Personal Finance

Turning 65? What to know when planning for Medicare, Social Security

Published

1 year ago

April 7, 2024

Business Finance News

A “silver tsunami” — with a record number of Americans expected to turn age 65 — is here.

Americans who reach that milestone age face high-stakes financial decisions.

Two of the most important choices retirees face — which Medicare health insurance coverage option to choose and when to claim Social Security benefits — come with deadlines.

And making a less-than-ideal selection may cost a retiree over their lifetime.

More than 11,200 baby boomers are expected to turn 65 every day from now through 2027, a phase that has been dubbed “peak 65.”

For many reasons, the generation entering this new life phase doesn’t have it easy.

A so-called three-legged stool of retirement planning — employer pensions, personal savings and Social Security — has largely gone by the wayside as many private-sector employees no longer have traditional pensions that may provide income throughout retirement, according to recent research from the Alliance for Lifetime Income.

Meanwhile, about 40% of households will not be able to maintain their pre-retirement standard of living due to insufficient retirement income, according to the Center for Retirement Research at Boston College.

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Choosing Medicare coverage comes with trade-offs

Turning 65 ushers in a key milestone — eligibility for Medicare coverage.

Ideally, beneficiaries should sign up for all parts of Medicare the month before that birthday to avoid coverage gaps, according to a recent retirement report by J.P. Morgan Asset Management.

That coverage may come in the form of “original” Medicare — through Parts A and B, for hospital and medical insurance, as well as optional additional coverage through Part D drug coverage or medigap private insurance plans.

Alternatively, retirees may opt for private Medicare Advantage plans that may include prescription drug coverage and possibly also vision, dental and hearing.

Beneficiaries may revisit their coverage each year during open enrollment periods.

“It can be very confusing for people to sort through all of their options and try to figure out what the differences are across plans, but also what options will work for them over the next year and work well over the longer term as well,” said Gretchen Jacobson, vice president of Medicare at the Commonwealth Fund.

Today’s beneficiaries need to brace themselves for rising health-care costs.

A beneficiary who is 65 in 2024 and covered by original Medicare faces $542 in monthly costs on average, according to J.P. Morgan’s research. By 2054, when that beneficiary is 95, that may go up to $1,484 per month, J.P. Morgan said.

That’s based on an annual 6% health care inflation rate, which J.P. Morgan calls a “prudent” assumption.

In comparison, inflation is up 2.8% annually, based on the latest read of the Federal Reserve’s key inflation gauge, the personal consumption expenditures price index.

The monthly outlay for beneficiaries covered by Medicare Advantage is much lower, according to J.P. Morgan’s estimates. Someone turning 65 in 2024 may spend up to $427 per month for Medicare Advantage premiums and out-of-pocket costs. By 2054, when they are 95, that may climb to up to $990.

Based on the numbers, Medicare Advantage may seem like a better deal. But experts say there are trade-offs to consider.

New enrollees who opt for Medicare Advantage may later want to switch to original Medicare. But it may be difficult getting medigap coverage, depending on the state you’re in and your health status, said Sharon Carson, retirement insights strategist at J.P. Morgan Asset Management.

Having original Medicare also gives you more providers to choose from, as all providers who accept Medicare generally take original Medicare, Carson said. Consequently, retirees who split their time between two states tend to opt for original Medicare.

Because Medicare Advantage enrollees have no supplemental coverage, they should set aside more money for surprise out-of-pocket costs, Carson said.

Moreover, while retirees may opt for Medicare Advantage for the additional coverage those plans may provide, many people don’t actually use benefits such as dental, vision, fitness or over-the-counter medication coverage, recent research by the Commonwealth Fund found.

“They should also consider whether they will actually use those benefits, or if perhaps there’s a different plan that offers benefits they’re more likely to use,” Jacobson said.

Claiming Social Security early means taking a 30% cut

Americans who turn age 65 in 2024 have a Social Security full retirement age of 66 and 10 months.

For those who reach that age next year and thereafter, the full retirement age is 67, per changes enacted decades ago that are being gradually phased in.

The full retirement age is the point when retirees stand to receive 100% of the benefits they’ve earned.

But they may claim as early as age 62, though if they do so they will receive reduced benefits.

For those turning 65 now, that amounts to a benefit cut of around 30%. So if their full retirement age benefit is $1,000 a month, they will receive a $700 monthly check for life if they instead decide to claim at age 62.

Beneficiaries who delay even longer — up to age 70 — stand to receive a benefit increase of 8% per year for every year they delay claiming past full retirement age.

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“The best financial asset you can have is a higher Social Security annuity,” said Teresa Ghilarducci, a labor economist and retirement security expert.

