RETIREMENT REPORT

Your Guide to a Richer Retirement VOLUME 28 | NUMBER 1 | JANUARY 2021 | $5.00

director of state and local research for the Center

for Retirement Research at Boston College.
You’ll have to sort through the morass to know
whether your plan is safe and, if it’s not, decide what,
if anything, you can
do. For more about
that, keep reading.
IN THIS ISSUE
WASHINGTON WATCH
A Disappearing
6 | Entitlements Under Biden
Benefit
Over the past 30 REAL ESTATE
years, far fewer pri- 9 | A Hot New Trend: In-law Suites
vate companies have INVESTING
offered defined ben- 10 | ETFs for Value Investors
efit pension plans,
which guarantee TAXES
their employees a 12 | Splitting Retirement Savings
monthly payment in MANAGING YOUR FINANCES
retirement typically 14 | Retiree Guide to Key Dates
based on salary his- 15 | Information to Act On
tory and number of 16 | Your Questions Answered

Are There Cracks in years worked. These

plans have been CAREER

Your Pension? steadily declining 17 | Business Partnerships

over the past 30 FRAUD
years and replaced 20 | Guard Against Online Theft
LOOK UP DEFINED PENSION PLANS THESE DAYS AND WORDS (if at all) by defined
YOUR HEALTH
you don’t want to see associated with the money contribution plans,
21 | Geropsychology
needed to secure your retirement come up: broke, such as 401(k)s. Ac-
crisis, underfunded. cording to the Fed-
It looks mighty scary, especially as the coronavirus eral Bureau of Labor Statistics, the number of private
JOHN W. TOMAC

keeps raging and the economy remains uncertain. The defined benefit plans fell from around 103,000 in 1975
reality? Most plans are fine, though “a small but signifi- to just under 47,000 in 2017. By 2019, just 16% of pri-
cant number are in trouble,” says Jean-Pierre Aubry, vate workers and 86% of state and local government
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employees had access to the plans.
In 1974, Congress passed one of the most important
laws pertaining to private retirement and health plans,
known as the Employee Retirement Income Security
Act or ERISA. That law established the Pension Bene-
fit Guaranty Corp. The PBGC is basically insurance,
but only for private pension plans. It is largely funded
by premiums collected from defined benefit plan
sponsors. If a company terminates its pension plan,
the PBGC steps in to administer and pay employees,
but only to a point. No federal law covers public pen-
sions of state, county and municipal workers as each
state has the ultimate say there.
Private plans have two broad categories: single-em-
ployer and multiemployer. Single-employer plans are
just what they sound like—a pension plan administered
and paid for by one company. Almost 28 million Ameri-
cans participate in such plans, according to a report by
the Center for Retirement Research. Multiemployer
plans, on the other hand, are negotiated by unions for
employees in the same industry, such as construction
or entertainment, and cover about 10 million Ameri-
cans, the report states.
The Plans in the Best Shape
“Single-employer plans are in good shape,” says John
Kilgour, a professor emeritus in industrial and labor
relations at California State University, East Bay.
Even the pandemic and grim economy aren’t cause
for alarm because “the payments for pension benefits
are made over many years, so any temporary downturn
in overall funding should not impact benefits from a
pension plan that is in otherwise good financial shape,”
states the website of nonprofit consumer advocacy
group the Pension Rights Center.
Some single-employer pension plans are under-
funded, and the money they need to cover current and
future pensions is not readily available. But that does
not mean the pension plan will disappear if a company
goes bankrupt. Federal law requires that promised ben-
efits should be kept separate from an employer’s busi-
ness assets and held in trust, says Norman Stein, a
professor of law at the Kline School of Law at Drexel
University and an adviser to the Pension Rights Center.
By law, companies can’t reduce defined pension
benefits that employees, retired or not, have already
accrued. Companies can, however, change the plan’s
future benefits. In general, such plans “are very se-
cure,” Aubry says. “There has been a series of regula-
tions to make sure they’re essentially fully funded,
even if your employer were to go under.”
If that happens, the PBGC has enough money to
cover any losses. In fact, according to the PBGC’s own
assessment, its funds for the single-employer program
are expected to grow between 2019 and 2029 from $8.7
billion to $46.3 billion.
The benefits are capped, and the maximum monthly
payout in 2021 for a 65-year-old in a single-employer
plan is $6,034. That monthly maximum jumps to
$18,343 for a 75-year-old. “Most employees get most
or all of their benefits,” Stein says.
However, ERISA doesn’t cover—and therefore the
PBGC doesn’t insure—religious organizations, profes-
sional practices (such as lawyers or doctors) with
fewer than 25 employees, and a few select single-em-
ployer plans that affect a limited number of people. To
find out if your company is insured by PBGC, ask your
plan administrator for a “summary plan description,”
which contains that information. You can also search
the PBGC website (pbgc.gov) for all single-employer
company plans, although the list isn’t comprehensive.
Who Is in Trouble
The pension plan crisis often referred to on the news
typically concerns about 130 multiemployer plans—out
of a total of 1,400—that together cover roughly 1 mil-

MANAGING EDITOR EDITOR EMERITUS SUBSCRIBER SERVICES Kiplinger’s Retirement Report

Catherine Siskos
Email: retire@kiplinger.com
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Patricia Mertz Esswein, Ann Marie Maloney,
Katherine Lewis Reynolds, Joy Taylor,
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JANUARY 2021 KIPLINGER’S RETIREMENT REPORT |3


FROM THE EDITOR
No one will miss 2020, a year of upheaval, strife and
uncertainty. In 2021, what most of us want are the
things we didn’t get much of last year: stability, secu-
rity and family. A COVID-19 vaccine promises to restore
some of that. But how else can we expect 2021 to be
more stable, secure and surrounded by loved ones?
The good news: Pensions are more secure than you
think, though some bear watching, as our cover story
reveals. Medicare and Social Security, on the other
hand, need overhauling. Unless Democrats win Geor-
gia’s two runoff U.S. Senate races this month, Presi-
dent-elect Joe Biden will need to work with Republi-
cans to shore up both programs. On page 6, we
consider where both parties might find common
ground.
As for family, a return to multigenerational living,
fueled in part by COVID, is bringing back an old idea:
in-law suites. Check out page 9 for how these tiny
homes help seniors balance privacy and independent
living with family next door.
Catherine Siskos
lion employees. Experts say these union multiem-
ployer plans are in jeopardy for a number of reasons,
including the decline or deregulation of certain indus-
tries, company bankruptcies that have led to a decrease
in plan contributions, and massive declines in union
membership that have left some plans with more reti-
rees than active workers.
Many employers are also forced to pay the benefits
of so-called “orphans,” participants whose employers
left the plans, Aubry says, noting that orphans make
up 30% of the participants in the most troubled plans.
Worse, the PBGC projects that its multiemployer fund
will run out of money by 2026 and expects some 124
plans to be insolvent within 20 years.
One reason the PBGC is better funded to cover
single-employer pensions is that these companies paid
a much higher premium to the agency than multiem-
ployer plans did, Kilgour says. If you are part of a mul-
tiemployer plan and it terminates, the maximum the
4 | KIPLINGER’S RETIREMENT REPORT JANUARY 2021
PBGC will pay out is a far smaller sum than for a
single-employer plan—generally, no more than about
$12,000 annually and often less.
For multiemployer plans, trustees are required to
let people know the status of their plan through a
color-coded mechanism. Broadly, plans in the green
zone are doing okay, those in the yellow zone are en-
dangered and those in the red zone are critical, mean-
ing they have serious and immediate funding problems.
In an effort to address the multiemployer pension
plan crisis, Congress passed the Kline-Miller Multiem-
ployer Pension Reform Act of 2014. It allows trustees
of such plans to apply to the Treasury Department to
reduce benefits—including for those already retired—
to avoid running out of money, although it’s a difficult
and complicated process.
A handful of plans have been granted that reduction,
says David Brenner, national director of multiemployer
consulting for Segal, a company specializing in actuar-
ial services and employee plan benefits. “It’s the lesser
of two evils. If the plan becomes insolvent, then em-
ployees will get the PBGC benefit amount, which
would be significantly less than what they would oth-
erwise get.” The law prohibits cutting benefits for peo-
ple over 80 years old or who are disabled, Stein says.
If your plan is in danger of running out of money,
you must receive a “notice of insolvency” alerting you
about any cuts to your benefits. The Treasury Depart-
ment lists plans that have applied for benefit suspen-
sions and the status of each. Go to home.treasury.gov and
click on “services.” Then under “Kline-Miller Multi-
employer Pension Reform Act,” select “applications.”
The Pension Rights Center offers an online calculator
(pensionrights.org/multiemployer-retiree-cutback-calculator)
to check how much your benefits could conceivably
be cut under the pension reform legislation.
One bright spot: Work is underway in Congress to
address the issue, Stein says. “The important thing is
there have been proposals on both sides of the aisle to
help rescue the failing plans so people don’t experience
deep benefit cuts.”
State Plans Run the Gamut
Public pensions cover people who work for state and
local governments, and these plans are facing a number
of major challenges. The media has been filled with
alarming news about the status of public plans, espe-
cially in states with severely underfunded plans.
There’s no one answer to how safe a public pension
is. Some states, such as Wisconsin, South Dakota and
Tennessee, are well-funded at 80% or above, while oth- government workers’ benefits and was sued; in 2015
ers at the bottom of the list, such as Kentucky, Illinois the U.S. Supreme Court ruled the law unconstitutional.
and New Jersey, are down in the 30s. “States and policymakers have been unable to move the
The Pew Charitable Trusts, in a brief issued this goalposts for retirees and current employees, whether
year, stated that the gap between state retirement as- they are vested or not, because those plans are part of
sets and liabilities is at a historic high, with just seven a contract,” Early says.
states funded at 90% and nine states at less than 60%. In some cases, however, she adds, state legislatures
The brief offers a state-by-state look at assets, liabili- can make other changes, such as to cost-of-living ad-
ties and funded ratio. justments, because they are
Although that doesn’t not included in the initial pen-
sound good, many say the
perception that public pen-
sions are in imminent danger
“
ONE OF THE MOST POWERFUL
sion formula. Plans are likely
to be much less generous for
future employees, she adds.
of collapsing is overblown.
“It varies from locale to lo-
THINGS AN INDIVIDUAL CAN What Can You Do?
cale and state to state,” says DO IS HAVE A COPY OF THE Under federal law all private
Bill Hallmark, a consulting PENSION PLAN RULES. pension plans are required to
actuary for Cheiron, an actu- notify beneficiaries of their
arial consulting company. Jennifer Anders-Gable financial status by mail every
Managing Attorney
“The vast majority of public year. It’s tempting to ignore
plans pose very little risk to these notifications, but don’t.

