Objective information about financial planning, investments, and retirement plans

3 Misunderstood Aspects of Social Security Benefits


This post was written by Jim Blankenship, CFP®, EA, a fee-only financial advisor and owner of the excellent finance blog Getting Your Financial Ducks in a Row, where he covers IRAs, Social Security, Taxation, and most other aspects of financial planning.  I’ve known Jim for a long time and consider him an expert on Social Security and many other topics.  His blog is must-reading for me and should be for you as well.

The Social Security benefit landscape is a complicated and confusing place to navigate. It’s tough enough to figure out what is the best time to file for your own benefits, let alone trying to coordinate benefits for yourself and your spouse.  There are many confusing provisions of Social Security; below is a brief explanation of 3 misunderstood aspects of Social Security benefits.

Spousal benefits

When one spouse is eligible for retirement benefits, the other spouse is also eligible for a benefit based upon the first spouse’s record.  The largest Spousal Benefit is 50% of the other spouse’s Primary Insurance Amount (PIA).  The PIA is equal to that individual’s benefit available at Full Retirement Age (FRA). Full Retirement Age is 66 for folks born between 1946 and 1954, increasing to age 67 for those born in 1960 or after.

An individual may receive the Spousal Benefit as early as age 62, at a reduced rate. The other spouse must have filed for his or her own benefit – and could have suspended benefits (see File and Suspend below).

The confusing parts. The following areas always seem to trip up folks as they plan for the Spousal Benefit.

  1.  Only one of the spouses can receive Spousal Benefits at a time. The other spouse must have filed or filed and suspended for his or her own benefit.
  2.  At or after FRA, the individual can receive Spousal Benefits alone, separate from the retirement benefit on his or her own record (see Restricted Application below).  This allows the spouse receiving Spousal Benefits to delay receiving his or her own benefit, increasing that retirement benefit (via Delayed Retirement Credits).
  3.  Before FRA, filing for Spousal Benefits will result in a reduced Spousal Benefit. Plus, filing for Spousal Benefits before FRA will result in deemed filing for the individual’s own retirement benefit, with both benefits reduced. 

File and Suspend

When the individual who is eligible for a retirement Social Security benefit reaches Full Retirement Age (FRA), the individual may voluntarily suspend receiving benefits.  By suspending benefits, the individual has accomplished two things:

  1.  The individual has established a filing date for benefits. This means that the Social Security Administration has a record that the individual has filed for benefits. Since that record exists, other benefits become available based upon the individual’s Social Security record. Also, at some point in the future, the individual could change his or her mind and collect retroactive benefits from the established filing date to the present, continuing to receive monthly benefits as if the filing was never suspended.
  2. The individual will not receive benefits while the suspension is in place. If the individual does not collect retroactive benefits at a later date (see #1 above), Delayed Retirement Credits will add to his or her future benefit. This amounts to an 8% increase in benefits per year of delay.

Restricted Application 

As mentioned above, when an individual reaches Full Retirement Age (FRA) and is eligible for a Spousal Benefit, the individual may choose to file a Restricted Application for Spousal Benefits only.  This type of application provides for the individual to receive *only* the Spousal Benefit, based upon his or her spouse’s record. By doing so, he or she can delay filing for his or her own benefit to a later date.  With the delay, the individual’s own benefit will gain Delayed Retirement Credits; maximizing the benefit by age 70.

Jim Blankenship, CFP®, EA, is a fee-only financial advisor.  Check out his blog Getting Your Financial Ducks in a Row, follow him on Google+ and Facebook as well.  

I invite you to contact me to ask any questions that you might have, to tell me what you like or don’t like about this site, and to suggest topics that you would like to see covered here in the future.

Please check out our Resources page for tools and services that you might find useful.

What I’m Reading – March Madness Edition


It’s a bit of a lazy Sunday here and I am half surfing the web and half watching the NCAA Men’s basketball tournament.  I’m not the college basketball fan that I once was, but I still love March Madness and watch every game that I can.

In 1939, H.V. Porter of the IHSA coined the te...

Here are some financial articles that I’ve read lately that you might find interesting and useful:

The Ultimate Guide to Understanding Your 401(k) A great piece loaded with information for those who might be new to 401(k) investing or who just want to learn a bit more by Harry Campbell on his blog Your Personal Finance Pro.

Five strategies to get the most Social Security another excellent and informative piece by Robert Powell at Market Watch.

And You Thought Just Tuition Was Expensive a nice piece on the Morningstar site that discusses how college expenses other than tuition can really put a strain on parents and students trying to pay for college.

Are You Paying Too Much For Mutual Funds?  Dana Anspach does a good job of addressing this important question at U.S. News.

