Retirement

Would You Retire On A Cruise Ship?

August 8, 2019 By Tamila McDonald Leave a Comment

Currently, about 10,000 people are turning 65 each and every day. For those who choose to leave the workforce, retirement signals a major life transition. They might not be tied to the current home once they stop working. As a result, they can significantly alter their lifestyle. For some, that means spending their golden years on a cruise ship.

How Retiring on a Cruise Ship Works

Retiring on a cruise ship isn’t all that different than booking a cruise ship vacation. The main difference involves the duration, as retirees who want to remain aboard long-term aren’t going to book for one-week intervals.

In some cases, retirees decide to buy a cabin. This makes them a permanent resident, and several cruise lines allow people to essentially purchase the cabin as a condo. After buying, the owner still has access to various cruise ship amenities.

How Much Retiring on a Cruise Ship Costs

It is difficult to determine exactly how much it costs to retire on a cruise ship. One estimate shows that the average passenger spends about $213 per day to be on the ship. For an entire year, that comes out to $77,745.

With an average length of retirement at 18 years, a retiree could feasibly spend nearly $1.4 million if they retire on a cruise ship for that period. In comparison, people aged 65 to 74 usually only spend just under $49,000 per year. For the same 18-year timeframe, that totals to $882,000.

However, the cost of living on a cruise ship is impacted by the average cruise ship duration, which usually comes in near 8 days. Since retirees living on a cruise ship are there for extended stays, their daily rate may be different based on the longer durations without leaving. It may be possible to negotiate a discount, which could make it more affordable.

Additionally, if a retiree decides to buy a cabin, the financial side is different. How much a cabin can cost varies dramatically. Some smaller units on select ships may be under $400,000. However, large units in luxury vessels can be several million.

For example, Storylines has 172 square foot cabins for $352,235. There are also annual assessments of $70 per person for access to all-inclusive amenities at that tier.

On the higher end, Storylines’ 1259 to 1690 square foot cabins start at about $3.3 million. And that doesn’t include the all-inclusive assessment of $230 per day.

Additionally, practically none of the cruise ship arrangements cover any spending when you leave the ship. If you decide to explore a port city, that is more money you’ll have to spend. While all-inclusive arrangements lesson the need by covering costs like food and internet, you might want the option to experience local cultures, and that comes with a price tag.

You also have to contend with handling land-based expenses. If you keep your home or want to store your personal belongings and vehicles, that increases your overall spending.

Healthcare Considerations

If you retire on a cruise ship that travels internationally, your healthcare situation becomes a bit more complex. Medicare won’t always cover you outside of the US, so you might need a private health insurance supplement to handle your medical needs while traveling.

Cruise ships generally have very limited medical services available. Typically, they are equipped to handle various acute situations, like a mild injury or illness. Beyond that, you may have to leave the ship, and that can be hard to arrange if you are in the middle of the ocean.

Before You Retire on a Cruise Ship

If you simply can’t resist the idea of retiring on a cruise ship, then you should address certain things before you set sail. Calculate a retirement budget to make sure it’s affordable. Decide how you’ll handle your personal property. Evaluate your various insurance needs, such as medical and travel insurance.

Once that is handled, you should also comparison shop before making any formal plans. There are a surprising number of options out there, so you want to make sure you pick an approach that works best for you and gives you the lifestyle you want.

Finally, you might want to speak with a financial planner. Being on a cruise ship doesn’t make you exempt from federal taxes, so having a professional review your situation and help you plan isn’t a bad idea.

Would you retire on a cruise ship? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

What Age Should You Start Drawing Social Security?

August 1, 2019 By Tamila McDonald Leave a Comment

Deciding when you should start receiving your Social Security benefits is a critical part of retirement planning. If you choose to draw Social Security before you reach full retirement age, you get a reduced benefit. Opting to wait beyond the age where you cross the threshold comes with higher payments. It may also mean you might need to delay your retirement if you don’t have other sources of retirement income. Regretfully, there is no hard and fast rule when it comes to when you should draw Social Security. However, it is possible to examine the situation and make a decision that is right for you. Here’s how.

Know Your Full Retirement Age

Reaching full retirement age (or “normal retirement age”) is often a factor people examine to decide when to take Social Security benefits. While the full retirement age used to be 65 for everyone. Now the age which that occurs varies depending on the year you were born.

Anyone born in 1950 or earlier is already at full retirement age based on the Social Security Administration’s definition. For individuals born between 1951 and 1954, 66 is the normal retirement age.

