The Journey: Declining Market Is No Time To Pull More Cash From Your Retirement Account

The Journey: Declining Market Is No Time To Pull More Cash From Your Retirement Account

By Janet Kidd Stewart, Chicago Tribune (TNS)

Financial markets’ rocky start this month hasn’t seemed to slow down some retirees’ spending train, but it should, experts say.

Just when the holiday bills are looming like a bad hangover, portfolio values are retreating, which should be a wake-up call to trim withdrawals, but that isn’t happening, said Mari Adam, a financial planner in Boca Raton, Fla.

“Last year, returns were flat, and I’m starting to see some familiar patterns” to how some clients responded to the 2008 financial crisis, she said. “That was a horrible year, but the people who went into it with good financial habits came through it and are better than ever. Others got destroyed and never bounced back.”

In this year’s first week, she said, she sifted through a mountain of big-ticket portfolio withdrawal requests, while stocks were posting triple-digit losses and fixed-income experts were bracing for lower bond yields as interest rates begin rising.

“I have a desk covered (with requests from clients) who need extra money for things, and it worries me,” she said. “Some already ate into principal last year because it was a flat market, and we’re starting to see some people get into credit card debt again.”

Just what is overspending? There are myriad theories about safe withdrawal rates from retirement portfolios. Many start with a percentage of total assets in the first year of retirement, say 4 percent, and then adjust that figure for inflation thereafter, regardless of what happens in the market. Others, including financial planner and author Jonathan Guyton, take a more dynamic approach that allows for slightly higher withdrawals early on, but with the caveat that retirees may need to pull back if markets underperform.

Adam generally advises clients to withdraw 4 percent of last year’s ending portfolio balance but adjusts that as needed depending on circumstances and investment performance. For elderly clients in their 80s, for example, she typically recommends simply taking the required minimum distribution amount (which kicks in after age 70 1/2) from retirement accounts.

She doesn’t quibble with younger retirees who are spending slightly more than 4 percent in any given year. It’s the ones spending well above the guidelines that have her worried, she says.

“A lot of people are really ignoring reality and overspending,” she said. What to do? Take advantage of year-end spending reports from your credit card company and any budgeting software you use and identify the problem areas, Adam said.

But don’t stop there or you won’t set the tone for spending in the coming year, said Liz Davidson, founder of Financial Finesse, an online financial guidance service used mostly by employers that links retirement plan participants with advisers. Davidson’s book, “What Your Financial Advisor Isn’t Telling You,” was released this month.

Pre-retirees can make a huge impact on their savings rates by automating retirement plan and taxable savings account contributions, but adopting a mindful approach to spending helps both savers and retirees, Davidson said.

People have identities with their food choices that help them set boundaries and ward off temptation, she notes. Vegans, for example, learn to not even be tempted by a restaurant hamburger because they have taken that choice off the table ahead of time, she said.

“We tend not to have (comparable) financial identities, but if you think about it you might fall naturally into one. You might consider yourself an investment-oriented person so you don’t want to spend much on things that depreciate and you’ll put more into real estate that increases in value. Or you’re a bargain hunter, so you just rarely pay retail. Or a minimalist who wants to keep things simple. Or someone who enjoys particular activities and prioritizes those.”

Commit to conscious decisions about spending, she says, and a more appropriate withdrawal rate will follow.


Janet Kidd Stewart writes The Journey for the Chicago Tribune. Share your journey to or through retirement or pose a question at

©2016 Chicago Tribune. Distributed by Tribune Content Agency, LLC.

Photo: Pictures of Money via Flickr


Retirement Moves To Make This Year

Retirement Moves To Make This Year

By Janet Kidd Stewart, Chicago Tribune (TNS)

Face it: You probably could have done more in 2015 to help your retirement picture, and you weren’t alone. A Capital One Bank survey released in December found that only a third of respondents accomplished their financial goals last year.