“It’s inflation indexed and guaranteed for life,” she said.

Yet only about 8% of beneficiaries wait until age 70 to claim, according to Ghilarducci, a professor at The New School for Social Research and author of the book “Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy.”

“Everyone should know that you have a penalty if you collect before 70,” Ghilarducci said.

However, most people do not delay benefits that long simply because they can’t, she said.

They may be forced out of work early and need to dip into Social Security to supplement their income when retirement savings fall short. Or they may be working but have taken a job that pays a lot less and make up for those missing wages with their Social Security checks.

Those who can’t delay their Social Security benefits for years can still increase their lifetime benefit income by delaying for just a few months, Ghilarducci said.

“Do whatever you can to bridge to a higher Social Security benefit amount,” Ghilarducci said.

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Personal Finance

IRS’ free tax filing program is at risk amid Trump scrutiny

Published

16 hours ago

April 17, 2025

Business Finance News

Vithun Khamsong | Moment | Getty Images

The IRS’ free tax filing program is in jeopardy as the agency faces continued cuts from the Trump administration.

After a limited pilot launch in 2024, the program, known as Direct File, expanded to more than 30 million taxpayers across 25 states for the 2025 filing season.

Funded under the Inflation Reduction Act in 2022, the program has been heavily scrutinized by Republicans, who have criticized the cost and participation rate. Over the past year, Republican lawmakers from both chambers have introduced legislation to halt the IRS’ free filing program.

Now, some reports say Direct File could be at risk. Meanwhile, no decision has been made yet about the program’s future, according to a White House administration official.

During his Senate confirmation hearing in January, Treasury Secretary Scott Bessent committed to keeping Direct File active during the 2025 filing season without commenting on future years.

“I will consult and study the program and understand it better and make sure it works to serve the IRS’ three goals of collections, customer service and privacy,” Bessent told the Senate Finance Committee at the hearing.

However, the future of the free tax filing program remains unclear.

As of April 17, the Direct File website said the program would be open until Oct. 15, which is the deadline for taxpayers who filed for a federal tax extension.

Many taxpayers can also file for free via another program known as IRS Free File, which is a public-private partnership between the IRS and the Free File Alliance, a nonprofit coalition of tax software companies.

The IRS in May 2024 extended the Free File program through 2029.

Mixed reviews of IRS Direct File

Direct File supporters on Wednesday blasted the possible decision to end the program.

“No one should have to pay huge fees just to file their taxes,” Senate Finance Committee Ranking Member Ron Wyden, D-Ore., said in a statement on Wednesday.

Wyden described the program as “a massive success, saving taxpayers millions in fees, saving them time and cutting out an unnecessary middleman.”

In January, more than 130 Democrats, led by Sens. Elizabeth Warren, D-Mass., and Chris Coons, D-Del., voiced support for Direct File.

73% of Americans are financially stressed

However, opponents have criticized the program’s participation rate and cost.

During the 2024 pilot, some 423,450 taxpayers created or signed in to a Direct File account. Roughly one-third of those taxpayers, about 141,000 filers, submitted a return through Direct File, according to a March report from the Treasury Inspector General for Tax Administration.

Those figures represent a mid-season 2024 launch in 12 states for only simple returns. It’s unclear how many taxpayers used Direct File through the April 15 deadline.

The cost for Direct File through the pilot was $24.6 million, the IRS reported in May 2024. Direct File operational costs were an extra $2.4 million, according to the agency.

Personal Finance

Should investors dump U.S. stocks for international equities? Experts weigh in

Published

18 hours ago

April 17, 2025

Business Finance News

Investors should use the relief rally to reduce exposure, says Fairlead's Katie Stockton

Some investors accustomed to the dominance of U.S. stocks versus the rest of the world are making a stunning pivot toward international equities, fearing U.S. assets may have taken on more risk amid escalating trade tensions initiated by President Donald Trump.

The S&P 500 sank more than 6% since Trump first announced his tariff plan, while the Dow and Nasdaq have each tumbled more than 7%.

There was a strong argument to dial back U.S. stock holdings and adopt a more global portfolio even before the recent volatility, said Christine Benz, director of personal finance and retirement planning for Morningstar.

“But I think the case for international diversification is even greater 1744909145, given recent developments,” she said.

Jacob Manoukian, head of U.S. investment strategy at J.P. Morgan Private Bank, offered a similar assessment. “Global diversification seems like a prudent strategy,” he wrote in a research note on Monday.

U.S. had the world beat by ‘sizable margin’

Some experts, however, don’t think investors should be so quick to dump U.S. stocks and chase returns abroad.

