A Lifetime of Financial Milestones

A Lifetime of Financial Milestones

Like it or not, we are born with a lifetime of financial milestones laid out for us. It may seem overwhelming, but the system is designed to guide us gently, yet prudently, from childhood through retirement. For the sake of clarity (and sanity) it is helpful to think of life as three stages - each stage containing important financial milestones. Here's a timeline which explains these stages, and attempts to make the process of aging, at least in financial terms, feel a little less fraught.

YOUNG ADULTHOOD

Age 18 - The "kiddie tax" is discontinued, which could affect your tax rate, depending on whether or not you're a full-time student. You will be taxed at your personal tax rate instead of your parents'.

Age 18 (19 or 21 in some states) - You reach the "age of majority," i.e., your transition from a minor into legal adulthood. This transition means all funds invested in UTMA/UGMA accounts are now legally yours.

Age 19 and 24 - You're an adult now, so your parents can't claim you as a dependent on their tax return unless you're a full-time student. At age 24, you can't be claimed as a dependent even if you are a full-time student, so make sure you're prepared for the April 15 tax return deadline.

THE AGE OF RETIREMENT

Age 55 - A little-known yet helpful retirement loophole, "rule of 55," kicks in if you retire, quit or are terminated. This rule allows you to take 401(k) distributions from your current employer's 401(k) plan without penalty before the customary 59½ age threshold.

Age 59½ - You are able to withdraw from traditional IRAs, annuities and qualified retirement plans without penalty. You may also choose to leave these funds untouched to continue their tax-deferred growth.

Age 62 - The earliest age you can begin receiving monthly Social Security benefits, but at a reduced rate and with stipulations on income. Choose your start age wisely, as the earlier you begin collecting, the lower the monthly payments you'll receive.

Age 65-67 - Depending on the year you were born, you have reached "full retirement age," which allows you to begin collecting non-reduced Social Security benefits. Collection does not require actual retirement, however, so can continue working without losing benefits.

THE GOLDEN YEARS

Age 70 - There are no additional Social Security benefit increases after age 70. Before delaying benefits, it's prudent to weigh the monthly benefit increase against possible investment opportunities, which you can explore if you take the funds at an earlier age.

Age 70½ - Withdrawals must be taken (and thus, sadly, taxed) from your IRAs, SIMPLE IRAs, SEP IRAs and employee-sponsored retirement plans (excluding Roth IRAs). These mandatory withdrawals are called "required minimum distributions" (RMDs), and are calculated by the IRS based on account value and estimated life expectancy. As with many things IRS-related: it's complicated.

Age 90 - For some annuity plans, the default distribution option may automatically activate. To save yourself time and headache, contact the annuity company before your 90th birthday to select the most suitable distribution option.

We can't control aging, but we can understand how it affects our financial situation. These milestones are signposts which help us prepare for the inevitable. Understanding them allows us to relax and enjoy the present.


This information is general in nature and should not be construed as tax or legal advice. INVEST Financial Corporation does not provide tax or legal advice. Please consult your tax and/or legal adviser for guidance on your particular situation. The information in this report has been obtained from sources considered to be reliable but we do not guarantee that the foregoing material is accurate or complete. INVEST Financial Corporation, member FINRA/SIPC, and its affiliated insurance agencies offer securities, advisory services and certain insurance products. 1016.132033

NOT FDIC OR NCUA INSURED | NO BANK OR CREDIT UNION GUARANTEE | MAY LOSE VALUE

The Long and Short of Long-Term Care

The Long and Short of Long-Term Care

People are living longer these days, so there's a greater chance you'll need long-term medical care in your golden years. To cover the cost, see if long-term-care insurance makes sense to you.

Hollywood legend Bette Davis supposedly said, "Old age is no place for sissies." Indeed, as we enter our golden years and our health declines, life gets tougher. The longer we live, the greater the likelihood that we will need long-term care.

After spending years building up your nest egg, just a few years of paying long-term-care expenses could threaten your retirement. Without provisions, the need for long-term care can also put an enormous emotional, physical and financial strain on family and friends.

COSTS OF LONG-TERM CARE (LTC)

Long-term care can be extremely expensive, depending on the level of services you require and the duration of time that you need care.
Nursing-home Care: One year in a nursing home can average more than $50,000, and depending on the region could reach twice that amount.
Assisted living The average monthly fee for an assisted living facility is about $2,000, which includes rent and most additional fees. More specialized care could cost significantly more.
Home care: Hiring an aide to come in a few days a week, two-to-three hours each day, to help with self-care tasks like preparing meals, bathing and dressing, can run $1,000 a month or more. If more skilled care is needed, the costs can be much higher.2

GOOD NEWS AND BAD NEWS

A November 2014 study published by Boston College's Center for Retirement Research concluded that nursing-home stays are shorter than previously thought: 10 months for a typical single man and 16 months for a woman, down from 1.3 years and two years, respectively. That's the good news. However, the study also found that the lifetime risk of needing nursing-home care is 44 percent for men 65 or older (previously it was 27 percent) and 58 percent for women (previously it was 44 percent).3 This information further complicates the LTC insurance decision.

SHOULD YOU CONSIDER LTC INSURANCE?

Long-term-care insurance can offer protection against the risk of needing such expensive personal care. But the fact is, due to high premiums, this coverage may not be an appropriate solution for everyone. While there are no hard and fast rules, the Society of Actuaries suggests:

  • If you have savings less than $250,000, you may not want to buy private insurance. Should you require LTC but have limited resources, Medicaid may provide some coverage.
  • If you have assets of over $2 million, you may not need to purchase LTC coverage. Should you need long-term care, you may be able to self-insure and pay costs as they arise.4
  • If you fall somewhere in between, consider designing a long-term-care policy with premiums that are affordable and make sense for you.

Changing some provisions of the coverage may help bring costs down.

WEIGH YOUR OPTIONS AND MAKE PLANS NOW

If you don't think LTC insurance is for you, but want a buffer against the potential cost of long-term care, another option is a hybrid product that combines life insurance or annuities with some long-term-care benefits. If you don't need the benefits while you’re alive, the policies pay a death benefit to your beneficiaries.5

Sources:

  1. Leslie Scism, "Long-Term-Care Insurance: Is It Worth It?" The Wall Street Journal, May 1, 2015.
  2. America's Health Insurance Plans, AHIP.com
  3. Leora Freidberg, Wenliang Hou, Wei Sun and Anthony Webb, "Long-Term Care: How Big a Risk?" Center for Retirement Research at Boston College, November 2014.
  4. Howard Gleckman, "Should You Buy Long-Term Care Insurance? Maybe Not" Forbes.com, January 18, 2012.
  5. Joseph A. Tomlinson, "Is Long-Term Care Insurance Worth it?" Financial Planning Magazine, September 2011.

This information is general in nature and should not be construed as tax or legal advice. INVEST Financial Corporation does not provide tax or legal advice. Please consult your tax and/or legal adviser for guidance on your particular situation. The information in this report has been obtained from sources considered to be reliable but we do not guarantee that the foregoing material is accurate or complete.INVEST Financial Corporation, member FINRA/SIPC, and its affiliated insurance agencies offer securities, advisory services and certain insurance products. 1016.132033

NOT FDIC OR NCUA INSURED | NO BANK OR CREDIT UNION GUARANTEE | MAY LOSE VALUE