But whether you’re retired or just starting to save, there’s always this year. In 2016, you can double down on IRA contributions, lock in a tax-free charitable donation and make some big dents in your spending, among other moves.

“Making IRA contributions is one of the few provisions left in the tax code that you can do early in the new year to affect last year’s taxes,” said Ed Slott, an accountant who produces IRA training workshops for financial advisers and consumers.

While you’re at it, he said, consider tossing a contribution for 2016 into a traditional or Roth IRA, whichever makes the most sense given your age and tax situation.

“If you can go one step further, do a contribution for 2016 early in the year. You can wait until April of 2017, but then you’re back in the same rut,” he said. “If you can double up in one year, then you’re always ahead and that tax-deferred money builds up over the years.”

If you’re past age 70 this year, taking your required traditional IRA or 401(k) distribution early could also make sense, he said. It means you’ll avoid the year-end rush some financial institutions experience as people scramble to take their distributions, which can lead to administrative errors, he said.

And if you donate to charitable organizations, Congress has made permanent the ability to give to charities through your IRA, have it count toward your required distribution, and not have it affect your adjusted gross income. Now you can make a gift early in the year and bank the tax advantage, Slott said. Previously, when the provision was extended very late in the year, IRA holders typically had already taken their distributions, so for many the provision didn’t do much good, he said.

Another bit of permitted retirement-account hindsight involves undoing conversions of traditional IRA money to Roth IRAs. If you converted some funds in 2015, but the market goes south and you’d rather not pay income taxes on the original value, you have until October to recharacterize the conversion, Slott said.

“It’s one of the great second chances in the tax code,” he said. “It’s like being able to bet on a horse after the race is over.”

Another tax move for 2016 is to plan on delaying taking Social Security benefits until age 70, Slott said, particularly now that the ability to suspend one benefit while collecting the associated spousal benefit and the ability to choose between spousal and worker benefits at full retirement age is being phased out. The tax bonus, he said, comes because as you withdraw more retirement savings in your 60s while waiting to start benefits, you are spending down your retirement savings, which could mean lower taxable distributions in the future, he said.

If you took benefits early, consider suspending them at full retirement age, said Jane Bryant Quinn, author of “How to Make Your Money Last: The Indispensable Retirement Guide.” You earn delayed retirement credits through age 70.

Knocking out some major expenses, like a too-large home, is a much better move for retirement than nickel-and-diming yourself, she said. “The big things are where the money is. Once you’ve right-sized the big expenses, you won’t need to worry about drinking cheaper coffee,” she said.

Quinn also advocates a combination of immediate, fixed annuities within a fixed income strategy and a rising amount of stock index funds as retirees age (up to a ceiling that suits your risk tolerance), reflecting some new research showing that increasing the amount of equities helps retirees stay ahead of inflation.

“I’m getting more aggressive myself, increasing my exposure to equities over the past few years, and I haven’t regretted it, even though of course the market at some point will go down,” Quinn said.

Janet Kidd Stewart writes The Journey for the Chicago Tribune. Share your journey to or through retirement or pose a question at

(c)2016 Chicago Tribune. Distributed by Tribune Content Agency, LLC.

Earl Gilbert, 97, plays chess at Royal Oaks retirement community in Sun City, Arizona, January 8, 2013. REUTERS/Lucy Nicholson

Your Birth Date Affects How Social Security Change Affects You

Your Birth Date Affects How Social Security Change Affects You

By Janet Kidd Stewart, Chicago Tribune (TNS)

The cuts to a couple of key Social Security claiming strategies — squeezed into federal budget legislation in October — continue to confound seniors, whether or not they’re actually affected by the changes.

“A lot of people are contacting me in a panic about what to do, but many of them are grandfathered in and have nothing to worry about,” said Michael Kitces, a financial planner and blogger who writes frequently about Social Security claiming at “Younger people will certainly be affected, but they aren’t the highest volume of questions we’ve been getting.”