The IRS Releases Their “Dirty Dozen” Tax Scams for 2014 was featured on Jim Blankenship’s excellent blog Getting Your Financial Ducks in a Row.

Americans and Retirement: 3 Worrying New Findings discusses EBRI’s most recent Retirement Confidence survey on Wall Street Cheat Sheet.

If you are new to The Chicago Financial Planner here are the three most popular posts over the past 30 days:

Your 401(k) is not Free

Life Insurance as a Retirement Savings Vehicle – A Good Idea?

7 Retirement Investing Tips

Well that’s it I hope you enjoy some of these articles and the rest of your Sunday.  I’ve watched a couple of good tournament games so far with hopefully more to follow.  Cool and sunny here today, but none the less good grilling weather, chicken is on the menu for tonight.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss  all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. Click on the Amazon banner below to go directly to the main site or check out the selections in our Book Store.

Photo credit:  Wikipedia

Enhanced by Zemanta

Retirement Planning: 8 Conservative Assumptions to Consider

Social Security Poster: old man

According to the folks at PBS Frontline, retirement is a gamble at best.  One way to increase your odds of success is to use conservative assumptions.  As a financial advisor I generally use conservative assumptions in all aspects of client financial planning.

If you’re concerned about running out of money during retirement, you need to be realistic and conservative with your assumptions. Here are 8 conservative assumptions for you to consider:

Assume you will need 100 percent of your current income in retirement  

Many rules of thumb suggest you’ll need between 70 and 100 percent of your pre-retirement income in retirement, but plan on at least 100 percent to be safe. Today’s retirees are active, they want to travel, pursue hobbies, and live a generally active lifestyle.  This costs money.  Even though you will likely slow down a bit as you age, medical costs later in retirement will likely rise and may replace what you were spending on activities and travel earlier in retirement.

Add extra years to your life expectancy  

We are all living longer with advances in medicine and the like.  Many factors come into play here including the history of longevity in your family.

Reduce your estimates of Social Security benefits  

The youngest of the Baby Boomers can likely count on Social Security as we know it but I’m guessing that those younger than 50 may see reduced benefits.  In the interest of being conservative, I suggest that you take your current estimate from Social Security and reduce it by say 25%.  If things work out better that’s great, if not then you’ve planned and saved accordingly.

Cut back on your living expenses now  

This not only frees up money to set aside for your retirement, but it helps you adjust to a potentially lower standard of living in retirement.

Be conservative with your investment expectations

We are four plus years into a stock rally and the stock market is at record levels.  For investors nearing retirement it is a good idea to adjust your portfolio and expectations regarding investment returns accordingly. 

Rethink early retirement  

Saving enough to last from age 65 to age 85 or 90 is a difficult task. Trying to retire at age 55 or 60 is just not practical for most individuals, unless you’re willing to significantly change your lifestyle. Working a few more years can go a long way in helping fund your retirement. Those years are typically your highest earning years, so hopefully you’ll be able to save significant sums during that period. Also, every year you work is one year you don’t have to support yourself with your retirement savings.

Consider working during retirement 

Especially during the early years of retirement, you should consider having at least a part-time job. Even modest earnings can help significantly with current retirement expenses help delay the need to withdraw money from your retirement accounts at least to some extent.  Additionally this can be a great way to transition to “full retirement” especially for those retiring early.

Take conservative withdrawals from your retirement accounts  

Don’t plan on taking out more than 3 to 4 percent of your balance annually.  The “four percent rule” is a handy rule of thumb, but it is just that.  Everyone’s situation is different.  It is best to start with a detailed retirement expense budget and then determine what your investments and other sources of income can support.

The best retirement planning strategy is to have a financial plan in place. Monitor your retirement accumulation progress against the plan’s benchmark and make adjustments as needed in areas such as the amount you are saving, your investment allocation, and the lifestyle that your resources will support.  Always be conservative in your planning, it’s much better to have more than you planned on than to hit age 80 and realize that you are out of money.

Please feel free to contact me with your financial and retirement planning questions.  Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.  

Please check out our Resources page for links to some additional tools and services that might be beneficial to you.

Photo credit:  Wikipedia

Enhanced by Zemanta

Am I on Track for Retirement?


English: Scanned image of author's US Social S...

As a financial planner the question that I am most often asked is some version of “Can I Retire?”  The Employee Benefit Research Institute (EBRI) recently released its latest Retirement Confidence Survey.  The results were depressing to say the least; overall retirement confidence is at record lows among those questioned in EBRI’s 23rd annual survey. Are you on track to a comfortable retirement?  It is essential that Baby Boomers and others approaching retirement address this issue.

