Our 2 Cents

Welcome to Professional Financial Solution’s blog, Our 2 Cents! We aim to provide you with brief insights and analysis on financial planning and investment topics on a weekly basis. If any clients or other readers have questions or topics that they would like to see covered here, please feel free to contact us by email or by posting a comment to a recent blog post. By reading the articles on this blog, you acknowledge our warning and disclaimer, provided here. Articles are provided for informational purposes only and shall not be relied upon as personal financial or investment advice.

Time to Talk: The Benefits of Preemptive Conversations with Loved Ones about Aging

Whether with a spouse, parent, grandparent, or other loved one, many people have experienced or at least heard of difficult situations in which an aging loved one continues living in a manner that is no longer safe, healthy or beneficial to them, causing concern and sometimes significant problems for other family members.  Frequently, this takes the form of continuing to drive, live in the same house, or manage one’s own finances and household affairs, despite physical or cognitive issues that may interfere with doing those things well.  (In our office, we have dealt with these issues alongside our clients as well as in our own lives, most recently with Glenn helping his wife navigate the effects of ALS and Mike helping his mom manage life with Alzheimer’s.)  We have discussed previously on this blog other ways to prepare and help your loved ones as you age, such as estate planning and organizing your finances, but one of the biggest favors you could do for those you love is to have preemptive conversations about how you would be open to changing your lifestyle as you age.

Living Arrangements.  Many times the home in which you live during middle age or early retirement years is no longer appropriate as you move into later retirement years.  Upkeep may become unfeasible.  Stairs may become difficult as mobility issues arise.  Close proximity to stores, restaurants, and medical services—as well as to family and friends—may become more important, especially if/when you stop driving.  It is important, therefore, to analyze your options and develop a plan before a health event or other issue inhibits your ability to continue living comfortably in your home.  Consider the following questions:

  • Where do you want to live in your later retirement years? 
  • Are family members available to help and/or do you have the resources to hire help if you desire to remain in a living situation that does not involve continuing care?  Do you have a plan in place for what that help will look like?
  • Under what circumstances might you need or want to change your living situation? 
  • Who is authorized to decide when it’s time to make that change?  Or, what standards will you set to evaluate and signal whether it’s time to make a change?

Driving.  According to research from The Hartford insurance company, while the total number of accidents and driving citations attributable to older drivers is relatively low, they do have a higher rate of fatalities and a higher risk of being involved in a collision for every mile that they drive.  These trends are particularly significant after age 75.  Certain warning signs can indicate declines in driving ability, such as failure to obey traffic signs or signals, driving at inappropriate speeds or stopping at inappropriate times, hitting curbs, and decreased confidence while driving. 

Again, the key is to discuss this issue before any warning signs surface and develop a plan for how to evaluate your driving abilities and who will have authority to press the issue if/when family members have reason for concern.  Possibilities include:  agreeing to complete an AARP driver safety program at regular intervals, agreeing to annual discussions on driving after age 75, limiting long-distance and night driving past a certain age, etc.  While this can be a sensitive issue given its impact on your sense of independence, considering it from the standpoint of protecting yourself and not endangering others on the road may help you to be open to driving alternatives when the time comes.  Regardless of the statistics, how would you feel if you hurt someone in an accident?  Also, remember that as we age, it becomes much more difficult to recover from injuries, so it’s best to try and avoid getting hurt.

If you or other family members research transportation alternatives ahead of time, that will likely make the prospect of moving away from driving a bit less daunting—check, e.g., resources from the National Aging and Disability Transportation Center, your local county, volunteer groups, as well as the availability and cost of various public transportation and taxi services.

Managing Household and Finances.  Similarly, there may come a time when you are less capable of managing your finances and household tasks than in earlier years.  Simplifying your finances and budget, including setting up automatic transfers and online bill pay where possible, can be beneficial, but again, you should plan to discuss this issue with loved ones in advance, identifying who might be willing and able to help with these tasks and at what point they should do so.  (This should include, but is not limited to, making sure that this person has durable power of attorney for financial decisions.)  If you work with a financial adviser and/or other trusted professionals to manage your taxes, insurance, or estate planning, ensure that your loved ones have their contact information or make introductions ahead of time, so that your loved ones know who to contact for help if/when they need it.  Also, be sure to authorize your financial adviser to speak to one of your loved ones about your financial situation if they notice a decline in your cognitive abilities. Without prior written authorization, the adviser’s hands are tied to reach out to another person about your personal financial information.

Regardless of which side of the conversation you are on, make sure that you are sensitive to and communicate about the emotions involved with these decisions.  If you are the one having to change your lifestyle, tell your loved ones how it makes you feel.  If you are the one advocating change, ask your loved one how it makes him or her feel, and listen.  Hopefully, you can brainstorm together ways to ensure that the person changing his or her lifestyle can still feel empowered to lead a full and vital life.

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Will Social Security Still Exist When You Retire?

When working on financial plans for younger clients, we sometimes encounter skepticism that Social Security retirement benefits will still be available and relevant when they retire.  While we readily agree that younger workers’ retirement benefits are likely to decrease from what they would be under current rules, we have confidence that Congress will continue to make adjustments to the system and shore up Social Security reserves in order to ensure continued benefits well into the future.  (After all, these politicians would like to be re-elected.)

The Current Trajectory.  In its annual “Fast Facts” report, the Social Security Administration (SSA) acknowledges that the program is not sustainable at current benefit and tax rates.  The trust fund reserves that help to pay Social Security retirement benefits are on track to be depleted by 2034.  After that point, the program would have to rely completely on payroll taxes and other income to fund benefits and could only afford 79% of projected program costs.

Why We’re Optimistic.  Despite a lack of political will for a complete Social Security overhaul, the government has made changes in recent years to improve the long-term outlook for retirement benefits.  Like the initial Social Security reform law that President Reagan signed in 1983, which set a course for slowly increasing full retirement age from 65 to 67 over the course of the next 45 years, these changes have been gradual and/or have occurred on the margins of what workers expect to pay and receive.  For example, as we discussed in a prior post, in 2015, Congress passed a law eliminating the ability of spouses to collect a spousal benefit temporarily and then switch to their own benefit at a later date.  This change did not radically impact how much the affected families could expect to collect in Social Security benefits over their lifetimes, and it did not take effect immediately.  It allowed those within four years of being able to take advantage of that claiming strategy to be grandfathered in.

This Year’s Adjustment.  Again, this year the SSA took a step toward shoring up their reserves, but since it is a marginal change, most of those affected by it will likely not even notice.  Each year, the SSA issues two numbers that impact payments into and out of the system for the coming year.  First, the cost-of-living adjustment (COLA) indicates how much retirees’ benefits will increase in the coming year to account for inflation.  Second, the Social Security wage base indicates the maximum amount of wages that will be subject to the 6.2% Social Security tax.  (All wages over the wage base in a given year are not subject to Social Security tax.)  For 2017, retirees were given a 0.3% COLA, but the wage base increased by over 7.3%, from $118,500 to $127,200.  This is the biggest discrepancy between these two numbers in nearly 40 years.  This change is clearly aimed at increasing the amount of income coming into the Social Security system while limiting the increase in the amount paid out. 

Even absent a monumental, systemic change in the Social Security program, we believe that the SSA will continue to make incremental changes to strengthen its balance sheet to ensure that retirement benefits are available and relevant for decades to come.  If you have questions about your benefits and how they play into your plan for retirement, please give us a call.

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