10 Years and Counting: Points to Consider as You Approach Retirement

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If you’re a decade or so away from retirement, you’ve probably spent at least some time thinking about this major life change. How will you manage the transition? Will you travel, take up a new sport or hobby, or spend more time with friends and family? Should you consider relocating? Will you continue to work in some capacity? Will changes in your income sources affect your standard of living?

When you begin to ponder all the issues surrounding the transition, the process can seem downright daunting. However, thinking about a few key points now, while you still have years ahead, can help you focus your efforts and minimize the anxiety that often accompanies the shift.

Reassess your living expenses

A step you will probably take several times between now and retirement–and maybe several more times thereafter–is thinking about how your living expenses could or should change. For example, while commuting and other work-related costs may decrease, other budget items may rise. Healthcare costs, in particular, may increase as you progress through retirement.

Try to estimate what your monthly expense budget will look like in the first few years after you stop working. And then continue to reassess this budget as your vision of retirement becomes reality. According to a recent survey, 38% of retirees said their expenses were higher than they expected.1 Keeping a close eye on your spending in the years leading up to retirement can help you more accurately anticipate your budget during retirement.

Consider all your income sources

First, figure out how much you stand to receive from Social Security. In early 2016, the average monthly retirement benefit was about $1,300.2 The amount you receive will depend on your earnings history and other unique factors. You can elect to receive
retirement benefits as early as age 62, however, doing so will result in a reduced benefit for life. If you wait until your full retirement age (66 or 67, depending on your birth date) or later (up to age 70), your benefit will be higher. The longer you wait, the larger it will be.3

You can get an estimate of your retirement benefit at the Social Security Administration website, ssa.gov. You can also sign up for a my Social Security account to view your online Social Security statement, which contains a detailed record of your earnings and estimates for retirement, survivor, and disability benefits. Your retirement benefit estimates include amounts at age 62, full retirement age, and age 70. Check your statement carefully and address any errors as soon as possible.

Next, review the accounts you’ve earmarked for retirement income, including any employer benefits. Start with your employer-sponsored plan, and then consider any IRAs and traditional investment accounts you may own. Try to estimate how much they could provide on a monthly basis. If you are married, be sure to include your spouse’s retirement accounts as well. If your employer provides a traditional pension plan, contact the plan administrator for an estimate of that monthly benefit amount as well.

Do you have rental income? Be sure to include that in your calculations. Might you continue to work? Some retirees find that they are able to consult, turn a hobby into an income source, or work part-time. Such income can provide a valuable cushion that helps retirees postpone tapping their investment accounts, giving the assets more time to potentially grow. Some other ways to generate extra cash during retirement include selling gently used goods (such as furniture or designer accessories), pet sitting, and participating in the sharing economy–e.g., using your car as a taxi service.

Pay off debt, power up your savings

Once you have an idea of what your possible expenses and income look like, it’s time to bring your attention back to the here and now. Draw up a plan to pay off debt and power up your retirement savings before you retire.

Why pay off debt? Entering retirement debt-free–including paying off your mortgage–will put you in a position to modify your monthly expenses in retirement if the need arises. On the other hand, entering retirement with a mortgage, loan, and credit-card balances will put you at the mercy of those monthly payments. You’ll have less of an opportunity to scale back your spending if necessary.

Why power up your savings? In these final few years before retirement, you’re likely to be earning the highest salary of your career. Why not save and invest as much as you can in your employer-sponsored retirement savings plan and/or IRAs? Aim for maximum allowable contributions. And remember, if you’re 50 or older, you can take advantage of catch-up contributions, which enable you to contribute an additional $6,000 to your 401(k) plan and an extra $1,000 to your IRA in 2016.

Manage taxes

As you think about when to tap your various resources for retirement income, remember to consider the tax impact of your strategy. For example, you may want to withdraw money from your taxable accounts first to allow your employer-sponsored plans and IRAs more time to potentially benefit from tax-deferred growth. Keep in mind, however, that generally you are required to begin taking minimum distributions from tax-deferred accounts in the year you turn age 70½, whether or not you actually need the money. (Roth IRAs are an exception to this rule.)

If you decide to work in retirement while receiving Social Security, understand that income you earn may result in taxable benefits. IRS Publication 915 offers a worksheet to help you determine whether any portion of your Social Security benefit is taxable. If leaving a financial legacy is a goal, you’ll also want to consider how estate taxes and income taxes for your heirs figure into your overall decisions.

