Episode: 05-09-2023 | Important Ages In Financial Planning

Hosted by Kevin J. Zywna, CFP®

Allison Dubreuil, Wealthway Financial Advisors:    Good evening. Tonight we are going to talk about birthdays. Actually, it’s really going to be more about milestones and ages you need to pay attention to. I think most young people just can’t wait to get to certain milestones 16 and 18, then 21. And then eventually, I think the pendulum swings the other way and people don’t like celebrating their birthdays anymore. Kevin, you are one of them. You don’t like to be acknowledged on your birthday. But there are certain milestones that you need to be aware of, as you are planning for retirement and in retirement. Some are good, some are things to look forward to. And some are maybe not so fun and exciting, but important nonetheless. So we want to talk about these and help you mark your calendars.

Kevin Zywna, Wealthway Financial Advisors:    Right certain ages are pivotal in the financial planning process. They allow you to do certain things at certain times. It’s helpful to be mindful of these milestones and age markers so that you don’t miss them and you can take full advantage of whatever opportunities come your way as you reach certain birthdays.

Financial Milestone Age 50 – Increase Retirement Plan Contributions

Allison Dubreuil, Wealthway Financial Advisors:    So let’s kick things off with the young age of age 50. So when you turn 50 that’s a milestone and it’s a good one depending on how you look at it. Because when you turn 50 you can now start contributing more to your retirement plans. So you are now eligible for catchup contributions for a 401 K plan. That means you can add for 2023. Note that these numbers change each year but for 2023 you can add an additional $7,500 to your 401K plan, 403 B, TSP, tax deferred, company sponsored retirement plan, and an extra $1,000 to your IRA if you’re making traditional or Roth IRA contributions. So what’s the totals for each? The total for a company sponsored retirement plan is $30,000 with the catchup.

Kevin Zywna, Wealthway Financial Advisors:  If you’re 50, or older.

Allison Dubreuil, Wealthway Financial Advisors:  A traditional or Roth IRA for 50, and over is $7500 per year. Now there are limits. It depends on your taxable income. You can’t contribute more than your taxable income. And not everyone’s eligible to do that. But the purpose of this show tonight is to know that at 50, you can stack more money away and most of us are in our higher or even peak earning years in our 50s. And maybe the kids are starting to, hopefully, spread their wings and fly and get off the payroll. And so it’s a great time to maximize savings as you start to gear up for retirement.

Kevin Zywna, Wealthway Financial Advisors:  So 50, the first milestone marker of birthdays, you want to pay attention to. Likely to sock away a little bit of extra money once you hit that age. We have a call on the line, Herb. Good evening, Herb, you’re on Dollars & Common Sense.

Importance Of Early Contributions To Retirement Accounts

Caller:  Hey, guys, that is the key – common sense. And you want to Google something, Google the death of common sense back in the 90s. It’s really true. But that is the one thing that young folks especially could exercise when it comes to looking to the future. I know that’s difficult for them in their late teens or early 20s. But I don’t care whether you make $1 a week or $1,000 a week, put something away for a rainy day. And if your employer offers you a retirement plan, and a matching, take it to the max because you don’t have the slightest idea. When you get to that age of God says it’s time to retire, that you’re going to be able to make it.

Kevin Zywna, Wealthway Financial Advisors:  How old are you Herb?

Caller: 82 looking to be 120-140.

Kevin Zywna, Wealthway Financial Advisors: All right, and when did you start socking away some money for a rainy day?

Caller: Probably when I was selling popcorn and peanuts in 1950 and delivering newspapers. Like I said, it doesn’t matter how much you make. Sock it away for a rainy day. And by the way, y’all were making some disparaging remarks about birthdays, guess what, having birthdays is better to be celebrated and not be able to celebrate. Y’all keep up the good work and keep tweaking that message. More people are listening.

Kevin Zywna, Wealthway Financial Advisors: All right, Herb. Thanks for the words of wisdom. We really appreciate it.

Caller:  God bless you. Bye.