”
retirees.”
One point he stresses:
“There is nothing magical about being 80% funded.
This is a myth that the actuarial profession has worked copy of the pension plan rules that govern their plans,”
hard to debunk. The pension plan depends on many
factors besides funded status, so you can’t draw a firm
conclusion solely because the plan is 80%, 60% or 30% pension assistance program for those who have lived
funded. Obviously, higher funded ratios are generally
better, but the real concern is whether the sponsors
have the resources to pay for any shortfall over time.”
States, not federal law, regulate all public pensions
for that state, and states cannot declare bankruptcy.
But depending on the state, a municipality can—De-
troit famously did so in 2013.
If you learn, for example, that the state college sys-
tem you have a pension with might be going bankrupt,
it is cause for concern, Hallmark says. Still, with public
entities, “the first place they go to restructure debt is
the bondholders,” he says. “Pensions would not be the
first thing cut.”
The legal protections for public pensions also
vary by state. The National Conference on Public
Employee Retirement Systems offers a summary of
provisions (ncpers.org/Files/News/03152007RetireBenefit
Protections.pdf) in all states.
States have been unsuccessful in reducing pension
benefits for government workers, says Bridget Early,
executive director of the nonprofit National Public
Pension Coalition. Illinois passed a law to scale back
At a minimum, read the sum-
mary, and keep them. “One of
the most powerful things an individual can do is have a
says Jennifer Anders-Gable, a managing attorney for
Legal Services of Northern California, which runs a
or worked in California, Arizona, Nevada and Hawaii.
The notices will tell you among other things:
■ The name of the plan and contact information.
■ Whether the plan is 100% funded or not.
■ The number of participants receiving benefits.
■ The total assets and liabilities of the plan for the
current year and two preceding years.
■ A description of benefits insured by the PBGC
and any limitations on benefits that apply.
Although public pension plans are not required to
provide annual notices, Hallmark says they must dis-
tribute annual financial reports, and it is worth looking
at the executive summary or the report’s highlights.
If you don’t know how to find the report, contact your
human resources department or union if you belong to
one. Just understand, he adds, that if you see the pen-
sion is 60% funded, that does not mean you’ll be get-
ting only 60% of your pension.
Also, keep records. Pension plans are often bought
or sold. Without any records, it can be hard to track
down information about your pension benefits when
you need it. The PBGC booklet “Finding a Lost Pen-

JANUARY 2021 KIPLINGER’S RETIREMENT REPORT |5

sion” (pbgc.gov/Documents/finding-a-lost-pension.pdf) can
help you track down your plan. If you have questions,
PensionHelp America (pensionhelp.org), part of the Pen-
sion Rights Center, will help you find—for free—legal
advisers, counseling services or government agencies if
you should need them.
Although not all plans offer this option, you may be
able to take your pension on a monthly basis or as one
lump sum. Generally speaking, most advisers don’t rec-
ommend taking the one-time payout. The exceptions
might be if you have a terminal illness and need funds
immediately, are very young—say, in your 30s—when
you get the pension, or are very wealthy, Stein says.
If you have zero confidence in your pension plan
and no safety net exists, a lump sum is a possibility,
Anders-Gable says, but the downsides are severe.
“When you take the lump sum, there’s no survivor
benefits,” she says.
Plus, while people may believe they can invest their WASHINGTON WATCH
one-time payout and generate better returns than their
plan does, a Metlife 2017 survey found that 21% of re-
tirement plan participants who took a lump sum de-
A Face-Off Over the
pleted it in 5.5 years, on average.
Ron Guay, 45, a certified financial planner with
Third Rail of Politics
Rivermark Wealth Management in Sunnyvale, Calif., WHEN PRESIDENT - ELECT JOE BIDEN TAKES OFFICE THIS
has had both personal and professional experience month, sooner or later he and Congress will need
with this issue. He left General Electric after 17 years, to confront the third rail of politics—the twin
in 2014, with a pension plan and was offered the option safety nets that Social Security and Medicare provide,
of taking it all rather than as a monthly annuity that both of which have been fraying for some time. Fund-
would begin paying out when he turned 60. “I took ing shortfalls or outright insolvency loom as demand
the lump sum last year,” he says. grows from an aging population. A deadly pandemic
He determined that having the cash in hand to and struggling economy have only accelerated fiscal
invest for 15 years before the monthly benefit would and demographic pressures.
even begin made the buyout very attractive. Investing In 2021, Social Security is expected to begin draw-
with a relatively modest 6% return would allow him, ing down its trust fund to cover benefits instead of tap-
at age 60, to withdraw the same amount of money well ping only the interest. Unless Congress acts, benefits
into old age as his pension would have offered, and the will be cut at least 20% when the trust fund runs out
balance would never go to zero. “I believe I can do bet- of money in 2033—two years sooner than previously
ter than 6%, and I’m comfortable managing the projected—according to the Center for Retirement Re-
money,” he says. “I’m not comfortable scanning my search at Boston College. At that point, the program
newsfeed every morning and hoping GE hasn’t gone will rely entirely on payroll taxes, which currently
bankrupt.” aren’t enough to fully fund Social Security.
This option isn’t for everyone, Guay says, especially Medicare’s situation is more dire. The Congressio-
if you’re uncomfortable managing your own money or nal Budget Office predicts the Hospital Insurance
hiring someone to do it. Ask yourself if you can get a Trust Fund, which pays for traditional Medicare’s Part
5% or 6% annual return on your investment, withdraw A, will run out of money in 2024, two years ahead of
ISTOCKPHOTO.COM

what would have been your monthly pension (or more) schedule. If the Supreme Court overturns the Afford-
and never run out. “There’s a risk in either choice,” he able Care Act, which helped extend Medicare’s fiscal
says. “You have to choose the side that causes you less life, the program will become insolvent almost imme-
anxiety.” K ALINA TUGEND diately, according to the Senior Citizens League. The