Ask yourself a few questions:

What kind of lifestyle do you want in retirement?

You’ll find general rules of thumb indicating you need anywhere from 70% to more than 100% of your pre-retirement income during retirement. Take a look at your individual circumstances and what you plan to do in retirement.

  • Will your mortgage be paid off?
  • Do you plan to travel?
  • Will you live in an area with a relatively high or low cost of living?

Remember spending during retirement is not uniform.  You will likely be more active earlier in your retirement.  Though you may spend less on activities as you age, it is likely that your medical costs will increase as you age.

How much can you expect from Social Security?

Social Security benefits were never designed to be the sole source of retirement income, but they are still a valuable source of retirement income. Those with lower incomes will find that Social Security replaces a higher percentage of their pre-retirement income than those with higher incomes.

What other sources of retirement income will you have?

Other potential sources of retirement income might include a defined-benefit pension plan; individual retirement accounts (IRAs); your retirement plan, and your spouse’s retirement plan. If you have other investments, it is important to have a strategy that maximizes these assets for your retirement.

If you are fortunate enough to be covered by a workplace pension, be sure to understand how much you will receive at various ages.  Look at your options in terms of survivor benefits should you predecease your spouse.  If you have the option to take a lump-sum distribution it might make sense to roll this over to an IRA.  Also determine if your employer offers any sort of insurance coverage for retirees. 

Where does this leave me? 

At this point let’s take a look at where you are.  We’ll assume that you determine that you need $100,000 per year to cover your retirement needs on a gross (before taxes are paid) basis.  Let’s assume also that your combined Social Security will be $30,000 per year and that there will be $20,000 in pension income.  The retirement gap is:

Amount Needed


Social Security




Gap to be filled from other sources



Where will this $50,000 come from?  The most likely source is your retirement savings.  This might include 401(k)s, IRAs, taxable accounts, self-employment retirement accounts, the sale of a business, and inheritance, earnings during retirement, or other sources. 

My fellow NAPFA member Bill Bengen states that most retirees can safely withdraw 4% of their initial nest egg and expect to have their money last them for at least 30 years.  What does this mean?

In order to generate $50,000 per year you would need a lump sum of $1.2 million at retirement.

Everybody’s circumstances are different.  Many of us do not have a pension or even a workplace retirement plan.

Take a look at where you stand and take action 

While the low retirement confidence numbers in the EBRI Survey may be due in some part to the poor economic conditions we have experienced in recent years, I suspect some of this is due to a lack of planning as well.

Some steps that you can take if you feel that you are behind include:

  • Save as much as possible in your 401(k) or other workplace retirement plan
  • Contribute to an IRA
  • If you are self-employed start a retirement plan for yourself
  • Keep your spending in check
  • Scale back on your lifestyle if needed
  • Plan to delay your retirement or to work part-time during retirement

Providing for a comfortable retirement takes planning. Don’t be lulled into thinking your 401(k) plan alone will be enough.  If you haven’t put together a financial plan, don’t be afraid to enlist the aid of a professional if you need help.

Please contact me with your investing and financial planning questions. 

Check out our Resources page for links to a variety of tools and services that might help with your retirement and financial planning efforts.

Photo credit:  Wikipedia

Friday Finance Links March 15, 2013 – St. Patrick’s Day Edition


It’s St. Patrick’s Day weekend and in Chicago that means that they dye the Chicago River green.  Back in my undergraduate days at the University of Wisconsin-Oshkosh St. Patrick’s Day was the biggest celebration of the year.  Not sure of the Irish population in that part of the state but Oshkosh had an incredible number of bars relative to the city’s population. Always fun, though I was never a fan of green beer.

Here are a few links to some great weekend financial reading. 

Personal Finance Blogs 

Robert shares 5 Things Your Millionaire Neighbor Isn’t Telling You at The College Investor.

Jon explains Stock Order Types Made Simple at Novel Investor.

Miranda tells us What Are Required Minimum Distributions (RMDs) and How Do They Affect Your Retirement? at Free From Broke. 

Posts from Fellow NAPFA Members 

Donna Gordon lists Questions To Ask Before Paying Off A Mortgage at Figuide.com.

Alan Moore discusses Including Social Security As Part Of Your Retirement Plan at Figuide.com.     

Other financial articles from around the web

Russ Kinnell explains why 2012 was A Bad Year for Active and Passive? at morninstar.com.

Robert Powell writes Retirement savers should ladder bonds at marketwatch.com.

Richard Satran shares Sallie Krawcheck: Can Wall Street Manage Wealthy Women? at usnews.com.

