Retirement Income

A home-equity line of credit allows homeowners to draw on the value of their homes as needed, usually at a variable interest rate. A home-equity loan is taken as a lump sum, usually at a fixed rate. When interest rates rise, lines of credit and home equity loans may offer clients a less expensive way to obtain cash compared to taking out a mortgage.

A taxpayer retiring in 1960 could expect to get back 7x more in benefits than what he paid in, as long as the recipient lived to age 78 (age 81 for women). The ratio was even higher for low-income workers. Even by 1985, workers at every level of income could expect to take out more in benefits than what they contributed. Single workers and two-earner couples retiring in 2008 or later (up to 2069) can expect to cumulatively withdraw ~ 80% of what they paid in; one couple earners (worker + non-working spouse) can expect 120-130%.

A large number of people believe Medicare also provides long-term care. What they do not know is that those benefits are quite limited and mainly apply to brief rehab stays in nursing facilities. Because of these severe limitations, advisors should counsel their clients about the pros and cons of long-term care.

A Roth 401(k) is available to anyone whose company offers it; for 2013, 401(k) plan participants can contribute up to $17,500 ($23,000 if you are at least 50 years old). Qualified Roth 401(k) distributions are tax free while distributions from a 401(k) are fully taxable (since their contributions were tax deductible).

A 2013 report by Fidelty Investments estimates that a 65-year-old couple retiring in 2012 would need $240,000 in savings to pay for out-of-pocket health care costs for the rest of their lives. The $240,000 figure does not include long-term care costs.

The median annual cost of private room nursing home care in the U.S. is $84,000 (source: Genworth 2013 Cost of Care Survey). Round-the-clock skilled nursing care in the home can cost as much as $10,000 a week.

Yields on 10-year U.S. Treasury Bonds have been trending downward for the past 30 years (1983-2012). In 1983, $100,000 invested in 10-year Treasuries generated $11,100 of annual income. In 1997, $100,000 generated $6,350 in income; in 2012, $100,000 invested in 10-year Treasuries paid out just $1,800 in income each year.

There are a number of variables that can affect your Social Security benefits. Retirees and those who will be retiring in the next few years can find can use Social Security tools (click on “Computer Programs” and “Social Security Solutions”).

Most Social Security planning focuses on a married couple’s ability to “file and suspend” (while other spouse files for spousal benefits). Widows and widowers can also play one benefit against another: start the survivor’s benefit when you reach age 60 and then flip to your own retirement benefit at age 62 or older.

Two in five U.S. households own an IRA. In 2006 and 2007, the Treasury Inspector General for Tax Administration estimated that $286 million in taxes were uncollected due to missed IRA withdrawals and excess contributions.

Statistics show that someone age 65 and in good health can be expected to live for almost 20 more years. However, the reality is that roughly half of those healthy folks age 65 will die before reaching age 85. This reality is worth considered when deciding up whether or not early Social Security benefits should be taken and whether certain types of annuities should be used.

Social Security statements include the phrase, “Total family benefits cannot be more than…” This maximum amount only applies to benefits based on a single earnings record—it has no bearing on the maximum benefit a married couple receives when each spouse is using their own work record. This same maximum amount also does not apply to a single work record wherein one spouse’s benefits is based on the other spouse’s work record if there is no other family member (such as a child) collecting money on that same work record.