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7.. Blunders that can Ruin Your Retirement

7 Social Security Blunders that can Ruin Your Retirement

https://www.msn.com/en-us/money/retirement/7-social-security-blunders-that-can-ruin-your-retirement/ar-BBP4ReU?ocid=spartandhp

Even a minor Social Security misstep can rob your nest egg of tens of thousands of dollars in retirement benefits.

So, it pays to understand how the system works and how to maximize your Social Security checks.

The following are some of the biggest and most costly mistakes you could make when navigating Social Security — and how to avoid making them.

1. Taking Social Security early

It’s tempting to start taking Social Security before you reach what the federal government calls your “full retirement age.” But you’ll wind up with a smaller check each month.

Technically, you should receive the same total amount of benefits over the span of your retirement no matter the age at which you claimed benefits. The Social Security system is designed to be neutral in this regard.

Still, claiming early can be risky because once you claim benefits, you will be stuck with the same size check for life. The amount of a person’s monthly benefit typically will never increase except for inflation adjustments.

If you’re the main breadwinner in your family, you may want to think twice about starting your Social Security benefit early since your spouse may receive that smaller benefit amount one day.

Jeffrey A. Drayton of Jeffrey A. Drayton Financial Planning and Wealth Management in Maple Grove, Minnesota, tells Money Talks News:

“When one of you dies, the surviving spouse will get to keep whichever benefit is larger. If yours is the larger benefit, do you really want to reduce it? Doing so means that you might be reducing this lifelong annuity that gets adjusted for inflation permanently not just for yourself but also your spouse.”

 

2. Claiming benefits and continuing to work

If you claim Social Security before reaching full retirement age and continue working, you might have to pay penalties against your Social Security benefit. It depends on how much money you earn, as we detail in “The Danger of Working While Collecting Social Security.”

One solution is to wait until full retirement age to claim Social Security. There is no penalty for working while taking benefits after your full retirement age, regardless of how much income you earn.

3. Not checking your earnings record

The amount of your retirement benefit is based on your top 35 years of earnings. So, if there’s an error in your Social Security earnings record, the amount of your monthly check could suffer for it.

For example, if an employer fails to correctly report your earnings for even one year, your monthly benefit upon retiring could be around $100 less, according to the Social Security Administration (SSA). That amounts to a loss of tens of thousands of dollars over the course of your retirement.

While employers are responsible for reporting your earnings, you are responsible for checking your earnings record, as only you can confirm the information is accurate.

To review your earnings record, log into your mySocialSecurity account, or first create an account if you have yet to do so.

You’ll want to check each year. The SSA explains:

“Sooner is definitely better when it comes to identifying and reporting problems with your earnings record. As time passes, you may no longer have past tax documents and some employers may no longer be in business or able to provide past payroll information.”

4. Making an isolated decision

A Social Security decision is just one piece of a retirement income puzzle, says Charlie Bolognino, a certified financial planner at Side-by-Side Financial Planning in Plymouth, Minnesota.

It can impact how you draw down other retirement income sources — such as a pension, 401(k) or cash savings. It can also impact the amount of retirement income you lose to federal or state taxes.

Failing to consider these other retirement funding factors when making Social Security decisions — as well as rushing to those decisions — can therefore cost you a big chunk of your nest egg.

“This is a big decision with potentially thousands of dollars at stake, so don’t short-cut it,” Bolognino tells Money Talks News. “Find a reputable benefit option comparison tool or work with a financial planner who can help you evaluate options in the context of your broader financial picture.”

5. Failing to understand what qualifies you for Social Security

Social Security retirement benefits are not a guarantee. You must qualify for them by paying Social Security taxes during your working years, or be married to someone who qualifies for benefits, Drayton says.

He continues:

“The qualification rules are complicated. The short answer most people give is that you need to work for at least 10 years. However, it is based on a system of credits and quarters, and there are different types of qualifications for different types of benefits.”

The bottom line? Know your qualification status and, if you’re ineligible, how to qualify for benefits.

To find out whether you’re eligible for retirement benefits or any other benefits administered by SSA, check out the SSA’s Benefit Eligibility Screening Tool (BEST). You can also use the tool to find out how to qualify and apply for benefits.

6. Not knowing the Social Security rules regarding divorce

You may be eligible to claim a spousal benefit based on your ex-spouse’s earnings record after a divorce. So, failing to realize this can cost you a lot.

Generally, the person entitled to the smaller benefit amount may be eligible for this type of spousal benefit — provided they were married for at least 10 years, haven’t remarried and meet a few other requirements.

7. Not accounting for dependent benefits

If you still have dependent children when you claim Social Security retirement benefits, they may be eligible to receive benefits, too. An eligible child can receive up to 50 percent of your full retirement benefit amount each month, according to the SSA.