The United States is still “a quality market that looks like a bargain,” said Paul Christopher, head of global investment strategy at the Wells Fargo Investment Institute.

U.S. stocks had been outperforming the world for years heading into 2025.

We are in an incredible moment for those who want to bet against U.S. stocks, says Jim Cramer

The S&P 500 index had an average annual return of 11.9% from mid-2008 through 2024, beating returns of developed countries by a “sizable margin,” according to analysts at J.P. Morgan Private Bank.

The MSCI EAFE index — which tracks stock returns in developed markets outside of the U.S. and Canada — was up 3.6% per year over the same period, on average, they wrote.

However, the story is different this year, experts say.

“In a surprising twist, the U.S. equity market has just offered investors a timely reminder about why diversification matters,” the analysts at J.P. Morgan Private Bank wrote. “Although U.S. outperformance has been a familiar feature of global equity markets since mid-2008, change is possible.”

The Trump administration’s tariff policy and an escalating trade war with China have raised concerns about the growth of the U.S. economy.

U.S. markets have been under pressure ever since the White House first announced country-specific tariffs on April 2. Trump imposed tariffs on many nations, including a 145% levy on imports from China.

As of Thursday morning, the S&P 500 was down roughly 10% year-to-date, while the Nasdaq Composite has pulled back more than 16% in 2025. The Dow Jones Industrial Average had lost nearly 8%. Alternatively, the EAFE was up about 7%.

Is U.S. exceptionalism dead?

The sharp sell-off in U.S. markets has raised doubts as to whether U.S. assets “are as attractive to foreigners now as they once were and, perhaps as a consequence, whether ‘U.S. [equity] market exceptionalism’ could be on the way out,” market analysts at Capital Economics wrote Thursday.

At the same time, rising global trade tensions have taken a toll on the bond market, threatening to shake the confidence of holders of U.S. debt. The U.S. dollar has also weakened, nearing a one-year low as of Thursday morning.

It’s unusual for U.S. stocks, bonds and the dollar to fall at the same time, analysts said.

Former Treasury Secretary Janet Yellen said Monday that President Donald Trump’s tariffs have made it more difficult for Americans to find comfort in the U.S. financial system.

“This is really creating an environment in which households and businesses feel paralyzed by the uncertainty about what’s going to happen,” Yellen told CNBC during a “Squawk Box” interview. “It makes planning almost impossible.”

The U.S. fire had ‘already been burning’

A trader works on the floor of the New York Stock Exchange at the opening bell in New York City, on April 17, 2025.

Timothy A. Clary | AFP | Getty Images

That said, international and U.S. stock returns tend to ebb and flow in cycles, with each showing multi-year periods of relative strength and weakness.

Since 1975, U.S. stock returns have outperformed those of international stocks for stretches of about eight years, on average, according to an analysis by Hartford Funds through 2024. Then, U.S. stocks cede the mantle to international stocks, it said.

Based on history, non-U.S. equities are overdue to reclaim the top spot: The U.S. is currently 13.8 years into the current cycle of stock outperformance, according to the Hartford Funds analysis.

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U.S. markets had already showed weakness heading into the year amid concerns about the health of the economy grew and as “air came out the valuations of ‘big-tech’ stocks,” according to Capital Economics analysts.

“In that respect, ‘Liberation Day’ — which accentuated these moves — only added fuel to a fire that had already been burning,” they wrote.

Advisors: ‘Tread carefully here’

A good starting point for investors would be to mirror a global stock fund like the Vanguard Total World Stock Index Fund ETF (VT), said Benz of Morningstar. That fund holds about 63% of assets in U.S. stocks and 37% in non-U.S. stocks.

It may make sense to pare back exposure to international stocks as individual investors approach retirement, she said, to reduce the volatility that comes from fluctuations in foreign exchange rates.

“Part of our core models for clients have always had international exposure, it’s traditionally part of any risk-adjusted portfolio,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York, of the conversations he is having with his clients.

Financial advisor or business people meeting discussing financial figures. They are discussing finance charts and graphs on a laptop computer. Rear view of sitting in an office and are discussing performance

Courtneyk | E+ | Getty Images

Even though those asset classes didn’t perform as well over the last few years, “they’ve done a pretty good job here of helping reduce the brunt of this tariff volatility,” said Boneparth, a member of the CNBC Financial Advisor Council.

Still, Boneparth cautions investors against making any sudden moves to add non-U.S. equities to their portfolios.

“If you are thinking about making changes now, be careful,” he said. “Do you lock in losses to U.S. stocks to gain international exposure? You want to tread carefully here,” he said. “Are you chasing or timing? You usually don’t want to do those things.”