Importance Of Making Retirement Account Contributions A Habit

Allison Dubreuil, Wealthway Financial Advisors: Yes, along those lines, my stepdaughter has a job. And she’s only 16. So she’s very young. But we have, we have I guess I want to say encouraged her (but it’s kind of required) to set aside 20% of every paycheck. And she will very easily be financially secure at a very young age, if she can keep that habit up all the way. So it’s the earlier you start, the better.

Kevin Zywna, Wealthway Financial Advisors: And that’s a key word there. It’s a habit. As soon as you start making some income, as soon as you have a job, you have income, you have opportunity for financial security some point in the future. It doesn’t take a lot of money to one day, have a lot of money if you have a lot of time on your side. So when you’re in your teens for your first summer job, or when you’re fresh out of high school, and you get your first paycheck, or college, that’s the time to start. Yes, there’ll be a lot of competing interests for that money. But just getting in the habit is step number one.

Financial Milestone Age 55 – Increase Catch Up Health Savings Account Plan Contributions

Allison Dubreuil, Wealthway Financial Advisors: Now if you didn’t start when you were 16. Don’t worry, I didn’t either. But if you didn’t start that early, that’s what these catchup contributions are for. We’re talking about age 50 being one of the first big milestones you want to look out for. That’s your opportunity to put more away if you are playing catch up, so that you can prepare for the next phase. So after age 50, I guess I’ll include age 55 because our tax law can never make anything uniform and common sense but age 55 is when you can make a catch up contribution to a health savings account. So if you are contributing to a health savings account, we love these accounts. We talk about them a lot. Once you reach age 55 then you can put a catch up contribution of an extra $1,000 for a total contribution of $8750 per year for this year if you have a family plan, so be on the lookout for that as well.

Kevin Zywna, Wealthway Financial Advisors: So for those of you covered by a health care family plan, $1,750 this year. Triple tax advantaged on those health savings account which is the reason that we like them. Tax deduction for money that goes in and it can grow either through investments or interest, tax deferred. And if it comes out for qualified medical expenses, then it comes out tax free. So get a lot of bang for your buck with a health savings account.

Financial Milestone Age 59.5 – Withdrawal From Retirement Plan Penalty Free

Allison Dubreuil, Wealthway Financial Advisors: Then the next milestone is another positive, I would say it’s 59 and a half. And most people are pretty aware of this age. This is the magic age that allows you to withdrawal from your retirement accounts – your IRA or your 401 K or TSP without penalty. So if you withdraw money from a retirement account before age 59 and a half, you will pay a 10% early withdrawal penalty, and you’ll pay taxes if you wait until after 59 and a half, you still pay taxes but you won’t have that early withdrawal penalty of 10%.

Kevin Zywna, Wealthway Financial Advisors: Also the age in which some company retirement plans allow you to make what’s called in service withdrawals. So if you don’t have a very robust or sophisticated company retirement plan, 401 K, 403 B, some company plans will allow you while you’re still employed at that company, to make an in-service withdrawal or in-service rollover. Take that money out of the unsophisticated plan with few good investment options and roll it over into a self directed IRA, where you might have more choice and more options. So plan dependent but 59 and a half we see that a fair amount.

Allison Dubreuil, Wealthway Financial Advisors: Now just another comment about 59 and a half and I’m going to steal Kevin’s words, “just because you can withdraw penalty free doesn’t mean you should.” We would encourage you not to jump to this right when you turn 59 and a half unless there is a good and sound reason to do this as a part of a long term financial plan.

Kevin Zywna, Wealthway Financial Advisors: Alright, talking about key milestones and birthdays to be aware of.  Tonight we’re talking about key birthdays and milestones to be aware of that can help enhance your overall financial situation.

Financial Milestone Age 60 – Widows Can Claim Social Security On Deceased Spouse’s Social Security Record

Allison Dubreuil, Wealthway Financial Advisors: Yes, we talked about age 50 being the age that you can start making extra contributions to your retirement plans. And then on the flip side, age 59 and a half is when you can start withdrawing from your retirement plans penalty free. So the next milestone that we hit is age 60. So age 60, is not going to apply to everyone. But I wanted to make sure we mentioned it. That’s the age where if you are a widow, that’s the youngest age, you can claim social security on your deceased spouse’s Social Security record unless there are minor children. If you have minor children, there are different rules that apply to you. But if you have your spouse pass away, age 60 is the earliest you could take a benefit from their Social Security earnings, and that would be a reduced benefit. But widows do have options, more options than anyone else with Social Security because you can take a widows benefit and then later switch to your own or vice versa. So there are a lot of options and know that the age 60 is when those start to become available.

