chris sharp
cially if you’re married. We’ll go over several strategies to help you get the most from your benefits.
But first, the basics. Those born between 1943 and 1954 will get their “primary insurance amount” at 66, which is their full retirement age. You can claim benefits as early as age 62, but your monthly check will be cut by 25% for the rest of your life. For every month you wait beyond 62, your benefit will increase by a fraction of a percent. If you claim at age 64, for in-stance, you will receive
86.7% of your primary insurance amount.
For each year you delay claiming between 66 and 70, you’ll get a delayed credit of 8%, plus cost-of-living adjustments. “Hav-ing a larger income stream of that sort is extremely valuable,” says Rick Miller, a certified financial planner with Sensible Financial, in Waltham, Mass. Miller usually recommends that his clients delay to take advantage of this income stream of inflation-adjusted life-time benefits.
A lower-earning spouse can claim a benefit based on his or her work record at 62. Or the spouse can claim a “spousal” benefit, as long as the other spouse has started to collect benefits. If the lower earner is at full
W
hat do boxer George Foreman,actress Meryl Streep and singer Bruce Springsteen have in common? Aside from fame, they’re all turning 62 this year, and they need to decide whether to start claiming Social Security benefits.
Sure, none of them needs the cash, but like many of you, they’ll need to engage in some complex calcula-tions. And just because George, Meryl, Bruce and you can apply at 62 doesn’t mean you all should. Delaying may be the best way to maximize your benefits,
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retirement age, the spousal benefit is 50% of the higher earner’s primary insurance amount.
But the spousal benefit will be reduced if the lower earner collects the benefit before reaching full retire-ment age. If the lower-earning spouse first claims a benefit based on his or her earnings and later “steps up” to a spousal benefit, the spousal benefit will be reduced as well.
Many financial planners and academic research-ers are urging seniors to focus on Social Security as longevity insurance—that is, a benefit that will provide you income in your old age—instead of as a source of immediate cash flow. “People underestimate the future value of that benefit,” says Clarissa Hobson, a certified financial planner for Carnick and Co., in Colorado Springs, Colo.
One way to look at the value of delaying benefits is to compare Social Security to the cost of buying the same amount of guaranteed income in the private mar-ket. Let’s say a 62-year-old Virginia man would receive $1,125 a month if he claimed at age 62, but $1,980 a month if he waited until 70. That’s a difference of $855 a month in benefits.
If this man claimed benefits at 62 and wanted to buy an extra $855 in guaranteed income at 70, he’d have to spend $116,660 for an immediate income an-nuity. And that’s without an inflation adjustment or a 100% survivor benefit.
Delaying makes particular sense if you have a pen-sion, says Jonathan Blumenthal, senior vice-president at Peak Capital Investment Services, in Dallas. In that case, your pension, which is probably not adjusted for inflation, will cover expenses in early retirement. Later your Social Security benefit’s cost-of-living adjust-ments will become an inflation hedge.
It also makes sense to delay if your income will spike in those last years of work. Your benefit is calculated based on your top 35 years of earnings. Any years with
no earnings will factor in at zero and will be averaged into the calculation.
Greg Graman, 63, expects to boost his benefit by staying in the workforce. For the past six years, he’s been an assistant professor in the School of Business and Economics at Michigan Technological University in Houghton, Mich.
Graman had six years of zero earnings in his record because he left the private sector after 22 years to go to graduate school. “By continuing to work, I replace those zeros with substantially higher numbers,” says Graman. He’s now worked long enough to wipe out those zero years. And because he plans to work until his late sixties, he also expects to displace some lower-earning years in his lower-earnings record.
Before deciding when to apply, you and your spouse should look over your most recent Social Security statements. The statement will note how much you will get at 62, 66 and 70. Keep in mind that the estimates assume you are working up to the listed ages. Or you can use the Retirement Estimator tool at www.social security.gov/estimator, to play with different scenarios.
Once you review your numbers, you can figure out which of the following strategies or circumstances could apply to you. In many cases, it makes the most sense to wait. “So many of these strategies require you to be over full retirement age,” says Elaine Floyd, direc-tor of retirement and life planning for Horsesmouth, a consulting firm that works with financial advisers. n If you’re still working. Most experts say it usually does not make sense to claim early while you’re still working. If you start claiming before full retirement age, Social Security will withhold part of your wages to satisfy the earnings test. “You don’t want to start Social Security if you’re producing enough income to get your benefits clipped,” says Wayne Copelin, president of Copelin Financial Advisors, in Sugar Land, Tex.
In 2011, you lose $1 for every $2 you earn over the
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earnings limit of $14,160. Say you are earning $30,000 and claim a $1,500 benefit at 62. Because $30,000 is $15,840 over the limit, you’d lose $7,920 in benefits. The earnings test applies to survivor and spousal ben-efits, too.
In the year you reach full retirement age, you lose $1 for every $3 in earnings over $37,680 before your birthday month. The earnings test ends in the month you reach full retirement age.
If you are receiving benefits and unexpectedly return to work, let Social Security know quickly. If the tax return shows earnings that should have triggered reduced benefits, you’ll have to pay back the excess in a lump sum or see future benefits reduced to compensate for the earlier overpayment.
Benefits lost to the test are not gone forever. For any
month you forfeit benefits to the earnings test, Social Security will ratchet up future benefits to compensate you for that “lost” money. But if you applied at 62, you’ll never recoup benefits lost from claiming Social Security early.
n You wait, spouse doesn’t. Let’s say you’re the higher earner and you would like to maximize your own ben-efit by delaying until 70. If your wife is 62 or older, she could collect benefits based on her own earnings re-cord, but perhaps she’d get more money with a spousal benefit. One catch—she can’t collect a spousal benefit until you file for your own.
Here’s a way to boost income immediately: As long as you’re full retirement age, you file for your benefit, and your wife applies for a spousal benefit. You then ask Social Security to suspend your benefits. Your wife will receive a spousal benefit. You can continue to work and accrue delayed credits until you reapply for benefits. “This dramatically increases the benefits the high-earning spouse will receive,” says Hobson.
This file-and-suspend maneuver also helps provide for your lower-earning wife if you die first. She’ll step up to a survivor benefit that will be 100% of your benefit at the time of your death. The survivor benefit will include any earned delayed retirement credits and cost-of-living adjustments.
Maximizing the survivor benefit was a major goal for Greg Graman and his wife, Sandra. Greg, who is the higher earner, will qualify for a lump-sum retire-ment benefit from his employer at 68 and doesn’t plan to take his Social Security benefit before then.