6 | KIPLINGER’S RETIREMENT REPORT JANUARY 2021

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court is expected to deliver a ruling in the case later
this year.
Biden has offered specific ideas for expanding and
shoring up both programs. Whether those plans see
the light of day may depend on which party controls
the U.S. Senate after Georgia’s two runoff elections.
The fixes to both programs are not insurmountable.
“It’s really just a matter of political will,” says Alex
Lawson, executive director of Social Security Works.
Temporary and Long-Term Fixes
Biden wants to expand Social Security in two ways. He
would raise benefits for the people most in need: low-
wage workers, surviving spouses of dual-earner cou-
ples, caregivers, government workers and those who
have been collecting Social Security the longest. (The
rationale for that last group? Seniors have higher medi-
cal and long-term care expenses later in life.)
Everyone else’s benefits would remain the same, but
their Social Security cost-of-living adjustments would
increase because Biden supports switching to the Con-
sumer Price Index for the Elderly. The CPI-E is con-
sidered a better measure of inflation for older adults
because it weights senior citizens’ biggest expenses,
such as health care and housing, more heavily. The So-
cial Security Administration estimates that switching
to the CPI-E from the current wage earners index will
raise annual COLAs 0.2 percentage points, on average.
To pay for these changes, Biden wants to increase
Social Security payroll taxes on people earning more
than $400,000 a year, a short-term fix that would also
shore up the program for only another five years, pre-
dicts Melissa M. Favreault in a written analysis for the
Urban-Brookings Tax Policy Center. She is a senior fel-
low in the Income and Benefits Policy Center at the
Urban Institute.
Proposed legislation from Rep. John Larson, a Dem-
ocrat, would secure the program’s funding for 75 years.
Along with the increase on those earning more than
$400,000 that Biden has proposed, the bill calls for
raising the payroll tax for everyone, with employees
and employers each contributing an additional 1.2%, or
roughly 50 cents more per week, estimates Social Secu-
rity in an independent analysis of the bill. The increase
would be phased in between now and 2043.
In a divided Congress, Democrats and Republicans
could find common ground with smaller bills, such as
one to reinflate Social Security benefits for people born
in 1960 or 1961, says Max Richtman, president and
CEO of the National Committee to Preserve Social
8 | KIPLINGER’S RETIREMENT REPORT JANUARY 2021
Security and Medicare. Their benefits will be cut unin-
tentionally by a formula glitch and the 2020 recession.
Priorities and Commitments
The low-hanging fruit for Medicare includes legisla-
tion to reduce the cost of prescription drugs in Medi-
care Part D. A 2019 bipartisan Senate bill would require
insurers to kick in more money, saving seniors an esti-
mated $72 billion in out-of-pocket costs and Medicare
more than $94 billion over 10 years. The bill would also
cap annual drug price increases to the inflation rate.
Biden’s proposal, however, goes further. Besides
limiting annual price increases to inflation, he wants
the government to negotiate drug prices. “Having the
government negotiate the best price for prescription
drugs would provide some big savings to the program
that could be applied toward [fixing] Medicare or im-
proving other benefits,” says Richtman.
The Congressional Budget Office estimates that
Medicare would save $456 billion over 10 years if the
government negotiated drug prices. Expanded Medi-
care benefits could include vision, hearing and dental
coverage under traditional Medicare, all of which were
included in a bill passed by House Democrats in 2019.
And Biden has proposed lowering Medicare’s age of
eligibility from 65 to 60.
Cutting Medicare’s rising costs and improving the
program’s solvency also will require bridging opposing
philosophies. Republicans favor further privatization
through Medicare Advantage plans, shifting the gov-
ernment’s costs to insurers and beneficiaries. Demo-
crats want to reform Medicare Advantage provider
payments and apply the savings toward traditional
Medicare. “Medicare Advantage remains ripe for ad-
dressing overpayment,” says David Lipschutz, associate
director at the Center for Medicare Advocacy.
But new revenue will also be needed, he says. Medi-
care spent $605 billion in 2018, an annual outlay that
without cost-cutting reforms is expected to more than
double to $1.28 trillion by 2029, according to a Kaiser
Family Foundation analysis of Congressional Budget
Office figures.
Where will the money come from? Lipschutz sees
Medicare’s funding as a matter of prioritization and
commitment. “If we have room to increase the deficit
due to tax cuts, is it so bold to say we should prioritize
health coverage without making drastic changes to the
program?” Lipschutz asks. “Treat Medicare like you do
the military,” he says. “The military doesn’t run out of
money.” K CATHERINE SISKOS
 REAL ESTATE
Home Is a Tiny House in the Kids’ Backyard
WHEN CARY CHILDRE, 65, OF ATHENS, GA., CONSIDERED
moving closer to her daughter, Eva Maudlin, of
Decatur, an Atlanta suburb, she realized she
couldn’t afford to buy “much of anything.” So, Eva, 31,
researched building a cottage in her own backyard. In
October, they made a deposit on a Craftsman-style de-
sign by local architect Adam Wall, of ATL ADU Co.,
who will manage the project from permits to comple-
tion. The 429-square-foot home will have one bedroom
and bathroom, a galley kitchen and living area, and a
small, covered porch.
Fueled by an aging population and a scarcity of af-
fordable housing, accessory dwelling units are a hot
new trend in multigenerational living. You may know
them better as in-law suites, garage apartments, car-
riage houses, casitas and granny flats. Freddie Mac says
the share of for-sale listings with an ADU rose 8.6%
year-over-year since 2009.
These homes can be created by finishing a basement
or attic, converting a garage, reconfiguring unused
space, adding on, custom-building a detached unit or
installing a prefab one. Over time, you could rent the
ADU for income; house a parent, child or caregiver;
downsize into it yourself and rent the main house; or
make it an office or guest quarters.
How much you’ll spend varies by city, type and de-
gree of customization, says Kol Peterson, an ADU ad-
vocate and consultant in Portland, Ore. He says he’s
seen the cost range from $20,000 for a basement unit
to more than $400,000 for one built above a garage.
He offers a few rules of thumb wherever you live: The
higher the cost of housing, the higher the cost of con-
struction. Converting existing space is cheaper than
building a detached unit. Because of the fixed costs to
build a detached home of any size, a larger unit will be
only marginally more expensive than a smaller one; he
recommends building up to the largest allowable size.
A prefab ADU is cheaper and quicker to install than
one built on site, but a custom design lets you include
aging-in-place features, such as a step-free entry, wider
doorways and a curbless shower. If you hire a design-
SHUTTERSTOCK.COM
builder, look for an aging-in-place specialist certified
by the National Association of Home Builders.
An ADU should also allow elders privacy, so they
will feel at home, not like a visitor or intruder, says Mi-
chael K. Lenahen, an architect and president of Aurora
Builders, in Jacksonville, Fla. Consider creating a pri-
vate entrance and adding soundproofing to the shared
walls of an in-law suite. Sitting areas indoors and out-
doors will allow you or a parent to enjoy solitude, en-
tertain friends without asking for permission and avoid
feeling confined.
Most homeowners pay for their ADUs with cash,
home equity borrowing or a cash-out refinance. Other
options include a construction loan or renovation
mortgage for purchase or refinance backed by Fannie
Mae or Freddie Mac. The simplest, most expensive op-
tion is an uncollateralized personal loan of up to
$100,000 from online lenders LightStream or SoFi.
When Childre’s cottage is ready, she expects to sell
her home for about $300,000, pay $190,000 for the cot-
tage and stash the rest for future needs. Mother and
daughter look forward to living footsteps away.
Before you invest your nest egg to create an ADU
on a child’s property, consider how you will pay for the
care you will inevitably need someday, says Lisa May-
field, a certified care manager and past president of the
Aging Life Care Association. You can’t sell the ADU to
raise funds, and renting it out after you’ve moved else-
where is unlikely to cover the cost of your care, says
Angela Macey-Cushman, who practices elder law in
Seattle. Plus, if you give a child money to build an ADU
within five years (30 months in California) of applying
for Medicaid, you could be penalized with delayed cov-
erage. K PATRICIA MERTZ ESSWEIN
JANUARY 2021 KIPLINGER’S RETIREMENT REPORT |9
INVESTING
5 Value ETFs Deliver
Bundled Bargains
VALUE STOCKS MIGHT FINALLY HAVE THEIR DAY , AND
that means great things for a host of long-maligned
value exchange-traded funds. Growth has been
running up the score against value for more than a
decade. Now, after a string of underperformance that
dates back to 2007, value might finally be poised to
flip the script.
The post-pandemic economic recovery is looking
better every day, and the progress made developing
COVID-19 vaccines and treatments has the potential
to lift scores of stocks that were driven deep into value
territory last year. “Positive vaccine news is a catalyst
for value stocks,” says Brandes Investment Partners an-
alyst Brent Fredberg. Value stocks have outperformed
growth in every economic recovery since 1929, Fred-
berg adds.
While some investors prefer to pick out individual
value stocks, others looking to reduce their risk may
want to consider value ETFs instead. Exchange-traded
funds allow investors to tap into dozens, even hun-