Financial Milestone Age 62 – Earliest Social Security Claim Age

But for most people, age 62 is the first milestone for Social Security. So age 62 is the earliest age you can claim Social Security. When you claim at 62 It will be a reduced benefit. It’s reduced. It depends on your age, but it’s reduced somewhere around 30-35% from your full benefit if you claim at age 62 but there can be some good reasons to do that. We do a deep analysis for our clients on when to claim and it’s not always a certain answer. For some people, it is 62. For some people, it may be 70, or anywhere in between.

Kevin Zywna, Wealthway Financial Advisors: Yes, so just know that the Social Security claiming decision is relatively complex. There are a lot more options. People are aware of 62, the first age when people can claim their retirement benefit. And overwhelmingly, I believe it’s about two thirds of us here in the United States, claim the Social Security benefit at age 62. Now, rarely does that make sense if you’re still working, if you’re still employed and earning income. So that’s something that needs to go into the analysis. Otherwise, you’re going to find that benefit reduced unnecessarily by the amount of income that you’re working while you’re getting that reduced benefits. So again, another wrinkle in the Social Security claiming strategy. While most people do claim it at 62, it’s probably not in your benefit if you’re still working.

Allison Dubreuil, Wealthway Financial Advisors: Yes, those are complicated rules. But you’re right. If you claim at 62, and you earn more than a certain amount each year, your benefit is reduced. Now, this is a temporary reduction, so eventually, you’ll get it back, but it would take you a long time to recoup it. Really, if you’re working, why claim then? If you really need the money, that’s a different situation. But for the most part, if you’re still working, let your benefit grow.

Kevin Zywna, Wealthway Financial Advisors: Really good reasons to take it at age 62, we find sometimes when we do a deep dive, even people who can wait and defer their Social Security benefit to full retirement age, which is now around 66, depending on when you were born, but 66, and 67 is the full benefit age for most people, or you can delay all the way up to age 70. And every year that you delay that from age 62, that benefit increases about 8% each year. That’s a basically a guaranteed 8% growth. And when you get a guaranteed 8%, we usually say take it if the time is right.

Allison Dubreuil, Wealthway Financial Advisors: So age 60 for widows possibly taking Social Security benefit, at age 62 is the first opportunity for the rest of us.

Social Security Claim Questions

Kevin Zywna, Wealthway Financial Advisors: Alright, we’re going to run out to Norfolk right now and get a quick question from Jim. Good evening, Jim. You’re on Dollars & Common Sense.

Caller: Hello, if you delay your Social Security, collecting your Social Security until you’re 70, and you don’t hit I guess, technically the day you turn 70 is the day that you’re eligible to receive that larger benefit. What if you miss, what if you don’t get all of whatever the proper paperwork is done? And let’s say you miss it by six months or even a year? Do you collect that money that you would have collected? From the day you started seven years? Do you just lose it?

Allison Dubreuil, Wealthway Financial Advisors: Good question, Jim. So first, the application, you can submit your application for benefits, I believe up to four months in advance of when you wanted to start. So it would never be a bad idea when you’re 69 and six months to put your application in and and start that clock so that it pays right away. If you apply late, they will pay retroactive benefits. I don’t know off the top of my head how far back they go. I don’t think it would be a full year. I think there is a short window where they would pay retroactive benefits.

Kevin Zywna, Wealthway Financial Advisors: But that benefit would not grow any past age 70, if that makes sense.

Caller: Yes, I’ve missed my 70th birthday and I did receive a letter that said it’s not here then there is no advantage to waiting beyond 70 because it is what it is. I was just wondering whether I’m lost sorry about that. Whether those monthly payments or whether they will retroactively pay me but I guess you’ve answered that.