Under the new rules, after a phase-out period that will grandfather in some seniors, couples will no longer be able to collect spousal benefits if they are generated from a beneficiary who has filed for and suspended his or her own benefits. And people who file and suspend their benefits will no longer have the option of reversing course and requesting a lump-sum “refund” of benefits that in essence resets their claiming date. Also ending is the ability to file a restricted application at full retirement age for just spousal or just work-based benefits, a strategy people use to collect some money immediately, while letting the other benefit grow.

Here’s how Kitces explains the changes in detail:

If you were born April 30, 1950, or earlier: You can still file for benefits at full retirement age and then suspend them in order to earn delayed retirement credits while allowing a spouse to collect benefits on your record while you delay. Individuals can file and suspend, and then if circumstances change they can go back and collect those suspended benefits, though future benefits will be based on the earlier filing date. In both situations, the suspension must be filed by April 29 of 2016.

Born between May 1, 1950, and Jan. 1, 1954: You’ll still be able to file a restricted application for benefits, meaning at full retirement age you can choose whether to take a spousal benefit or one based on your work record. But you won’t be able to let a spouse claim benefits on your suspended application.

Born Jan. 2, 1954, or later: You won’t be eligible for the file-and-suspend strategy and you won’t be able to take just a spousal benefit or just one based on your work record while letting the other grow.

One caveat worth mentioning here is that the Social Security Administration has not yet laid out specific guidance on how these measures — hammered out in the federal budget legislation in October — will be implemented. So if there is a quirk in the calendar, the dates mentioned above could be altered slightly — no small thing for people whose birthdays fall around the dates in question.

A Social Security spokesman also said divorced spousal benefits are not affected by the change in the suspension-of-benefits policy. Some observers have been calling for clarification on the changes because it potentially could result in situations where a vindictive ex-spouse would suspend benefits just to keep a former spouse from collecting. The fact that divorced spouse benefits aren’t affected then raises some interesting questions about how far a couple would want to go to retain the ability to collect. In theory, a couple could divorce just to have the opportunity to have one person collect spousal benefits while the other continues to earn delayed retirement credits.

Kitces thinks it’s highly unlikely that couples would go to this extreme for a small bump in Social Security benefits. And doing so would negate other positive incentives in the tax code for staying together, he said.


Janet Kidd Stewart writes The Journey for the Chicago Tribune. Share your journey to or through retirement or pose a question at

©2015 Chicago Tribune. Distributed by Tribune Content Agency, LLC.

Photo: Donkey Hotey via Flickr


How Divorce And Remarriage Affect Your Social Security Benefits

How Divorce And Remarriage Affect Your Social Security Benefits

By Janet Kidd Stewart, Chicago Tribune (TNS)

Q. I am 64 and work full time. I plan to claim Social Security benefits at 70. My ex-husband is 66 and we were married for 19 years. I remarried at 61. Am I entitled to some of my ex-husband’s benefits? Am I eligible for my current husband’s? Can I claim spousal benefits on my ex-husband’s record now and hold off on mine until age 70?

A. Generally, a subsequent remarriage takes away the ability to collect divorced spousal benefits, said Robin Brewton, vice president of client services at Social Security Solutions Inc. There are very limited exceptions. You could consider claiming a spousal benefit on your current husband’s work record when you reach full retirement age, letting you later switch to benefits on your own record at age 70, if that benefit would be higher after those four years of delayed retirement credits, Brewton said.

You can file for early, reduced spousal benefits now because you’ve been married longer than a year, Brewton said. But doing so before reaching full retirement age would mean you wouldn’t get to choose which benefit to take, and your benefit would automatically be calculated as a blend of the two, which would be a permanent reduction in your maximum benefit. Be aware that because of your age, you are among the last Social Security beneficiaries who are going to have the option to restrict your claim in this way. A recent congressional budget amendment killed off this strategy for anyone younger than 62 at the end of 2015. Also be aware that because you remarried after age 60, you may be entitled to divorced widow’s benefits when your first husband dies, so that could potentially affect your benefit calculation.