Sandra, who is a part-time preschool teacher, started taking a benefit based on her earnings two years ago at 62. But because her $500 benefit is about half of the spousal benefit she could receive on Greg’s record, he intends to file and suspend his benefits at age 66. Sandra can then switch to a larger spousal benefit, and Greg’s own benefit will continue to grow at 8% a year.
Sandra claimed early on her own record to boost the household income. “If she waited to do anything until 66, she would have left those four years of benefits on the table,” Greg says.
n You wait, but take a spousal benefit. Typically it is the lower-earning spouse who collects a spousal ben-efit. But there’s nothing to say the higher earner can’t opt for a spousal benefit—temporarily. To employ this strategy, the higher earner must be full retirement age.
Here’s how it works: You are the higher-earning spouse and have hit full retirement age, but you want to delay your benefit until 70. In the meantime, you
From the Editor
J
ust think: If you had invested $10,000 in Microsoft 25 years ago at its initial public offering, you’d have about $3 million today. Numbers like that encourage investors to look for the next hot technology company—and often in all the wrong places.The latest high-risk investment is “pre-IPO offerings.” Con artists are looking at investor demand for the private stock of high-profile companies such as Facebook, Twitter and Grou-pon. And they’re offering what they call pre-IPO shares of these social-media companies as well as shares of what they tout as little-known start-ups that are sure to turn into the next Microsoft. One problem: The shares are bogus.
The Financial Industry Regulatory Authority is warning investors about the fraudulent sale of unregistered shares often by unlicensed individu-als. If you receive an unsolicited offer, turn away. If you’re offered exclusive access, don’t believe it. Check out the promoter’s license. And get an unbiased second opinion.
can bring in extra money by applying for a spousal benefit for yourself.
First, your lower-earning spouse claims her own benefit. Let’s say she’s 62; she’ll get 75% of her full benefit because she is applying early. Then, you can apply for a spousal benefit. Because you are full retire-ment age, you get an extra bonus: Rather than getting 50% of her current reduced benefit, you get 50% of her primary insurance amount.
This strategy is known as “restricting an applica-tion” to a spousal benefit only. The higher earner must be full retirement age. If you’re younger, the Social Security Administration will automatically give you the highest benefit you’re entitled to, which is likely the benefit based on your earnings. “If you start taking benefits before full retirement age, you don’t have a choice of which benefit to take,” says Peggy Sherman, director of financial planning for Briaud Financial Advisors, in Bryan, Tex.
At any time until 70, you can switch to your own higher benefit. At that point, your wife could switch to a spousal benefit. However, her payment will be less than 50% of your primary insurance amount because she claimed her own benefit early. Still, her survivor benefit will equal 100% of your benefit if you die first.
Not all Social Security Administration personnel are familiar with this strategy. Kiplinger’s Retirement Report has interceded on behalf of several readers who
encountered skeptical government employees. If you face trouble when you apply, show the employee the following information from the Social Security Web site: www.socialsecurity.gov/retire2/yourspouse.htm. (Look at the section called “If you or your spouse are full retirement age.”)
This information helped a couple in Long Island, N.Y., who subscribe to Retirement Report. Mr. Miller
(who didn’t want his full name used), age 67, was already receiving his benefit. Mrs. Miller, 66, wanted to apply for a spousal benefit of about $1,100 a month and delay her own benefit until 70, when she would be eligible to receive about $2,800 a month—$800 more than if she collected her benefit at 66.
When she visited the Social Security office near her place of employment last November, a supervisor told her that she could not restrict her application to the spousal benefit. After Retirement Report directed the
couple to the Social Security Web site, Mr. Miller says, “Two days later, she went back and the papers were put through. All was fine.”
Then the Social Security computer center denied
the application twice. After the couple requested more help from Retirement Report, a Social Security
rep-resentative followed the case personally. Mrs. Miller finally received notification that her spousal benefit would start at the end of March.
n Back to work. If you return to work after you started receiving benefits, you can suspend your benefits if you’re full retirement age. Say you intended to claim at 70, but you started collecting benefits before full retire-ment age after a layoff. Now you’ve found a new job.
While your benefits are suspended, you will earn delayed retirement credits through age 70. However, the credits will be based on the reduced amount you had been receiving, not the primary insurance amount. n If you’re divorced. You may be entitled to a spousal or survivor benefit based on your former spouse’s earn-ings record. To be eligible, you must have been mar-ried for at least ten years and be at least 62 to receive a spousal benefit. If your ex dies, you can claim a survivor benefit at 60 (or 50 if you’re disabled).
If you remarry, you will lose the benefits of your former spouse, at least until that second marriage ends in divorce or death. If that happens, you may be able to select the best benefit among your former spouses. (Note: If you remarry after age 60 and you are taking a survivor benefit on your ex’s record, you can still receive the survivor benefit.)
The Social Security rules for divorced couples are pretty much the same as those for married couples. For instance, if you collect a spousal benefit when you are at full retirement age, it’s generally 50% of your ex-spouse’s benefit. A survivor benefit is equal to 100% of the deceased spouse’s benefit if the survivor waits until full retirement age to claim it. If a survivor claims earlier, the benefit will be reduced.
One difference: Even if your ex has not applied for benefits, you may be allowed to collect spousal ben-efits. To qualify, your former spouse must be eligible for benefits, which means he or she must be at least 62, and you must be divorced for at least two years.
Divorced women can use the restrict-an-application strategy to maximize their own benefit—and that can be a boon for those trying to catch up on retirement savings. “It’s a wonderful strategy for divorced working women,” says Floyd.
Say a woman whose own benefit with delayed retire-ment credits will be larger than the ex’s spousal benefit. At full retirement age, she takes her ex’s spousal benefit and continues to work. At 70, she switches to her own bigger benefit. K —rAChEl l. ShEEdy & SuSAN b. GArlANd
T
he U.S. tax system is a wily one. If you and your spouse expect to bring in $100,000 this year, you might think you’d be in the 25% bracket—after all, the official rate tables show that the 25% bracket encom-passes income from $69,000 to $139,350 on joint returns—and would therefore owe Uncle Sam $25,000 for 2011. But you would be wrong. Inhabitants of the 25% bracket don’t have to hand over a quarter of their income to the IRS. That 25% is the marginaltax rate, the highest rate that applies to any of your income. Some income is taxed at lower rates, and some not at all. Understanding how it all works is a key to holding down your tax bill.
Let’s take a look at a hypothetical retired couple’s in-come and how it’s treated by our progressive tax system that claims a higher proportion of higher incomes.
Retirees Mr. and Mrs. Smith, both 66, have multiple streams of income. Mr. Smith gets a pension from his former employer totaling $25,000 a year. He also gets the maximum monthly Social Security benefit of $2,366, and Mrs. Smith receives a spousal benefit worth half of his benefit, or $1,183. The couple’s Social Security benefits will total $42,588 in 2011.
