To celebrate Sensible Financial’s 20th anniversary, members of the Sensible staff came up with quite a few financial tips. There were so many useful pieces of information, I’ve divided the material into three articles. These financial tips fall into 8 categories: saving, retirement, charitable giving, investing, debt management, insurance, estate planning, and security. In the first, I covered saving and debt management. This article includes tips on retirement, estate planning, insurance, and security. In the third, I’ll write financial tips about investing and charitable giving. Stay tuned!
Retirement
- If you are in good health, wait until your age 70 to start Social Security retirement benefits.
—Gyb Spilsbury, Associate Financial Advisor- For most people, this maximizes lifetime resources. Social Security is an inflation-protected life income annuity. Waiting from age 62 to 70 increases annual benefits by roughly 75%! Each year you wait past Full Retirement Age (FRA) provides an 8% larger benefit for life.
- File for Social Security retirement benefits 3 months before you turn 70.
- This is advantageous only if you (or your spouse) expect at least an average life expectancy. Waiting provides you and your spouse with longevity insurance. This is especially important for the spouse whose Social Security benefits are larger – the surviving spouse receives the higher of their benefits and their spouses’ benefits.
- Take retirement withdrawals to equalize marginal tax rates over time.
—Rick Miller, Founder- Moving income from high tax years to low tax years saves the difference in tax rates times the amount you move. For example, moving $5,000 from the 22% bracket to the 12% bracket saves 10% or $500!
- Look for lower income years, perhaps early in retirement while you are waiting for your Social Security benefits to start. Consider taking IRA distributions in such years to “fill up” the lower rate tax bracket.
- Watch out for IRMAA (Income Related Monthly Adjustment Amounts)! If you are (or will be) receiving Medicare Part B benefits, increased income may result in increased Part B premiums. This can reduce and even eliminate the net tax savings.
Estate planning
- Follow through on implementing your estate plan or it may not work as you expect.
—Frank Napolitano, Senior Financial Advisor- A qualified estate planning attorney can help you draft and formalize your estate planning documents. However, most attorneys do not help clients implement their plans, which can include updating beneficiaries and retitling accounts. This step is essential. Unless you make these changes your estate plan will not work as planned.
- Confirm with your attorney how accounts should be titled or, for contractual accounts, how to designate beneficiaries. Contact your bank, IRA custodian, 401k provider, etc. and fill out the forms to update your accounts. Sometimes, you can do this online.
- Consider reviewing your beneficiary designations and account titling once per year.
Combine redundant accounts to make keeping track easier.
Insurance
- Umbrella liability insurance is important (and often overlooked) in a financial plan.
—Nic Rosa, Associate Financial Advisor- A single lawsuit could wipe out years of diligent financial planning and saving. Even if you win a lawsuit, defending yourself can be costly. Most umbrella policies will cover the cost of a legal defense.
- Start by contacting your auto and/or homeowner’s insurance carrier for an umbrella insurance quote. Coverage for amounts over $5M may require a specialty carrier.
- Long-term disability insurance provides financial support should you not be able to work due to illness or injury.
—Chris Andrysiak, Senior Financial Advisor and Senior Director of Strategy- Your earning power is probably your largest asset, especially early in your career. While long-lasting disabilities are unlikely, they do happen. If one happens to you, it could ruin your family’s financial plan.
- These policies are complex. Consider working with an expert to be sure you are getting the coverage you think you are from your employer.
- Consider the implications of major life events on your insurance coverage.
—Anne Smith, Human Resources Generalist- Over time we all experience many life events: marriage, birth, adoption, relocation, divorce, and death to name a few. Each event could require changes to your insurance policies.
- Seek advice from your employer’s Human Resource professional or a broker and insurer as applicable. Ask:
- When can I add a new family member to my health, dental, vision or other plans?
- How can I remove someone from my plans who is no longer qualified (such as an aged out dependent)?
- Do I need to change my primary and contingent life insurance and retirement plan beneficiaries?
- Should I increase my life insurance amount? When is this possible? By how much?
- Is my coverage effective and sufficient in my new location? (For instance, am I still in the service area of my HMO?)
- You may need to address some changes within a short time of the life event. It is important to understand this when taking action.
Security
- Apply Multi-factor-authentication (MFA) to all your online logins.
—Charles Luce, Operations Group Leader and Chief Compliance Officer- Multi-factor-authentication (MFA)could be the strongest tool to prevent someone from accessing your personal information.
- There are numerous on-line MFA services available, with providers including Google, Duo, Symantec, and many others.
- Most importantly, add MFA at your financial institutions but also your email! If your email is compromised the bad guys have a better chance of successfully impersonating you.
- Freeze your credit reports if you are not planning to apply for credit anytime soon. This will protect you if your identity is ever stolen.
—Rick Fine, Principal and Director of Financial Planning- Opening credit cards in someone else’s name is one of the most common forms of fraud. Thieves max out the cards, leaving the victim with a mountain of debt. Prevent this by “freezing” your credit reports at the three major credit bureaus. If you ever need to apply for credit, you can temporarily unfreeze your reports and then re-freeze them once your credit is approved. The credit bureaus cannot charge for this service.
- Go to www.equifax.com, www.experian.com, and www.transunion.com, the three major credit bureaus. Create an online account and choose an option called “Freeze my Credit Report”. Answer some authentication questions and freeze your reports. If you need to temporarily unfreeze your frozen credit report, look for an option called “Unfreeze my Credit Report”. You can also specify a date when the credit report will be refrozen automatically.
- Before you freeze your credit reports, you should set up your MySocialSecurity account at www.ssa.gov. It is important to set up this account and choose a strong password so that no one else can log in and lock you out. The Social Security Administration uses your credit reports to authenticate you when opening an account with them, so your credit reports must be unfrozen for this authentication process to succeed.
Next up: Financial tips on investing and charitable contributions
Helping you understand your financial options to make more informed decisions is what we do. If you need additional help, please contact your financial advisor.
Photo credit: “Pencil tips” by Dvortygirl is marked with CC BY-SA 2.0.