Bob’s Journal for 6/15/23

Don’t Overlook This Key Factor When Considering Retirement Relocation

A long-neglected factor to consider when choosing a residence is becoming more and more important to those who relocate in retirement.

Because too many people don’t consider that factor, it’s causing a lot of financial pain. The overlooked factor is homeowner’s insurance, something that most people take for granted when buying a home.

The problem is so acute that legislatures in Florida and California took actions in recent years to try to ensure affordable homeowner’s policies are available. Yet, the problem continues to worsen.

Recently, major insurance companies have announced they would not write new policies in key states. The insurers are concerned about higher claims from floods, storms, wildfires and more. Increased costs of repairing and rebuilding homes also weigh on insurers.

In addition, regulators are limiting the premium increases insurers can charge. Payouts on homeowners’ insurance claims more than doubled from 2019 to 2022 but premiums increased by only a third, according to an insurer’s group quoted in The Wall Street Journal.

Most recently, American International Group, also known as AIG, announced it plans to reduce sales in affluent ZIP codes in New York, Delaware, Florida, Colorado, Montana, Idaho and Wyoming. The company already restricted its California business.

At about the same time, Farmers Group announced it would not sell new policies in Florida.

State Farm and Allstate already pulled back from new California sales.

Florida has been a tough market for homeowner’s insurance for years. Many insurers left the market, premiums soared and the state created its own insurance program.

I have long cautioned that many people don’t consider enough factors when deciding whether and where to relocate in retirement. The move often is more expensive than expected because of the lack of attention to details that seemed small before the move but became important afterwards.

Homeowner’s insurance is such a factor. In many areas that have been attractive to retirees, there now are fewer insurers offering new policies and the available insurance is expensive.

Be sure to investigate the homeowner’s insurance market before settling on where to move in retirement.

Don’t Forget to Repay Covid-19 Retirement Plan Distributions

Early in the Covid-19 pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act packed with tax breaks and cash for individuals and businesses. The deadline for taking advantage of some of that generosity is approaching.

One provision of the CARES Act liberalized the conditions for taking distributions from retirement plans. Individuals could withdraw up to $100,000 from accounts such as 401(k)s and IRAs without incurring the 10% early distribution penalty normally imposed on those who take distributions before age 59½.

The distributions were included in gross income. But the income taxes could be recovered to the extent the individual returned the distributions to a retirement account within three years.

Essentially, the distributions could be tax-free and penalty-free loans from the retirement plans.

Now, the deadline for returning the distributions is approaching for many people, and already has passed for others. The three-year clock started running when money was distributed from a retirement plan.

The CARES Act was enacted on March 27, 2020, so the eligible distributions would have been taken after that. In addition, mutual fund companies such as Vanguard report that most people took a series of distributions, not one lump sum. So, there would be multiple deadlines for claiming the tax refunds.

The time is approaching to return any distributions for which you want the income taxes refunded.

You don’t have to repay the money to the same retirement account from which it was taken. You can deposit it in any qualified retirement account. For example, money that was taken from a 401(k) can be returned to an IRA.

To receive the refund, file an amended tax return on Form 1040-X for the year in which you took the distribution and paid the income taxes.

The CARES Act also allowed the income taxes on the distributions to be spread over three years instead of being paid in 2020. If you took advantage of that provision, you might have to file multiple amended returns to recover all the income taxes.

There are more details on the FAQs page on the IRS website and in IRS Publication 590-B, also available on the IRS website.

It is Still the #1 Fear About Retirement

Years ago, a young copywriter was assigned to write the first draft of a promotion for Retirement Watch.

The project didn’t go well. At one point, he asserted, “You won’t convince me that people actually sit around worrying they’ll run out of money in retirement.”

I had to provide him with some research to show that many people really did worry about such things. While much about retirement changed over the years, the main worry hasn’t eased.