As for investments, the Smiths will sell stock they purchased near the bottom of the bear market in 2009 for a nifty $10,000 profit and collect $2,000 in dividends from other stock they own and $1,000 of interest from certificates of deposit. Finally, they each converted $30,000 of traditional IRAs to Roth accounts in 2010. So, now it’s time to report half of the converted amount on their 2011 return. The dual conversions will add $30,000 to their taxable income.
Those six sources of income add up to $110,588, smack in the middle of the 25% bracket. But it’s not your total income that determines your tax bill. It’s
your taxable income.
To start off, the Smiths each get a personal exemp-tion worth $3,700, knocking $7,400 off the tax-able income amount. They’ll also claim a supersized standard deduction of $13,900, the basic $11,600 for married couples plus $2,300 because they’re both older
than 64. Suddenly, their $110,588 of income is down to $89,288. Since the law prevents taxing
more than 85% of Social Security benefits, 15% ($6,388) of their benefits are tax-free. That brings taxable income down to $82,900, still in the 25% bracket.
Does Uncle Sam get a fourth of that amount, or $20,725? No, for a couple of reasons.
First, some of the income gets special treatment. Because the Smiths owned their stock for more than a year before selling, the profit qualifies as a long-term capital gain and for the gentler rate on such income. Their stock dividends are qualified dividends, making them eligible for the lower capital-gains rate, too. For most taxpayers, that rate is 15%, although taxpayers who fall in the 10% and 15% brackets in 2011 qualify for a 0% capital-gains rate. But the Smiths aren’t in the bottom brackets, so they will owe 15% tax, or $1,800, on $12,000 of income from capital gains and quali-fied dividends. (That still saves them $1,200 compared with being hit by a 25% rate.)
The Tax Bite at Each Bracket
Next is the way the tax brackets work. For 2011 joint returns, the first $17,000 of taxable income falls in the 10% bracket—and the IRS claims just 10% of that amount. Income between $17,000 and $69,000 falls in the 15% bracket and is clipped at a 15% rate. For the Smiths, only the $1,900 in taxable income that falls be-tween the $69,000 top of the 15% bracket and $70,900 (their taxable income minus the part carved out for special 15% treatment) gets whacked by the 25% rate.
So, how much tax will Mr. and Mrs. Smith owe on their 2011 income? $11,775. That’s 10.6% of the $110,588 income they started with. And 14% of their $82,900 taxable income.
But still, their 25% marginal rate is important to their tax planning. That’s the rate that will apply to any extra dollars of taxable income. If they itemize deductions—or qualify for any of the many deductions available even to those who claim the standard deduc-tion—25% is also how much they could save for every extra dollar of deductions. K —rAChEl l. ShEEdy
Taxes
A
ndrea Sears Van Nest, 55, always knew that her parents, who fled Nazi Germany, were remarkable people. But when the Bakersfield, Cal., resident began going through their papers after her mother’s death in 2008, she discovered a historical treasure trove that included original documents detailing World War II war crimes and letters that her father had received from Albert Einstein, who had once employed him.Although Sears Van Nest could have sold off the documents piece by piece to private collectors, she wasn’t interested in making money. She decided the papers’ true worth was in their importance to the pub-lic. In 2009, she donated a portion of the collection, worth $25,000, to the University of Denver, where both of her parents had taught classes.
In the process, Sears Van Nest netted a tax deduc-tion that shaved close to $7,000 from her federal and state tax bills. “The most important part was making sure that the documents went to the right place,” she says. “But the tax deduction was also really sweet.”
Donating collections can result in a sizable tax break for donors. According to the IRS, common collection donations include rare books, stamps, coins and guns. Rarer items have included everything from Civil War memorabilia to historical brewery advertising signs.
The first step is to find a charitable organization that’s well suited for your donation. A list of charities can be found through IRS Publication 78 at www.irs.gov.
There are two types of tax breaks. If you give a col-lection of old photos to a historical society that will be displayed in an exhibit, for example, the donation will be used for the organization’s tax-exempt purpose. In that case, you can deduct the fair market value.
If you donate an unrelated collection of Picasso paintings that the historical society sells to improve its bottom line, different rules apply, says Michael Kessel, a tax lawyer at Herrick, Feinstein, in New York City. “Because the donation isn’t for the organization’s exempt purpose, the deduction is limited to the donor’s tax basis in the assets,” he says. For inherited items, the basis is the fair market value on the dece-dent’s date of death. For items you purchased, it’s the amount you paid for the items.
Finding a Qualified Appraiser
Determining the fair market value of a collection of items can be tricky. Qualified appraisals are required for any donations totaling more than $5,000, says Brian Wendroff, a certified public accountant at Wen-droff & Associates, in Arlington, Va. “Keep in mind that this applies to a group of items, too,” he says. “If you donate a collection of five $1,000 paintings, that’s the same as donating one $5,000 painting.” Typically, though, each item must be individually appraised.
Because the charitable organization must avoid any appearance of trying to influence the value of a dona-tion, you’ll be on your own in finding an appraiser. Wendroff recommends starting your search with one of three reputable groups: the American Society of Ap-praisers (www.appraisers.org), the International Society of Appraisers (www.isa-appraisers.org) or the Appraisers Association of America (www.appraisersassoc.org).
A qualified appraiser can be expensive. Sears Van Nest spent nearly $2,000 on her appraisal. The apprais-al must be completed within 60 days of the donation. The documentation should note that the appraisal was conducted for the purpose of an income-tax deduction.
Make sure to get a document from the charitable organization that notes the donated assets, the date of the gift and confirmation that you received nothing in return. To deduct the fair market value, ask the organi-zation for a deed of gift, which states that the organiza-tion will use the collecorganiza-tion for its tax-exempt purpose and that it doesn’t intend to sell the collection. Finally, you and the appraiser will have to fill out Form 8283 to substantiate your noncash charitable contribution. K
—ErIN PETErSoN
Taxes
Donate a Collection
and Get a Tax Break
I
nvestors in search of guaranteed returns from bonds should stick with individual issues: You get your full principal back when the bonds mature. With a bond fund, when interest rates rise, bond prices fall and funds that hold bonds decline in value.If you want the convenience of funds, the secret is to use funds that invest in the types of bonds that have a history of holding value in adverse rate cycles and still pay a yield high enough to offset expected declines in principal. We offer a handful of choices.
The textbook strategy for protecting against high rates is to cut maturities. Because of the piddling yields of short-term bonds, consider a fund that invests in medium-maturity bonds.