Your family would receive that amount on top of your own benefit amount. Payments to your dependents would not decrease your benefit. So, understanding the benefits that your dependents might be eligible for can help you maximize your family’s collective benefit amount.

 

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The huge money mistake most millennials make

Re-posted from MSN.com

A majority of millennials treat their retirement accounts like a piggybank.

According to ETrade, more than a third of millennials make withdrawals from their 401(k) plans – and they use the money for a purchase, vacation or other personal expense.

“That’s a very high percentage,” said Gregg Murset, a certified financial planner and CEO of BusyKid, a savings app for kids and families. These early withdrawals point to an inability to set priorities, he says.

Young workers who do this clearly lack a full understanding of why they’re setting that money aside in the first place. Murset says three things are responsible for this gap.

The first is the lack of financial literacy. Only 17 states have a required personal finance course for high school students. This can set kids up for financial problems later in life, including lower credit scores.

Parents and schools blame each other, Murset says. “Parents say the schools should be teaching it,” he said. “And the schools say these lessons should be learned at home.”

We all make financial decisions all day, every day, according to Murset, making it more important than many school subjects.

Whether kids should learn about personal finance at school or at home, though, they are the ones who are left clueless about how to manage money.

Kids need to know what you have to do to earn money and, once you get it, what you can do with it.

The “three S’s” — saving, spending and sharing — are things adults do every day. “We go to work, we earn money,” Murset said. “We save some, we share some with charity and we spend the rest.”

Typical Americans spend and share, according to Murset. “Americans are generous people,” he said. Americans are also known for enthusiastic spending. But savings always gets short shrift.

Next is the issue of money that’s becoming more abstract. Increasingly, fewer people carry cash. “It’s getting to be a bigger problem,” Murset said. “Money is invisible to kids; to them, it’s numbers on a screen.”

That disconnect with the value of money can push millennials to make irresponsible financial decisions, such as taking money out of a retirement plan since it doesn’t seem as concrete as cash.

Last is millennials’ own lack of understanding how investing works.

Without some financial education and experience, it’s easy to see why someone would tap their 401(k) for some vacation money.

But this is perhaps the biggest misunderstanding. When it comes to saving for retirement, kids who have learned how money grows over time with compound interest will understand that $5,000, for instance, will grow over the decades to a sum far beyond its original amount.

Kids who successfully learn how to manage their money in a balanced way will eventually have the lightbulb moment that comes with saving money: “This small number turns into a big number over time,” Murset said.

Open Wallet

Amount you need to retire early depends on 2 factors

Re-posted from MSN.COM

You’ve seen the stories, touting the the hard-won feat of early retirement: “Self-made millionaire retires early in his 30s,” “Millennial retires early after seven years of work.”

Many can’t help but wonder: How did they do it? And more importantly, can that nest egg really last a whole lifetime?

Saving enough money to retire early involves diligence, planning, strategy, and usually a few lifestyle changes. After all, $1 million isn’t what it used to be – or what it will become. In 2016, Time magazine estimated that with a 3% inflation rate, $1 million in savings in 40 years would have the same spending power as $306,000 today.

How much money you need to retire early depends on two things.

Your cost of living

It makes sense that location will play a role in determining early retirement savings. The cost of living in a place like New York City or Los Angeles is a lot higher than somewhere in the midwest, like Wichita, Kansas, or in the south, like Birmingham, Alabama.

Living in a place with a lower cost of living means that it’s easier to live below your means. Chris Reining, a self-made millionaire who retired at age 37, draws only 2% from his investment accounts a year (half of the recommended 4% one should expect to draw when financially independent) – but that’s because he’s able to live frugally in Madison, Wisconsin. Location also plays a role in taxes, depending on what kind of accounts you have money in.

“If all your money is in IRAs and 401(k)s, not only will you pay state and federal income tax when you take it out to pay your bills – after all , it has never been taxed – but you may also pay a 10% penalty for premature withdrawals (under age 59 and a half),” Mari Adam, a certified financial planner based in Florida who founded Adam Financial Associates, told Business Insider.

Keep in mind, nine states don’t have state income taxes.

Adam recommends keeping an even balance between savings in retirement accounts like IRAs and 401(k)s, tax-free growth accounts like Roths, and already-been-taxed accounts like individual brokerage accounts.

The potential for investment growth and passive income

Just because you’ve retired early doesn’t mean you’ll never see cash flow again. You can save enough knowing there’s still room for your savings to grow through investments and lucrative hobbies.

Justin McCurry, who retired early at 33 with an investment portfolio $1.3 million, brings in some monthly income through his blog, Root of Good. Coupled with strategic investments, his portfolio has since grown to more than $1.7 million over five years.

