Archive | November, 2012

Postponing Retirement – It’s Worse Than We Thought

If you’re like most Americans nearing retirement age, the future does not look promising. Millions of us who expected to enjoy our “golden years” in security are staring down the barrel of a financial gun. But, if you thought it was just the average working stiff that would never be able to retire, you’re wrong. When the rich are postponing retirement — it’s worse than we thought.

Postponing retirement — it’s worse than we thought

According to a recent survey conducted by Bank of America’s Merrill Edge:

Even with investment accounts having recovered much of their lost ground, so-called “mass affluent” people with between $50,000 and $250,000 to invest don’t think they have enough to retire when they had originally planned to. Of those surveyed, 56% said that they expect to retire later now than they thought a year ago, with only 7% expecting to retire earlier. That’s a big shift even from a couple of years ago, when only 42% were revising their retirement age upward.

And we all share many of the same concerns.

The things that wealthier Americans are worrying about mirror the concerns of the overall population. Affordable health care remains the primary concern, as costs continue to move higher. With other surveys estimating that the typical retiree will spend $240,000 on health care over the course of his or her retirement for out-of-pocket costs, that concern is quite justified. Few have the financial resources necessary to fund potential health care needs as well as other basic necessities, let alone the lifestyle they’d prefer to lead after they leave their careers for good.

Is it hopeless? I don’t think so, but it will take a lot of work — and a shift in our expectations — if we want to enjoy retirement.

From a personal finance standpoint, the good news is that Americans of means aren’t content to sit idly by and hope for the best. Rather, they’re taking steps to boost their personal accountability by managing their investments more actively.

Don’t sit idly by and hope for the best. Take steps to boost your personal accountability and manage your investments more actively. We may have to postpone retirement — but it doesn’t have to be worse than we thought!

Click here to read more about postponing retirement.

Posted in Creating a Personalized Retirement Plan, Planning for Your Retirement, Retirement Plan Challenges, Saving for Retirement0 Comments

How State Taxes Can Affect Your Retirement

One way to help manage the challenge of providing a financially secure retirement is downsizing. For example, although the memories of raising a family may be hard to leave behind, you probably no longer need a big house and yard. In fact, it might be a burden to maintain them. In addition to the benefits of a smaller home, you might want to take into account how state taxes can affect  your retirement.

How state taxes can affect your retirement

Some states, in spite of their many attractions, can put a big ding in your retirement funds. If you plan to relocate, here are some of the most “tax-friendly” states for retirees:

10. Pennsylvania. Pennsylvania is one of only two states (Mississippi is the other) that exempts all retirement income — including public and private pensions, IRAs and 401(k) distributions — from its state income tax.

9. Delaware. The First State is number one with many retirees, thanks to low real estate taxes, modest income taxes and no sales taxes. In fact, its highway billboards welcome visitors to the home of tax-free shopping. Social Security benefits are exempt from income taxes, and residents 60 and older can exclude $12,500 per person of qualified pension benefits and investment income, including dividends, interest and capital gains, from income taxes.

8. Louisiana. For retirees, every day is like Mardi Gras in Louisiana. Social Security and military, civil service, and state and local government pensions are exempt from state income taxes, plus up to $6,000 per person of pension and annuity income.

7. South Carolina. South Carolina extends its Southern hospitality to retirees. The Palmetto State exempts Social Security benefits from state income taxes, and it allows residents who are 65 and older to deduct up to $15,000 per person ($30,000 per couple) of retirement income, regardless of the source.

6. Alabama. Alabama is a tax haven for retirees. Social Security benefits, as well as military, public and private pensions, are excluded from state income taxes (but IRAs and distributions from 401(k)s and similar defined-contribution retirement plans are not exempt). Remaining income is taxed as high as 5%, the maximum rate that kicks in when taxable income tops $3,000. Alabama also has some of the lowest property taxes in the U.S. Homeowners 65 and older are exempt from state property taxes, but some cities assess their own property taxes.

5. Georgia. Georgia is doing its part to attract retirees to the Peach State with a sizable exemption for income taxes on retirement income. Taxpayers ages 62 to 64 can exclude up to $35,000 per person from state income taxes for a total of $70,000 per couple. Georgia residents who are 65 and older can exclude up to $65,000 of retirement income (or $130,000 per couple) from state income taxes in 2012. Retirement income is broadly defined as interest, dividends, capital gains, net income from rental property, pensions, annuities and up to $4,000 of earned income.

4. Mississippi. Mississippi turns on its Southern charm for retirees. It not only exempts Social Security benefits from state income taxes, but it is one of only two states that excludes all qualified retirement income — including pensions, annuities, IRAs and 401(k) distributions — from state income taxes.

3. Wyoming. Thanks to the abundant revenues Wyoming collects from oil and mineral companies, residents of the Equality State don’t have to fork over much of their income to taxes. There is no state income tax, so you’ll pay nothing on your Social Security benefits, pension or IRA distributions. The state sales tax is 4%, and counties can add up to 2% in additional levies.

2. Nevada. Nevada is a good bet for retirees because it shifts much of its tax burden to out-of-state tourists and gamblers. The Silver State has no income tax, so your Social Security benefits, pension, IRA distributions and even income from a part-time job won’t be taxed. Property taxes, which are assessed on 35% of a home’s appraised value, are reasonable and typically run about $1,050 per year for a $100,000 house. But sales taxes, which can top 8% in some areas, are higher than average.