With Dodge & Cox Income (symbol DODIX), you
can obtain decent yields without taking on significant credit or maturity risk. The fund has roughly half of its portfolio in high-grade corporate bonds and half in government-guaranteed mortgages. Dodge & Cox
yields 4.8% and has a duration of 3.95 years, suggesting that the fund’s share price will fall 3.95% if rates rise by one percentage point.
If you prefer an indexed approach, check out
Vanguard Short-Term Corporate Bond ETF (VCSH).
The exchange-traded fund yields 2.1% and has an average duration of 2.8 years.
An alternative is to invest in a flexible bond fund, which lets the managers decide when to lengthen or shorten maturities based on the health of issuers, the possibility of ratings downgrades and liquidity issues. One of the best is Loomis Sayles Bond (LSBRX).
The fund’s average credit quality is double-B, squarely in junk territory. Its average duration is six years, and it yields 5.4%. Its ten-year annualized return of 9.6% is near the top of the pack.
Fidelity Strategic Income (FSICX) holds nearly
1,300 different issues. The fund, which gained 0.6% in the fourth quarter, yields 4.8%. (Fidelity doesn’t provide a duration figure.) K
InvesTIng
Bond Funds That Hold Value as Rates Rise
Y
ou may spend a lot of time and moneysup-porting an aging parent, but claiming your mom or dad as a dependent for tax purpos-es can be difficult. Still, it’s not impossible. Your parent must be a U.S. citizen or live in the U.S., Canada or Mexico. Also, your parent must not file a joint tax return, unless it is only to claim a refund.
Your parent’s gross income cannot be greater than the personal-exemption amount, which is $3,650 for 2010 and $3,700 for 2011. Gross income excludes all or part of your parent’s Social Security benefits, de-pending on his or her income level. Many seniors with modest incomes from a pension, interest or invest-ments are still disqualified by this test.
You must also furnish more than one-half of your parent’s support during the year in order to claim him or her as a dependent. If your parent lives in your home, you can count the fair-market rental value of your par-ent’s lodging as part of that support calculation. The tax code provides some flexibility when several siblings
pitch in to help with their parent’s expenses but no single sibling covers more than half of the expenses.
In such cases, one sibling can claim the parent as a dependent as long as he or she provides as least 10% of the parent’s support and no one else provides more than half of the support. Everyone else who provides at least 10% support must sign a declaration that they won’t claim the exemption. The sibling claiming the parent as a dependent must file IRS Form 2120, “Mul-tiple Support Declaration.”
Once you determine that your parent can be claimed as your dependent, you may be able to deduct your parent’s medical expenses, as long as you itemize and your family’s total medical expenses exceed 7.5% of your adjusted gross income. Only those medical expenses above 7.5% of your AGI are deductible. Families who are also paying medical expenses for adult children under age 27 can pool all of the family’s medical expenses in order to qualify for the medical deduction. K —MAry bETh FrANklIN
Taxes
‘Free’ Gifts From Banks Are Taxable
I recently bought a certifi-cate of deposit at a bank and was given a free $75 iTunes card. Will I have to pay taxes on it?
Yes, such incentives from banks are treated as taxable interest, and the value of the gift card will be included in the amount reported on the 1099-INT income statement you receive for the year. For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Incen-tives for larger deposits must be reported if the value is $20 or more. The value is determined by the cost to the financial institution. If you don’t need the card, your grandchild will appreciate it.
Making Charitable Contributions From Your IRA
I would like to take a portion of my traditional IRA and make contributions to several charities. How do I go about doing that?
If you are 70½, you can make direct contributions, up to a total of $100,000, from your IRA to as many char-ities as you want. However, the money cannot be used for donor-advised funds. The gift will count toward your IRA required minimum distribution. You can’t take a tax deduction for the donations, but the money won’t show up in your taxable income. Ask your IRA administrator to set up the transfer. The money can’t be passed to you first. Before you make the move, ask the charities if they have letters of instruction you can give to your administrator.
You Can’t Roll an Inherited IRA Into Your Own
My father recently died and left me his IRA. Can I just roll the money into my own IRA?
No. You can’t commingle the money. The accounts must be kept separate because different distribution rules apply. Although you don’t have to tap your own IRA before age 70½, you must either begin withdraw-als from an inherited IRA the year after the owner died or cash out the entire account by the end of the fifth
year after the owner’s death. Also, different life expec-tancy factors apply to an inherited account than to your own. And you can’t convert an inherited IRA to a Roth IRA. You should have the inherited IRA retitled to make it clear that the original owner died and you are the beneficiary, with wording such as “John Jones, deceased, IRA for the benefit of James Jones.” To figure the required distributions, ask the trustee for help or check out IRS Publication 590 (www.irs.gov/pub/irs-pdf/ p590.pdf).
No Earned Income, No Roth Contribution
My wife and I are both retired, and we have no earned income. We recently redeemed several Series EE bonds. Can we contribute the proceeds to our Roth IRAs?
To contribute to a Roth IRA, you must have earned income.
Direct Your Estate to Rein in a Spendthrift Child
One of my three children is very irresponsible with his money. I was going to leave his share of my estate in a “spendthrift trust” and name my other children as trust-ees. But I don’t want to dump this responsibility on them. Can I buy him an annuity?
You can provide directions in your will or other estate-planning documents that the money left to your son will be used to buy an immediate annuity for the benefit of your son. The annuity will provide a regular monthly income stream and protection against his creditors. There are downsides, however. When your son dies, the payments will stop, even if that’s long be-fore the investment in the annuity has been recovered. And if he straightens out, he will not have access to the principal.
Rolling a 401(k) Into a 403(b)
I recently changed jobs. I have a 401(k) plan with my former company, and I would like to roll the money into the 403(b) plan with my new employer. Can I do that?
It depends on the plan rules at the new employer. Although rollovers between 403(b) plans and 401(k) plans are allowed by federal law, not all plans accept such rollovers. If your new employer doesn’t allow the rollover, you can move the money into a tradi-tional IRA or a Roth IRA. Rolling your 401(k) into a traditional or a Roth IRA is probably a better move than switching the money into a 403(b). Investment options in a 403(b) and a 401(k) are limited, while you can invest in just about any mutual fund, stock or bond with an IRA. K
FROm The maIlbOx
Your Questions
Answered
ECoNoMy
n Gas prices. Expect gasoline prices to keep edging up.
At a national average of $3.57 per gallon, the price is up almost 78 cents from this time last year. In April and May, heading into the summer driving season, the price could rise to between $3.75 and $4.
n Gas and growth. Rising oil prices due to turmoil in the
Middle East have lowered expectations for growth in gross domestic product, to about 3.1% this year. Oil will likely rise to $105 a barrel for a time, then recede. If energy prices stay higher longer, GDP will struggle to match the 2.9% rise of 2010.
