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Why Social Security isn’t going broke: Retirement Scan

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Our daily roundup of retirement news your clients may be thinking about.

Why Social Security isn't going broke
The worry that many clients feel about the possible reduction in their future retirement benefits as a result of Social Security's dwindling trust fund is "misplaced", writes an expert on CBS Moneywatch. That's because "the Social Security trust fund is a supplemental source of funding, paying for about one-fourth of retirees' benefits," explains the expert. "Most of current retirees' benefits are paid by the FICA taxes that today's workers pay to support the system."

The tax-smart way to leave money to your heirs and to charity
Seniors who want to leave a legacy to their loved ones should consider putting the money in a non-IRA taxable account, according to this article on Kiplinger. This way, once they die, the heirs will owe any taxes on the inheritance and inherit the account based on the value at the time of death, known as a stepped-up basis. Clients may use a retirement or non-retirement account to leave a legacy to a charity, as non-profits are no required to pay taxes on the donations they receive.

3 reasons IRAs have edge over 401(k)s when it's time to tap your nest egg
When seniors start tapping their nest egg, an IRA can beat a 401(k) as a source of income because the former offers more flexible withdrawal options, according to this article on USA Today. An IRA also has a broader menu of investment options and provides greater access to advice than a 401(k). However, clients should weigh their options before making a decision as a 401(k) plan has lower costs and its fewer options make investing decisions much easier than having too many options.

This is the harsh reality about health care costs in retirement
A report shows that the average medical costs between the age of 70 and time of death is $122,000, with most of these expenses covered out-of-pocket, according to this article on MarketWatch. The medical bills exceed $300,000 for 5% and $600,000 for 1% of these retirees. While the medical costs in the advance age could be affected by marital status, personal income and health, researchers say that “much of the dispersion in lifetime spending is due to events realized at older ages.”

3 reasons to file for Social Security on time
Seniors may be better off filing for Social Security benefits at full retirement age, as the increase from deferring the benefits may not be substantial, according to this article on Motley Fool. Filing at FRA can be a better option for those who continue working past their retirement age as applying early could mean a reduction in benefit payments. Collecting the benefits at FRA also allows retirees to maximize the benefits that their loved ones can claim on their record.

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