Starting in 1955, the full retirement age scales up in 2-month increments. For example, those born in 1955 qualify at age 66 and two months. If you were born in 1958, you have to wait until age 66 and eight months to be eligible for full retirement benefits. Anyone born in 1960 or later reaches full retirement age when they turn 67 years old.

Here’s an overview of when people reach full retirement based on their birth year:

Birth Year	Full Retirement Age
1950 or earlier	Already at full retirement age
1951-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 or later	67

Choosing to draw Social Security before or after the ages above impacts your benefit. Before you select a different age to start, you need to know how it affects your retirement.

Drawing Social Security Early

You do have the option of drawing Social Security before you reach the full retirement age as long as you are at least 62 years old. However, it results in a reduced benefit.

For individuals with a full retirement age set at 66, your benefits are reduced as follows:

25 percent reduction at age 62
20 percent reduction (approximately) at age 63
3 percent reduction (approximately) at age 64
7 percent reduction (approximately) at age 65

Individuals with a full retirement age of 67 can still draw Social Security early once they are 62. They must understand that the reduction in the benefit is larger. For anyone born in 1960 or later, the maximum reduction is capped at 30 percent.

It’s important to understand that the reduction is typically permanent. Although you can repay your Social Security benefits and set a new start date resulting in a higher benefit for the remainder of your life, it isn’t a plausible option for many retirees.

Drawing Social Security Late

While receiving Social Security benefits early comes with a benefit, waiting until after your full retirement age passes can also be beneficial. As you wait, you earn delayed retirement credits, which result in a boost to your payments when you decide it’s time to draw Social Security.

For every year you wait beyond your full retirement age, you receive a benefit increase of 8 percent. For example, if your full retirement age is 67, and you wait until you are 70 to claim your benefits, your monthly payment is 24 percent higher.

However, once you reach age 70, there is no additional increase for waiting. While you aren’t required to file for benefits at that time, delaying any further doesn’t give you any more increases, so you are simply missing out on money that could boost your income.

Figuring Out Your Benefits

Since knowing what you could receive from Social Security will play a big role in your retirement decision, you need to examine your account. Every person’s situation is unique, and your financial benefits are based on your past earnings and work credits.

You can receive a personalized estimate from the Social Security Administration through the mySocialSecurity portal. This will give you a clearer picture of where you likely stand before you request any benefits or do any additional planning.

Additionally, your mySocialSecurity account will also show you what your benefits would look like if you retired at age 62 or 70. Although it is based on some assumptions about your earnings going forward, it is a helpful tool.

Making the Decision

Once you have a solid understanding of your potential Social Security benefits. You can start figuring out what age makes sense for you. Usually, you want to examine your other sources of income, such as retirement accounts or work-related earnings, once you reach age 62 as a starting point. You should also reflect on your planned retirement lifestyle, as this may impact how much you need on a monthly or annual basis to live how you’d like.

If you have other retirement accounts that can sustain you or plan to keep working, delaying might be a wise move. It allows you to receive a larger monthly payment for the rest of your life, which may make it easier to live without a traditional income.

However, if the idea of retiring early is appealing (or necessary, such as for a health reason), you might want to file earlier. This may be a viable option for those whose expenses will be far reduced in retirement, might only want to work part-time, or need to leave the workforce and require a reliable source of income.

Just be aware that filing before your full retirement age means your benefit is reduced, so make sure to consider that before going forward. Additionally, if you retire early and continue working, you might have to deal with a benefit reduction. In 2019, if you retire before full retirement age, for every dollar you earn above the annual limit of $17,640, your benefit reduces by $1 for every $2 you make.

Ultimately, choosing when to start receiving Social Security benefits is a personal decision. You need to examine your financial situation and figure out what is best for you today, tomorrow, and well into your retirement years.

Do you already draw Social Security? If so, at what age did you start? If not, at what age do you plan on drawing Social Security? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Here’s What You Need To Know About The Latest Social Security Scam

July 10, 2019 By Amanda Blankenship Leave a Comment

Scams aiming at your finances are nothing new. The latest Social Security scam, however, could cause you quite a bit of trouble if you catch yourself falling for it. Here’s everything you need to know and how to identify a scam to avoid getting burned.

Scams Targeting Seniors

Many times, these scams target senior citizens or people who may otherwise be fooled by their tactics. In a lot of instances, seniors aren’t always as mentally aware as they once were, which makes them more susceptible to these kinds of crimes.

The Latest Social Security Scam

Those looking to scam seniors have been calling and claiming to be the Social Security Administration (SSA). When the person answers, they are threatened by the scammer with suspended benefits if they don’t provide personally-identifying information.

