahlund, the survivor benefit is so important that sometimes it makes sense for even a spouse with health problems to hold off on claiming benefits if he or she is the higher earner.

Couples can also consider other strategies, such as the ability to “file and suspend,” which allows one partner to receive spousal benefits while the other partner delays their annual benefits to receive a larger check.

How To Avoid Pension Nightmares

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There’s a new book written by Rick Rodgers “The New Three-Legged Stool”  that details pensions, their problems, and what we can do to protect ourselves.

Rodgers writes that while the Pension Protection Act of 2006 “was designed to close loopholes in the pension system and addresses problems for the roughly 34 million Americans covered by traditional pensions known as defined-benefit plans,” one problem not addressed by the PPA and continues to affect millions of people of all ages, not just retirees, are pension miscalculations.

“Anytime you change jobs or take a lump-sum pension cash-out, you are at risk,” adds Rodgers. “Women are especially vulnerable to pension mistakes because they tend to move in and out of the workforce more often than men. For the most part, pension mix-ups aren’t intentional.”

According to Rodgers, how would a consumer know if there were an error that had been compounding for many years? How can they ensure that they’ll get what’s rightfully theirs when retirement arrives? He says it’s up to the consumer to keep track of their pensions.

Here are two things Rodgers says consumers can do:

  • Educate yourself about how your plan works.
  • Contact your company benefits officer and ask for a copy of the plan, not the summary plan description. (the U.S. Supreme Court ruled that you can’t depend on your employer’s summary plan description. The summary is an abbreviated form of the plan. The Court held that if there are discrepancies, the plan is the controlling document. You need a copy of the plan to determine how your pension is calculated. The plan document can run 50 pages or more.)

In addition, Rodgers says there are seven common pension mistakes to watch for:

  1. The company forgot to include commission, overtime pay or bonuses in determining your benefit level.
  2. Your employer relied on incorrect Social Security information to calculate your benefits.
  3. Somebody used the wrong benefit formula (i.e., an incorrect interest rate was plugged into the equation).
  4. Calculations are wrong because you’ve worked past age 65.
  5. You didn’t update your workplace personnel officer about important changes that would affect your benefits such as marriage, divorce or death of a spouse.
  6. The company neglected to include your total years of service.
  7. Your pension provider made a mathematical error.

In closing, Rodgers says for consumers to protect themselves, they should create a “pension file” to store all documents from your employer. Also keep records of dates when you worked and your salary, since this type of data is used by your employer to calculate the value of your pension.