INVESTING
n Arbitration change. Customers who go to
arbitration with a securities firm can now choose an all-public panel, as a result
of a rule change by the Securi-ties and Exchange Commission. Previously, the panels included two public arbitrators and one arbitrator associ-ated with the securities industry. Visit www.finra.org/ arbitration/allpublicpanel.
n New ETFs. Vanguard has launched Vanguard Total
International Stock (symbol VXUS), an exchange-traded
TAX TIP
Beware Medicare Surcharge
T
axpayers reporting 2010 Roth conversions should factor the impact of the Medicare surcharge into their decision on when to pay the conversion tax bill.High-incomers can be charged extra for both Medicare Part B and D premiums. The amount of the surcharge depends on adjusted gross income from two years prior; the thresholds for the surcharge start at more than $85,000 for individual filers (or $170,000 on a joint return).
Because a conversion adds to your taxable income, it could temporarily push you into sur-charge territory. If you report the entire conver-sion in 2010, you may hike your premiums for one year—2012. Split the conversion on your 2011 and 2012 returns and you might hike your premiums for two years—2013 and 2014. If your AGI drops back down the following tax year, the surcharges will eventually disappear.
fund that tracks the MSCI All Country World ex USA Invest-able Market Index. State Street Global Advisors has three new ETFs that track Standard & Poor’s Select Industry indexes: SPDR S&P Transportation (XTN), SPDR S&P Tele-com (XTL) and SPDR S&P Healthcare Equipment (XHE).
n Managed accounts. Fidelity Investments and E*Trade
each have launched accounts for investors who want someone to manage their money. Fidelity’s minimum investment is $200,000, with fees from 0.55% to 1.5% of total assets managed. E*Trade’s minimum is $250,000 with fees from 0.95% to 1.25%. Visit www.fidelity.com/ personalized and www.etrade.com/uma.
bANkING
n Bank rates. BestCashCow.com can help you locate the
best rates on bank products, from certificates of deposit to mortgage rates. Plug in your zip code and select the product, such as a six-month certificate of deposit, to pull up the rates in your area. The site tracks more than 7,000 banks and 7,000 credit unions.
CoNSuMEr INForMATIoN
n Shop gas prices. You can search local
gas prices by zip code at GasBuddy.com, http://gasprices.mapquest.com or www. aaa.com/fuelfinder. Some sites, such as GasBuddy and AAA, also offer smartphone apps that can help you find the cheapest gas while you are out and about.
n Adviser guide. The National Association of Personal
Financial Advisors has a new guide to help people find an adviser. The Pursuit of a Financial Advisor Field Guide includes a list of questions to ask and guidance on evalu-ating advisers. Find the guide at www.napfa.org.
n Consumer bureau. You can now read about the new
Consumer Financial Protection Bureau at its Web site, ConsumerFinance.gov. Consumers can learn about the bureau’s mission, make suggestions and ask questions.
n Elder abuse. The Financial Crimes Enforcement
Net-work, a bureau of the Treasury, is asking banks to report possible financial abuse of elderly customers. Red flags: frequent, large withdrawals and caregivers who don’t al-low the elders to speak.
Work
n Jobless picture. One in eight workers age 50 and older
was underemployed in 2010, and more than half of the unemployed hadn’t worked for more than six months,
reports the Urban Institute. Nearly a third of the unem-ployed had been out of work for more than a year.
rETIrEMENT SAVINGS
n Last-minute conversions. Nearly one-third of 2010
Roth IRA conversions executed at Fidelity Investments happened during December. Fidelity customers did about 220,000 Roth IRA conversions in 2010, which was four times more than in 2009. Of those who did a 2010 Roth conversion, 58% were age 50 or older.
n Pension database. Boston College’s Center for
Retire-ment Research has released a Public Plans Database at www.crr.bc.edu with information from 126 state and local pension plans. Its annual data for 2001 to 2009 includes funding ratios and plans’ asset allocations.
n Inflation risk. Only 55% of retirees are taking inflation
into account in retirement planning, reports the Society of Actuaries. That compares with 72% of preretirees. Also, 62% of preretirees are concerned about the impact of interest-rate changes, compared with 52% of retirees.
n Income plan. Fidelity Investments has launched a
pro-gram to help preretirees and retirees turn savings into an income stream. At www.fidelity.com/incomeanswers, you can get a free consultation to create your own plan.
hEIrS
n Wealth transfer. Baby-boomers will inherit $8.4 trillion
at 2009 levels, according to a study by the Center for Retirement Research at Boston College for the MetLife Mature Market Institute. The median per person inheri-tance will be $64,000, and $2.4 trillion has already been received. Read the study at www.metlife.com.
TrAVEl
n Go green. New Web site Green.travel
offers advice and resources for travel-ing in an eco-friendly way. The Web site includes tips for traveling green and a directory of sustainable travel companies worldwide.
ANNuAl INdEX
n 2010 articles. Looking for an article from last year?
Find it with Retirement Report’s Articles Index for 2010. Send a note to [email protected] to have a copy e-mailed to you. Subscribers who have signed up for free electronic access can download a copy online, along with previous years’ indexes and past issues. If you don’t have electronic access, sign up at KiplingerRetirement.com.
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I
f you want to build a portfolio around companies that pay dividends, you’ll find many choices among exchange-traded funds. At least 35 ETFs follow a dividend-focused strategy, investing in income-paying stocks of companies large and small, and in U.S. and foreign firms.Our top choice is SPDR S&P Dividend ETF (symbol
SDY; expense ratio, 0.35%). The ETF holds 60 mem-bers of Standard & Poor’s 1500 index that have lifted their dividends for at least 25 straight years. Most are high-quality, large-company stocks that trade at rea-sonable prices. Over the past five years, S&P Dividend returned 2.6% annualized, beating Standard & Poor’s 500-stock index by an average of one percentage point per year (all returns are through March 17).
Emerging-markets stocks are playing a growing role in Americans’ portfolios. WisdomTree Emerging
Mar-kets Equity Income (DEM, 0.63%) holds the
highest-yielding stocks in a proprietary index that tracks about 1,000 dividend-paying firms in 19 developing nations. The ETF holds about 260 stocks, all with market values of at least $200 million. Among its top holdings are Lukoil and Bank of China. The fund gained 8.4% annualized over the past three years.
It’s good to have a foothold in the developed world, too. First Trust DJ Global Select Dividend (FGD,
0.6%) tracks an index of 100 high-yielding stocks from established markets. Split between large- and midsize-company stocks, the fund has 25% of its assets in North America, 47% in Western Europe and 28% in Asia.