Kevin Zywna, Wealthway Financial Advisors: Yes, we think there’s some retroactive payment there, Jim. We’re going to do a little research.  Tonight we’re talking about significant birthdays and milestones and actions you can take along the way to enhance your financial situation. We’re working our way up, we have reached age 65, the magic milestone for Medicare. So if you don’t already know this, 65 is when you are eligible for Medicare. You have a seven month window for which you can apply for your benefits. That’s three months before your birth month, the month of your birth month and then three months after. So if you are going to enroll, you want to make sure you do it during that window. If you are still employed and you are still eligible for health insurance through your employer, you can delay claiming Medicare You don’t have to go on it if you still have coverage. But anyone who doesn’t have coverage needs to take steps to do that. And I don’t think many people know that there are independent brokers, insurance brokers that can help you navigate all of the Medicare enrollment, intricacies because there are there’s an alphabet soup of choices. There’s Medicare Part A and B through the government. But then there’s C D, E, F, there’s all sorts of letters and different levels of coverages.

Allison Dubreuil, Wealthway Financial Advisors: Right, and there are insurance specialists that can help you. They are compensated by the insurer or the insurance company. So it is not an extra cost to you to go through them. They can help simplify and make sure that you are getting the right drugs that you need and the right coverage for your personal situation.

Kevin Zywna, Wealthway Financial Advisors: Yes, they get paid by a commission from selling the insurance products but it’s no cheaper if you try to go it alone. So we believe that you can benefit by having good financial insurance advice to help steer you towards the most appropriate Medigap policy for you. So we often will even refer our clients to insurance brokers to make sure that they get the right coverage when it comes to filling in the gaps around Medicare.

Allison Dubreuil, Wealthway Financial Advisors: A word of reassurance because many people worry about health care costs in retirement. We see a lot of retirees. We work with them throughout all, through sickness and in health, and we see all sorts of health problems. By and large, if you have Medicare and then your supplement, or even an advantage program, most things do get covered by Medicare and there is relatively little out of pocket for Medicare and a sublet. Care supplemental plan and Medicare and TRICARE, now that’s the gold standard, you’re not going to pay much out of pocket at all.

Kevin Zywna, Wealthway Financial Advisors: A lot of people are very fearful of what medical expenses can be later in life. When you tend to use a lot of health care, especially expensive healthcare, like replacement of knees, or hips, or maybe some heart surgery. We’ve had clients have all of those things. And we can report from a practice standpoint, that Medicare and its subsequent other coverages, does a pretty darn good job of covering the bulk of the costs.

Allison Dubreuil, Wealthway Financial Advisors: Yes, I just want to clarify what I said though. I lumped Medicare Advantage in there. Medicare Advantage is a different animal, and you could end up paying more out of pocket eventually, if you have health issues later on in life. So just know that there are different plans that may suit different people, and you can get help navigating it.

Medicare Enrollment Questions

Kevin Zywna, Wealthway Financial Advisors: Alright, we are going to run out to Virginia Beach right now and speak to Joey. Good evening, Joey, you’re on Dollars & Common Sense.

Caller: Thanks, you guys for doing the show. Is there any advantage to putting off? I’m 63. And we get on. I don’t plan on retiring till 70. But is there any advantage to putting off signing up for Medicare?

Allison Dubreuil, Wealthway Financial Advisors: You have health insurance through your employer, Joey?

Caller: Sure. Sure. Well, is there any, do I get any benefit by putting it off?

Kevin Zywna, Wealthway Financial Advisors: Oh, you mean like you’d do with social security and delaying the claiming benefit with Social Security? No, no. In fact, you don’t want to do that with Medicare.

Allison Dubreuil, Wealthway Financial Advisors: Well, what if you still have coverage through your employer, then it probably warrants a deeper look. So some employers will require you to go on Medicare, when you turn 65. And their insurance becomes the secondary policy and is lesser coverage. Other employers will allow you to stay on your full benefit plan. And your benefit may be better than what Medicare would cost you. So I would recommend having a conversation with your HR manager, and or an independent insurance broker that can look at your current plan and help you compare what it would mean if you went on Medicare, and you can see which one would be best coverage for you and most cost effective.

Caller: So Medicare comes out of your Social Security. They take money out of your social security, or Medicare?

