Our daily roundup of retirement news your clients may be thinking about.
How retirees can prosper from preferred stocks
Preferred stocks are good candidates for retirees' investment portfolio, as these stocks provide regular income that are bigger than the interest payments from a corporate bond, according to this article on Kiplinger. Preferreds issued by investment-grade companies yield at least 5%, higher than the 3% yield offered by investment-grade corporate bonds. Preferred yields are also considered dividend income that is taxed at capital gains rate, which could be zero for investors in the lowest tax bracket. "Preferreds are one of the very few places where you can still get a reasonable income stream by historical standards," says an expert.
How working while on Social Security affects your benefit
Retirees who are collecting Social Security benefits at age 62 but opt to continue working can expect adjustments to their future benefits depending on their income, according to this article on USA Today. “Social Security uses the highest 35 years of Social Security earnings to calculate your retirement benefit" and "[t]his is irrespective of how many years you have contributed into Social Security," says an expert. "So if the earnings you are now receiving after age 62 are higher than any of your previous 35 years, Social Security will substitute those new earnings into their calculation — dropping the lowest year’s earnings — and adjust your future benefits.”
Are life insurance proceeds subject to taxes?
Although beneficiaries of a life insurance policy will owe no income taxes on the death benefits, insurance buyers should plan on how their heirs will receive the distribution, according to this article on Forbes. That is because the insurer may hold on to the entire amount or a portion of the benefits and distribute the money at a later date in installments. This could mean the benefits will earn an interest, which will trigger a tax liability for the beneficiaries. To avoid taxes, clients have the option to transfer the money to a Trust that provides the terms on how the proceeds will be distributed to the beneficiaries. However, clients should avoid establishing "incidents of ownership" in the estate, as this might subject the proceeds of the policy to estate taxes.
4 common real estate mistakes retirees make
Treating home equity as a guaranteed asset in retirement planning is a common mistake that many retirees make with real estate, according to this article on Morningstar. Many seniors also have the misconception that real estate is a vehicle for investment growth, while others make the mistake of relocating in retirement without careful consideration for other factors. Another misstep that retirees make is tapping into their home equity without well-defined long-term financial goals and needs.
How can I save on prescription drugs in retirement?
Retirees who pay too much for prescription drugs have the option to change their Medicare Part D plans during the open enrollment from Oct. 15 to Dec. 7, according to this article on Money. They should ensure that the new plan covers all the medications prescribed to them by their physicians. They should also ask a local pharmacist about alternative medicines that are less costly, and use Medicare's Extra Help program to rein in their prescription drug expenses.