dreds, of value-priced equities, typically at just a few
dollars in management fees annually.
We only had room to mention five value ETFs here,
but two more, Distillate U.S. Fundamental Stability
& Value (DSTL) and Nuveen ESG Large-Cap Value
(NULV), appear in the online version of this article
at kiplinger.com/krr/value.
Vanguard Value ETF
For a large, low-cost option, a Vanguard ETF is typi-
cally the first place to look. In this case, the VANGUARD
VALUE ETF (VTV, $116.74) is the largest among value ETFs by
about $14 billion in assets, and it’s tied with a few cate-
gory funds as the cheapest, at just 4 basis points (a ba-
sis point is one one-hundredth of a percent).
You get a diversified portfolio of more than 330 U.S.
stocks that are selected based on a variety of value
metrics, including price-to-book, historic price-to-
earnings, forward price-to-earnings, price-to-dividend
and price-to-sales.
VTV has a heavy large-cap tilt. About 85% of the
fund’s assets invest in large companies such as top
holdings Berkshire Hathaway, Johnson & Johnson, and
Procter & Gamble. The rest of the holdings are sprin-
10 | KIPLINGER’S RETIREMENT REPORT JANUARY 2021
kled among larger mid-cap stocks. At 20% of assets,
health care, which often straddles the line between
value and growth, is the largest sector represented. But
most of the other top sectors are more orthodox value-
oriented industries: financials (18%), industrials (12%)
and consumer staples (12%).
VTV is inexpensive and straightforward, making
it a high-quality core holding for value investors.
Fidelity Value Factor ETF
Another bundle of value stocks with a different
makeup and a different methodolgy is FIDELITY VALUE
FACTOR ETF (FVAL, $39.58).
FVAL is based on the Fidelity U.S. Value Factor
Index, which uses four metrics equally to determine
attractively valued companies: free cash flow yield;
enterprise value-to-earnings before interest, taxes,
depreciation and amortization; price-to-tangible book
value; and forward price-to-earnings. In the case of
banks, a 50-50 blend of price/tangible book and for-
ward P/E is used.
The portfolio itself is a little more spread out across
company size—74% of assets are invested in large caps,
versus 16% in mid-caps and 7% in small caps.
Perhaps more striking is the heaviest weight in the
portfolio: information technology (27.1%), which is tra-
ditionally considered a growth sector. Top holdings—
including Apple, Microsoft, Amazon and Alphabet—
look like what you’d typically see atop a blended
large-cap fund.
There’s a good lesson here: Some funds determine
value differently, so it pays to check under the hood.
That’s not to say that FVAL’s way of gauging value is
any better or worse than VTV or the rest of the value
ETFs on this list, just that you should always know
what you’re getting.
To Fidelity Value Factor’s credit, this methodology
has worked out for the young fund, which came to life
in September 2016. Its three-year average annual re-
turn of 9.2% puts it in the 90th percentile of its cate-
gory for exchange-traded funds.
iShares Russell Mid-Cap Value
Some investors might prefer a more concentrated port-
folio of mid-caps. And why not? Mid-cap stocks are
often considered a “Goldilocks” investment—they typi-
cally have greater resources and access to capital than
small caps, but they frequently boast better growth po-
tential than larger firms.
For that, we’re going to look to another popular
source of low-cost core products: iShares.
The ISHARES RUSSELL MID-CAP VALUE (IWS, $94.21) is a
wide collection of nearly 700 U.S. mid-cap stocks that
feature lower price-to-book metrics than their peers.
The fund also boasts a lower P/E ratio and a higher
dividend yield than the category average, even though
those metrics aren’t part of IWS’s value methodology.
The sector breakdown here is a bit different than
the other funds we’ve looked at so far. While industri-
als (17%) and financials (15%) aren’t much of a surprise
as far as weightings go, you do get much more expo-
sure to consumer discretionary (12%) and real estate
(10%) than you would in many large-cap value ETFs.
Top holdings currently include the likes of utility
stock Xcel Energy, global engines maker Cummins,
and paints and coatings specialist PPG Industries.
SPDR S&P 600 Small Cap Value ETF
While small-cap stocks are typically renowned for
their growth potential, some experts believe that
there’s room for a value component when investing
in small companies.
Of course, like value broadly, small-cap value has
struggled in recent years. But several signals—includ-
ing wide spreads between the yields of small-cap value
and the S&P 500—have indicated that more diminutive
small caps might be ready to bounce back.
Here, we’ll tap State Street’s SPDR line of ETFs. The
SPDR S&P 600 SMALL CAP VALUE ETF (SLYV, $62.72) is a simple
slice-and-dice of the S&P Small Cap 600 Index, which
includes U.S. companies typically between $600 mil-
lion and $2.4 billion in market value. SLYV looks for
stocks that have attractive valuations based on price-
How They Stack Up
These five value ETFs offer a range of size, yield and
cost.
TICKER ASSETS UNDER
DIVIDEND YIELD
MANAGEMENT
VTV $59.3 billion 3.1%
FVAL 246.4 million 2.0
IWS 11.5 billion 2.4
SLYV 2.6 billion 1.9
IQDE 66.2 million 3.9
Source: ETF.com and Yahoo Finance. Data as of 12/1/2020
to-book, price-to-sales and P/E.
At the moment, most of the S&P 600 qualifies. SLYV
holds some 450 stocks with an average P/E of about 15.
You’re deeply invested in financials here, at 23% of the
portfolio, with significant slugs in consumer discretion-
ary (16%) and industrials (16%), as well as a double-
digit weight in health care (10%).
SLYV holdings tend to fall under the radar com-
pared to those in the other value ETFs profiled here.
You might not know top holding Capri Holdings,
though you’re probably familiar with its Versace,
Jimmy Choo and Michael Kors brands. Top holdings
also include firms such as fluids and lubricants pro-
vider Quaker Chemical and prepaid debit card firm
Green Dot.
FlexShares Intl Quality Dividend Defensive ETF
The overarching connection among the other best
value ETFs on this list has been their focus on domestic
equities. But international diversification is important,
and you can achieve that with a value tilt via the FLEX-
SHARES INTERNATIONAL QUALITY DIVIDEND DEFENSIVE ETF
(IQDE, $21.95).
Although the IQDE isn’t a value ETF in ideology,
Morningstar categorizes it within Foreign Large Value,
and its methodology typically results in a value-focused
portfolio. At the moment, about half of assets are in-
vested in value stocks, with another 35% in “core” and
15% in growth.
IQDE takes a group of international dividend payers
and scores them based on management efficiency, prof-
itability and cash flow, then further filters for dividend
quality. It then applies various diversification controls
so no single stock, industry group, sector, country, re-
gion or other factors are over-represented.
That doesn’t mean IQDE is a perfectly balanced
fund. Countries such as Japan (13%) and the U.K. (11%)
have more sway than, say, Germany (3.3%) and Spain
(3.2%). Financials are the top weight at 18%, followed
EXPENSES by consumer discretionary (12%) and consumer staples
(10%). You also get diversification by size: Large caps
0.04% are about 60% of the portfolio, with another 30% in
mid-caps and the rest in small caps or cash.
0.29
If you’re looking for a more traditional foreign value
0.24 fund, you could always look at the likes of iShares
MSCI EAFE Value ETF (EFV) or Fidelity International
0.15
Value Factor ETF (FIVA). But if you’re not as con-
0.47 cerned with purity, IQDE offers ample value
exposure while also providing defense and dividends.
K KYLE WOODLEY
JANUARY 2021 KIPLINGER’S RETIREMENT REPORT | 11
TAXES
Beware of Retirement Account Breakups
DIVORCE CAN LOOK A BIT DIFFERENT FOR OLDER COUPLES.
They generally don’t need to worry about child
support or custody of young children. But splitting
the retirement assets they jointly own and those that
each spouse owns separately are another matter.
Along with the marital home, retirement accounts
are often an older couple’s largest asset in a divorce
proceeding. When both spouses have retirement ac-
counts, the combined balances should be considered
along with all other assets, says Laura Medigovich,
certified financial planner and senior financial planner
at Janney Montgomery Scott LLC in Purchase, N.Y.
The rules for splitting retirement assets differ de-
pending on the type of account—IRA, 401(k) or a pen-
sion—and can be complicated. And transferring retire-
ment funds to a former spouse can have unintended
tax consequences if done incorrectly, so the stakes are
high for getting it right. For one thing, you need a qual-
ified domestic relations order (QDRO) to transfer a
401(k) account or pension rights in a divorce, but few
divorcing couples may know this. The order, which is
issued by a court or state agency, recognizes a divorc-
ing spouse’s right to receive all or a portion of the ac-
count owner’s defined contribution plan or pension.
There are two ways to divide plan assets using a
QDRO. The first awards a separate interest in the ac-
count balance. The second allows a divorcing spouse to
share in the payment of the benefits. Once both parties
agree to the terms, the account owner gives the docu-
ment to the plan administrator. Because drafting a
QDRO can be expensive, Medigovich recommends that
you have your divorce attorney ask the plan adminis-
trator to provide model QDRO language.
“Compared to splitting a pension, a 401(k) is a far
easier asset to split,” Medigovich says. That’s because
you know the account value. If one spouse has a 401(k)
worth $200,000, the divorcing couple could agree in
the QDRO to split the account equally. In that case,
$100,000 of the 401(k) balance can be transferred di-
rectly to the other spouse’s IRA without incurring any
federal income taxes or penalties. That changes, how-
ever, if the spouse receiving the money pockets the
$100,000 instead of having it transferred to an IRA.