McCurry is not the only early retiree to earn money from a blog after leaving the corporate world. J.P. Livingston, who retired early at age 28 with a nest egg of more than $2 million, was surprised to learn she could still bring in income after retiring early.

She runs the personal-finance blog The Money Habit; after its first year, it made more than $62,000 in passive income through affiliate commissions and ads.

“I ended up getting active again with different hobbies and projects,” she previously told Business Insider. “Eventually, one or more of those projects yielded income. It’s hard to be awake for 60-plus hours a week and not find a single enjoyable way to earn some money.”

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How soon can I retire?

Reposted from KSL.com “How Soon Can I Retire?”

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ksl.com – How soon can I retire? June 1, 2017

 NEW YORK (CNNMoney) — “How do I calculate the earliest possible date I can retire — my “take this job and shove it!” date — beyond which working is my choice and earnings are gravy?” — Jason, New York

Like Jason, many of us are counting down to the day we can say “shove it!” to a job we hate and pursue our own interests. But most people wrongly assume that day won’t come until our 60s or 70s. Lots of people are taking the concept of “early retirement” to new extremes by becoming financially independent in their 50s, 40s, or even 30s.

While the concept of “retirement” may sound boring to some people, early retirement guru Brandon of the Mad Fientist blog prefers to call it “freedom.”

“Retirement makes you think of [old people] moving to Florida,” he says. “But really, retirement is freedom. Freedom to do what you want to do with your time, freedom from jobs you don’t like, freedom from bosses you don’t like.”

Brandon, who only uses his first name for privacy reasons, is part of an online movement of early retirement enthusiasts who preach that retirement is attainable for anyone at almost any age. It’s just a matter of calculating how much it costs for you to live, and saving up enough to support yourself for the rest of your life.

First, understand the math.

There are many schools of thought on how to calculate your number, depending on your spending and age.

“Traditional late-retirement advice aims to maximize lifetime consumption and what people therefore look at is either saving a million dollars or saving 10-15% of all income over some 40 years on the job,” explains Jacob Lund Fisker, author of the book and website Early Retirement Extreme.

But for those who want to retire much sooner than age 65, he says, that conventional advice does not apply.

“The goal [for early retirement] is to save 25-35 times one’s annual expenses. Once this goal is reached, one is financially independent and working is a choice.”

The early retirement rule is simple: For every $1,000 you spend a year, you need to invest $25,000 to $35,000.

The more money you save, the more you’d have to spend. Similarly, and key to many young retirees, the less money you spend each year, the less you have to save and the sooner you can retire.

This breaks down to spending, Fisker says. “The easiest way to find $1,000/year in the budget is to start the few largest expenses — namely, housing, driving, and eating. It’s easier to make a few decisions about a few big items than constantly make decisions about many small items.”

But how do you make the money last for decades? A common rule of thumb is what’s known as the “4% rule.” “This equation multiplies your spending by 25 to give you how much you need to save. If you need $40,000 per year, multiply that by 25 a year, you get a million bucks,” explains Fisker, “$40,000 is 4% of a million.”

But that assumes your money consistently earns at least 4% a year. Some experts think the rule is flawed and could cause some early retirees to run out of money.

Fisker takes an even more conservative approach with his equation: Annual expenses should be less than 3% of your invested savings. So for that same $40,000 a year in income, you’d need $1.3 million invested. (Fisker also has other tips on calculating how much money you need to retire.)

And of course, it never hurts to start planning early.

“Less than a decade of delayed retirement savings can cost someone $1 million in forgone savings,” says financial adviser Barbara O’Neill. “People who start saving at age 34 and accumulate $1 million at age 67 could have saved $2 million had they started at age 25, assuming an 8% average annual return.”

Or, they could have just retired much sooner.

Second, figure out when you’ll get there

So now that you have a general idea of the amount you need to call it quits, it’s time to figure out how long it’ll take you to get there.

A million dollars may seem like a big number, but the more you can save, the faster you’ll reach your goal. Say you’re 25 and you want to retire by 45. Investing $1700 a month will get you to a million in 20 years, assuming an 8% return. Too steep? Learn to live on less and you won’t need a full million. Or be less ambitious about your retirement age. Saving $675 a month will get you there by age 55. This CNNMoney calculator can help you figure out how long it’ll take.

Or try the FI Tracker on the Mad Fientist blog. This online app allows you to track your progress toward financial independence by calculating your net worth, expenses, savings, and countdown to retirement.

If this all feels too overwhelming, you can always find a Certified Financial Planner to walk you through the steps and coach you through your best path toward retirement.

“My best advice to someone trying to figure out if they can retire is to spend some time with a CFP to help them make one of the biggest decisions in their life,” says financial planner Howard Pressman. “You really only get one shot at this and it’s worth doing it right.”

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