With half of its assets in financial stocks at the beginning of 2008, First Trust was one of the worst-performing global-stock ETFs that year, plunging 50%. In 2009, the fund surged 60%. Financials are now just 21% of holdings. First Trust, which yields 5.5%, re-turned an annualized 0.5% over the past three years. K
InvesTIng
ETFs That Invest in Dividend Payers
C
onvertible bonds could be the perfect investment for these fragile economic times. Because they’re bonds that may be turned into shares of the issuer, you can benefit if the stock market takes off. But if the market falters, your bond could maintain its value and at the same time produce a generous stream of income.The recent performance of convertibles bears out their benefits. Over the past year through March 17, the Bank of America Merrill Lynch All U.S. Convert-ibles index returned 12.9%—nearly two percentage points more than Standard & Poor’s 500-stock index. “Investors are looking for safety,” says George Graham, editor of Value Line Convertibles Survey.
Convertibles’ returns usually fall between those of stocks and bonds. But convertibles should boost the return and dampen the volatility of your overall bond portfolio.
Here’s how a convertible works: A convertible bond can be turned into a set number of the issuer’s shares. It pays less interest than a regular bond, but the conver-sion feature can be valuable. For example, with the stock at, say, $15, you buy a $1,000 bond that pays 4%
interest and can be converted into 50 shares of the issuer’s stock. It doesn’t pay to convert with the stock at $15 because your shares would be worth only $750.
Let’s say the stock’s price doubles, to $30. If you were to convert, you’d own $1,500 worth of the stock, so the value of your bond rises to $1,500.
If the stock’s price stays put or moves just a bit, you’d collect your 4% annual interest. When the bond matures, you get back your $1,000. The worst outcome is if the bond’s issuer falls on hard times, its stock cra-ters, and it defaults on its loans, including your bond, which plummets in value.
Because converts are tricky, most investors are better off investing through a fund. Our favorite is
Vanguard Convertible Securities (symbol VCVSX).
The fund earned 7.8% annualized over the past ten years through March 17 and currently yields 3.3%.
If you want convertibles with a bit more horsepow-er, go with Fidelity Convertible Securities (FCVSX).
Since 2006, Fidelity has beaten Vanguard four years out of five. But the one year it lagged was a doozy: Fidelity lost 48% in 2008 (then rebounded with a 64% gain in 2009). The Fidelity fund yields 3.0%. K
I
f you need health insurance before Medicare begins, take a look at a high-deductible plan coupled with a health savings account. The combination can cut federal taxes now as you stash away money you can use tax-free for medical expenses in retirement.To qualify for the tax break, the policy must have a deductible of at least $1,200 for self-only coverage or $2,400 for family coverage. The policy also must limit out-of-pocket costs to $5,950 for self-only ($11,900 for a family plan). Once you enroll, you can open a health savings account and contribute up to $4,050 if you’re 55 and older (or $7,150 for a family).
The tax breaks are big. If your employer offers a high-deductible insurance plan, you can make pretax contributions to the HSA. If you buy an individual policy, you can deduct contributions to the account. Withdrawals to pay for medical expenses are tax-free.
Despite the high deductible, these plans, coupled with the tax savings, may well end up being cheaper than a non-HSA plan. With many HSA-compatible plans, once you satisfy the deductible, there are no co-payments for hospital and doctor visits. “It’s rare that anyone is worse off switching to an HSA,” says J. Kevin McKechnie, director of the American Bankers Associa-tion’s HSA Council. With an employer contribution to an HSA and the tax breaks, says McKechnie, “it’s a no-brainer.”
The number of HSA-eligible plans is growing like gangbusters. About ten million individuals were en-rolled in HSA-compatible insurance plans in January 2011, up 25% from a year earlier, according to Ameri-can Health Insurance Plans.
About 29% of participants were 50 and older.
If you’re looking for an individ-ual policy, you can compare HSA and non-HSA plans at www.ehealthinsurance .com. You will need to assess the premi-ums, co-payments, drug benefits and limits on out-of-pocket costs for each plan. Some plans count co-payments for
drugs toward the deductible, while others
don’t, for example. “Make sure the doctors you plan to see are covered by the plan,” says Roy Ramthun, presi-dent of HSA Consulting Services, in Silver Spring, Md.
Also figure in the potential tax savings. If you’re in the 25% tax bracket and socking away $4,000 in an HSA, you’ll cut $1,000 from your income-tax bill— a good chunk of a plan’s deductible.
Paying for Health Expenses in Retirement
Older individuals should consider investing their HSA to build a tax-free kitty for health costs during retire-ment, says William Applegate, vice-president of HSA business development for Fidelity Investments. You can set aside part of your HSA in cash to pay for im-mediate medical expenses and invest the rest to grow, but in nothing too risky. “You should invest HSA funds the same way you invest your retirement funds,” he says. Unused money can roll over from year to year.
Fidelity offers this scenario. A 55-year-old couple contributes the maximum $7,150 each year (adjusted for inflation) for ten years in a portfolio of 50% stocks and 50% bonds and cash. Assuming average market conditions, they’ll have $93,000 by age 65 in tax-free money to pay for medical expenses.
Most large banks and many community banks offer federally insured HSA checking and savings accounts. Your choices are narrower if you want to invest in mutual funds, stocks and bonds. Two options: With a Fidelity HSA, you can invest in Fidelity mutual funds, stocks and bonds, or at HSABank.com, you can invest through a TD Ameritrade brokerage account. Some banks offer a limited choice of mutual funds.
James Gandolfo, a senior vice-president for Ban-corp Bank, says you should compare HSA banks as you would financial institutions that you use for your regular banking needs. “You’re looking at interest rates, fees and ease of use,” he says.
Like many bank HSAs, the Bancorp Bank HSA offers a checking account and a debit card to
pay medical bills. You can also pay medical bills online, and
your account will accept direct
de-posits by payroll deduction. K
—SuSAN b. GArlANd
YOuR healTh
M
ultiple sclerosis ended Charles Silberman’s career as a periodontist. Only 55, Silberman no longer works. Still, he’s getting a monthly check that comes close to matching his old income. The reason: a disability insurance policy.Silberman bought the coverage when he was in good health. He didn’t want to take the chance that his wife and four children would face what he did as a teen, when his father became disabled and was unable to work. The policy kicked in after he cut back his hours and his income
dropped by 20%. Today, the policy replaces most of his income. “We have been able to maintain our house, lifestyle and standard of living,” he says.
You likely have homeowners insurance, and you may have life insurance. But if you’re still working, have you protected your income? Disability insurance replaces a portion of your income if an illness or an accident prevents you from working.