Then he or she will owe income tax on the money, but
there’s no 10% penalty for early distributions, even if
12 | KIPLINGER’S RETIREMENT REPORT JANUARY 2021
the spouse taking the cash isn’t yet 59½. If the
$100,000 is transferred to the spouse’s IRA and that
person takes an early withdrawal, then the money is
subject to both income tax and the 10% penalty.
Pensions are even more complicated to divvy up.
Not only does each employer have different rules for
how or whether a pension can be split, but you’ll also
have to hire an actuary to calculate the present value
of the future benefits. It’s easier to split a pension
when the pensioner spouse has already started receiv-
ing benefits. Then you could use a QDRO to split the
payments by either a dollar or percentage amount.
QDROs don’t apply to IRAs. To divide an IRA be-
tween spouses, the terms must be specified in the di-
vorce or legal separation agreement, which the account
owner gives to the IRA sponsor. For the money to be
split free of taxes and penalties, the agreement should
specify that a percentage or dollar amount of the ac-
count owner’s IRA balance should go to a spouse’s IRA
in a direct trustee-to-trustee transfer. If the receiving
spouse takes cash out in the transfer, he or she will owe
taxes on that withdrawal and, if younger than 59½, a
10% penalty, too. Similarly, an account owner who
takes a distribution from the IRA to give to a spouse in
a divorce will be taxed on the payout (and owe a 10%
ISTOCKPHOTO.COM
penalty if under age 59½).
If possible, use a Roth IRA for a spouse who wants
cash. A Roth is more tax efficient because withdrawals
are generally tax-free. K JOY TAYLOR
 TECHNOLOGY SIMPLIFIED – BIGGER AND BETTER
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MANAGING YOUR FINANCES
A Retiree’s Guide to
Key Dates in 2021
PLANNING IS EVERYTHING . FINANCIAL STRATEGIES CAN
take years to put in motion and even longer to bear
fruit. The last thing you want is to sabotage your-
self by missing an important financial deadline, like
any one of these dates in 2021. Use this guide as a
checklist and reminder of what you will need to do.
JAN. 1 A new year is your cue to take stock of your
retirement savings. Employees over 50 can contribute
up to $26,000 ($19,500 for younger workers) to an em-
ployer’s saving plan in 2021, the same amount as last
year. Also unchanged are the annual maximums that
you can squirrel away in a traditional or Roth IRA:
$7,000 for those age 50 and older ($6,000 for everyone
else). You’ll need earned income to contribute to an
IRA, and the contribution amounts cannot exceed your
earnings, though the age limit is gone. Beginning in
2020, people 70½ and older who are still employed
can continue socking away money into an IRA.
Medicare’s general enrollment period, which runs
until March 31, begins today, with coverage starting
July 1. During this period, those who missed signing up
for Medicare at age 65 and don’t qualify for a “special
enrollment period” can enroll in parts A and B, and
Medicare Advantage beneficiaries can switch to a
different Advantage plan or to traditional Medicare.
JAN. 15 Fourth quarter estimated taxes are due,
or skip this deadline by filing
your 2020 taxes and paying the
remaining balance by Jan. 31.
MAR. 31 General enrollment
for traditional Medicare and
open enrollment for Medicare
Advantage end.
APR. 1 The waiver of 2020
required minimum distribu-
tions makes this April 1 dead-
line for taking the first RMD
moot. Plus, if you turned 70
on July 1, 2019, or later, you
now have until age 72, not
70½, to start taking with-
drawals from tax-deferred
retirement saving accounts,
14 | KIPLINGER’S RETIREMENT REPORT JANUARY 2021
with a deadline of April 1, 2022, for the first RMD.
APR. 15 Your 2020 federal taxes are due, along with
any money owed, even if you file for a six-month exten-
sion. This is also your last chance to make 2020 contri-
butions to an IRA. Plus, your first estimated tax pay-
ment for 2021 is due.
JUNE 15 Second quarter estimated taxes are due.
JULY 1 Avoid penalties for any underpayment of
2021 estimated taxes with a midyear review. One way
to dodge the penalties: Pay at least 90% of the current-
year tax tab or 100% of the prior-year tax tab (110% if
you have a high income). Consider other moves to trim
your 2021 tax bill.
SEPT. 15 Your third estimated tax payment for 2021
is due. If you’ve fallen behind on payments or just want
a simpler way to pay, withholding the tax from your
RMD at any point in 2021—even the last day of Decem-
ber—is treated as if you had paid federal taxes steadily
throughout the year.
SEPT. 30 By this date, you should have Medicare’s
annual notice of changes to formularies, benefits and
premiums for either a Medicare Advantage or Part D
prescription drug plan. Changes take effect in 2022.
OCT. 15 For all you extension filers, this is the dead-
line to turn in your 2020 tax return. Also, Medicare
open enrollment begins today. You have from now to
Dec. 7 to switch between traditional Medicare and
Medicare Advantage, or choose new Advantage and
Part D plans, with coverage effective in 2022.
NOV. 1 Starting today, early retirees in most states
have until Dec. 15 to buy health insurance for 2022 on
the Affordable Care Act’s exchanges.
DEC. 1 If you plan to make a qualified charitable
distribution from your IRA, act now to ensure that the
charity receives the money in time. Traditional IRA
owners 70½ or older can transfer
up to $100,000 directly to
charity in 2021 with a QCD.
DEC. 7 Medicare’s open
enrollment ends.
DEC. 15 The ACA’s open
enrollment ends. If you
haven’t already done so,
take your 2021 RMD now.
DEC. 31 By year-end,
your RMD must be out
ISTOCKPHOTO.COM
of your IRA and any
QCDs should be in
the charity’s account.
K CATHERINE SISKOS
Information to Act On
Taxes Instead, the FTC alleges the company took weeks, even months,
■ New life expectancy tables for RMDs. Beginning in 2022, to transfer the funds, with some users never receiving their
required minimum distributions will be based on life expectancies money. Deposits at most fintech companies aren’t federally
that are about one to two years longer than the existing tables insured. Before using a mobile app, visit the company’s website
used to calculate RMDs. With distributions spread over more to be sure that the app is legit, and unless the fintech is also a
years, IRA owners will be able to withdraw smaller annual federally insured bank, keep deposits to a minimum.
amounts and keep more money in the account longer. For
example, a 72-year-old IRA owner now uses a distribution period Travel
of 25.6 years to calculate RMDs. Under the new tables, that same ■ Get your coronavirus passport ready. When a COVID-19
72-year-old has 27.4 years. vaccine becomes available, international travelers will most likely
need proof of vaccination to travel. The International Air Trans-
Washington Watch port Association has proposed an IATA travel pass, a digital
■ A bipartisan bill for bolstering retirement savings. A health passport that a passenger can create by downloading an
new bill in the House with bipartisan support would enable older app onto a smartphone. The passport would contain vaccination
adults to save more for retirement. The new bill would increase and testing certificates from authorized labs and test centers
the age for required minimum distributions from 72 to 75 and in- showing that the passenger is clear to travel and meets the re-
troduce more generous catch-up contributions for people 60 and quirements of the country to be visited. Australian airline Qantas
older. Currently, those contributions are the same for everyone 50 has already announced it will require passengers to show proof of
and older, who can put in an extra $6,500 into a 401(k) or an ad- vaccination before boarding an international flight.
ditional $3,000 into a SIMPLE IRA. The bill proposes that people
60 and older be allowed to contribute even more each year, rais- Medicare
ing the catch-up amounts for this age cohort to $10,000 in a ■ Income limits for surcharges rise. The basic Medicare Part B
401(k) and $5,000 in a SIMPLE. There’s even a little something premium this year is $148.50, but some seniors pay more based
for savers in their 50s, as the bill would index to inflation the on their modified adjusted gross income from two years before. In
$1,000 catch-up amount for them. 2021 Medicare surcharges kick in when 2019 modified AGI exceeds
Qualified charitable distributions would also be ex- $176,000 for joint filers or $88,000 for single people, up from
panded. The same House bill would allow QCDs to be made $174,000 and $87,000 in 2020. A separate surcharge is also
from a 401(k) and increase the annual amounts to $130,000. applied to Medicare Part D. See the table below for details.
Under current law, people 70½ and
older can transfer up to $100,000 from
traditional IRAs to charity each year. Al- WILL YOU BE HIT BY A MEDICARE SURCHARGE THIS YEAR?
though QCDs count as required mini- The premiums and surcharges that apply in 2021 are determined by your 2019
mum distributions, they are not taxable income.
or added to adjusted gross income.
MONTHLY MONTHLY
MARRIED PART B PART D
SINGLE FILERS JOINT FILERS AND FILING PREMIUM SURCHARGE
Banking SEPARATELY IN 2021 IN 2021
■ Mobile banking apps under
$88,000 OR LESS $176,000 OR LESS $88,000 OR LESS $148.50 $0
scrutiny. As more financial technology
companies offer mobile banking apps 88,001 TO $111,000 176,001 TO $222,000 NOT APPLICABLE 207.90 12.30
or other financial services, the Federal
111,001 TO $138,000 222,001 TO $276,000 NOT APPLICABLE 297.00 31.80
Trade Commission is cracking down on
apps that don’t deliver. One fintech 138,001 TO $165,000 276,001 TO $330,000 NOT APPLICABLE 386.10 51.20
company Beam Financial Inc. is being
165,001 TO $499,999 330,001 TO $749,999 88,001 TO $411,999 475.20 70.77
sued by the FTC over its Beam app,
which promised users that transfers 500,000 OR ABOVE 750,000 AND ABOVE 412,000 AND ABOVE 504.9 77.10
out of their accounts would be received
Source: Medicare.gov
within three to five business days.

