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Maybe its pure coincidence that we got questions about Social Security this week, but it may have to do with SS being in the news throughout the week. The Social Security Trustees told us that the combined, three years earlier than projected in last year's annual report. The trustees urged Congress to take steps to shore up the programs, noting that projected long-run costs for Medicare and Social Security "are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided."
Mo in Texas and an e-mailer needed advice about when to tap Social Security and Stephen from KY weighed in with a beef about the Social Security Windfall Elimination Provision (WEP). The WEP can reduce retirement benefits if you receive a pension from work where Social Security taxes were not taken out of your pay -- in Stephen's case, the reduction is 30 percent!
Stephen then asked about an insurance pitch that a salesman recently made: a conversion from a whole life insurance policy into a variable life policy. This suggestion sounds like a good one for one person: the agent who will collect a new commission!
Similarly, I told 79 year old Robert to avoid the pitch to put his $100,000 life savings into an annuity and instead stick to safer and liquid alternatives. The SEC has issued the following warning about variable annuities for seniors: "While these products are legitimate investments, commissions for those who sell variable annuities are very high, and create incentives for sellers to promote products that are inappropriate for older investors."
Robert would be smart to stick to slightly higher yielding, but less expensive alternatives to annuities, like CD's, money markets and I-Bonds. One thing to note about I-Bonds, which I reminded e-mailer Lee: As of January 1, 2012, paper savings bonds are no longer sold at financial institutions. There are three ways to purchase I-Bonds: on line at treasurydirect.org; through payroll deduction; or paper I-Bonds are available to purchase with your IRS tax refund (using IRS Form 8888).
Rick asked a property/liability insurance question on behalf of his 85 year old father-in-law. I consulted with Steve Testa, of Testa Brothers Ltd, who said that "liability is a must in this situation?"
404 fans Stuart and Servando are both young listeners who are just starting to take control of their financial lives. (Check out my last appearance on the 404.) In Stuart's case, he needs to create a game plan for the receipt of annual gifts. I suggested that he start using 529 plans for college expenses and index funds to start a supplemental retirement account. Servando seems to be suffering from over-allocation, by purchasing too many funds.
-- NAPFA: National Association of Personal Financial Advisors (fee-only advisors)
Thanks to everyone who participated and to Mark, the BEST producer in the world and our new intern, Sehar. If you have a financial question, there are lots of ways to contact us:
Call 855-411-JILL and we'll schedule time to get you on the show LIVE
Send an email: firstname.lastname@example.org
Tweet me: @jillonmoney
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