Plan now to avoid surprises in your golden years
“Surprises are bad. Bad surprises are worse,” said Robert Damm, Certified Financial Planer (CFP), as he considered the pitfalls of senior financial planning.
Damm is the only Certified Financial Planner in Taylor County and owns Damm Financial Tax & Accounting Services in Medford.
The remedy for surprises is preparedness. “The most important thing in financial planning is to do something,” Damm said. For senior citizens, taking financial action typically involves filing for social security benefits between the ages of 62-70. While seniors can file for social security starting at age 62, Damm advised them to consider the whole of their financial circumstances: “Everyone’s situation is a little different. If you are going to continue working and make more than the income limit of $22,320, it’s probably not a great idea to file at 62. Your benefit will be reduced by about $1 for every $2 you make. If you are not working, and you are not going to work, then 62 is a lot more appealing. However, your benefit will increase up until the age of 70 if you don’t claim it. Benefits don’t increase after age 70. For most of us, there is no compelling reason to wait until after 70.”
Referring back to bad surprises, Damm explained one common mistake in senior financial planning is failing to account for the cost of Medicare: “You have to worry about the health insurance cost, and people think that it is going to decrease when they hit 65 and are eligible for Medicare. For many, it’s the exact opposite. Medicare is not free. The annual cost is about $2100. Very few people write a check to Medicare, but it is withheld from your social security, which reduces your income. Plus, most of us are stuck buying a supplemental health insurance policy above and beyond that.”
Another consideration at the forefront of senior financial planning is saving for retirement. “Nationwide, the recommendation is $1 million plus. This is a lower income area. I don’t think you have to have a million here. For a lot of us, I look at the 4% rule, where you can take 4% of your account as a distribution, and you’re not going to deplete it. If I start with $100,000 and take 4% out each year, during the good years it will grow and during the bad years it will shrink. Overall, there will statistically be $100,000 to give to my heirs,” Damm said.
Before retirement, people can take action to get an idea of their social security benefits will look like. “You should have as decent of knowledge of your situation as possible. Get yourself set up with an account at ssa.gov. It will give you a projection of what your benefits will be if you retire at various ages,” Damm recommended.
In addition to financial preparation for the long run, Damm emphasized the importance of having money available in the case of an accident or injury: “Keep a rainy day fund that can support you for 6 months. The emergency fund has to be very liquid so that with a phone call you can get it.”
