Latest news with #OldAge
Yahoo
3 days ago
- Business
- Yahoo
Planning to Retire in the 2030s? Read This Before You Collect Your First Social Security Check.
Social Security is projected to run out of money by 2035, according to the latest report. It's important for those within a decade or so of retirement to know where things stand, beyond the headlines. The worst-case scenario might not be as bad as you think, and there's plenty of time to fix the problem. The $23,760 Social Security bonus most retirees completely overlook › You may have heard that Social Security isn't exactly on the best financial footing, and that's true. Although the Social Security trust funds have trillions in reserves right now, the reality is that Social Security is paying significantly more money to beneficiaries than it is taking in, and the deficits are expected to get far worse in the coming years. In fact, the latest estimates from the Social Security Board of Trustees project that the combined trust funds for the Old Age and Survivors Insurance and Disability Insurance trust funds will be depleted by 2035 unless something is done. While this might sound like an emergency, especially if you're planning to retire in the next decade, it's important to take a step back and put things into perspective. So, here's what Social Security running out of money could mean for you, and what is the most likely scenario. For sake of argument, let's say that the latest trustees' report projection happens, and Social Security's trust funds completely run out of money in 2035. At the end of 2023, the latest year for which we have final data, the Social Security trust funds had a total of about $2.8 trillion in reserves. The program took in a total of $1.35 trillion in income between payroll taxes, taxes on certain Social Security benefits, and interest earned on the reserves, and paid out about $1.39 trillion -- a roughly $40 billion deficit that is withdrawn from the trust funds. But the key thing to emphasize from that last paragraph is that most of Social Security's benefits are paid from income coming into the program, not from the reserves. So even if the deficits get much larger and the trust funds are depleted in 2035, there will still be payroll and other tax revenue coming in. In fact, the latest projections found that even if the trust funds are allowed to run out of money entirely, incoming revenue will be able to cover 83% of scheduled benefits. In other words, in a worst case scenario, if you were expecting a $2,500 monthly Social Security retirement benefit based on your work record (you can view an estimate for yours by logging in at you would still receive monthly checks of $2,075 even if Social Security was completely out of money. One big reason Americans are nervous about the Social Security shortfall is that it's been a known problem for a long time. I've been writing for The Motley Fool since 2011, and the Social Security Trustees Report from that year found that the trust funds would be depleted by 2036, just one year later than the current estimate. So why hasn't anything been done? The short answer is that the ways to fix Social Security are politically divisive, and quite frankly, with a decade or more of financial runway, those in power simply haven't made Social Security reform a priority. To be fair, there have been some significant tweaks, such as eliminating the "file and suspend" loophole a few years ago, but nothing major has been done to extend the program's solvency. Having said that, it's worth noting that we've seen a similar situation play out before. In the early 1980s, Social Security was just a few months away from running out of money, and the Social Security Amendments of 1983 helped stabilize the program for the next few decades. Just to name one provision, this round of reforms is why the full retirement age has gradually risen from 65 to 67 over the past couple of decades. The bottom line is that history shows us that something will be done to bolster Social Security's financial situation, even if it happens at the last minute. And while the exact reform package remains to be seen, it's also worth noting that virtually nobody is talking about benefit cuts for those currently receiving payments, or those who are close to retirement age now. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Planning to Retire in the 2030s? Read This Before You Collect Your First Social Security Check. was originally published by The Motley Fool
Globe and Mail
22-03-2025
- Business
- Globe and Mail
Nick, 65, and Heather, 64, want to ‘die with zero.' What should they do in retirement?
Nick and Heather's retirement spending goal is $148,000 a year after tax. CHAD HIPOLITO/The Globe and Mail Nick is 65 years old and retired. His wife, Heather, is 64 and self-employed, earning about $40,000 a year in a line of work that she enjoys. Although they own three investment properties, they are renting their residence at the moment and looking to buy a B.C. waterfront property for about $1.2-million. 'As of this year, we are considered first-time home buyers again,' Nick writes in an e-mail. So as well as having a First Home Savings Account of their own, they also want to open FHSAs for their three children to help them with down payments on their first homes. They wonder whether Heather can afford to fully retire and when they should start drawing Canada Pension Plan benefits. Nick is already getting Old Age Security. He also asks if they should invest in a whole life insurance policy to further diversify their investments. They already have a grab bag of diversified investments, including stock-and-bond exchange-traded funds, private mortgages and real estate investment trusts. Their retirement spending goal is $148,000 a year after tax. We asked Warren MacKenzie, an independent financial planner in Toronto, to look at Nick and Heather's situation. Mr. MacKenzie holds the chartered professional accountant designation. 'Nick and Heather's main goal is enjoy financial security in their retirement with no fear of running out of money,' Mr. MacKenzie says. In addition they would like to help their children purchase their first homes. They also want to buy a waterfront property so they will have easy access to their sailboat. They plan to contribute $40,000 to a First Home Savings Account for each of their three children, 'a sensible way to help their children get a head start,' the planner says. Another estate goal, according to the planner's questionnaire, is to avoid any legal complications or possible conflict between their heirs. 'To reduce the possibility of a conflict, they have appointed a lawyer rather than one of their children act as their executor,' Mr. MacKenzie says. 