Q. My wife and I are in our late 70s, own a condo and have a little over $500,000 in assets, jointly owned in a revocable living trust. Nine months ago, my wife was diagnosed with Alzheimer’s and seems to be deteriorating. My daughter suggested I change ownership of some assets so that, in the event my wife is institutionalized, I wouldn’t be left destitute. I’m familiar with Medicaid’s five-year look-back period. Are there any alternative strategies to pursue and would I lose complete control of our assets if I pursued them?

A. There are some planning steps to take in cases like these, said Mark Munson, an attorney with Wisconsin law firm Ruder Ware. Because Medicaid is a joint federal and state program, however, the rules can vary widely depending on where you live, so it’s important to hire a qualified estate-planning attorney to oversee your strategy, Munson said.

The National Academy of Elder Law Attorneys and the National Elder Law Foundation maintain member directories and the latter certifies elder-law attorneys. Generally, however, you’ll want to learn your state’s current exemption amount for assets that can be retained by the “community” spouse (you) and still allow for your wife to qualify for Medicaid, Munson said.

The home you live in, a car and personal items are typically exempt assets as well, he said, so decide if there are home improvements or a mortgage payoff that makes sense for your situation. Finally, if there are remaining assets, you might look into a so-called Medicaid-compliant annuity, which could pay you income during your life in order to meet your own expenses and not thrust you onto public assistance as well, Munson said. Finally, he said, make sure you and the attorney plan for what would happen to your assets if you die first and your wife is on Medicaid.


Janet Kidd Stewart writes The Journey for the Chicago Tribune. Share your journey to or through retirement or pose a question at

(c)2015 Chicago Tribune. Distributed by Tribune Content Agency, LLC.

Photo: Jason Hutchens via Wikimedia Commons


The Journey: Simplifying Investment Portfolio Is Key To Financial Stability

The Journey: Simplifying Investment Portfolio Is Key To Financial Stability

By Janet Kidd Stewart, Chicago Tribune (TNS)

Q: We are 80 years old, retired, with assets of $1.5 million. I was an accountant and a practicing lawyer and handle all our investments. Despite spending what we want, our portfolio has grown every year. We are fully invested, mostly in equities but about 25 percent in bond funds. I have life insurance of $250,000. What should I guide my wife to do if I predecease her? I want her to be protected.

Financial planners want a percentage of our assets, but I’m happy with the income we’re earning now on these investments and don’t want her to pay a percentage of the assets for advice. Should I look for a planner who charges by the hour who could look at these investments to determine what changes she should make?

A: It’s hard to argue with success, but I’ll try.

Managing to live only on portfolio income in such a low-interest rate environment has been difficult in recent years, to put it mildly. The investment risk you are likely taking is quite high, however, and as you age the potential for your own mental decline and the increased risk that you’ll leave your wife a portfolio that’s extremely difficult to manage grows substantially.

Finding a planner who charges by the hour is relatively simple, and the Garrett Planning Network is a good place to start, but that’s not to say your task is easy.

That’s because what you really seem to want is an investment manager to perpetuate the complex portfolio you’ve amassed, without her ever having to make a decision. From the many financial advisers I’ve interviewed over the years, I can tell you the likelihood of that plan turning out well is low. Most widows who weren’t involved in financial discussions with their spouses or advisers when the spouses were alive will end up finding someone else to manage the money, for better or worse.

Rather than trying to manage a portfolio from the grave, you might consider working with your wife to gradually streamline your investments into something that can be managed relatively easily if one or both of you has a health issue or begins to decline mentally. If you want to retain control rather than pay an adviser for ongoing management, consider consolidating your stocks and mutual funds at a firm that has access to low-cost, index mutual funds. Over time, you could migrate the money to fewer funds that offer broad access to the market sectors best for you.