Allison Dubreuil, Wealthway Financial Advisors: It does unless you have not claimed Social Security, then you would pay premiums. Okay, so.

Caller: Okay, so basically, you’re paying for Medicare out of your Social Security. If you were going to retire at 65. And you’ve got to go on Medicare, and you’re going to collect social security. They’re going to take the payments for Medicare, out of your Social Security.

Allison Dubreuil, Wealthway Financial Advisors: They will but you are not required to do both. They are separate decisions. But yes, if you claim your Social Security, the Medicare premium will come out of Social Security.

Caller: Right. So you’re really paying for Medicare.

Kevin Zywna, Wealthway Financial Advisors: You pay an insurance premium for it. Yes, it is medical insurance.

Caller: So it’s not really free.

Allison Dubreuil, Wealthway Financial Advisors: Well, the Part A is the hospital coverage. That’s what you don’t pay a premium for but you pay a premium for Part B, which is doctor’s visits and regular co pays. So that’s the part that you would either pay – the Medicare premium, or you may just want to stay on your policy. So it’s complicated. Not exactly straightforward, but you have options, and it would probably be a good idea to look into all of your options to make the best decision.

Caller: Yes, I guess that’s 63 I’m getting closer to have to start.

Allison Dubreuil, Wealthway Financial Advisors: Yes, I would say probably by 64 when you want to get serious about it. That’s when you’ll probably start getting a lot of stuff in the mail and people will start hounding you.

Caller: Yes, I’ve already started getting stuff, all the different plans. And I’m like, well, what plan do you have to have? I don’t know. It’s like, yes, I can see. I don’t think the government’s going to help you make that decision. So I can see I’m going to have to try and figure something out on that. What’s the best way to go about doing one more quick one? One more quick question. Can you borrow against your 401K?

Kevin Zywna, Wealthway Financial Advisors: You can simply, but that doesn’t mean you should.

Caller: Okay. Yes because I was in a dilemma and I was like, you know, I was trying to figure out if it would be worthwhile barred and gets my 401 K for about six months.

Kevin Zywna, Wealthway Financial Advisors: I would encourage you to look at and explore other options than doing that, Joey. Because really 401K type accounts should be for retirement. Usually there’s a better solution for a short term need for money then either withdrawing from or borrowing from your 401K?

Caller: Yes, because I didn’t want to withdraw from it. You know, because then you really take a beating. And then I was like, well, you could borrow against it, then, you’re paying interest back to yourself, I guess. I don’t really know how it all works.

Kevin Zywna, Wealthway Financial Advisors: Right. It’s a complicated procedure that’s usually handled by the 401 K plan administrator, which may be part of HR, or they might farm it out to somebody else. Alright, Joey, thanks for those questions. They were big. We appreciate it. We’re going to stay out in Virginia Beach right now and speak with Ken. Good evening, Ken, you’re on Dollars & Common Sense.

Social Security Widow Claim Questions

Caller: Hey, guys, thank you for taking my call. But if I could double back to something you mentioned earlier, I have a dear friend of the family who was widowed two years ago. She is now 62 years old, and has not claimed against her deceased husband’s Social Security yet. It sounds like she is of age to do that.

Allison Dubreuil, Wealthway Financial Advisors: Yes, correct. Yes. Once you turn 60, you are eligible to claim a benefit from your deceased spouse’s record as long as you were married for at least two years before they passed away.

Caller: My follow-up is, is there any advantage if she should wait till she’s 65? Or even 70? Or is that number going to be fixed?

Allison Dubreuil, Wealthway Financial Advisors: Yes, good question. So does she have her own benefit? Do you know did she work?

Caller: She does. She’s currently working. She’s not collecting now, she’s 62.

Allison Dubreuil, Wealthway Financial Advisors: Okay. So this is a case where she has many options. So she has the option to claim either the widows benefit, or her own benefit, and then eventually switch to the higher benefit. But it is complicated, because if she claims now, both benefits will be reduced, because it’s before her full retirement age. And if she’s still working, they could be reduced even further. Okay, so she really needs to go in and speak with someone, I would recommend she make an appointment with Social Security, and try to sit down and talk to them about it. There are some great people at Social Security that can really help you. But there are also some that might not be as well versed in this type of scenario. Or she could reach out to someone like us who we are pretty well versed in Social Security claiming strategies and  help her come up with a game plan.