You can buy a full policy if you’re self-employed or a supplemental plan if your employer coverage is skimpy. The policies pay monthly benefits if you can’t work at all, and some pay partial benefits if you can work only part-time. “Disability insurance is not about you, it’s about your family not having to deal with consequenc-es” of a breadwinner’s disability, says Connie Golleher, chief operating officer of the Holleman Companies, an insurance advisory firm in Chevy Chase, Md.
Protecting income is particularly important if you’re 50 and older, when you are probably in the home-stretch of building up retirement savings. This also is the age when health problems are likely to accelerate, says Michael Fradkin, a senior vice-president at MetLife who manages disability insurance products. The most common disability claims MetLife receives from this age group are for cancer, arthritis and joint inflammation, and back strain.
Most states require employers to provide disability coverage for a few weeks or months. Many employers don’t offer coverage beyond that. Even companies that
offer long-term coverage tend to cover just 50% of income, says Golle-her. Some firms offer the option to buy extra coverage at group rates and without underwriting, so you don’t have to pass a medical exam.
Buying through a group, includ-ing a professional association or AARP, can save money, says William Franklin, a certified financial plan-ner whose Hunt Valley, Md., firm helps clients buy disability and other insurance products. Group plans are a better deal for women because individual policies cost them 35% to 40% more than men pay for the same coverage. The rates on group cover-age typically are the same for men and women.
If you can’t get group coverage, you need to go to the individual market. It’s best to find a trusted broker to guide you. “You have multiple companies calling the same feature by different names,” says Franklin.
Generally, the older you are when you buy coverage, the higher the premium. A policy that pays a $5,000 monthly benefit through age 66 for a 55-year-old healthy male might cost $3,840 a year; the same policy costs $2,228 for a healthy 50-year-old man. For healthy women, a policy that costs $5,429 for a 55-year-old woman might cost $3,389 for a 50-year-old.
The premium drops a bit for a 60-year-old because the benefit period of six years is so short. It’s $2,726 for a man and $3,385 for a woman.
Coverage, availability and price depend on your health, your age, whether you smoke and other factors. Pricing also depends on your occupation and the level of income you want to replace. Expect to take a basic medical exam. Insurers may exclude any preexisting conditions, add a surcharge to cover those with health problems or deny coverage.
Policies typically cover up to 50% to 70% of gross income. Tote up your expenses and other sources of income to calculate the amount of insurance you need. Also, figure the length of time you want to receive a monthly benefit. Here are other things to consider: n Definition of disability. Insurers define disability in different ways. Some pay if you cannot perform the
managIng YOuR FInanCes
duties of your “own occupation.” Others only pay if you are unable to perform the duties of “any occupa-tion.” A bit more expensive, “own occupation” policies are preferred because they offer broader protection.
n Benefit period. Benefit periods are the amount of
time you elect to receive monthly benefits. Common benefit periods run from five years, to age 65, to age 67 or a lifetime. A longer benefit period will increase your monthly premium. Match the benefit period to your expected retirement age.
n Residual coverage. This feature allows you to work
part-time or at another lower-paying job and still collect a benefit to make up for lost income. While standard in some policies, a residual benefit can be added as a rider in others. Another perk: This feature pays partial benefits based on income loss even if you don’t have an initial period of total disability.
n A “non-cancelable” policy. You want coverage that
an insurer can’t cancel and will renew every year at the same price. If you instead go with a policy that is just “guaranteed renewable,” the coverage is less expensive upfront, but the premiums could rise.
n Elimination period. This is the waiting period, or the number of days you have to be disabled, before benefits begin. You usually get the best rate at 90 days. Reduc-ing the period to 60 days can lead to a 50% surcharge.
You can add other riders. One is a cost-of-living adjustment, although inflation protection may not be necessary if you’re in your fifties or your spouse works. Another is a future purchase option, which allows you to buy added coverage as your income increases with-out having to go through underwriting again. With his policy, Silberman included both kinds of riders and even one that pays the premiums of his life insurance policy.
Other riders or policies can help you maintain your retirement-plan contributions, provide a long-term-care benefit or convert to a long-term-long-term-care policy. Avoid policies that cover income if you are disabled by a specific condition such as cancer—you’re better off with an overall disability policy. Consumers should also know what triggers a policy or a particular rider.
Also, while benefits paid under an employer-provid-ed policy are taxemployer-provid-ed, benefits from an individual policy are generally tax-free, as long as you pay the premiums with after-tax dollars.
Make sure the insurer you choose gets top ratings from A.M. Best Co. (www.ambest.com), Moody’s Inves-tors Service (www.moodys.com) or Standard & Poor’s (www.standardandpoors.com). K —ChrISToPhEr J. GEAroN
W
hat a relief. Now that the federalestate-tax exemption is a record-high $5 million, owners of estates worth less no longer need to worry about leaving heirs with a tax bill. Or so you thought.
But think again: It may be time to see your lawyer for an estate-plan tune-up. Even if your estate falls well below the new federal limits, you could be snared by estate taxes imposed by your state. And if your current documents include certain kinds of trusts, you could unintentionally leave your spouse or children in bad shape.
Under the new law, you can leave up to $5 million to your heirs free of federal estate tax. Married couples can pass as much as $10 million tax-free to heirs. (A spouse can leave unlimited assets tax-free to his or her spouse.) Estates that exceed the exemption amounts will be taxed at a flat rate of 35%.
But these provisions are temporary, applying only for this year and next. If Congress and President Obama don’t reach a deal by the end of 2012, the estate tax will revert to its pre-Bush levels, when estates larger than $1 million were taxed at a rate of 55%. Al-though that’s unlikely, you must make sure your estate plans hold up no matter what Congress does. “You can choose to wait and see, but that could turn into wait and pay,” says Martin Shenkman, an estate lawyer in Paramus, N.J.
Besides the higher exemption amount, the new law includes a provision that’s designed to simplify estate planning for many couples. The new “portability”
esTaTe PlannIng
New Estate Tax Law
Can Trap the Unwary
you should rewrite the trust to clearly state your inten-tions. “Your instructions should reflect your choices no matter if the exemption is $1 million or $5 million or there is no estate tax at all,” he says.
Another potential problem involves state estate taxes. The District of Columbia and 17 states impose their own estate levies. That means your heirs could be stuck with state estate taxes even if they don’t owe federal estate tax.
Consider the estate tax in New York, which im-poses a levy on estates worth more than $1 million. An estate worth $5 million would pay no federal tax, but would owe $391,600 in state estate taxes, says Sanford Schlesinger, an estate lawyer at Schlesinger, Gannon and Lazetera, in New York City. In Connecticut, with a $3.5 million exemption, beneficiaries of a $5 million estate would be on the hook for $121,800 in estate levies, he says. Schlesinger says that in many states, there may be certain trusts that can save or defer the payment of state taxes. There is no portability for state estate taxes.