The financial services industry has trotted out a smorgasbord of ways to manage money in recent years, with varying degrees of human interaction and automated services, and costs for all of it have been trending down.

“The complexity of his holdings could be a real problem, even with his background,” said Rick Mayes, principal adviser with Mayes Financial Planning in Carlsbad, Calif. “I think even if he’s going to continue to manage it primarily himself, they both will benefit by streamlining the portfolio.”

If you do go that route, an hourly planner could help you project your wife’s future income needs once she’s living on one Social Security check plus the investments. That might illuminate a need to lower the risk profile of the portfolio now, particularly if her health is good and she could live another 20 years.

Such a planner could also help simplify your holdings and make sure you have an income buffer in ultra-safe investments — Mayes likes three years’ worth of expenses — so that if something happens to you, your wife wouldn’t have to begin selling off investments immediately. If you both develop a good relationship with the planner, it might be something your wife sticks with after you’re gone.

“I would simplify now rather than wait,” he said. “I’ve had a number of clients come to me with inherited accounts that haven’t been touched in years. It kind of puts the survivor on a tough path if she’s not comfortable managing it the same way.”

Janet Kidd Stewart writes The Journey for the Chicago Tribune. Share your journey to or through retirement or pose a question at

©2015 Chicago Tribune. Distributed by Tribune Content Agency, LLC.

Photo: PRO401(K) 2012 via Flickr

Tips For Navigating Medicare Open Enrollment

Tips For Navigating Medicare Open Enrollment

By Janet Kidd Stewart, Chicago Tribune (TNS)

Frustrated with your Medicare coverage? You have until Dec. 7 to look for new options.

That’s the last day of open enrollment for current beneficiaries. Changes made to your plan go into effect Jan. 1.

With speculation still swirling about possible changes to the program’s “hold harmless” provision — a rule that will stick people who are delaying Social Security and higher income beneficiaries with big premium hikes for 2016 — managing costs and benefits is more important than ever, experts said.

“It really takes an individualized assessment to find the right plan,” said Casey Schwarz, senior counsel for education and federal policy at the Medicare Rights Center. “The one that’s right for your neighbor or even your spouse might not be the one for you.”

That’s certainly true for couples with different health profiles, where one very healthy spouse might choose a plan that’s low on premiums and higher on out-of-pocket costs, while the sicker spouse chooses a higher premium and lower out-of-pocket costs.

But it could also be true for couples in more comparable health situations, she said.

“I was speaking with someone the other day who uses a brand-name medication, and his wife takes a different one. There wasn’t a single plan in the lowest cost tier that had them both, so they chose separate plans,” she said.

Managing two plans in one household could be a hassle but potentially worth it if it means savings of hundreds or thousands of dollars a year.

Here are some other tips to keep in mind as you choose.

Look to the stars. Check out for access to the health plans available to you. Plans carry a star rating of 1 to 5, with 5 being the best. The plans earn stars based on measures such as customer service, how many of their participants have well-managed blood sugar levels, how many got their flu shot, and the like. Schwarz said these measures are best used to help distinguish between two or more finalists you’ve already narrowed down according to coverage and cost.

Study up. Make sure you understand fully the final plans you are considering. One reader of this column shared some frustrating experiences as he transitioned from COBRA to Medicare this year. While the move ultimately meant his total costs were cut in about half, he spent many hours on the phone with his insurance provider, haggling over getting access to the right dosage of a prescribed medication.

“We always look for plans with the fewest quantity limits,” said Maura Carley, president of Healthcare Navigation LLC, a consulting service. In theory, doctors can write prescriptions for whatever amount of medication they feel is suitable for a patient, but insurers increasingly are scrutinizing those orders, requiring an additional administrative step to verify the prescription amount is medically necessary.

