PLANSPONSOR - August/September 2019 - 27

" I Should
Take Social
Security
At 62 "
When he works with participants, James
sees how many think Social Security
will provide them a larger benefit than
it actually will. Often, that is because
they fail to understand that their timing
in starting to take it makes a big difference
in the monthly benefit amount. " We spend substantial time
educating people about maximizing this benefit, " he says.
A TCRS survey report released this past December, " A
Precarious Existence: How Today's Retirees Are Financially
Faring in Retirement, " found the retiree respondents most often
had filed for Social Security as early as they could. " The median
age they started receiving Social Security was 62, the minimum
age for eligibility. And only 4% waited until they were at least 70,
which is when you get the maximum benefit, " Collinson says.
" Many people probably don't realize that, by taking Social Security
at 62, they're receiving benefits at a permanently reduced level. "
Jamie Greenleaf has seen plenty of participants who want
to take Social Security at 62. " Unfortunately, the mindset is, 'I
paid into it all those years; I need to get it as soon as I can,' "
says Greenleaf, lead adviser and principal at Cafaro Greenleaf, a
2019 PLANSPONSOR Retirement Plan Adviser of the Year large
team finalist, in New York City. " People don't understand that
their Social Security benefit should be treated as an asset, and it
should be taken at the appropriate time. "
Utkus has spent time working with his colleagues on how
to frame the Social Security timing issue in a way that resonates
with pre-retirees. " People don't realize that if they're in good to
excellent health when they reach age 65, there's a good chance
they will live into their 90s, " he says. " You can frame it in terms
of helping people think about the chances of them living a long
life. Show them, 'If you live to age 95, here's how much more your
monthly benefit will be if you waited to claim Social Security. "
" I Can Wing It
On Spending
My Retirement
Account
Balance "
If someone going into retirement has
a $200,000 account balance, that
may be more than they paid for their
house, so it seems like a lot of money,
Greenleaf says. " They think, 'I can go
buy a boat,' or 'I can spend $2,000 on
that trip I've been wanting to take.' The reality is that $200,000
is not a lot of money for retirement. "
To know how much they can withdraw annually, retiring
participants need to have a retirement budget-and they need to
start planning for how they will follow that budget, years before
they retire, James says. " The whole retirement-planning thing
is a marathon, it's not a sprint. " Starting early gives people time
to make adjustments, such as moving to a smaller home or to a
lower-tax state. If you just start that planning a year before you
retire, there's not much you can do, " he says.
People need to understand how much they realistically can
withdraw a year, and it varies depending on the individual's goals
and situation, Greenleaf says. She uses the 4% annual withdrawal
rate as the jumping-off point for a conversation, not as a
standard rule that works for everyone. " We're in an interesting
time right now. We are starting to see people retire with just a
defined contribution plan and no defined benefit [DB] plan, "
she says. " So, when they retire, we give people a lump sum of
money and ask them to take on the responsibility of providing an
income flow from this account balance. The reality is that most
people are not equipped to do that. "
" Medical
Care Is Free
For Retirees "
" Many people don't understand that
Medicare will cover only about 50% of
their medical expenses, " Greenleaf says.
" They'll have out-of-pocket expenses,
and there are premiums attached to
Medicare that are means-tested. "
People need a better comprehension of what Medicare covers
and what it does not, and they need to factor retirement medical
expenses into their retirement-savings goals, Taylor says.
When James talks to participants, he often encounters this
" health care will be free " misconception. " Actually, we typically
suggest that people budget $6,000 a year for an individual for
medical expenses in retirement and $12,000 a year for a couple, "
he says. " That includes Medicare Part A, Part B and Part D
premiums; supplemental insurance; and co-pays. But that's not
counting long-term care. "
He talks with Baby Boomers frequently about the realities
of long-term care. " Boomers are now caring for their aging
parents, and they don't want their kids to have the burden that
they're having, " James says. " But while long-term care insurance
premiums have more or less stabilized, they are still very expensive.
Some couples set up a savings account earmarked just for
these expenses, he says, so they are essentially self-funding their
long-term care.
Midcareer is a good time to explain to people how health
savings accounts (HSAs) can help pay for their medical expenses
in retirement and relieve some of their financial strain. " Many
people are in the 'sandwich generation': Their kids are still at
home or in college, and their parents may be living with them,
for financial reasons. When they see their parents, they see their
own future-and that's a good thing, " Greenleaf says.
People at midcareer still have time to take action that will
help their retirement. " Many people don't know that they'll
be able to use their HSA account to pay for their Medicare
premiums in retirement. And it's triple tax free in most states, "
she says. " You don't get that in a 401(k). "
Most of Sentinel's clients offer an employer-sponsored HSA
program, to make it easier on participants and to assist in the
accounts' tax deductibility, Stewart says. Employees at the small
number of clients that do not offer one would need to invest in a
retail solution HSA, Stewart says. -Judy Ward
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