Tracie Dawson

It is highly common for everyone to be overwhelmed with all the decisions that need to be made when reaching retirement age. Making choices for your financial future can be even more complicated if you are making all of these decisions on your own, particularly your Social Security withdrawal options. If you are divorced, educating yourself about your Social Security benefits options can help you make smart and thoughtful decisions.

When you are ready to file for spousal Social Security benefits, it is important to look at the main eligibility factors:

1

Have you been married for 10 years?

2

Have you remained single since your divorce?

3

Have you been divorced for 2 years or longer?

If your answer to all three questions above is yes, then you are eligible for your ex-spouse’s benefits.

The Social Security office has different filing rules, depending upon your age. Your first option is to file for your SS benefits at age 62 (if both you and your ex-spouse are at least 62). Since 62 years old is considered an early retirement age, the Social Security office will first calculate your personal benefits and your divorced spouse’s benefits, and will then determine the higher of the two benefits, paying you the higher amount.

Your second option is to file for your spousal Social Security benefits at full retirement age (now 66). At this age, you have a choice as to whether you would like to claim benefits based on your own earnings record, or on your former spouse’s record. Keep in mind that you will only receive 50% of your divorced spouse’s benefits. These benefits will be the same, whether you begin withdrawing them at age 66 or wait until age 70. If your own benefits at age 70 will be higher than your spousal benefits, you should file for spousal Social Security benefits at 66 and switch to your own at 70. The ssa.gov website offers more information about the Social Security application process.

Please note that if you have been divorced for less than two years, you are still eligible for spousal Social Security benefits; however, filing for the benefits may be more complicated. See your financial advisor and/or your attorney for more information.

Making a decision about Social Security benefits is an important part of your financial future. Once you near the age of retirement, it is always a good idea to speak with your financial advisor and your attorney to ensure that you are making the best decisions.

Cheryl R. Holland

Most Medicare recipients who have a prescription drug plan fail to understand the importance of an annual review. Knowing when to revie­w, what you need to know to review, and how to review will help you to save time and money. According to New Yorker Magazine, less than 23 percent of Medicare prescription drug plan enrollees take advantage of reviewing plan options each year. Joe Baker, past president of the Medicare Rights Center in New York, reminds us not to “stay in a plan because you’re overwhelmed with the choices.” If it is time for you to review, be sure to know the answers to the following questions:

When?

During the Medicare Open Enrollment period plan, participants have the ability to review their current prescription drug plans with all drug plans. Medicare Open Enrollment runs each year from October 7th to December 15th. During this period, prescription drug plan participants are given the opportunity to review options available for the coming year, with new plans to begin on January 1st.

What?

These standalone prescription drug plans (better known as Medicare Part D) are offered by private insurance companies to Medicare-eligible insureds. Each year these insurance providers and their plans enter and exit the marketplace. Also, insurance providers renegotiate their plans with pharmacy networks. Drug formularies (the lists of covered medicines), the prescription costs and your co-pays can change from year to year as well.

How?

The Medicare website www.medicare.gov offers Medicare insured individuals the ability to review prescription drug plans on their website. On the Medicare website you will be required to input your current prescriptions, the current dosage for each prescription, your pharmacy and your home zip code. The website will show you the best prescription drug plan options for you. From these options you can choose to enroll into the plan that covers your prescriptions, has your desired deductible, co-pays and premium. Premiums can be paid by a monthly coupon book, automatically drafted from a bank account or deducted from your Social Security check if you are receiving benefits. It is important to note that there are knowledgeable independent health insurance agents in your area who can assist with this annual review.

How much?

Prescription drug plan premiums vary by plan. When shopping for a new plan, look at more than the premium alone. Consider that the best and least expensive plan for you is one that has your prescriptions in their formularies in addition to the lowest co-pays and deductible. According to the Centers for Medicare and Medicaid Services the average monthly premium for such plans is estimated at $32 a month for 2015. Higher income earners pay more for prescription drug plans. For example, a single person with an income greater than $85,000 (and married couples with an income greater than $170,000) will pay higher monthly premiums. These factors change each year depending on plan choice, reported adjusted gross income and filing status. If you have limited income and resources, you may qualify for Extra Help to pay for some of your Part D costs.

With the ever-increasing costs of prescription drugs for some millions of older Americans, an annual review of your Medicare Prescription Drug Plans is a smart financial decision—one that will give both you and your family peace of mind in this costly and complicated health insurance arena.

Read the full article on MidlandsBiz.com

Karlyn M. Jones

The summer travel season is probably when we are all most vulnerable to identity theft. What are some ways we can protect ourselves now and throughout the year?

