Texas Estate Planning

Some Expenses Increase with Retirement

U.S. households led by an individual who’s 65 or older spend an average of $7,030 a year on health care, according to the Bureau of Labor Statistics’ latest data on consumer spending, which is for 2021.

Money Talks News’ recent article entitled “How Much Retirees Actually Spend on Health Care in the U.S.” says this translates to about 13% of the total spent each year by senior households ($52,141) and makes health care the second-largest spending category among those households. Only housing accounted for a bigger share of seniors’ spending in 2021. By comparison, all U.S. households spend an average of $5,452 a year on health care, which translates to about 8% of spending across all households ($66,928).

Here's a detailed look at how senior households’ medical spending breaks down.

Health insurance. The average spending for a U.S. household led by someone age 65 or older is $4,974 per year. By comparison, the average spending across all U.S. households is $3,704 per year. Insurance is without a doubt the biggest health care expense for households of any age, but it’s highest for senior households. They spend $4,974 — around $415 a month — on insurance on average—roughly 10% of their total spending.

Medical services. The average spending for a U.S. household led by someone age 65 or older is $1,077 per year, compared to the average spending across all U.S. households at $1,070 per year. This type of health care expense includes a wide variety of care, such as:

• Hospital room and services
• Healthcare professionals
• Eye and dental care
• Lab tests and X-rays
• Medical care in a retirement facility; and
• Care in a convalescent or nursing home.

Drugs. The average spending for a U.S. household led by someone age 65 or older on medications is $726 per year, as opposed to $498 per year for the average spending across all U.S. households. This includes spending on prescription and nonprescription medications, as well as vitamins.

Medical supplies. The average spending by a U.S. household led by someone age 65 or older is $253 per year. The average spending across all U.S. households is $181 per year. This type of spending covers:

• Various supplies, such as dressings, antiseptics, bandages, first aid kits, syringes, ice bags, thermometers and heating pads
• Medical appliances, like braces, canes, crutches, walkers, eyeglasses and hearing aids; and
• Rental and repair of medical equipment.

Reference: Money Talks News (Oct. 25, 2022) “How Much Retirees Actually Spend on Health Care in the U.S.”

Big Mistakes in Planning for Retirement

You know it’s not always a lack of savings that keeps people from enjoying a great retirement. Despite having a nice nest egg, people can make some common mistakes that mess up their retirement plans.  

Kiplinger’s recent article entitled “Avoid These 4 Mistakes That Often Derail Retirement Plans” advises you to avoid these four mistakes, so you don’t wreck your golden years.  

Early Withdrawal Penalties. It’s critical that you know the rules of your retirement plans, if you want to keep the plan on track. If you want to tap into your IRA or 401(k) before age 59½, you’ll have an early withdrawal penalty. You’ll also have to add that money in your gross income for the year and pay an additional 10% tax penalty. There are a few exceptions to early withdrawal penalties.  

Forgetting about your Employer Match. A recent survey found that roughly a third of workers don’t contribute enough to their 401(k) or employer-sponsored retirement plan to get the full match from their employer. The value of this oversight is about $750 each year. That itself can add up to almost $100,000 in missed retirement savings over the course of your career. Retirement savers need to leverage this free money at work.  

Paying High Investment Fees. Figure out how much you’re paying for your investments. Investment costs that may sound tiny—perhaps 2%—can chip away at your savings over time. These fees compound along with your returns, so you’re losing the growth that money could have had.  

Missing Out on Compound Interest. Compounding is one of the best rationales for saving early. On a very basic level, compound interest is earning or charging interest on top of interest. When retirement savers aren’t aware of the value of compound interest, they’re missing out on growing their money more quickly. Time is critical when allowing compound interest to work for you, and that’s why you should think long-term, when saving for retirement. 

Many people think they can plan for retirement alone. However, the closer you get to retirement, the more crucial it is that you have a sound plan that will keep you on track. However, only one in five people has a written plan for retirement.  

A comprehensive plan will help get you to and through your later years. Your comprehensive plan should include strategies to pay for health care and a plan for claiming Social Security, as well as strategies to be tax efficient in retirement and leave a legacy for your family. 

Reference: Kiplinger (Jan. 29, 2020) “Avoid These 4 Mistakes That Often Derail Retirement Plans” 

The Secret to Spousal Benefits for Social Security

Whether you are married now or were married in the past, it’s likely that you are eligible for Social Security spousal benefits, as reported in the article “How to Maximize Social Security With Spousal Benefits” from U.S. News & World Report. Spouses who devote their lives to raising families and performing other tasks that are of value to society are entitled to a spousal benefit, based on their spouse’s primary insurance benefits. If you decide to take spousal benefits, the amount you receive will be determined by a few factors, including your spouse’s full benefit, when you begin payments and your own work history.