The Unintended Consequences of Portability
Even portability can be a problem, according to a num-ber of estate lawyers. “Portability will be a disaster,” says Schlesinger. For one thing, he says, both spouses would have to die in 2011 or 2012 for portability to be certain to work.
Take a married couple who has $9 million. Because their estate is less than $10 million, they decide to forgo a bypass trust. The husband dies in 2011, and the entire estate goes to his wife. If she dies in 2012 and the estate is still $9 million, the kids get the estate tax-free.
But what if the wife instead dies in 2013 with a $9 million estate? If Congress does not extend portabil-ity, the kids will pay big time. Assuming the exemption remains $5 million, the heirs will pay estate tax on $4 million. The kids would owe nothing if the couple had protected the husband’s $5 million exemption amount in a bypass trust.
Congress could make portability permanent, but couples could still be at risk. Shenkman offers this scenario: Each spouse has $5 million, and the couple decides not to bother with a bypass trust. The husband dies. His assets grow to $7 million. At the wife’s death, the heirs will get $10 million tax-free, but pay federal tax of $700,000 on the excess $2 million. If the hus-band had placed his assets into a bypass trust, the $2 million growth would have been protected from estate tax. K —SuSAN b. GArlANd
feature allows a surviving spouse to take the unused portion of the late spouse’s estate-tax exemption. For example, say a husband and wife each has $5 million. He leaves everything to her, using none of his exemp-tion. When she dies, the portability provision enables her to leave $10 million tax-free to her heirs. Without portability, her heirs would benefit from just her $5 million exemption; the husband’s $5 million exemp-tion would be wasted.
Congress intended that the portability provision would reduce the need for many couples to set up bypass trusts, also known as credit shelter trusts. With a bypass trust, the first spouse to die leaves assets to the trust worth up to the federal exemption amount, with the balance going tax-free to the surviving spouse. The trust is earmarked to the kids, but typically the sur-vivor can tap trust income for living expenses. When the second spouse dies, the kids get the money in the trust tax-free, and the survivor can leave his or her own assets up to the exemption amount to the children or other heirs tax-free.
Despite the higher exemption and the portabil-ity feature, couples can still trip over tax land mines. One reason is that many existing trusts are funded by a formula that automatically funds the trust up to the federal estate-tax exemption limit.
Let’s say a husband created a trust years ago when the federal exemption was $1 million. If he dies in 2011 or 2012 with a $5 million estate, the entire amount will go into the trust—with the surviving spouse getting nothing of her own.
Even if you set up a trust today, you need to be careful because of the uncertainty over the estate tax’s future. Perhaps you have a $7 million estate and you want to create a bypass trust to preserve part of your estate for your children from your first marriage. You intend for the trust to hold the federal exemption amount of $5 million for your kids when you die, and for the balance to go to your second spouse.
If you die by the end of 2012, your kids will get their full inheritance. But what if you die in 2013 when the estate-tax exemption may be back to $1 million? If your trust is funded by a formula, your children will get $1 million and your second spouse will get an un-intended windfall. “You should never use a tax-driven formula provision where the inheritance turns on the timing of death and state of the law,” says Jonathan Blattmachr, an estate lawyer at Milbank Tweed Hadley and McCloy.
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63, who lives in Grand Junction, Colo., has had a life-time concern for the environment. A retired chemical engineer, he worked for 30 years for the federal govern-ment cleaning up contaminated sites.
Virgona and his wife, Mary Mastin, 62, a retired surgeon, went to Belize on a weeklong trip in 2010 with the Oceanic Society (www.oceanicsociety.org) to help conduct research on the impact of climate change and erosion on the coral reefs. “After some orientation, we would go to the reef and snorkel to observe how the reefs were holding up,” he says. He and Mastin report-ed their findings to the Oceanic Society researcher. Immersing Yourself in the Culture
The couple has been on other volunteer vacations, all with Global Volunteers (www.globalvolunteers.org). Last year, they went to China for two weeks to teach con-versational English to local residents. “As a volunteer, we learn more about the people and culture than just being a tourist,” Virgona says.
In addition to transportation, it cost Virgona and Mastin $1,925 each to help with the coral research and $2,500 each for the China trip.
In the early 1960s, soon after Susan Rickert gradu-ated from college, she joined the Peace Corps and was assigned to Tanzania. In 1999, Rickert, who lives in San Francisco, returned to Tanzania and has been visit-ing every year since. “I volunteer in Karatu, a village of 5,000 people, working with three elementary schools and a middle school in bringing about physical im-provements,” says Rickert, 72.
Rickert’s trips have been organized by Overseas Adventure Travel (www.oattravel.com), which takes small groups overseas for two weeks. Four years ago, the agency helped her find remote villages along the Ama-zon in need of help. In San Francisco, she has raised money for first aid stations for Amazon villages, a soup kitchen in Lima, Peru, and projects in Africa.
Closer to home, the Berrys intend to spend their next Road Scholars volunteer vacation in Hawaii. Their task: to help restore the teak decks on the USS Missouri, which is moored in Pearl Harbor. The Mighty Mo was the site of Japan’s unconditional sur-render on September 2, 1945, ending World War II.
The Berrys will sleep aboard the former battleship on December 6 and wake up on the morning of the 70th anniversary of the bombing of Pearl Harbor. To the Berrys, staying overnight on the Missouri is a way to become connected with an important part of U.S. history. K —robErT k. oTTErbourG
S
ome retirees like lolling on the beach of a tropical island. But Stephanie Berry’s idea of a vacation is helping to restore Antietam National Park in Sharpsburg, Md. Three years ago, Berry, 67, and her husband, Lawrence, visited the Civil War battlefield, rebuilding a picket fence that had been destroyed during the 1862 battle and whitewash-ing a church on the site.The Berrys, who live in Winter Park, Fla., took the trip with Road Scholars, formerly known as Elderho-stel, which offers 40 different “service learning” trips. Stephanie, a retired U.S. Postal Service supervisor, and Lawrence, a retired Disney employee, also were teaching assistants for a week at a Navajo reservation in Arizona. “These trips give us the joy of giving,” she says.
For many retirees such as the Berrys, a vacation is a time to volunteer, from helping to conduct dolphin research in Peru to advising budding entrepreneurs in South Africa. Nonprofit groups and volunteer-oriented travel agencies sponsor dozens of work projects overseas and in the U.S. “Today’s travelers are into meaningful travel, and they’re adding the element of volunteering to a dream trip,” says Sheryl Kayne, author of Volunteer Vacations Across America
(Country-man Press, $20). If you follow IRS guidelines, you may be able to deduct part or all of the cost of the trip.
These service vacations are an opportunity to pursue a passion or to use your professional skills. Joe Virgona,