Mike Switzer interviews Cheryl Holland, CFP® and founder of Abacus Planning Group in Columbia, SC.

Listen to Cheryl’s interview on SC Business Review:

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Cheryl R. Holland

Many of us are not sure how long to retain certain financial records; consequently, we often end up keeping boxes of documents that take up precious space. The list below outlines how long to keep your common financial documents and the time frames for keeping and/or destroying these documents.

Tax returns—seven years.

The IRS has six years to challenge your return if you under reported your gross income by 25% or more. Keep all your supporting data with your returns (i.e., W-2s, 1099s, 1099-Rs, receipts, etc.).

Brokerage statements—one year.

Keep monthly statements for one year and shred them if your annual statement summarizes all activity for the year.

Retirement plan statements—one to seven years.

Keep statements for one year and shred them if your annual statement summarizes all activity. Save annual statements for 3 to 7 years and keep records of non-deductible contributions indefinitely.

Home improvement and other real estate records—until you sell the home, plus another seven years.

The records establish your cost basis in the home and could help lower your capital gains tax on the property when you decide to sell.

Credit card statements—one month.

Shred credit card statements once you check them for accuracy, unless they are your only record of a tax-related transaction.

Pay stubs—one year.

You can shred your pay stubs once you get your W-2, but check to be sure the numbers match before you destroy.

Utility and phone bills—one month.

You can shred these documents once you have received the next statement showing that you paid. Keep the bills if they are needed for tax purposes.

Warranties and receipts—until the item is no longer owned, or the warranty has expired.

Receipts for big-ticket items are necessary to activate the warranty or to replace a defective item; receipts can also be used to prove an item’s value to an insurance company.

Bank records—one to seven years.

Keep monthly statements for one year. Keep bank records related to your taxes, business expenses, home improvements and mortgage payments for seven years; shred those that have no long-term importance.

Insurance policies—until the policy has lapsed or the property has been sold.

Household inventory of valuable items—forever, or until items are no longer owned.

Make sure the inventory is updated when new items are purchased, sold, or given away.

If you follow these guidelines for taking care of your financial documents in a timely manner, not only will you be able to free up space, but also you will have accurate, up-to-date files that can be easily accessed.

J. Abigail Mason

Despite what you see when you look at your credit card bills or what you hear when a creditor calls, or what you see when you try to open your closet and stuff falls on you, do you still think that your shopping is under control?

Have you begun to see the costs, financial and otherwise of your overspending, but still find yourself going back and forth about whether it’s really a problem?

Are you preparing to take steps to curb your overspending?

Do you have a plan in place that will help you stop overshopping?

Have you mostly stopped overspending or overshopping and now you’re just trying to maintain those gains?

Have you made progress and now find yourself lapsing or relapsing?

Each of these questions represents a different stage on the continuum of change. Looking at change in this way first became popular in the late 1970’s with the introduction of J.O. Prochaska and C. DiClemente’s Stages of Change model. Since that time, the stages of change framework has been successfully applied to a number of addictive problems including eating disorders, alcoholism, substance abuse and people who are in debt counseling to help people identify where in the change process they are and to build and maintain motivation to change. A recent article in the Journal of the Financial Planning introduces and extends its use to people with compulsive buying behavior, which is why I wanted to share it with you. Read it and you’ll be much better able to identify where you are in the change process and what you need to do to progress further.

An understanding of the stages that people with addictions go through as they begin to move through the process of recovery from denial and ambivalence through preparation, action, and maintenance drives the model, which is also aligned with Motivational Interviewing, a form of therapy that helps a client develop and maintain motivation to change.

During the denial stage, an overspender is either unaware of or unwilling to acknowledge his or her problematic behavior. Individuals in this stage may seek professional help not of their own volition, but because friends or family have seen the cost of the compulsive buying behavior and insist that the overshopper get help. Often, as a result of that help, an individual progresses to the ambivalence stage, during which he or she begins to recognize the negative consequences of this behavior, but is still torn between acknowledging the problem and continuing to overshop or overspend.

When the pendulum of ambivalence swings toward the “I need to change” side, the preparation stage begins, during which the person no longer resists the notion of change and, often with a professional’s help, starts to put together a plan for moving forward. The implementation of the plan indicates that an individual has moved into the action stage; he or she begins to substitute new, positive behaviors for self-defeating overshopping and overspending. Once the action phase is complete, the maintenance stage begins. An overshopper in this phase has developed successful ways to deal with triggers and other stressors and is moving toward sustaining the changes he or she has made in the direction of financial independence and greater emotional stability.

This is not a fixed stage, given the fact that powerful, tempting shopping triggers may exist, which may necessitate additional strategies, including learning how to deal with inevitable lapses and sometimes full-blown relapses. Relapsing is a normal, predictable and sometimes even necessary part of this process; post relapse, an overspender needs to revisit and reintegrate the stages of change to back on track.