However, this may be a good time to check your investments to make sure you are still allocated properly and rebalance as needed, he added. “By rebalancing, you can rotate out of less risky assets into equities, strategically buying the dip.”

There have been very few times in history when clients asked about increasing their investments overseas, “which is happening now,” said CFP Barry Glassman, the founder and president of Glassman Wealth Services.

“Given that both stocks and currency are outperforming U.S. indices it’s no wonder there is greater interest in foreign stocks today,” said Glassman, who is also a member of the CNBC Advisor Council.

“Even in the past, when U.S. stocks have fallen, the dollar’s gains helped to offset a portion of the losses. In the past two weeks, that has not been the case,” he said.

Glassman said he maintains a two-thirds to one-third ratio of U.S. stocks to foreign stock funds in the portfolios he manages.

“We are not making any moves now,” he said. “The moves for us were made over time to maintain what we consider the appropriate foreign allocation.”

Personal Finance

Here’s why retirees shouldn’t fully ditch stocks

Published

2 days ago

April 16, 2025

Business Finance News

Lordhenrivoton | E+ | Getty Images

Retirees may think moving all their investments to cash and bonds — and out of stocks — protects their nest egg from risk.

They would be wrong, experts say.

Most, if not all, retirees need stocks — the growth engine of an investment portfolio — to ensure they don’t run out of money during a retirement that might last decades, experts said.

“It’s important for retirees to have some equities in their portfolio to increase the long-term returns,” said David Blanchett, head of retirement research for PGIM, an investment management arm of Prudential Financial.

Longevity is biggest financial risk

Longevity risk — the risk of outliving one’s savings — is the biggest financial danger for retirees, Blanchett said.

The average life span has increased from about 68 years in 1950 to to 78.4 in 2023, according to the Centers for Disease Control and Prevention. What’s more, the number of 100-year-olds in the U.S. is expected to quadruple over the next three decades, according to Pew Research Center.

Retirees may feel that shifting out of stocks — especially during bouts of volatility like the recent tariff-induced selloff — insulates their portfolio from risk.

Seeking safety amid market volatility: Strategies to keep your money safe

They would be correct in one sense: cash and bonds are generally less volatile than stocks and therefore buffer retirees from short-term gyrations in the stock market.

Indeed, finance experts recommend dialing back stock exposure over time and boosting allocations to bonds and cash. The thinking is that investors don’t want to subject a huge chunk of their portfolio to steep losses if they need to access those funds in the short term.

Dialing back too much from stocks, however, poses a risk, too, experts said.

Retirees who pare their stock exposure back too much may have a harder time keeping up with inflation and they raise the risk of outliving their savings, Blanchett said.

Stocks have had a historical return of about 10% per year, outperforming bonds by about five percentage points, Blanchett said. Of course, this means that over the long term, investing in stocks has yielded higher returns compared to investing in bonds.

“Retirement can last up to three decades or more, meaning your portfolio will still need to grow in order to support you,” wrote Judith Ward and Roger Young, certified financial planners at T. Rowe Price, an asset manager.

What’s a good stock allocation for retirees?

So, what’s a good number?

One rule of thumb is for investors to subtract their age from 110 or 120 to determine the percentage of their portfolio they should allocate to stocks, Blanchett said.

For example, a roughly 50/50 allocation to stocks and bonds would be a reasonable starting point for the typical 65-year-old, he said.

An investor in their 60s might hold 45% to 65% of their portfolio in stocks; 30% to 50% in bonds; and 0% to 10% in cash, Ward and Young of T. Rowe Price wrote.

Someone in their 70s and older might have 30% to 50% in stocks; 40% to 60% in bonds; and 0% to 20% in cash, they said.

Why your stock allocation may differ

However, every investor is different, Blanchett said. They have different abilities to take risk, he said.

For example, investors who’ve saved too much money, or can fund their lifestyles with guaranteed income like pensions and Social Security — can choose to take less risk with their investment portfolios because they don’t need the long-term investment growth, Blanchett said.

The less important consideration for investors is risk “appetite,” he said.

This is essentially their stomach for risk. A retiree who knows they’ll panic in a downturn should probably not have more than 50% to 60% in stocks, Blanchett said.

The more comfortable with volatility and the better-funded a retiree is, the more aggressive they can be, Blanchett said.

Other key considerations

There are a few other important considerations for retirees, experts said.

Diversification. Investing in “stocks” doesn’t mean putting all of one’s money in an individual stock like Nvidia or a few technology stocks, Blanchett said. Instead, investors would be well-suited by putting their money in a total market index fund that tracks the broad stock market, he said.