Caller: Okay, so if she does elect to wait a little bit longer till she’s 65 or 70, that would be to her advantage, it sounds like.

Allison Dubreuil, Wealthway Financial Advisors: Yes. So either benefit would be reduced if she claims before her full retirement age. But the widows benefit does not increase after full retirement age, her own benefit would so there’s a lot of strategy that could be used in her case, depending on which benefits higher.

Caller: Well, that answers my question. Thank you so very much.

Allison Dubreuil, Wealthway Financial Advisors: You’re welcome.

Kevin Zywna, Wealthway Financial Advisors: All right, Ken. Thanks for the call. We appreciate it.

Financial Milestone Between Age 72 to 75 – Take Required Minimum Distributions

Allison Dubreuil, Wealthway Financial Advisors: One last key age we want to talk about is the age when you have to begin taking required minimum distributions. So the past couple of tax law updates have made this very confusing. Almost everyone we talked to thinks it’s a different age. So I’ll try to boil it down for you. If you are already taking required minimum distributions, sorry, there’s no change for you, you have to continue taking them. If you were born between 1951 and 1959, you now do not have to start taking required minimum distributions, that’s withdrawals from any of your retirement accounts, until age 73. So a lot of people were thinking they had to start taking required minimum distributions this year, they were getting ready to turn 72. And the law changed to 73. So you got a stay of execution. You don’t have to take any money out until age 73. For those of you born in 1960, or later, the age actually goes all the way out to 75. So, you know, it used to be 70 and a half and it went to 72. And now it’s 73. And eventually, it’s going to be 75. It’s quite the moving target. So I’m pretty sure I just confused everyone, instead of making that more simple.

Kevin Zywna, Wealthway Financial Advisors: The government, the IRS confused everyone, we’re just trying to keep up.

Allison Dubreuil, Wealthway Financial Advisors: Right. So you know, if you are not sure, look it up. It is clearly outlined on www.irs.gov. When the money comes out, the amount that has to come out is calculated each year. It’s based on the account value at the end of the previous year and how old you are. It’s a percentage of the account. It has to come out and you have to pay your tax on it. But you don’t have to necessarily spend it. You can spend it if you need it. A lot of people need that, that’s fine. That can be your spending money. If you don’t need it, it could be reinvested into a regular brokerage account for future spending needs. Or if you don’t need to use it and you are charitably inclined, you can donate it directly from your retirement account to a charity. And it will satisfy your required minimum distribution. But it will not be taxable to you. So we love that strategy.

Kevin Zywna, Wealthway Financial Advisors: Alright, that’s about all the time we have for tonight. But before we go, we’re going to make a little announcement. I’m going to sadly have to say goodbye to my broadcast partner Allison for just a few months this summer. She is going to take an extended sabbatical for a few months to do some personal traveling and get some relaxation.

Allison Dubreuil, Wealthway Financial Advisors: Well, I’m trying not to jam pack my schedule like I would normally jam pack my entire life nonstop. So I think we’ve probably talked about this on the air, but maybe not everyone knows. I also teach dance. I teach ballet and jazz and contemporary and that’s one of my passions outside of finance. And so I’m going to be traveling with my students to compete in Nashville this summer, which we’re very excited about. We’ve been working really hard on that. And some hiking with my husband and some visiting of family but really just trying to decompress a little bit and take some breathing space.

Kevin Zywna, Wealthway Financial Advisors: Well, I’m happy that you can do it. And I’m happy that you’ve got some good plans set up for that. I will be here throughout the summer, either by myself or we might bring in some of the other gang from Wealthway Financial Advisors. We have two associate financial advisors, Andrea and Cody, that are very integral into the operation of the firm. They might join me from time to time on the show here and get them a little bit of exposure to the radio show.

Allison Dubreuil, Wealthway Financial Advisors: Yes, I was going to add that we operate fully as a team when we work with our clients. So while I hope I’ll be missed a little bit, we know it will be business as usual at the office for all of our clients or anyone who needs us.