In case you missed it here is my latest post for the US News Smarter Investor Blog 5 Investing Mistakes to Avoid.  

Thanks to Robert at the College Investor for including The Chicago Financial Planner as one of the The 19 Best Investment Blogs You Can Learn From.

Here’s wishing everyone a great weekend.

Photo credit:  Wikipedia

Enhanced by Zemanta

Friday Finance Links February 8, 2013 – Blizzard Edition


Newsflash it’s February.  We finally got some real measurable snow in the Midwest; I think we have received 7 or so inches here in Chicago’s Northwest suburbs.  Good luck to our friends on the East Coast this weekend with the severe blizzard that is forecast.

Here are a few links to some great weekend financial reading.   

Personal Finance Blogs  

Miranda asks Is Your Income Information for Sale? at Cash Money Life.

Mike urges us to Beware of Backtested Market-Beating Strategies at Oblivious Investor.

Kay explains that Casinos’ tax contributions extend beyond Super Bowl wagers at Don’t Mess With Taxes. 

Posts from Fellow NAPFA Members  

Lon Jeffries asks Should You Delay Taking Social Security? at Figuide.com.

Robert Schmansky explains Bond Laddering: Generating Income From Your Portfolio at Figuide.com.   

Other financial articles from around the web 

Christine Benz shares How to Invest RMD’s You Don’t Need at morningstar.com.

Josh Charlson tells us that Morningstar is Bringing the Morningstar Analyst Rating to Target-Date Series at morningstar.com.

Dan Solin explains The Hidden Danger of Being a Sophisticated Investor  at usnews.com.

In case you missed it here is my latest post for the US News Smarter Investor Blog Should You Switch to a Roth 401(k)? 

Here’s wishing everyone a great weekend.

Photo credit:  Flickr

Enhanced by Zemanta

Friday Finance Links December 21, 2012 – End of The World Edition


If the end of the Mayan calendar really signals the end of the world today, this will be my last Friday links post.

Assuming this is not the case, big day today.  I’m heading up to Milwaukee for lunch with the “Old Boyz” a group of guys from high school who get together a couple times per year.  It’s always great to see everyone.  This evening our oldest is flying into O’ Hare.  It will great to have all three kids at home for the holidays.

Here is some great weekend financial reading:

Personal Finance Blogs 

Glen discusses The Roth vs. Traditional IRA – Which is Best for You? at Free From Broke.

Carrie answers What Should You Give Your Clients for the Holidays? at Careful Cents.

Todd shared How To Secure Your Retirement With These 9 Savings Strategies in a guest post at Money Saving Enthusiast.

Joe offers tips on Planning For The End Of Days – It All Ends Tomorrow in a guest post at Modest Money.

Posts from Fellow NAPFA Members  

Jim Blankenship shares Another Good Reason To Delay Social Security Benefits at Figuide.com.

Jean Keener discusses How To give To Charity Wisely and Well at Figuide.com.  

Other financial articles from around the web 

Christine Benz shares A Year-End Financial To-Do List for Retirees at morningstar.com.

Karin Stifler tells us How to assess your risk capacity at marketwatch.com

David Blake offers 5 Questions to Ask Yourself Before Handing Someone a Used Gift at usnews.com.

In case you missed it here is my latest post for the US News Smarter Investor Blog 5 Year-end 401(k) To Dos.

Here’s wishing everyone a great weekend and for those who celebrate a Merry Christmas.

Photo credit:  Wikipedia

Enhanced by Zemanta

Friday Finance Links August 3, 2012

LONDON, ENGLAND - JULY 28: Sue Bird #6 of Unit...

A week of getting some work done in the office and following the Olympics on TV, to say we are Olympic junkies is an understatement.  Our daughter will be coming home for the weekend to relax and watch the Olympics on a real TV vs. her computer.

Here are some articles and blog posts that I suggest for your weekend personal finance reading:

Personal Finance Blogs

Len Penzo offers an interesting take on the Olympics and life in The Olympics: More Proof Those Given Everything Appreciate Nothing at Len Penzo dot com. 

Josh Brown at the reformed Broker calls out the head of an alternative investment firm for his sales tactics in The World Series of Bullshit, Game 3.

The Canadian Finance Blog posted Is Pet Insurance Worth It?  As the owner of three dogs I can relate to this one.

The Novel Investor wrote All Index Funds Are Not Created Equal and I couldn’t agree more. 

Posts from Fellow NAPFA members

Jean Keener shared some New Updates on Social Security.

Michael Garry explains that Financial Planning Is All About Trade-Offs. 

Other articles from around the web

CNNMoney featured this excellent piece The truth behind target-date funds.

Morningstar’s Christine Benz asks Do You Have a Viable Plan for Long-Term Care? 