Managing retirement income to result in the best possible tax scenario can be extremely complicated. Qualified tax and financial professionals can provide valuable insight and guidance.4

Account for health care

In 2015, the Employee Benefit Research Institute reported that the average 65-year-old married couple would need $213,000 in savings to have at least a 75% chance of meeting their insurance premiums and out-of-pocket health-care costs in retirement. This figure illustrates why health care should get special attention as you plan the transition to retirement.

As you age, the portion of your budget consumed by health-related costs (including both medical and dental) will likely increase. Although original Medicare will cover a portion of your costs, you’ll still have deductibles, copayments, and coinsurance. Unless you’re prepared to pay for these costs out of pocket, you may want to purchase a supplemental Medigap insurance policy. Medigap policies are sold by private health insurers and are standardized and regulated by both state and federal law. These plans cover certain specified services, but offer different combinations of coverage. Some cover all or part of your Medicare deductibles, copayments, or coinsurance costs.

Another option is Medicare Advantage (also known as Medicare Part C), which allows Medicare beneficiaries to receive health care through managed care plans and private fee-for-service plans. To enroll in Medicare Advantage, you must be covered under both Medicare Part A and Medicare Part B. For more information, visit medicare.gov.

Also think about what would happen if you or your spouse needed home care, nursing home care, or other forms of long-term assistance, which Medicare and Medigap will not cover. Long-term care costs vary substantially depending on where you live and can be extremely expensive. For this reason, people often consider buying long-term care insurance. Policy premiums may be tax deductible, based on a number of different factors. If you have a family history of debilitating illness such as Alzheimer’s, have substantial assets you’d like to protect, or want to leave assets to heirs, a long-term care policy may be worth considering.5

Ease the transition

These are just some of the factors to consider as you prepare to transition into retirement. Breaking the bigger picture into smaller categories and using the years ahead to plan accordingly may help make the process a little easier.

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IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. NASA Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

 

1 2016 Retirement Confidence Survey, Employee Benefit Research Institute.

2 Social Security, Monthly Statistical Snapshot, February 2016.

3 Note that if you work while receiving Social Security benefits and are under full retirement age, your benefits may be reduced until you reach full retirement age.

4 Working with a tax or financial professional cannot guarantee financial success.

5 A complete statement of coverage, including exclusions, exceptions, and limitations, is found only in the LTC policy. It should be noted that carriers have the discretion to raise their rates and remove their products from the marketplace.

 

Is Social Media Scamming You? Five Popular Scams and How to Avoid Them

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Cyber criminals will use whatever they can think of to try to get your online banking credentials or other information they can sell on the dark web. Here are five ways they use social media to do it and how you can avoid giving up your information, in no particular order.

  1. They use the comments to news articles and popular posts on Facebook by adding their own posts with a conveniently clickable link included. Those who click the link may be taking to fake websites or presented a form for which the user is supposed to enter information. Often the links are accompanied by catchy headlines (click bait) themselves.
  2. They create fake customer service accounts on Twitter, Facebook, LinkedIn, or other social media that pretend to help customer. For example, they may see a Twitter user complaining about not being able to reach a representative. They reply to that user with a post that includes a link to another site where the user is led to believe he or she will get assistance. Unfortunately, the link really is phony and asks for login credentials and/or other sensitive information.
  3. They create social media accounts using names that sound like legitimate companies, such as Netflix and offer discounts. When users click links included in these, they are asked for account information or other details that can be sold.
  4. They use fake online surveys and polls to trick users into inputting information that can be later sold or used for fraud. An example is setting up a realistic news story and asking what users think. A link is included, naturally, but it goes to a fake site where personal information is requested. Often the “surveys” promise a chance to win a fabulous prize.
  5. They pretend to offer live streaming of big events, such as the Olympics or other popular sporting events. Often they attach a link to a posted story about the event that is on Facebook. However, when the included links are clicked, a request for personal information appears claiming the video cannot play until they are entered.

Avoid these scams by not clicking links or putting information into any form that appears as a result of clicking links. If you need to reach your financial institution or other organization for any kind of support, contact them directly using information from their website that you have previously bookmarked. Alternately, type the name of the site into the browser manually.

View any comment posted in social media that claims to help you or offer you something sensational with suspicion. If you want to stream an event, go to the website of a well-known and trusted source to get there, such as the major sports broadcasting companies, media outlets, or television networks.

