Hungerford: Safe retirement choices for single baby boomers | Columnists


It’s hard to believe, but the oldest baby boomers (born 1946-1964) are celebrating their 71st birthday this year. This column is mostly applicable for those boomers born in the first half of the 1950s who are now single and face crucial decisions about how to guarantee a no-risk income stream for the rest of their lives.

Obviously, the best safe-income option for singles is Social Security paid for by their lifetime of work or by the employment history of a deceased or divorced spouse. (To draw payments based on a divorced spouse’s work history requires that the marriage have lasted at least 10 years. Also to take advantage of the 10-year marriage rule, you must still be single.)

Most regular readers of this column know I favor delaying taking your own Social Security as long as possible. The difference between taking Social Security at age 62 and age 65 is 33 percent and waiting until age 70 adds another 32 percent. The total difference between ages 62 and 70 is an astounding 76 percent and that doesn’t even include cost-of-living raises! (The social security COLA increase for next year, announced earlier this month, is projected to be 2.2 percent.)

If you are a widow or widower, it often makes sense to draw from your deceased spouse’s account, letting your own benefits keep growing until age 70. Please consider scheduling a meeting at your local Social Security office if you plan to use the option below, or one of several other possibilities, to draw Social Security benefits not based on your own work history.

Ann is 62 and eligible for a $1,050 monthly payment if she starts her Social Security this year. Sadly, her husband John died this year at age 66 after he began taking his $1,500 social security payments at age 62 four years ago. Her survivor benefit is $1,215 a month —approximately 80 percent of his amount — so she should take that amount until age 70 before switching to her own account. Given her 76 percent increase from ages 62 to 70, she would receive $1,980 a month at age 70, boosting her lifetime benefits by more than $115,000 — not counting COLA raises — if she lives to age 88. (Note: Social Security automatically will pay widowers/widows the highest amount they are eligible for. Therefore, you must notify your local Social Security office if you opt to take less so you can max out your own higher benefits later.)

It is important to think of Social Security as just one component of your overall retirement income strategy. Normally, you should delay taking traditional IRA payouts given the typically correct strategy of “don’t pay taxes now that you can avoid until later.”

However, it may be logical to use some traditional IRA money for current expenses instead of immediate higher Social Security payments while you are in your 60s so that you can reap a much larger Social Security payout at age 70. And, given required minimum distributions (RMDs) from IRAs, your income in your 70s will likely increase, requiring higher tax payments.

Another appealing no-risk option for senior singles (and married ones, too) is longevity insurance, a fixed-income annuity strategy. At its core, longevity insurance is straight-forward: You invest a fixed amount of money now to get a no-risk monthly income for the rest of your life.

You can choose to begin taking payments immediately or at any age up to 85. You can take less per month to guarantee a payout over a certain number of years in case you die early or to provide payments to a spouse after your death.

Three years ago, Uncle Sam approved a special kind of longevity insurance for traditional IRAs called Qualifying Long Term Annuity Contracts (QLACs). The maximum QLAC investment allowed is $125,000, or no more than 25 percent of the total if the IRA is less than $500,000.

There are no RMDs until monthly income begins, no later than age 85.

Astute readers of this column with good memories may recall that my wife Sue bought a New York Life QLAC for almost $91,000 (25 percent of her IRA total) at age 78 in December 2015. She has chosen to wait as long as possible to begin taking payments — five years from today when she celebrates her 85th birthday.

Her current projected payout will be slightly over $16,000 a year for the rest of her life but it may be more than that given that her annuity dividends are likely to increase as interest rates move higher. (I always recommend mutual non-profit insurance companies such as Mass Mutual, New York Life and Northwestern Mutual because their excess income is used to pay higher dividends rather than being paid to shareholders of for-profit-insurance-companies.)

Longevity-insurance winners are always the ones that live longer than average so better-than-average health and good genes are the best reasons to purchases those annuities. (Sue’s mother died at age 99 and her father at 95). I never recommend variable or indexed annuities!

A third possibility for guaranteed lifelong income payments is an employer pension plan. However, current estimates are that 58 percent of employers offer pension plans and only 49 percent of employees participate. While each situation is unique, I often recommend that retiring employees take the employer pension payments rather than a lump sum.

The combination of Social Security and guaranteed fixed payments from an employer and/or from purchasing longevity insurance provide a safe income stream that can’t be outlived. Given that they are risk-free, I argue that enables retirees to take more risk by investing remaining retirement money more aggressively — holding a high percentage of stocks and stock mutual funds in their portfolios.

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