Jon Chevreau wrote The rose colored retirement dreams of the young.  While geared to his Canadian audience, Jon’s article is equally relevant to us here in the U.S.

In case you missed it here is a link to my latest post for the US News Smarter Investor Blog A Financial Planner’s Reflections on the Past Four Years.

Thank you to Tom Drake for including my blog in his ongoing blog round-up Money Index (on the investing tab).  Money Index can also be accessed from his Canadian Finance Blog by clicking on Personal Finance Links.


Bobofest (our annual mini high school reunion) this past Saturday was a lot of fun, always great to see the guys.  One new attendee who I literally have not seen since high school made an appearance.

Here’s wishing everyone a great weekend.

Enhanced by Zemanta

Don’t Underestimate Inflation



Given the current economic environment inflation may seem like a non-existent threat. In fact we are hearing about the possibility of deflation on some of the financial newscasts. While nobody can predict the future, its unlikely that inflation is dead. Some say that within a few years the various economic stimulus measures currently being put into place will trigger the next round of inflation. When planning for retirement ignoring the impact of inflation can prove to be disastrous.

An inflation rate of 2% or 3% per year, over a period of many years, can seriously erode the purchasing power of your funds. At 2.5% inflation, $1 today will be worth 78 cents in 10 years, 61 cents in 20 years, and 48 cents in 30 years. That can have a major impact on those entering retirement for several reasons:

New retirees are less likely to have defined-benefit pensions. Thus, they must rely more on Social Security benefits and personal savings, including defined-contribution plans such as 401(k) plans.

Cost of living adjustments for Social Security benefits are less generous. While Social Security benefits are still adjusted for inflation based on the consumer price index (CPI), the methodology for calculating the CPI changed dramatically in 1999, reducing increases in the CPI.

Retirees are living longer. As life expectancies increase, retirees are spending more years in retirement, so their retirement savings are subject to the impact of inflation over a longer time period.

Health-care costs are becoming more of a burden to retirees. More and more companies are reducing benefits or eliminating health care insurance for retirees, and health-care costs tend to increase faster than overall inflation. For instance, in 2006, the overall CPI increased 3.2%, while medical care costs increased 4.0% and hospital and related services increased 6.4% (Source: Bureau of Labor Statistics, 2007).

To combat the effects of inflation on your retirement income, consider these tips:

Use a conservative inflation rate for planning purposes. Since your retirement is likely to span decades, consider inflation over long time periods. For instance, while inflation has averaged 2.54% over the past 10 years, it has averaged 4.31% over the past 30 years (Source: Bureau of Labor Statistics, 2007).

Consider investment alternatives likely to stay ahead of inflation. Thus, a significant portion of your portfolio will probably be invested in stocks, which have typically earned returns in excess of inflation. While it may be tempting to move away from equities after the market losses of the past year, doing so may impact your ability to stay ahead of inflation. Your investments should be diversified among various vehicles based upon your risk tolerance, your income needs, your age, etc.

Invest in tax-advantaged investment vehicles. Look into 401(k) plans, individual retirement accounts, and other retirement vehicles. While each has different rules for taxing contributions and earnings, all provide some tax-free or tax-deferred benefits. Since you aren’t paying income taxes on earnings throughout the years, that typically means you’ll have a larger balance at retirement than if you were paying taxes throughout the years. Thus, you’ll start out with a larger retirement base to help combat inflation’s effects.

Keep fixed expenses as low as possible. Try to enter retirement with as few debts as possible. If you aren’t using a significant portion of your income to pay a mortgage, car payment, or credit card debts, you’ll have more flexibility to deal with higher prices.

Decide how you will deal with health-care costs. While Medicare will help once you turn age 65, it still does not cover many health-care costs. Look into Medigap policies and prescription coverage to help with those noncovered expenditures, especially if your employer does not provide health insurance after retirement.

Minimize withdrawals from your retirement assets, especially during the early years of retirement. To counter inflation, you need to withdraw larger and larger sums just to maintain the same purchasing power. To make sure you don’t run out of funds late in life, keep withdrawals during the early years to a minimum. Conventional wisdom in the financial planning world says that 3%-4% can generally be withdrawn each year. The reality is that you will need to manage and potentially adjust your annual withdrawals based upon factors such as inflation and investment return.

Be prepared for change. After retirement, keep a close eye on your investments. If inflation increases and you are concerned that increasing withdrawals may deplete your investments, you may want to look for ways to reduce your living expenses or go back to work at least part-time.

Please feel free to contact me with your retirement and financial planning questions.

Photo credit:  Wikipedia

Enhanced by Zemanta