Others are calling saying that there has been criminal activity linked to your Social Security number. As a result, you are told you must resolve it or your benefits will be put at risk. In some cases, you may be asked for your social so that the SSA can sort out some issue with your account.

Don’t fall for it! If you are collecting Social Security, it is important to know the signs of a scam.

How to Identify a Scam

Always avoid giving out personally-identifying information over the phone. You should also know the SSA will never call and threaten to suspend your benefits. Occasionally, they may call you asking for information. Unfortunately, scammers can call from numbers that appear to be the SSA. If you’re unsure, hang up, and call the SSA back immediately. Call (800) 772-1213 to speak to an agent to legitimize the call.

If you suspect someone is trying to scam you, hang up immediately and report it. Visit the Federal Trade Commission (FTC) website for information about reporting scams.

If You’ve Been a Victim

Maybe you’re reading this thinking to yourself, “Oh no, I’ve already given my Social Security number out to a scammer.” If that’s the case, you’ll need to do a few things quickly to minimize any damage to your life and finances.

Contact the FTC. Officials will help guide you through what you should do next.
Then you’ll want to contact the SSA. If someone has your social, they’ll be able to impact your benefits. Explain you think they may be at risk. The SSA agent you speak with will be able to advise you in your next steps. In some cases, this may lead to you being issued a new Social Security number.
Freeze your credit. This way, the scammer won’t be able to open fake accounts in your name and go into debt.
Keep a close eye on your accounts and credit score. Check it every month or so to be sure there hasn’t been anything suspicious going on.

The best way to avoid getting scammed altogether is not letting it happen. Anyone calling you claiming to be the SSA is lying. If you think about it that way, you won’t fall victim to this scam. Just be sure to call the SSA back and be sure!

Readers, have you heard anything about this scam?

Can You Really Retire at Age 50?

June 20, 2019 By Tamila McDonald 1 Comment

For many, the idea of retiring at age 50 sounds amazing. However, many question if it is even realistic. Considering that anyone born after 1960 won’t qualify for full Social Security benefits until age 67, that leaves 17 years before they could access that source of income if they stop working at age 50. Plus, most retirement accounts – like 401(k) and IRA accounts – won’t allow you to make withdrawals without penalties until age 59 ½, leaving an 8 ½-year gap. But, even with that, that doesn’t mean retiring at age 50 isn’t possible.

How to Retire at Age 50

If your goal is to retire at age 50, you’ll need to start planning immediately. If you don’t plan on working once you retire, you have to have enough saved to cover the rest of your life. With the average life expectancy sitting just below the 79-year mark, that means having enough money to support yourself (and possibly your household) for 29 years or longer.

As daunting as that may seem, it is doable. It just requires some planning, diligence, and dedication. Here’s how to get started.

Save as Much as Possible

Retiring early requires a substantial amount of savings. Along with having a robust retirement account, giving you something you can tap once you reach age 59 ½, you’ll need another source of funds to cover that 8 ½-year gap.

Many who aim to retire at age 50 open investment accounts beyond their retirement savings vehicles. Often, these accrue more in interest than traditional savings accounts, allowing your money to grow more quickly. However, they aren’t risk-free, so you need to consider your risk tolerance and choose options that are right for you. For example, index funds, target-date funds, and many mutual funds provide a level of diversification, so they may be a good place to start if you are new to investing.

Reduce Your Expenses

The less you need to spend each month, the less you’ll need to save. Tackle as much debt as possible before you reach age 50, and the goal becomes more realistic. Similarly, consider cutting back on unnecessary services, like premium cable packages, or other high-dollar expenses, like dining out, to make retiring early more manageable.

Calculate Your Post-Retirement Spending

In order to determine how much you will need to save, you need to understand what you’ll spend in retirement. This includes everything from debt payments to household expenses to medical costs. Plus, you need to account for any changes to your entertainment-oriented expenses. When you retire, you may want to travel, see more movies at the theater, or embrace a hobby, all of which can impact your spending estimates. You’ll also have to contend with inflation, something that can significantly impact your spending power over time.

Planning for healthcare costs can be especially challenging. You won’t have access to Medicare until you are eligible for Social Security benefits. Even if your employee has post-retirement medical options available, the premiums are usually higher than they would be if you are still working, so you need to explore your options thoroughly to estimate the cost.

Once you calculate your spending, you can use that information to extrapolate how much you need to save. Usually, planning to use a withdrawal rate of 2 to 4 percent is a smart move. If you want to be conservative and use the 2 percent rate and estimate you’ll need $50,000 a year, then you’d have to save $2.5 million before you reach age 50 if that’s when you want to retire.