JANUARY 2021 KIPLINGER’S RETIREMENT REPORT | 15

FROM THE MAILBOX
Your Questions Answered
A Messy Mix of Beneficiaries
A
If a charity is among my IRA ben-
eficiaries, does that mean that
Q all my IRA beneficiaries must
follow the five-year rule or just
the charity? If so, I will remove
the charity from my beneficiary
list because that could make things difficult and confus-
ing for my children, who are the other beneficiaries.
You’re right to be concerned. The rules differ for a
designated beneficiary, which is a human being with
a life expectancy, and a nondesignated beneficiary,
which is an entity that can live forever. A nondesig-
nated beneficiary, like a charity, must withdraw every-
thing from the IRA within five years. Unless the char-
ity takes its money by Sept. 30 of the year following the
owner’s death, your designated beneficiaries would be
subject to that same five-year rule, says Bob Foland a
certified financial planner with The IRA Specialists in
Centennial, Colo.
“The safer thing to do would be to take the money
you want to leave to charity and segregate it in another
IRA,” with only the charity named as beneficiary, Fo-
land says. “Then on the other account, we’ll name your
children.” Now they have 10 years to withdraw the
money instead of five. “If the charity’s IRA grows to a
number larger than you feel comfortable giving, you
can always roll the money over to the kids’ IRA.”
Too Smart for Your Own Good
I read recently that you can disclaim an IRA and that if
no other beneficiaries are named, the money often goes
to the deceased’s estate. I am the sole beneficiary of my
spouse’s IRA and her will. Could I avoid inheriting the IRA
and the associated taxes on the withdrawals by disclaim-
ing it and then receiving the funds via probate tax-free?
Nice try, says Foland, who gives you high marks for
creativity. But it probably won’t work. “Generally
speaking, you can’t disclaim when the act of disclaim-
ing would benefit you,” Foland says. Sometimes, there
are exceptions made for a disclaiming spouse who ben-
efits, but even if you are able to disclaim the IRA and
the estate becomes the beneficiary, now you’ve mud-
died the waters with nondesignated beneficiary rules,
says Foland. Before you do anything, he says, “I would
have an attorney involved in this discussion.”
16 | KIPLINGER’S RETIREMENT REPORT JANUARY 2021
No Delay for These Delayed Retirement Credits
I plan to start taking my Social Security in January 2021,
10 months after my full retirement age. Will the benefits
I accrued by delaying Social Security be accounted for
beginning in 2021 or will I have to wait until next year to
get the increased benefit?
By starting your benefits in January, you timed it
perfectly with your delayed retirement credits. “Social
Security wants to make one adjustment for DRCs at the
close of the year,” says Social Security expert Kurt
Czarnowski of Czarnowski Consulting, a retirement
planning firm in Norfolk, Mass., in an email. That
means your initial payment should include the 10
months of credits you earned in 2020, he says. If you
had started claiming benefits mid-year—in, say, June
2021—you would have received credits for 2020 but not
for January through May of this year. For those five
months to be reflected in your benefits, you would have
had to wait until January 2022, after Social Security
had recalibrated them in December.
Help for High-Priced Medications
After enrolling in Medicare at age 65, what can someone
who takes a specialty drug costing more than $100,000
annually do to mitigate cost? There is no cheaper option
available.
First, see if any Medicare Part D insurer includes the
drug in the formulary, says Shikita Nunnery, a licensed
Medicare agent and program manager with Medicare
insurance broker GoHealth in Chicago. But you’ll still
pay a lot of money. Even in Medicare’s catastrophic
phase, which you’ll enter once out-of-pocket costs hit
$6,550, you’ll still pick up 5% of the tab.
There are places you can turn to for help. Many
states offer pharmaceutical assistance programs to
help seniors cover out-of-pocket costs. Although the
programs are need-based, the income limits are some-
times higher than you might expect. In New York, for
example, single seniors earning up to $75,000 or mar-
ried couples with up to $100,000 are eligible. You
should also see if the pharmaceutical company offers
any assistance, says Nunnery. “The drug manufacturer
may have a program you could be eligible for.” K
DO YOU HAVE A RETIREMENT-PLANNING QUESTION?
EMAIL IT TO RETIRE@KIPLINGER.COM.
 CAREER
Do’s and Don’ts of
Business Partnerships
WHEN FIRST COUSINS PETER GUIDI, 60, AND JJ MOKARZEL,
62, decided to launch a bourbon company, Joe
Louis Spirits, in Old Orchard Beach, Maine, they
each drew from experiences with prior partnerships to
structure their business. Both men knew they needed
to be equally committed to the venture’s success but
bring complementary skills to the table.
Despite being 50-50 partners, they agreed that Mo-
karzel would have the final say on any split decisions.
“A ship can only have one captain,” says Guidi. “It’s a
waste of time and effort if all you’re going to do is
struggle for control,” he says.
How to resolve an impasse is just one of many deci-
sions you’ll want to agree on before establishing a busi-
ness partnership. You should also discuss financing,
business structure and location, other contributors,
insurance and tax implications, valuing the company,
and the possibility that one partner might want to step
away from the business in the future. “It’s easier to get
married than to get divorced,” says David Levi, senior
managing director for CBIZ MHM, a national account-
ing and professional services firm. “Spelling stuff out
upfront is just huge.”
That said, it’s impossible to predict everything that
might come up, and hard to envision the scope and fu-
ture of the business when you’re just at the starting
gate. Although you will want to touch on all the key is-
sues, don’t lock yourself into rigid policies or negotiate
so fiercely that you kill a promising business venture
before it launches. It’s a shame when people “try to ne-
gotiate too sharp a deal or too comprehensive a deal.
There needs to be some trust and ambiguity,” says John
Emory Jr., president of Emory & Co., a business valua-
tion and investment banking firm in Milwaukee, Wis.
Plan for the Unexpected
Before launching a partnership, talk through your vi-
sion of the business, risk tolerance, timeline and what
may need to evolve as the business grows. “It’s good to
be aligned,” Emory says. “When they bring in someone
ISTOCKPHOTO.COM
like me, it’s often because one person wants to retire in
the next couple years and the other wants to work for
another 10 years.”
Conflicts often arise from feelings of unequal contri-
bution and defensiveness about underperformance,
says Ray Parsons, 59, chief executive of Transcepta, a
procurement and accounts payable platform that he
co-founded with three partners. “Feelings of unequal
contribution are perhaps the toughest problem to face
because they involve a lot of ego for all parties,” Par-
sons says.
That’s one reason partners should understand and
mentally prepare for the division of labor and goals to
shift over time. “These are living, breathing docu-
ments,” says Levi, who advises partners to have an
open discussion as things change and restructure
compensation if needed. He’s seen situations where
one operating partner does most of the work but
there’s no mechanism for buying the other partner out.
For example, if one partner has a health or personal
issue that requires stepping back from the business for
a year, the other partner should be compensated for
pulling the extra load temporarily. “For that period
while that difference exists, it’s got to be acknowl-
edged,” Levi says.
Similarly, if one partner is much older and aims to
retire sooner, the priority should be steering existing
clients toward the younger partner to smooth the tran-
sition instead of drumming up new business.
Raising Capital
Entrepreneurs often underestimate the capital needed
for success, experts say. About 20% of new businesses
fail during the first two years. Partners should agree on
sources of financing and strategies for raising money in
the future.
JANUARY 2021 KIPLINGER’S RETIREMENT REPORT | 17
 “I would really discourage going to the retirement
funds, especially pre-age 59½ because you have a 10%
penalty for premature distributions,” Levi says. “What
people most often do is pound credit cards, because it’s
the easiest thing to do, or home equity lines.”
Decide from now how you’ll finance the business.
Do you both need to agree on taking out a business
loan over a certain amount? If one partner has more