Here’s what you can expect when applying for Social Security spousal benefits:

• You may receive up to 50% of your spouse’s Social Security benefit,
• You can apply for benefits if you have been married for at least one year.
• If you have been divorced for at least two years, you can apply if the marriage lasted ten or more years.

You should be aware that if you start taking benefits early, it’s likely that your own benefits will be smaller than if you took them later. If you have a work history of your own, you’ll either receive your own benefit or your spousal benefit, whichever is greater.

Want to maximize your spousal Social Security benefits? Start by learning what your benefit would be, and then look at the timing. When you decide to claim will have an impact on your benefits. You’ll need to have been married for at least one year before applying. You also need to be at least 62 years old.

Your spouse must also have started to apply for benefits for you to claim spousal benefits.

If you have been divorced, you must have been married to your ex for at least ten years to be eligible for a spousal benefit through your ex’s Social Security. What’s more, you will have to have been divorced for at least two years, and still be unmarried. If you are considering divorce, are near retirement and are planning on a spousal benefit, it’s a good idea to consider electing your spousal benefits before the divorce is finalized.

If there have been multiple marriages and divorces, you can choose to take the highest spousal benefit, if the other requirements have been met. Make sure to save your ex’s Social Security numbers and their dates of birth, just to make the enrollment process easier.

If you have a work history of your own, you may be eligible for a personal benefit. If this is the case, you can receive your own benefit if it is greater than the spousal benefit. Let’s say you are eligible for $1,000 as a personal benefit and $500 for a spousal benefit. The Social Security Administration will send you the higher amount of $1,000.

There’s plenty of information about spousal Social Security benefits on the Social Security Administration’s website or at your local SSA office.

Your spousal benefit will be 50% of your spouse’s benefit at their full retirement age. In 2019, the full retirement age is 66 and will rise soon to 67.

Therefore, if you are married and your spouse is collecting $2,000 a month, your spousal benefit would be $1,000, if you wait to start payments at your own full retirement age.

Note that spousal benefits do not grow until age 70, like personal benefits. Instead, they max out at full retirement age. A a result, there’s no benefit to delaying a spousal benefit claim past your full retirement age.

Should you need to collect spousal benefits before your full retirement age, expect to receive a lower amount. Filing early for spousal benefits reduces your income forever, but many people file because they need the income.

Reference: U.S. News & World Report (July 10, 2019) “How to Maximize Social Security With Spousal Benefits”

New Profession Helps Seniors Move

Downsizing is one of the often overlooked aspects of retirement planning. Retirement frequently includes moving, usually into smaller living quarters. While many people do plan for this, perhaps even wistfully dreaming of the smaller home with less maintenance, they frequently overlook the fact that this new, smaller home may not have room for all of the possessions they accumulated over a lifetime. When the time comes to move, many find it almost impossible to decide what to take with them to their new home and what to get rid of. Some people are so hesitant to part with anything that they rent or purchase unnecessary storage spaces to hold everything that won’t fit in their new home.

The New York Times in “Helping the Elderly Downsize” wrote about a relatively new and growing profession that helps seniors plan ahead and make better decisions. These new professionals are called Senior Move Managers. These are people who specialize in helping senior citizens get rid of possessions they no longer need and cannot take with them. They work with other family members and charities to figure out what needs to be kept and what can be donated.

Getting the help of a senior move manager will be intriguing and useful for many people, but if you do, make sure that nothing of value gets discarded when it should pass to your heirs in an estate plan.

Be sure to see a qualified estate planning attorney to help you plan for who gets what and how.

Reference: New York Times (July 22, 2016) “Helping the Elderly Downsize”

Stay Informed About State Retirement Taxation

Where do you want to spend your golden years? Regardless of where you decide to retire, make sure you check out more than the average weather forecast. Prepping for a retirement location goes way beyond the temperature and scenery.

Each state is different when it comes to the legal and tax environment a retiree or estate planner will face.

A recent Kiplinger article titled “States Differ on Retiree Tax Burden” is well worth your read. Furthermore, you will want to save it to your “reading file” for future reference.

Remember, you are planning for that special place where you intend to spend your golden years. That means you will need to consider the effect of location on both your retirement and your estate.

The Kiplinger article provides a state-by-state run down on the tax basics and a colorful map to guide you. Each state offers various perks and challenges to the retirees that are well worth investigating and understanding.

Since choosing your retirement location is one of those significant life events, you should follow the carpenter’s rule of thumb: measure twice and cut once.

Reference: Kiplinger (September 2013) “States Differ on Retiree Tax Burden”