Dear MarketWatch,
I am 67, still working and will start receiving social security in January 2025. My wife, 63, is retired and plans to take Social Security at age 68. At that point, we would have to collectively collect about $55,000 a year from Social Security. Our house is paid for and is worth $1 million.
We also own a vacation home worth $1.4 million with a balance of $375,000 at a 2.75% interest rate. Rent used to make money, but due to rising costs and increased competition, we are fortunate to break even. We have no car payments or long-term debt other than the rental mortgage. Together we have $2.4 million in stock, mostly after taxes. About $600,000 of my wife’s portfolio is in a Roth IRA.
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Here’s my question: We are looking for income in retirement and would like to learn how to protect our assets. I have a $2 million umbrella policy and good insurance and understand the market risk, but I’m concerned about the outside risks. I looked into a self-employed defined benefit plan and applied for a HELOC, not because I need a loan, but to protect my assets. Any suggestions?
Protector of property
To see: I don’t want my belongings or houses to go to my stepchildren when I die. I don’t have any children of my own. What can I do?
Dear protector,
I completely understand wanting to protect your assets, especially as you enter retirement where you will rely on them more than ever.
That said, I’m not sure you’re looking in the right place. A self-employed defined benefit plan certainly works for retirement benefits, but you’re on the cusp of retirement, so it’s not like you would have too much time to build up enough money. Even if you plan to receive Social Security and still work, how long do you plan to work and how much money will you spend on this retirement?
As for HELOC, the strategy you’re referring to is known as “equity stripping,” where you take the equity out of your home so that there is less for creditors to access should a claim arise. However, there would still be value in the house up for grabs.
If you want to protect your money from creditors, annuities may be an option, if you do your due diligence before selecting one. Retirees use annuities to receive a guaranteed income in retirement, but they can also be used to protect assets from creditors, if that’s a concern.
There is no one ‘right’ annuity; some can be linked to the market, usually with the word ‘variable’ in the name, so that wouldn’t necessarily work for you if you’re concerned about market risk. Others are funded periodically or in a lump sum, requiring you to do a bit of math to ensure you get exactly what you need from the annuity in the future, without running out of money to fall back on. You should always have emergency savings, set aside in a separate account that remains untouched.
In that regard, also take into account the simplest protection measures that the government has put in place for your money. For example, the Securities Investor Protection Corporation protects up to $500,000 against losses of stocks, bonds and cash due to a “financially distressed SIPC brokerage firm,” according to the agency.
The Federal Deposit Insurance Corporation also offers significant protection for accounts – it insures $250,000 per depositor, as you may know, but that limit also applies per bank and also per type of account, including individual, joint and, in some cases, IRA. . Joint accounts are also protected on a per-depositor basis, so if you and your wife had one account, the protection would be up to $500,000.
If you’re just trying to protect your money from the market, who wouldn’t, right? – then diversification is your friend. That goes for IRAs, non-retirement accounts, money market accounts, and so on; diversify the asset classes in which your money is held, including stocks, bonds and cash equivalents; diversify the types of investments within these asset classes, including indexes, global investments, different sized capitalizations and the like; and diversify your tax liability, including after- and before-tax dollars.
A few other things you can do now: Start thinking seriously about your rental property and decide whether you plan to keep it or sell it. If you’re just breaking even these days, is it worth keeping or perhaps downsizing the real estate you own and rent? Also run the numbers on those Social Security benefits: Is there a reason why you want to take them while you’re still working? Can you afford to procrastinate, and if so, is there any reason why you shouldn’t? The amount you can collect from Social Security benefits increases every year until age 70, which can help you with retirement, as well as when one spouse dies and the other partner begins receiving survivor benefits.
If you’re doing it because of longevity concerns or because you need the money every month, that’s completely understandable, but if not, delaying it could leave you with more income than you want for retirement. Either way, it never hurts to make a few calculations before making a final decision.