liquid personal assets, is that person willing to lend to
the business, and if so, on what terms would the loan
be repaid?
“If you have banking or investment relationships,
talk to those bankers about getting financing for the
business,” Levi suggests. For businesses with substan-
tial physical assets, a good option might be lease fi-
nancing, in which a lender owns the assets but the
partnership buys the rights to use them through
ongoing lease payments. Or if your customers owe
the business a large amount, you could sell those future
accounts receivables to a factoring company that ad-
vances you a smaller amount of money now. “It’s kind
of like a revolving credit line,” he says.
Business 101
Of course, partners must also agree on the foundation
of the business. Discuss questions like: Where should
you incorporate and be headquartered? What business
structure is best? How much insurance should we buy?
“Errors and omission insurance, liability, and prop-
erty and casualty insurance are a must. Sometimes key
person life insurance is important,” to account for the
death or disability of one of the partners, Levi says.
Many startups, though, may not be able to afford all
these policies initially, so check your personal umbrella
policy to see if it covers errors and omissions in your
business. Make a plan to acquire coverage in the future,
if you don’t have the budget now.
Investigate the differences among an LLC, S corpo-
ration and C corporation to decide which structure is
best for you. An LLC generally offers the most flexibil-
ity, but profits are subject to self-employment tax (both
sides of Medicare and Social Security taxes) if you also
manage the company. If you anticipate reinvesting a
significant amount of profits in the business, an S-corp
provides the option of putting owners on a reasonable
salary, so that profit isn’t subject to payroll taxes.
A C-corp functions as its own taxpayer. That means
the owners don’t have to file tax returns in each state
where the business operates, and the corporation may
enjoy a lower tax rate. A C-corp, however, has the po-
18 | KIPLINGER’S RETIREMENT REPORT JANUARY 2021
tential for double taxation when you do want to take
out profits. Ask legal and tax experts which is best for
your situation. “Don’t skimp on your organizing docu-
ments and don’t skimp on advice,” Levi says.
Another potentially thorny area is whether to allow
the partners’ children to work in the business, which
could have the unintended consequences of tilting the
company’s center of gravity toward the partner with
more kids. You don’t want to accidentally become a
family business.
And don’t forget to discuss whether the business
will offer a retirement plan. Although each partner
may have different needs for sheltering income from
tax, the business must treat both partners the same.
The Buck Stops Here
All the advance planning in the world won’t prevent
conflict so decide early on how you will handle dis-
agreements and avoid stalemates. Will one partner
ultimately get the final say? “Many lawyers advise their
clients never to enter a 50-50 partnership” because
of a deadlock if the two partners disagree, Emory says.
Nevertheless, “I’ve seen lots of 50-50 companies work
very well.”
You might decide that one equal partner always
breaks the tie, as Guidi and Mokarzel do. Or perhaps
you divide up areas of expertise so that each person
has the final say in their wheelhouse, with any major
financial decisions made together.
In a service business, some partnerships are struc-
tured more like an office share, where expenses are
shared equally but profits are divided based on the
business each person brings in and manages. “If I’m
billing 40 hours a week and you’re billing 20 hours
a week, we’re going to contribute to the common
expenses, but at the end of the day I don’t expect to
support your lack of productivity,” Levi says.
Often, it helps to separate whether an idea is a good
one from how resources will be allocated to make it
happen. Parsons discovered this when his company’s
operations and engineering leaders were split on
whether to provide more automation for a possible
new line of service. “It became clear that each was
really concerned with the impact on their already
fully committed teams,” he recalls. Once each leader
acknowledged that the initiative would be good for
the company, they could then address the division
of labor. In the end, both divisions chipped in, and the
company added resources to fill the gap. K KATHERINE
REYNOLDS LEWIS
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FRAUD
Protect Yourself From
Thieves Online
WHETHER IT ’S FAKE ONLINE SHOPPING SITES , IDENTITY
theft or scam artists using phone or email, fraud
is on the rise, with a record 1.3 million cases in the
first nine months of 2020, according to the Federal
Trade Commission.
Although anyone can become a victim, FTC data
show that consumers age 80 and older are far more
likely to be scammed by phone and lose the most
money, a median of $1,250. “Even if you do everything
perfectly, you can still be susceptible to fraud,” says
Shameka Walker, a fraud and identity theft program
manager for the FTC.
By now, you probably know not to give out sensitive
information to anyone contacting you and that credit
cards offer more protection against fraud than debit
cards. With a credit card, the most you’ll be responsible
for is $50. Debit cards, on the other hand, could leave
you paying for all of a thief’s spending spree if you
don’t report it within 60 days of the statement date.
But there’s a lot more to guarding against fraud than
knowing which card to use. In fact, it’s the things you
may not know that could cost you the most money.
Even the savviest consumers can be defrauded. Fraud-
sters don’t just target the gullible. “I see victims from
all walks of life and all professions,” says Alisa Bralove-
Scherr, deputy director of mediation in the Maryland
Attorney General’s Consumer Protection Division.
In fact, the biggest mistake people make is to think
they’re immune, says Bryan Roslund, assistant state’s
attorney for Montgomery County, Md. Thieves keep
20 | KIPLINGER’S RETIREMENT REPORT JANUARY 2021
honing their craft, using whatever they can to take over
your bank or retirement account. “This is where they
excel,” he says, by finding new ways to take advantage
of you.
For example, Roslund says, if you challenge a caller
who warns that you have not shown up for jury duty, a
scammer knows how to shift tactics immediately—usu-
ally by admitting you’re right and that they were work-
ing from the “wrong list.”
Sophisticated criminals even monitor emails to
intercept lucrative transactions. Roslund had a case
where a financial agent lost $30,000 when he wired
money to a Florida restaurant because someone made
a tiny change to the recipient’s email address.
Online shopping is how identity thieves often find you.
According to the FTC, you’re more likely to suffer
fraud through online purchases, and COVID-19 has
only encouraged this equal opportunity crime to flour-
ish as more Americans turn to websites for socially dis-
tant shopping. A 2020 Pitney Bowes survey found that
45% of shoppers bought more than half of their goods
online, three times the pre-pandemic level.
Scammers capture buyers—especially those looking
for deals or hard-to-find products—with convincing
emails and websites that appear to be from a known
company. In November 2020, the FTC filed a com-
plaint against the operators of 25 websites claiming to
be Lysol or Clorox with high-demand products for sale.
Consumers should scrutinize URLs for subtle mis-
spellings or punctuation at the end, which can be signs
of a bogus company website. A site with an “https” ad-
dress is more secure but not necessarily legitimate.
With emails, check for irregularities by hovering your
mouse over a sender’s address before opening a mes-
sage that appears to be from a known source.
A credit freeze is not the same as a credit lock. Freezing
your credit deters someone from obtaining a loan,
phone or credit card in your name. A freeze restricts
access to your credit report, which most institutions
require before approving a new account. You will need
to contact all three credit bureaus (Equifax, Trans-
Union and Experian) to get a PIN or password. “It took
me about 15 minutes to do,” says John Buzzard, a finan-
cial fraud and security expert with Javelin Strategy &
Research during a recent AARP webcast.
You will need to lift the freeze when applying for
ISTOCKPHOTO.COM
loans or credit. Under federal law, if you request a lift
online or by phone, a credit bureau must do so free of
charge and within one hour, but you may want to allow
more time, particularly if you can’t find the PIN.

