Retiring Later Boosts Social Security Benefit
May 28, 2009 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The following chart illustrates how the age you begin receiving benefits can greatly affect the amount of income you receive from Social Security every month. The chart assumes a full retirement age of 66, and a base benefit at full retirement age of $2,000 (which is nearly the maximum Social Security benefit an individual can receive).
In this hypothetical example (your individual situation will be different), the Social Security benefit available at age 62 is $1,500, which is 25% less than the $2,000 monthly benefit available at full retirement age. But at age 70, the benefit available is $2,640, which is 32% more than the monthly benefit available at full retirement age, due to delayed retirement credits. Keep in mind, too, that other factors, including post-retirement earnings and cost-of-living increases, can also affect your monthly benefit check.
You can explore various retirement benefit scenarios using the calculators available at the Social Security Administration’s website.
In Defense of Buy and Hold
May 28, 2009 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Buy and hold has come under a lot of fire lately as investors and advisors question whether there’s a better way. It’s good to question and re-analyze over time. But it’s not good to have a knee-jerk reaction to the last year’s stock market roller coaster that can do permanent damage to your long-term returns.
John Bogle, founder of Vanguard funds, has been one of the long-time advocates of low-cost, buy-and-hold investing. Morningstar Advisor just published a new interview with him where he answers David Drucker’s questions about whether his approach is standing the test of these turbulent markets. I don’t want to spoil the surprise, but for those of you without the time to read the whole article, Bogle’s answer is YES, buy-and-hold, low-cost investing is still the way to go.
Read Bogle’s full comments at http://advisor.morningstar.com/articles/article.asp?s=0&docId=16537&pgNo=0.
New credit card law provisions
May 27, 2009 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The key provisions of the credit card law that Obama signed last Friday, May 22 are below. But first, my two cents …
I’ve heard a lot of talk about how these changes might make it more difficult to get credit and could result in higher fees in general and annual fees in particular for people who are using credit responsibly right now. It’s possible, but I tend to think that these issues were more a result of lobbying by the credit card companies than anything that will come to fruition. There will still be competition for credit card usage, and providers will need to make their cards attractive — especially to those that are the best credit risk. So while it may be harder to find cards with no annual fees, my guess is that a year from now there will still be options available to those with a solid credit history. We’ll have to wait and see, and in the meantime enjoy the increased communication and more reasonable policies from the credit card companies.
On May 22, 2009, President Obama signed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the Credit CARD Act of 2009).
Amending the Truth in Lending Act, the Credit CARD Act of 2009 requires a creditor on an open end consumer credit plan (credit card) to notify a consumer in writing of any change in the annual percentage rate (APR) on the account at least 45 days prior to the change. The notification shall also inform the consumer of the right to cancel the account before the effective date of the rate increase. If the consumer cancels the account, this action shall not constitute a default on the account, and shall not trigger an obligation to repay the account in full.
Creditors are further prohibited from increasing the annual percentage rate (APR) applicable to an existing balance on an open end consumer credit card account unless specific conditions apply. The APR may be increased only if: (1) the index on which the rate is based changes, (2) it is a promotional rate that has expired, (3) a consumer fails to comply with a hardship workout plan, or (4) the account falls 60 days past due.
What’s more, if a rate increase is due to the consumer falling 60 days past due on the account, the creditor must inform the consumer that the rate increase will be terminated (and the rate restored to what it was before the increase) once the creditor receives the minimum payments due in a timely fashion for six months.
Other features of the Credit CARD Act of 2009 include:
- If different APRs apply to separate portions of an outstanding balance, the amount of any payment beyond the minimum payment due must be applied to that portion of the balance with the highest APR.
- Creditors are required to send statements to consumers at least 21 calendar days before the due date of the next payment.
- Creditors must provide on each billing statement a written disclosure indicating how many months it will take to repay the existing balance if only the minimum payment due is made each month, and what the total cost (principal and interest) of doing so will be. The disclosure must also indicate the total cost of repaying the existing balance due, including principal and interest costs, over 36 months.
- Payment due dates shall be the same day of each month. If the due date is a date when a creditor does not receive or accept payments by mail (e.g., weekends and holidays), the creditor must not treat a payment received on the next business date as a late payment.
- Creditors are prohibited from charging a consumer an over-the-limit fee unless the consumer authorizes the creditor to complete the transaction that causes the balance to go over the limit (opt-in). The creditor is further prohibited from imposing an over-the-limit fee in a subsequent billing cycle unless the consumer obtains an additional extension of credit in excess of the credit limit during that subsequent cycle.
- Extension of credit to consumers under age 21 is prohibited, unless the consumer demonstrates the independent means of repaying the debt or has a cosigner over 21 capable of repaying the debt. The creditor is required to obtain the approval of any cosigner to increase the credit line of an account for which the cosigner is jointly liable.
- Creditors are prohibited from charging a fee based on the manner in which a payment is made (e.g., on line, by telephone).
- Gift cards and certificates must disclose in writing on the card or certificate any dormancy or inactivity fee information, including the amount of the fee and how often it may be imposed (not more than once a month). What’s more, the issuers of such cards or certificates must inform the purchaser of these fees before the purchase. Such fees may not be imposed for the first 12 months after issuance. Such cards or certificates may not have an expiration date before five years after the card or certificate is issued.
The sections of the Credit CARD Act of 2009 about notification requirements concerning rate increases take effect 90 days after the date of enactment. The remaining portions of the Act take effect nine months after enactment.
Social Security Myth Debunked
May 26, 2009 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Question: Help! I’m 62 and my income is declining. Should I take social security now to lock in my benefits?
Quick answer: this is not a good reason to take social security early.
Social security uses your highest 35 years in calculating your benefit. They index the years before age 60 for inflation, and then average them. So while lower earnings in the last few years before you take social security don’t help increase your “high 35″ average, it doesn’t reduce it either. Bottom line: lower earnings now is not a reason to start taking social security earlier.
One thing to be aware of: it may appear on your social security statement that your future projected benefit at full retirement age is declining if your earnings are going down. That’s because each year when your statement is generated, social security projects that your income will stay the same as last year’s income all the way through retirement. If that doesn’t happen, they need to adjust the projections.
You should really base the decision on when to take social security on whether you need the money now or not, and how life expectancies run in your family. If people tend to live a long time in your family, waiting is likely a very good idea if you can afford to live without the income now.
Of course, social security is under-funded, and there are no guarantees for any of us. But those in the 60+ age group can have more certainty in planning on full or close to full benefits than people under 50.
If you want to read more about this, you can walk through your calculation at http://www.socialsecurity.gov/pubs/10070.html#estimate.
May 2009 Newsletter
May 12, 2009 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The May 2009 newsletter is now available. It has information on the tax benefits of charitable giving, investing in a low-interest-rate environment, the extension of the federal money market guarantee, and divorce financial planning. Click here to read the May 2009 newsletter.