Use apps that are downloaded from the official app stores for your devices. These are typically put under additional scrutiny for security before being allowed into the app stores. Sideloading, downloading apps from places other than the app stores is not recommended because it introduces additional risk of executing malware on your devices.

As always, make sure all internet-connected devices have anti-malware installed and it is kept updated. Also, keep all your software and operating systems updated with the latest critical and security patches. While these actions don’t guarantee malware won’t be installed or a vulnerability won’t be exploited, they reduce your risk significantly and it’s worth the relatively small effort versus dealing with malware.

© Copyright 2016 Stickley on Security

Homebuyer Education: The First Step to Buying a Home

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How well do you really understand the homebuying process? Taking a qualified homebuying class will do more than teach you how to get a mortgage or pull together a down payment. It will help you determine the amount of home you can afford without endangering other lifetime financial goals.

If you think this training is just for first-timers, think again. Real estate markets change, and so do homebuying environments. It is worth considering taking a class each time you’re making a home purchase, especially if it has been a significant number of years between purchases. The homebuying class can keep you up to date on what you’ll need to know this time around.

Where can you find these courses? Many private lenders offer their own training, but governments – local, state and federal – are the main source for instructional classes for homebuyers. In fact, on both the public and private side, these classes are often tied to special loans or funding assistance for the qualified.

Most homebuyer trainings are free – if you’re asked to pay, get an explanation for what those costs cover.

The U.S. Department of Housing and Urban Development (HUD) provides a list of approved state (http://portal.hud.gov/hudportal/HUD?src=/buying/localbuying) and local agencies (http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm) that offer a range of homebuyer education options – some even help first-time buyers obtain grants and other financial assistance with their down payments. HUD has backed up this effort with additional funding (http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2016/HUDNo_16-022) this year.

The Department of Veterans Affairs (VA), and Department of Agriculture (USDA) also offer assistance and educational programs for qualified buyers. Meanwhile, Fannie Mae and Freddie Mac (https://www.fanniemae.com/content/faq/home-buyer-education-policies-faqs.pdf), the two government-sponsored agencies that keep mortgage funding flowing through our lending system, also support their own homebuyer education options. In fact, a 2013 Freddie Mac study (http://www.freddiemac.com/news/blog/robert_tsien/20130415_getting_better.html) indicated that pre-purchased financial counseling may cut the likelihood of a first-time homebuyer becoming seriously delinquent by nearly 30 percent.

Here are some of the major topics a thorough homebuying class should cover:

1. Homebuying readiness. Explore the general questions around a homebuying decision, such as why you want to settle in a particular area, how long you plan to stay, what kind of property you’re considering and where you are in your career and lifestyle. You may also be asked to answer specific financial questions to support your thinking, which should not be shared with others. The best courses will help you determine answers to the big questions, such as whether you should buy a home or stick with renting.

2. Budgeting and credit. These courses will help you evaluate how you handle money. Do you have a budget? If not, do you know how to create one? Do you understand your credit rating and what goes into determining your score? If you have debt, how are your efforts going to pay it off? Essentially, what you don’t know about spending and borrowing can limit your ability to buy a home.

3. Preapproval for mortgage financing. Navigate the nitty-gritty of the loan process – what a mortgage is, the various types of mortgages, how they work and what it takes to be preapproved for a mortgage. Pre-approval involves filling out a full mortgage application, typically with a fee to cover an extensive credit check as if you were actually buying a home. Pre-approval, unlike prequalification, allows a potential borrower to receive a loan commitment for a specific amount, which can grease the wheels in a potential purchase.

4. Knowing what you can afford. Analyze the above and consider the reality of what kind of property you can really afford to buy. Look at price limits and locations and ways to get more for your money, including specific local, state and federal borrowing programs (http://portal.hud.gov/hudportal/HUD?src=/topics/buying_a_home) you may qualify for. Buying your dream home can seem nice, but it can turn into a nightmare if you can’t afford the home while living within your means.

5. Your home search. Determine how, when and where to shop for specific properties within the neighborhoods you are interested in and how to get the best overall deal for what you’re buying.