Watch your step. Some drug plans offer cost incentives for step therapy, the practice of starting a patient on the lowest-cost drug and moving to higher-cost alternatives if the first one doesn’t work. In practice, Carley said, patients view these rules as very heavy handed.

Wanderlust? If you spend part of the year in another state, make sure your plan can travel with you, experts said. Some plans, for example, only cover you in your home base.

The bottom line, experts said: Don’t leap for a low-premium plan just to save a few dollars of monthly cost. Look for a plan’s total out of pocket costs and deductibles, and find out about restrictions on drug dosing.

©2015 Chicago Tribune. Distributed by Tribune Content Agency, LLC.

Photo: Don Ariosto via Flickr

Economy Turns Baby Boomers Into Entrepreneurs

Economy Turns Baby Boomers Into Entrepreneurs

By Janet Kidd Stewart, Chicago Tribune

Bohnne Jones didn’t count on having to fire her husband, Larry.

And David Whiting works six days a week at his smoothie franchise, knowing he would have made substantially more had he left his retirement money in the stock market.

Despite the challenges, these baby boomers, and others, are taking over a growing share of business startups, even as overall rates of entrepreneurship decline.

Over the decade ended in 2013, boomers ages 55 to 64 went from starting 18.7 percent of new businesses to 23.4 percent, according to the Kauffman Index of Entrepreneurial Activity, which was released in April.

Some of the increase can be explained by demographics: As baby boomers age, they account for a greater share of just about any pie. Also driving the increase are stubbornly low rehiring rates for jobless older workers.

Gone are the days when older entrepreneurs were mostly people who had finished good careers and were just looking for the freedom to do something different, said Fred Dawkins, author of “Everyday Entrepreneur.”

“Right now we’re dealing with more people who are doing this out of necessity because they’ve been forced out,” Dawkins said. “A lot of people in their 50s are out on the street, and they have to make a living.”

After a long career in nursing administration, and then health-care information technology, Jones faced her first layoff 12 years ago at age 51.

For the next five years she landed three other corporate health-care information technology jobs, but each ended either in mass layoffs or the completion of a major project. During one stint, she ended up redecorating a physicians lounge that was going to house new computers that she had ordered.

The experience rekindled an old passion for interior design.

“As a kid I would build little houses in my parents’ basement, cutting pictures out of magazines and laying out floor plans with lumber from a (nearby) construction site,” Jones said.

Ultimately, in 2007, Jones withdrew half her $300,000 individual retirement account to buy and start operating a Decorating Den franchise in Nashville, Tenn.

“And you know what happens next,” she said, referring to the mortgage crisis and ensuing recession. She ended up investing about $260,000 in total and reduced her business checking account to about $20,000 before the economy turned around and business picked up.
That’s when she had to drop her husband from the payroll, and he enrolled in a truck driver training program.

“About the time he finished that school, the phone began to ring” with new business, she said. “We’ve won sales awards the last three years.”

Her advice to would-be corporate refugees thinking of starting a franchise? Commit more money to the project than you think it will take.

Another franchise in her market didn’t survive the recession because of cash-flow issues. And because she was borrowing from her own retirement fund, if the business fails, the nest egg is gone for good.

“This is an opportunity for people to invest in themselves instead of the stock market,” said David Nilssen, chief executive of Guidant Financial, the company Jones hired to help file the paperwork to operate her self-directed IRA. Nilssen said his business is expanding as the economy improves.

Whiting, 51, also used Guidant to help him open a Tropical Smoothie Cafe franchise in December after about 25 years in retail management.

He has thought a few times about how much more his retirement account would be worth if he had left the money in a traditional IRA but said he would do it again.

He has been able to employ himself, his wife, Lorie, and his 19-year-old son, Chris, in addition to a staff to run the store, and he’s thinking about adding more stores.

“We’re here all the time because it’s just hard to leave your money,” he said. “But it’s better than the ups and downs of the market.”

AFP Photo / Justin Sullivan

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