'Assuming an average investment return of 5 per cent a year with inflation running at 2 per cent a year, the projections show that they can achieve their spending goals,' the planner says. He further assumes that they sell all the rental properties by the time they buy the house. Nick says they plan to sell them over three years to minimize the capital gains tax. After buying a new house, their basic lifestyle spending will be $70,000 a year, plus about $60,000 in mortgage payments and about $20,000 a year for a whole life insurance policy. The forecast assumes that by age 85, they will sell their sailboat and expenses will fall by $10,000 per year. 'Nick and Heather understand that while long-term projections are never totally accurate, they can give an important warning of potential problems,' he says. Regularly reviewing their plan would give them time to make a small spending adjustment, for example. 'Over a 10- or 15-year period a small reduction in spending would be enough to offset a significant loss,' Mr. MacKenzie says. Based on reasonable assumptions, the projections show that they can achieve their goals and possibly leave an estate of about $1-million in dollars with today's purchasing power, he says. Their asset mix is about 23 per cent interest-bearing investments, 45 per cent stocks and stock exchange-traded funds and 32 per cent real estate. The mix is reasonable, but they hold a large proportion of stocks in their registered retirement savings plans (RRSPs), the planner notes. Instead, they should hold their stocks in their taxable account so that they can take advantage of the lower rate of tax on capital gains, he says. 'Capital-gains-producing investments held in RRSP accounts lose the lower tax benefit because all withdrawals are 100-per-cent taxable.' As a do-it-yourself investor, Nick has done reasonably well, earning an average return of 7.5 per cent a year, Mr. MacKenzie says. 'They should have a plan for how the portfolios would be managed if anything happened to Nick.' The overall portfolio is unnecessarily complicated, with investments spread out over a dozen different RRSPs and registered retirement income funds (RRIFs). They have $100,000 cash in the bank, a $33,500 line of credit at 6 per cent and $57,695 in other loans at 3.6 per cent. 'It makes no sense to have cash in the bank earning almost nothing and also have about $90,000 of debt where the interest is not fully tax deductible,' the planner says. The couple ask when they should begin taking CPP benefits. 'They are both in good health and they live a healthy lifestyle,' Mr. MacKenzie says. 'It is reasonable to assume that they will live to their mid-80s and beyond,' the planner says, 'so it makes sense to delay the start of CPP until age 70.' By so doing the benefits will be 42 per cent higher than if they start CPP at age 65. Since their income is below the OAS clawback threshold, they have decided to start their OAS at age 65 for cash flow reasons, the planner says. By age 70, after they are both collecting CPP, the projections show that their net worth will be about $2-million. 'If they make it to age 100, their net worth will have decreased to about $1-million in dollars with today's purchasing power,' he says. In 2031 their cash flow will consist of CPP benefits of $35,000, OAS benefits of $19,800 and their defined benefit pensions of $9,700, for a total of $64,500 a year. Their investment portfolios will be valued at more than $1-million and should be expected to grow by about $50,000 a year, Mr. MacKenzie estimates. In addition, the cash surrender value of the whole life insurance policy, if they buy one, would grow by about $15,000 a year. With 2-per-cent inflation, the value of their home would be expected to grow by about $25,000 a year while the mortgage principal would be reduced by $30,000 a year. This equates to an increase in net worth of about $185,000. Against this are basic spending of $81,000 a year, mortgage payments of $73,000 a year, life insurance of $18,000 a year and income tax of $29,000 a year, for a total of $201,000. Until they start CPP at age 70, they will not have sufficient income to use up the lowest tax bracket. It would therefore make sense to withdraw an amount from their RRSPs and RRIFs that would be sufficient to bring taxable income up to about $58,000 a year each so that they use up all the room in the lowest tax bracket, Mr. MacKenzie says. Otherwise, Nick will be forced into a higher tax bracket later in life and may be faced with a clawback of OAS benefits. Heather and Nick should aim to have equal taxable income so that one does not pay tax at a higher tax rate than the other. They have non-registered funds on hand and they also have contribution room in the FHSAs and TFSAs. 'They should move money from their non-registered account to their TFSAs and FHSAs,' the planner says. Nick and Heather are budgeting to spend over $20,000 per year to purchase a whole life insurance policy. The insurance proceeds would be received on a tax-free basis at death but withdrawing all the cash surrender value would have tax consequences, he notes. 'Whole life insurance can be a sound investment, but if they have other lifestyle goals and are not focused on maximizing the size of their estate, they should reconsider this expense.' The People: Nick, 65, Heather, 64, and their three children, 27, 29 and 31. The Problem: Can they afford to buy a new home and help their children with down payments while still enjoying a comfortable retirement lifestyle? The Plan: Buy the house. Defer CPP to 70. Nick draws from his RRSP/RRIF in the early years. Contribute to first home savings accounts for their children. The Payoff: Financial goals achieved. Monthly net income: $10,375. Assets: Cash $100,000; his stocks and stock funds $175,000; her stocks and stock funds $175,000; his TFSA $191,365; her TFSA $86,185; his RRSP $770,750; her RRSP $122,030; his FHSA $6,625; her FHSA $6,625; investment properties $725,000. Total: $2,358,580. Estimated present value of their combined, partly indexed defined-benefit pensions: $200,000. This is what someone with no pension would have to save to generate the same income of $340 a month for Nick and $420 a month for Heather. Monthly outlays: Rent $3,000; home insurance $20; electricity $90; heating $25; transportation $755; groceries $1,500; clothing $35; line of credit $165; loan $180; gifts, charity $165; vacation, travel $925; other discretionary $150; club memberships $80; dining, entertainment $135; sports, hobbies $880; subscriptions $50; doctors, dentists $220; drugstore $110; health, dental insurance $230; life insurance $1,740; phones, TV, internet $115; TFSAs $100. Total: $10,670. Liabilities: Rental property mortgages $433,150 at 4.85 per cent; line of credit $33,500 at 6 per cent; other loans $57,695 at 3.6 per cent. Want a free financial facelift? E-mail finfacelift@ Some details may be changed to protect the privacy of the persons profiled.