A detailed and compelling case example brings the model to life and shows you how one overshopper made enormous progress using this valuable structure.

While the article is addressed to financial advisors, overshoppers and overspenders and the people who love them will learn a great deal of useful, actionable information.

Read the entire article here.

What is inflation?

How can inflation affect you on a daily basis? The finance text books define inflation as an increase in prices. What this definition leaves out is the impact of time and persistence. At Abacus we like to think of inflation as a very small hole in a very large bucket of water: the small hole makes it hard to notice the water level as it falls on a day-to-day basis, but over a long period of time the small hole will drain out all the water. Just like the small hole in the bucket, the consistency and invisibility is what makes inflation so dangerous. To help counteract the impacts of inflation, a well-designed portfolio should consider the impact of inflation on future expenditures and goals and should emphasize inflation as equally as stock market swings.

Documenting inflation seems to be about as difficult and debated as the definition of inflation. Central banks and government agencies report inflation statistics. These Government statistics are then used to make adjustments to tax and benefit calculations. While the government figures are widely disputed, these figures are still the most detailed data available—and government data on inflation can be very helpful when thinking about trends. For example, consider the following data (according to the Bureau of Labor Statistics): The cost of college tuition and fees has increased 78% from 01/2004 to 09/2014; the cost of physicians’ services has increased 32% from 01/2004 to 09/2014.

How does this affect you?

When you are saving and investing for future goals, it is a good idea to think about how fast prices are increasing (or decreasing) for your specific financial goal. Once you have a savings range, you can look for what types of investments are best suited to help you meet those goals.

In the stock and bond market, inflation is the foundation of valuation models. To help better understand, try this: Imagine you are offered two options—a 10% return accompanied with 7% inflation, or a 6% return accompanied with 2% inflation. Insofar as purchasing power, the 6% return increases your purchasing power more than the 10% return. This same thought process occurs each day in the stock and bond market. The result of this daily exercise is that return expectations are adjusted up and down, according to inflation. When you are thinking about return expectations for your goals over a 7-10 year period, taking inflation expectations into consideration creates a better estimate than just looking at historical returns.

How do you create an inflation estimate?

One way to create an inflation estimate is to look at the difference between the yield on a US Treasury Bond versus the yield on a US Treasury Inflation Protected Bond. Since US Treasury Inflation Protected Bonds are adjusted by the changes in the Consumer Price Index and US Treasury bonds are not adjusted, the difference between the two bonds is what Treasury bond market investors think inflation will be. Even though this difference is an educated guess, that guess can be a good starting point when you are building your inflation number.

Staying focused on what matters

The financial press usually focuses on earning announcements and index levels, but inflation is equally as important. Over a long period of time, inflation has the potential to be much more devastating to your goals than market swings. To avoid having inflation be the silent killer of your lifestyle think about how inflation will impact your future consumption and spend as much time preparing for the impact of inflation as you do preparing for the next market drop.

Charles B. Flowers

Planning for your own death may feel like an uncomfortable topic, but understanding how your assets will transfer is key to ensuring your financial wishes are fulfilled after your death. With some careful planning, you can ensure that all of your estate is distributed how you would prefer. It is important to broadly consider your financial picture and your desires after your death to ensure you have created a comprehensive estate plan, and not just executed a Will.

The Last Will and Testament (or simply, the Will) is perhaps the best known of all estate planning documents. Your Will is a legal document that describes who receives certain types of property at your death and also gives you the opportunity to appoint individuals to serve in different roles at your death. Your Will may not control all of your assets.

What estate roles are appointed in your Will?

Creating a Last Will and Testament gives you the opportunity to appoint a personal representative or executor. A personal representative is the person(s) you want to be in charge of managing or settling your estate.

Another very important aspect of a Will is that it gives you the power to appoint a guardian for your minor children in the event that you die while they are still young.

What property is controlled by your Will?

Your Will controls all of your probate property. Probate property includes property of any type that is owned individually: jewelry, automobiles, and investment accounts, or even certain types of jointly-owned property including real estate or partnerships.

What property is not controlled by your Will?

Your Will does not control any assets that transfer ownership based on the language used to title ownership. For example, retirement accounts such as 401(k) or IRAs, life insurance policies, and annuities allow you to name beneficiaries of the accounts that determine how the assets will transfer without regard to your Will.