The most recent research shows that the #1 worry about retirement for both retirees and pre-retirees still is the possibility of running out of money, according to a survey from Cerulli Associates as reported in Barron’s.

In fact, the level of fear seems to have increased since inflation rose, and the exhaustion of the Social Security trust fund grows nearer. Among all adult age groups, 58% reported the possibility of running out of money was their greatest fear.

Survey respondents were less concerned about scams, incapacity, inflation, inept financial advisors and more.

The fear isn’t surprising based on some other information in the survey. Of households headed by someone ages 60 to 65, the median nest egg was only $150,000 for those with incomes of $71,000 to $126,000. For households with higher incomes, the median savings was $535,000.

It also is no surprise that most respondents expected Social Security to be their primary source of income. Even 36% of households with $500,000 to $2 million in investable assets expected Social Security to be their primary source of income.

Several actions are needed to minimize the potential for running out of money in retirement.

Begin Social Security benefits at the optimum time, which rarely is before full retirement age. Have some guaranteed lifetime income in addition to Social Security, such as annuities.

Build a good medical insurance package around Medicare. Develop a plan to finance any long-term care needs. Have a process for determining the amount you can spend from your nest egg each year. Monitor and adjust that process as needed over time.

I give details about all these topics and more in Retirement Watch, the Spotlight Series, and my books.

The Data

The inflation rate is well below its 2022 peak, but it still is far above the Fed’s target.

The Consumer Price Index (CPI) increased 0.1% in May, down from 0.4% in April. Over 12 months, the CPI increased 4% through May, the lowest level since March 2021, compared to 4.9% at the end of April.

After excluding food and energy, the core CPI increased 0.4% in May, the same as in April and March. Over 12 months, the core CPI is up 5.3% as of May, compared to 5.5% through April.

The 12-month core CPI peaked at 6.60% in September 2022.

The Producer Price Index (PPI) fell 0.3% in May following a 0.2% increase in April. Over 12 months, the PPI is up only 1.1% as of May, the lowest level since December 2020, after increasing 2.3% through April.

The core PPI, excluding food and energy, increased 0.2% in May, the same as in April. Over 12 months, the core PPI increased 2.8% through May, the lowest level since February 2021, and 3.2% through April.

Optimism among small business owners increased a little in May, according to the Small Business Optimism Index from the National Federation of Independent Business (NFIB). The index was 89.4 in May, up from 89.0 in April.

The 49-year average for the index is 98, and it has been below that level for 17 months.

The percentage of business owners expecting improved business conditions in the next six months declined a little from April to May.

About 25% of owners said inflation was their primary business concern, and 24% said labor quality was their top issue.

Consumer credit outstanding increased 5.7% in April, the same amount as in March.

Revolving credit, mostly credit cards, increased 13.1% in April and 14.6% in March. Nonrevolving credit, mostly vehicle and student loans, increased 3.2% in April and 2.7% in March.

New unemployment claims increased by 28,000 to 261,000 in the latest week. That’s the highest level since October 2021 and the third consecutive week new claims were higher than the previous week.

Continuing claims, which lag a week behind new claims, decreased to 1.757 million from 1.794 million. That’s the lowest level since mid-February.

The Markets

The S&P 500 rose 2.02% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 1.92%. The Russell 2000 increased 2.24%. The All-Country World Index (excluding U.S. stocks) added 1.57%. Emerging market equities advanced 1.95%.

Long-term treasuries lost 1.16% for the week. Investment-grade bonds fell 0.62%. Treasury Inflation-Protected Securities (TIPS) decreased 0.68%. High-yield bonds gained 0.12%.

In the currency front, the U.S. dollar lost 0.73%.

Energy-based commodities fell 0.46%. Broader-based commodities rose 0.86% but gold declined 0.99%.

Bob’s News & Updates

My latest book is “Retirement Watch: The Essential Guide to Retiring in the 2020s.” Learn more and order by clicking here and here, respectively. You can be among the first to write a review.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.