Consider a Partial Retirement

If you can’t save enough to fully retire at age 50, that doesn’t mean you can’t dramatically change your relationship with the working world by then. For example, you may be able to save enough to cover part of your expenses and then opt to work at a job you enjoy on a part-time basis until Social Security kicks in or you can access other retirement savings. Not only will this provide you with some flexibility and additional income, but it also gives you more time to lower your expenses and save.

Then, when you reach age 59 1/2, 67, or anything in between, you can reassess and shift to a full retirement if it is viable. That way, you can change your lifestyle earlier, making your years feel more fulfilling and rewarding.

At what age do you think you will retire? Does 50 sound realistic or even possible for you? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Will You Run Out of Money in Retirement? Check Your RISE Score Today

June 12, 2019 By Kathryn Vercillo Leave a Comment

Have you checked your Retirement Income Security Evaluation (RISE) score yet? Most of us do our best to plan for retirement. However, it’s really hard to know whether or not we’re doing enough.

It can seem like we must need an impossible amount to live well in retirement. On the other hand, we generally aim for fairly realistic savings that we can accomplish without compromising our current lifestyle. Yet, we don’t want to reach retirement only to run out of money.

Your RISE score can help give you a realistic picture of your money in retirement.

What is the Retirement Income Security Evaluation (RISE) Score?

RISE is an acronym for Retirement Income Security Evaluation. It’s a new tool available to consumers who are interested in checking the pulse of their future retirement income. If you want to know whether or not you’re going to be able to make your money last through retirement, then it’s a tool that you might want to check out.

After entering some basic information, you’ll receive a score. It looks a lot like a credit score. Over 750 is “excellent,” and under 350 is “very poor.” There’s a reason for that. We all have a solid understanding of our credit score. When it’s bad, we know we need to take action to make it better. The RISE score is the same way. A bad score doesn’t mean that you’re doomed to a future in poverty. It means that you need to take steps to improve your retirement income.

How Does RISE Work?

You can easily go online to access your RISE score. You will anonymously enter basic information including your age, gender, and health (on a four-point scale from very poor to excellent). Then you will enter certain financial information, including:

The amount you have in savings
Current monthly income
The income you expect in retirement from social security, pension, or other sources
Estimated expenses including monthly living costs and medical costs

You can enter these as an individual or choose to enter them jointly with your partner. If you don’t have the exact numbers, you can use the estimated averages that the tool provides. However, you will obviously get the best picture of your own retirement income situation if you enter your own information as exactly as possible.

The more you know about your money, the better the tool can help you. For example, when you enter your estimated monthly living expenses, you have the option to list if the dollar amount you give is current (nominal) or future (real). You also can choose whether or not to adjust for inflation. The more accurate and detailed you can be, the better.

Who Should Get Their RISE Score?

There is definitely a target market for this tool. It’s designed for people who are at least 45 years of age. It’s particularly useful for people who have assets of $75,000 – $2,000,000 that they can invest. That’s because if you discover that you are going to need more money in retirement, your best course of action is to make proper investments now.

The tool isn’t going to be particularly helpful for people who don’t have a fairly steady income. If you don’t have a pension coming, and you can’t anticipate what your social security payments will be, then the tool can’t provide you with very accurate information. Likewise, if you’re wildly off when guesstimating your monthly expenses, then the tool’s score might not be accurate.

That said, you can use the tool at any age from 25-85.

How Reputable is the RISE Score?

This tool was developed by Milliman, which provides a variety of different financial tools. Alliance for Lifetime Income, which is a non-profit organization whose purpose is “helping Americans address the risk of outliving their retirement income,” launched it. The financial services industry backs that organization. Therefore, it’s a fairly reputable tool.

Of course, the tool is new, which means we haven’t been able to see the test of time. We don’t have information yet to reveal whether the information it provides will hold water when retirement time comes. Moreover, it’s just one tool. You certainly can’t bank your entire financial plan on this one score.

Nevertheless, it’s a good starting point. If you’ve ever questioned whether or not you’re going to have enough money in retirement, then the RISE score is a good next step.

RISE Helps You Plan for the Future

The whole point of this tool is just to get a general picture of your retirement income’s health. Then you have to take the information and put it to use. The idea is that this information can assist you greatly in determining how to make smart moves for your financial future.

Choosing Your Investment Approach

There’s actually a part of the tool that helps with this. As you enter your information, you come upon a page that asks you to choose from one of three descriptions that “best describes your current self-determined retirement approach.” They provide some additional supporting information to help you choose. The three choices are:

Conservative, in which you have 20% equity and 80% bonds, and will probably want to minimize risk.
Moderate, which is 60% equity and 40% bonds, and you’re open to some risk in order to get long-term rewards.
Aggressive, the inverse of conservative (80% equity, 20% bonds), where you’re willing to take lots of risk to maximize returns.