Additionally, property that is titled joint tenancy with rights of survivorship is transferred without regard to your Will. You can title land, residences, or bank accounts jointly with rights of survivorship to allow for this transfer. It is important to review and understand how property is titled because certain types of property ownership are still subject to the terms of your Will. For example, property titled as tenants in common will flow according to the terms of your Will. If you are curious about the ownership of property, a lawyer can review your deeds to provide clarity regarding the type of ownership.

If you have a revocable trust, any property owned by the trust will follow the trust document when distributing assets at your death.

Any assets not controlled by your Will are considered non-probate assets. Avoiding the probate process has some advantages: the details of your estate remain private, sometimes the distributions of your estate are quicker, and, depending upon the probate fees in your state, it could save money.

How to make changes to my current plan and/or Will?

Most people will need to tweak their estate plan several times. Whenever there is a life-changing event such as the birth of children, divorce, or the death of a spouse, you will want to revisit your plan to make necessary changes. To change the beneficiary designations or ownership of accounts, you will need to complete a change form with the account custodian. To change specific language in your Will, you will need to work with an estate attorney to update your Will with a codicil, which modifies or revokes your original document. It is also a smart idea to have your Will reference a personal memorandum which outlines where personal property will go at death. The personal memorandum can be updated as often as you wish without using an attorney and will allow you to easily change your plan for transferring personal property.

Creating an estate plan to ensure your wishes are met and your loved ones have the guidance they need to administer your estate properly has many facets. If your Will is the only document you have as an estate plan, you may not have included the full picture of what could happen at your death. Share your financial information with your estate attorney to confirm that your plan encompasses not only your Will but also estate documents, beneficiary designations, and property titling.

Brittany M. King

Are you currently earning money? If the answer is yes, are you saving for retirement? An important part of saving for retirement is deciding whether to put money into a Roth retirement account (401(k) or IRA) or a traditional retirement account. Choosing your retirement savings type wisely could help you avoid paying more taxes than necessary.

When you are making the decision where to invest your retirement savings, consider the following four areas: your tax bracket now and in the future, your employer’s match, your retirement account beneficiaries, and the savings you already have.

Think of retirement accounts as a farmer who plants seeds:

A Roth account holds “after-tax” money, or money you have already paid the income taxes on. Its qualified distributions are tax-free: you pay taxes on the seeds, but the harvest, which is hopefully much larger than the seeds, is tax-free.

A traditional retirement account has pre-tax money: you don’t pay income taxes on the seeds (either by taking a tax deduction or deferring from your paycheck before taxes); you pay the income taxes on the harvest when you withdraw the money.

When deciding whether to contribute to a traditional retirement account or Roth account, consider the following:

Is your tax bracket lower today than your tax bracket will be in retirement?

Anticipating tax rates can be difficult, as no one has a crystal ball about how Congress may change tax rates in the future. If you know you are earning less today than you will in the future (for example, you’re just starting in a career), then a Roth account may be the best option.

On the other hand, if your income is at its peak, a traditional account may be the best option.

Another option is to consider splitting your savings between the 401(k) and Roth 401(k).

Does your employer match your retirement contributions?

If yes, then your employer is already contributing to a traditional 401(k), so consider contributing to the Roth 401(k) to diversify your retirement account types.

If you cannot save enough to max out your employer’s match, consider a traditional 401(k).

Who are your beneficiaries?

If you are leaving money to charities, consider using a traditional retirement account since the charity is exempt from income taxes.

If your children are your beneficiaries, consider whether your children will be in a lower tax bracket after your death than you are now. (Some people choose to give their children the additional gift of prepaying the taxes and leaving the children tax-free money in a Roth account.)

Will your required minimum distributions (RMDs) provide more money than you need?

If you already have money saved in a traditional retirement account, the government will require you to take minimum distributions at age 70 ½. (A good rule of thumb for your first distribution is to divide your account balance by 26.)

On the other hand, a Roth IRA requires no distributions at a certain age, which means the money can continue to grow tax-free until you need it.

Diversifying your retirement savings between traditional and Roth accounts can be important because during your retirement you can choose to withdraw taxable money from your IRA or tax-free money from your Roth IRA. Just like a farmer plants different types of seeds, you may want both traditional and Roth retirement funds to choose from when you are retired. For more information about deciding whether to contribute to a Roth or traditional account, see the following article from Charles Schwab & Co.

Always seek the advice of a professional financial planner and a CPA when considering the tax effect of your savings.

Corinne S. Hanna

As business owners approach retirement age, they start to think about what will happen to their business. Our next guest says it would be best if they started thinking about this long before retirement, but either way, he has six points for family business owners to consider when planning for succession.

Mike Switzer interviews Jon Robertson, a CFP® with Abacus Planning Group in Columbia, SC.

Listen to Jon’s interview on SC Business Review:

Further resources from SC Business Review »

Jonathan J. Robertson