6. What you’ll need to close a home sale in your chosen community. Buying a home can also include an introduction to the specific regulatory and cost environment where you’re planning to live. For example, your course should take you through such things as community-specific housing laws and zoning restrictions that could affect what you’ll be investing in the property, property tax issues (particularly if an assessment is pending), your home titling (http://www.bankrate.com/finance/mortgages/understanding-the-closing-process-1.aspx) process, inspection requirements and the other costs linked to legal processes and paperwork.

7. The aftermath. A solid homebuying class should give you a wide picture of the costs you’ll face after the sale and how to manage them so you don’t put the rest of your finances in jeopardy. Being too “house poor” not only puts you at a risk of losing the property, it can threaten other important financial goals.

If you have your eye on particular lenders in your community, call them to see whether homebuying education can be a helpful factor in getting approved for a loan. Ask them to explain how they evaluate such training and what courses they recommend. Always ask whether any homebuyer class has a fee and why. Also, get a second opinion – if you work with a qualified financial professional, ask what he or she thinks about the course and its benefits.

As you consider such a course, don’t think narrowly about what you can get out of it. It’s not just about getting the mortgage. It’s a chance to ask about how a home purchase may affect other aspects of your financial life – all personal finance goals should be considered equally.

Bottom line: Since the mortgage industry collapse in 2008, it’s been a new day in residential homebuying. Whether you’re buying your first home or beyond, taking a homebuyer education class can help you understand the mortgage process, improve your credit and shop smarter for a home you can actually afford.

 

By Nathaniel Sillin

Government Imposters Bring Bad Business to Small Businesses

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You’ve started a new business and want to ensure you’re doing everything right. So, when people claiming to be with the government call you to say you’re violating the law, you may be inclined to do whatever they say to fix it…right?

Slow down. Government imposters are counting on that reaction — because that’s their business.

Recently, the FTC asked a judge to stop D&S Marketing Solutions from allegedly tricking and intimidating small businesses into paying up to $200 for government regulation posters that are actually free from the Occupational Health and Safety Administration (OSHA). The FTC says D&S telemarketers called newly registered small businesses, claiming to be with OSHA or another government agency. Using official-sounding names like the “Occupational Compliance and Safety Administration,” D&S allegedly told businesses they were violating federal law because they hadn’t purchased posters about occupational safety, first aid, labor law, or other topics. In fact, says the FTC’s complaint, D&S threatened businesses with fines or a shut-down unless they bought posters immediately. Many unsuspecting businesses complied, paying as much as $200 for the otherwise free posters. The FTC says D&S raked in more than $1.3 million from this scheme.

A few tips for avoiding government imposter scams:
•Get it in writing. Government agencies typically contact you first via postal mail, rarely by phone or email.
•Don’t trust caller ID. Scammers can make a call seem like it’s coming from any area code and number on your caller ID.
•If someone calls asking for money or personal information, hang up. If you think the caller might be telling the truth, call back to a number you know is genuine.

Learn more about government imposters and file a complaint with the FTC if someone posing as the government tries to steal from your business.

by Lisa Lake
Consumer Education Specialist, FTC

How to Research and Reduce Healthcare Costs

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Whether you’re planning a future procedure or navigating care after a sudden illness or accident, smart consumers have a plan in place to avoid hidden costs and billing errors common to our ever-changing healthcare system. You should too.

The Affordable Care Act (http://www.hhs.gov/healthcare/) (ACA) made it possible for all Americans to get some form of healthcare coverage regardless of their medical history. That’s the good news. The bad news is that everyone’s personal health circumstances and solutions are different, and we’re still far away from the day when the coverage we buy – either individually or through our employers – can prevent us from getting unexpected bills for services and procedures our insurer didn’t cover or errors made in the billing process.

It’s also important to know that many health insurers are adjusting to the reality of universal coverage by narrowing the assortment of doctors in their networks, leaving more patients at risk of “surprise” (http://kff.org/private-insurance/issue-brief/surprise-medical-bills/) bills if they are treated by practitioners outside their insurer’s network.

There are some helpful resources – both public (https://www.medicare.gov/coverage/surgery-estimating-costs.html) and private (https://healthcarebluebook.com/) – which have emerged that price health procedures. Using those resources can help avoid some major out-of-pocket healthcare expenses. It’s also essential to determine what practitioners may be in or out of network, particularly if it’s an emergency.

So what can you do to prevent these unexpected health costs? If you are not on Medicare, (https://www.medicare.gov/what-medicare-covers/index.html) which tends to have more standardized pricing and coverage, you need to question practitioners (or their billing departments) and price-comparing procedures the way you would any major purchase. Depending on your local medical resources, you may have the option to conduct your research online. Here are some ways to begin.