Even answering this question can get you thinking about how the choices that you’re making will affect your financial future. The tool itself considers your choice as it helps you plan.

Helping You Figure Out The Effect of Annuities

In a second section, you’ll see a question about how much money you’d be willing to put towards annuities. The tool explains why they are an important part of your retirement portfolio. They note that “the average retired American portfolio allocates 20% to annuities.” However, you can choose any percentage that you would like. You can see how changing the percentage changes your financial future.

Taking Next Steps

Much like with a credit score, when you get your RISE score report, it provides you with some information to help you take the next steps. First, it tells you which category you fall into. For example, a score of 550-649 is considered fair. You’ll get some tips about how people with fair scores can improve things.

You’ll also get some specific tips about how to easily boost your score. For example, mine said that increasing my annuities to 20% would boost me up by about 16 points.

The next step is to take your score to a financial advisor. You can work with them to figure out how to make the right changes to secure your future retirement.

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Healthcare Costs in Retirement Can Add Up

June 5, 2019 By Doug Carey Leave a Comment

It’s no secret that the cost of health care in retirement is probably the biggest unknown hovering above most retirement plans. Pre-retirement, the biggest unknown expense for many families is often higher education for kids. Will they get scholarships? Will they attend a state school (and get relatively affordable in-state tuition)? Or will they get into a great, out-of-state college with no financial help at all, and need help from Mom and Dad or go into extraordinary debt? That’s a tough figure to budget for.

Similarly, most of us can’t know with any reasonable degree of certainty what kind of health issues we’ll run into as we age. We generally need to hope for the best and prepare for the worst, as they say.

To that end, Fidelity Investments has produced a new study about healthcare costs in retirement.

The “too long, didn’t read” summary: Fidelity estimates that a 65-year-old couple retiring today should be prepared to spend $285,000 in medical expenses during retirement. For a single person, it’s in the $135,000-$150,000 range.

Fidelity makes the assumption that you will be covered by Medicare parts A and B, which covers hospital and medical insurance. So that $285,000 figure is in addition to basic Medicare coverage.

Hopefully the fact that you’ll have to pay anything out of pocket even if you’re covered by Medicare is not a surprise. If you want coverage for prescription drugs and dental care and lots else besides the very basics, you’ll likely be paying into a Medicare Advantage Plan (Medicare Part C) on an ongoing basis.

In the study, Fidelity has a hypothetical 35-year-old couple putting away about $2,800 annually in a Health Savings Account (HSA) until they are 65. Fidelity says these contributions, assuming 7% returns annually, would shoulder the anticipated burden. I used WealthTrace’s financial planning application to run Fidelity’s assumptions through a retirement plan, and Fidelity has it right.

To Be Taken With a Grain of Salt—and an HSA

To quote Fidelity’s study, “We recognize that when today’s 35-year-olds retire in 2049 their medical costs could be more than this year’s estimate, and the U.S. health care system could potentially look dramatically different.”

Yes, that’s for sure. A similar sentiment might apply to pretty much anything predicted to happen that many years out. The costs could be more; they could be less. The point is to start to do something to prepare. If you don’t end up needing the money for health care, great–you’ve saved it and it has compounded in value and you can use it for something else.

Fidelity would love it if you opened up an HSA with the company–that’s why they did this study, after all. They want your investment assets. But just because this is something of a sales pitch on their part doesn’t make it a bad idea.

If you’re not familiar with HSA’s, you can get some details about them here. They are similar to IRAs or 401(k)s in that you save the money on a pre-tax basis. But with an HSA, your withdrawals will not be subject to any tax if you use the money to pay health care costs. (If you use the funds to pay for something else, it will be taxed as income and you’ll be hit with a 20% penalty up to age 65; the penalty goes away if you’re over 65.)

If you’re allowed to have an HSA and have the resources to fund one, it’s definitely worth considering. You may not be eligible–you have to have a high-deductible insurance plan, with a $2,700 deductible for a family currently ($1,350 for an individual). It also probably makes sense to first contribute as much as you can to other qualified tax-deferred accounts such as IRAs (currently $6,000 before 50, $7,000 if you’re 50 or older) and 401(k)s ($19,000 before 50, $25,000 if you’re 50 or older). If you have those accounts topped up, and you’re eligible, an HSA should be next on your list.

The future is as unknowable as ever. That applies to health care costs as well as potential health issues down the road. What we do know is that having a plan in place to deal with the unknowable is always preferable to being entirely unprepared.