A credit lock offers similar protections, except that
you don’t get a PIN and you can lift the lock yourself.
But the convenience comes at a price: Locks don’t have
the backing of federal law that freezes do, leaving you
vulnerable if something goes wrong. Plus, one of the
bureaus charges for the lock (you need all three for it
to be effective).
You can also lock credit cards you rarely use so that
they can’t be used to make purchases. Card issuers will
do this for free, or you may be able to using a mobile
app. Unlocking is simple and immediate.
Credit monitoring services don’t prevent identity theft.
Although these services alert you to an identity threat
and help with recovery, your identity can still be stolen.
“You can do all the things [the services] do” for free,
says the FTC’s Walker. Plus, thanks to last year’s stimu-
lus package, the three credit bureaus are offering con-
sumers free weekly credit reports until April 20, 2021.
Paying with an app offers the most safety. Mitchal
Smith, owner of credit processing company Pro-
metheyan Theory in Raleigh, N.C., recommends using
an app such as Google Pay or Apple Pay instead of car-
rying a card that can be stolen or scanned.
The apps are simple to install, though you will need
your bank’s approval to link your account to your
smartphone. To pay, you tap your phone at a payment
terminal. The apps are safer because you don’t give the
merchant your credit card number. Instead, Google or
Apple assigns a different virtual account number for
every transaction you make. K ANN MARIE MALONEY
If You Suspect Foul Play
Embarrassment prevents some consumers, particu-
larly seniors, from reporting fraud. But time is money
so be quick to report the following:
n Fraudulent charge on a credit card – contact the
issuer immediately.
n Difficulty logging into a financial account (you may
get a message it is locked) – contact the institution.
n An unsolicited text or email claiming to be from
“tech support” warning that you have a virus or other
urgent problem – delete it and report it.
In all cases, report the incident to the FTC
(identitytheft.gov/steps). For additional guidance
or help, contact the AARP’s Fraud Watch hotline
(877-908-3360).
YOUR HEALTH
When Mental Health
and Aging Collide
PAT WALKER WAS FEELING PARTICULARLY LOW . A
sister had just died, and after a huge fight with
her daughter, she couldn’t get out of bed. For this
active, engaged 74-year-old, that was unheard of.
So she sought therapy, which she had done in the
past, but this time it was with a geropsychologist,
someone who specializes in treating older people. For
Walker, who is identified by a combination of her mid-
dle and maiden names to protect her privacy, that was
life-changing. “It was extremely helpful to have some-
one with a knowledge of older people, who under-
stands the whole notion that seniors go through peri-
ods of isolation and frustration mainly because of their
age and their placement in life,” she says.
Geropsychology only became a specialty in profes-
sional psychology in 2010, according to the American
Psychological Association, and the number of practitio-
ners is still small. Although about 15% of Americans are
age 65 and over, only 3% of licensed psychologists in
the U.S. identify their primary or secondary specialty
as geropsychology.
Older people have distinct phases and challenges
that call for geropsychologists. “Changes come in pre-
dictable ways as we age and require particular compe-
tencies and skills,” says Christina Pierpaoli Parker, a
postdoctoral fellow of clinical psychology and behav-
ioral medicine with a specialty in geropsychology at
the University of Alabama.
Safety Equals Autonomy
Too often, health care providers dismiss the mental
and physical complaints of older people as normal ag-
ing, geropsychologists say. For example, while joints
may become more painful with age, “having pain all
over the body is not normal aging—that’s a common
indicator of depression. The same is true with lack of
concentration,” says Erin Emery-Tiburcio, an associate
professor of geriatric and rehabilitation psychology
and co-director of the Rush Center for Excellence in
Aging in Chicago.
Knowing the side effects of medication and espe-
cially combinations of medications is also essential.
“I had a patient several years ago who was sharp as a
tack, and then when he came to see me three weeks
JANUARY 2021 KIPLINGER’S RETIREMENT REPORT | 21
later he was very confused and stumbling,” she
recalls. “That acute change is not normal.”
Emery-Tiburcio asked the 80-year-old man if he
was on any new medication. It turned out his doctor
had prescribed a new drug for incontinence, which can
create confusion and fall risks. “He had been to his pri-
mary physician that week who didn’t notice,” she says.
Ideally, psychologists—and geropsychologists in par-
ticular—should work as a team with doctors, clinical
pharmacists and occupational therapists, says Melinda
Ginne, who has practiced geropsychology in Northern
California for 40 years. Some geropsychologists in-
clude the family in treatment and are often practical
in their advice. Ginne, who is also one of the founding
instructors in the Professional Program in Aging and
Mental Health at UC Berkeley Extension, says she
might advise family members, for example, that their
mother needs home help twice a week for at least four
hours, and suggest some agencies that can help.
Pierpaoli Parker developed the University of Ala-
bama’s Integrated Behavioral Medicine Service, which
provides both psychiatric services and primary care,
with an emphasis on helping change behavior. That
includes creating exercise plans, even if it’s going out-
side with a walker for 15 minutes or working out
in a chair. She found that patients may be more willing
to discuss physical problems first, such as insomnia or
chronic pain, before eventually opening up about men-
tal health challenges like depression.
Some of the concerns many older people have re-
volve around isolation or residential care. Ginne says
she works to empower her patients. If the person re-
sists getting help at home, she explains that “safety
equals autonomy. If you have help at home, you can go
out, you can have someone take you to the market and
movies and senior center. I’ll say that about residential
care as well.”
An Emphasis on Routine
Dementia is an inevitable part of working with older
patients, and geropsychologists say treatment varies
depending on the type and stage of dementia. Part of
that treatment is providing perspective, Emery-Tibur-
cio says.
Depression tends to elevate the bad (my mind is de-
teriorating and I can’t do some of the things I used to)
while ignoring the good (my daughter loves and sup-
ports me and I enjoy spending time with her). “If you
focus on the losses, you are likely to get depressed,” she
says, but if you concentrate on the present, “it’s a lot
22 | KIPLINGER’S RETIREMENT REPORT JANUARY 2021
easier to not only function well but improve mood.”
Even if the person with dementia can’t remember
the previous session, therapy can help, Emery-Tiburcio
says. “Many people with dementia fear being a burden
on their families. Having conversations with the family
members present, talking about the future, and pro-
cessing the emotions of the whole family can help to
dispel myths and create plans that are acceptable to
everyone involved. This experience can be very reliev-
ing.” The older person may forget the session, but the
feeling of emotional resolution can continue, particu-
larly if the family is able to remind the patient about
the discussions and plan, she adds.
When someone with dementia is agitated or aggres-
sive, that behavior “almost always is in reaction to the
environment,” Emery-Tiburcio says. It might be a
change in routine, a different caregiver or a new pain
or infection that the patient can’t describe. The gero-
psychologist can work with the family and professional
caregivers to identify the causes and possible solutions.
Another way to help those with dementia, Pierpaoli
Parker says, is to emphasize routine, such as waking up
and having meals at the same time each day. She tries
to encourage an older adult to go outside in the morn-
ing to sit or walk. “That not only makes you feel better
but tells your body when to be up and when to be
asleep,” she says.
During her therapy, Walker, the 74-year-old who
ISTOCKPHOTO.COM
once struggled to get out of bed, focused on her goals
and plans. Working with a geropsychologist, she says,
has been eye-opening. “It took 70-plus years to come to
this understanding about me.” K ALINA TUGEND
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Est. 1988 Beaumont, TX

*SPOT PRICE- the daily quoted market price of precious metals in bullion form. Spot price determined solely by First Fidelity Reserve® at time of transaction. Brilliant Uncirculated (BU coins) typically come from
mints with bagmarks. Prices are subject to change in response to market conditions, and availability is not guaranteed. Please read important customer disclosures on our website or that accompany products
purchased, including arbitration agreement. Sales tax may be added depending upon purchasers current state sales tax laws. GOLD BASIS: $1,780 • SILVER BASIS: $22.65 - NO DEALERS PLEASE