Know how you’re covered for both emergencies and non-emergencies. It’s easier to plan for a hip replacement you’ll need in six months than for emergency surgery after an accident or sudden illness, but it’s important to think through how your coverage works in both situations:

  • Emergency: Emergencies are a challenge to price because it’s tough to know which practitioners and services you’ll actually need. The key is to make a plan for emergencies. Speak to your insurer now – and consult your primary care physician – to confirm that you have a good range of in-network emergency doctors at the hospital of your choice. If not, you might want to think about switching plans during your next enrollment period. Put an easy-to-find “in case of emergency” card in your wallet next to your health insurance card that makes your preferred hospital visible to first responders or other helpers. Also, list your primary care doctor’s and your health care power of attorney’s contact information. Finally, make sure the person you designate as your health care power of attorney has access to your insurance and physician network information so he or she can guide your care more affordably if you’re incapacitated.
  • Non-emergency: If your doctor is recommending a particular in-hospital or outpatient procedure in the coming weeks or months, you’ve got time to plan, so do it. Query your physician or his or her billing department about the cost of the procedure and what other practitioners (such as an anesthesiologist) might be involved. Then spend equal time speaking with your insurer about what you’ve learned and how extensively the procedure in question will be covered. Make sure you understand if your insurer covers the procedure on an inpatient (hospital) or outpatient (office) basis – some insurers are reportedly cutting back on outpatient coverage.

Know your deductible. The latest annual Kaiser Foundation employer health benefits survey indicated some whopping figures for health care deductibles – the out-of-pocket total you have to pay before the bulk of your health coverage kicks in. For example, if you have a $3,000 deductible that you haven’t touched this year, that’s the initial out-of-pocket amount you’re going to have to pay for any big procedure. Keep that figure in mind as you continue your research on medical options. That’s why it’s important to keep such amounts in an emergency fund or, if you have the option, set aside in a health savings account (https://www.irs.gov/publications/p969/ar02.html) where you can keep funds not only for the deductible, but for other potential out-of-pocket health costs.

Review bills closely. One recent study has reported significant errors in medical bills, particularly for hospital stays. Keep in mind that the price-comparison exercise doesn’t stop on the way in to a procedure. You need to keep an eye on pre- and post-procedure bills from practitioners, hospitals and your health insurer for accuracy. If you see an error, contact the appropriate party or parties immediately to correct the problem.

Bottom line: There are very few industries going through as much change as healthcare. Universal coverage is good, but it’s important to know exactly what it pays for before you need it. Set aside time to think through your health issues and do your research to help reduce healthcare costs that can impact your overall budget. Learning to save money now can preserve your budget later.

 

By Nathaniel Sillin

 

The FTC Gets Rachel the Robocaller… Again

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Have you gotten pre-recorded sales calls from Rachel from Cardholder Services? Or Bank Card Services or Credit Assistance Program? You’ve been reporting these illegal calls, and the FTC continues to take action.

Recently, the FTC and the state of Florida announced a lawsuit against Life Management Services, a company that the FTC says is behind hundreds of thousands of these calls.

According to the FTC, Life Management Services swindled people out of their money by offering two types of phony debt relief: credit card interest rate reduction services and credit card debt elimination services. The company promised lower interest rates or government funds to pay off debt, and asked people to make initial payments ranging from $500 to $20,000. But almost no one got the help that was promised.

This is one of six recent FTC cases that focus on illegal robocalls. How does the FTC build these cases? One critical tool is the FTC’s honeypot — a large bank of phone lines designed to attract robocalls. That lets FTC investigators interact with robocallers, record the calls, and make undercover purchases. The FTC uses its honeypot to identify companies placing illegal calls and collect evidence of their illegal activities. It was particularly useful in the Life Management case announced recently.

So, what do you do if you get another unwanted robocall?

  • Hang up. Don’t respond in any way. Pressing buttons to get you taken off a list could result in more unwanted calls.
  • Block the caller’s number. You have a few options for blocking unwanted calls, including call-blocking devices, mobile apps, cloud-based services, and services provided by your phone carrier.
  • Report it to the FTC at www.donotcall.gov or 1-888-382-1222.

Read on for more info and tips about robocalls.

by

Andrew Johnson
Division of Consumer and Business Education