1. Alaska. Alaska is a true tax haven for retirees — if you don’t mind the cold weather and you enjoy rugged outdoor beauty. In addition to enjoying no state income tax, Alaska residents benefit from the cold, hard cash of an annual dividend ($1,174 for 2011) from the state’s oil reserves that is distributed to every permanent resident who has lived there for at least one year. There is no statewide sales tax. But some localities impose a sales tax, at an average of less than 2%.

So there you have it. If you’re a hardy soul and don’t mind cold weather, Wyoming or Alaska could the place for you. And if warmer weather is more to your liking, plan a tour of the Old South and check out what those states have to offer. Wherever you plan to live when you retire, be sure to take into account how state taxes can affect your retirement.

Click here to learn more about the top ten tax-friendly states for retirees.

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Get the Most From Social Security When You Retire

In the past couple posts, we’ve touched on six things you should know about Social Security — before you retire. There are three more you should understand to guarantee you get the most from Social Security when you retire.

Get the most from Social Security when you retire

Maximize your spouse’s benefits – legally

Here’s a Social Security claiming strategy that’s perfectly legal and potentially lucrative. Let’s say a husband decides he wants to delay taking his benefit until age 70 to maximize the amount of his monthly check. But he wants his wife to be able to take a spousal benefit, because it would be higher than her own benefit.

To make that happen, the husband, who must be at full retirement age, can file for his benefits and then immediately suspend them. Because he has applied for benefits, his wife can now take a spousal benefit based on his record. And because he suspended his own benefit, his benefit will earn delayed retirement credits.

You may have to pay taxes on your benefits

Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits haven’t been increased since then. As a result, it doesn’t take a lot of income for your benefits to be pinched by Uncle Sam. For example, a married couple with a combined income of more than $32,000 may have to pay income tax on up to 50% of their benefits. Higher earners may have to pay income tax on up to 85% of their benefits.

You may have to take the “earnings test”

Bringing in too much money can cost you if you take Social Security benefits early while you are still working. With what is commonly known as the earnings test, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2012 is $14,640. Once you are past full retirement age, the earnings test disappears and you can make as much money as you want with no impact on benefits.

Social Security has a lot to offer retirees and it’s easy to maximize Social Security retirement benefits. Take the time to learn about the program and you’ll get the most from Social Security when you retire.

Click here to read more about how to maximize social security benefits

Click here to read: What You Should Know About Social Security – Before You Retire

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Maximize Social Security Retirement Benefits

Yesterday, we looked at some of the things you should know about Social Security — before you retire, but we only scratched the surface. There’s much more to know if you want to maximize Social Security retirement benefits.

Maximize Social Security Retirement Benefits

Social Security provides survivor benefits

If your spouse dies before you, you can take a so-called survivor benefit. If you are at full retirement age, that benefit is worth 100% of what your spouse was receiving at the time of his or her death (or 100% of what your spouse would have been eligible to receive if he or she hadn’t yet taken benefits).

Spousal benefits are available — even after a divorce

Just because you’re divorced doesn’t mean you’ve lost the ability to get a benefit based on your former spouse’s earnings record. You can still qualify to receive a benefit based on his or her record if you were married at least ten years and you are 62 or older.

Increase your benefits by delaying your claim

Once you hit full retirement age, you can choose to wait to take your benefit. There’s a big bonus to delaying your claim — your benefit will grow by 8% a year up until age 70. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting.

By understanding how the program works, it’s easy to maximize Social Security retirement benefits. I’ll cover the remaining tips in tomorrow’ post.

Click here to read more about how to maximize social security benefits.

Click here to read yesterday’s post: What You Should Know About Social Security – Before You Retire.

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What You Should Know About Social Security – Before You Retire

One of the few relative certainties about retirement has been Social Security, but as you’re probably aware, it — along with other retiree “entitlements” — are much less certain than they used to be. To better prepare for retirement, let’s take a look at what you should know about Social Security — before you retire.

What you should know about Social Security — before you retire

According to the latest annual report from the Social Security Board of Trustees, the “retirement program would only be able to pay out 75% of scheduled benefits starting in 2033, three years earlier than projected last year.” While you can’t control what the government will do to fix the problem, you can take the necessary steps to understand Social Security and what you need to do to maximize your benefits.

How much you collect is based on your age.

For people born between 1943 and 1954, full retirement age is 66. It gradually climbs toward 67 if your birthday falls between 1955 and 1959. For those born in 1960 or later, full retirement age is 67. You can collect Social Security as soon as you turn 62, but taking benefits before full retirement age results in a permanent reduction of as much as 25% of your benefit.

Benefits are based on your work history.

Your benefit is based on the 35 years in which you earned the most money. If you have fewer than 35 years of earnings, each year with no earnings will be factored in at zero. The benefit isn’t based on 35 consecutive years of work, but the highest-earning 35 years.

Your benefits are adjusted for inflation.

One of the most attractive features of Social Security benefits is that every year, the government adjusts the benefit for inflation. Known as a cost-of-living adjustment, or COLA, this inflation protection can help you keep up with rising living expenses during retirement. The COLA, which is automatic, is quite valuable; buying inflation protection on a private annuity can cost a pretty penny.

It helps to be married.

Marriage brings couples an advantage when it comes to Social Security. Namely, one spouse can take what’s called a spousal benefit, worth up to 50% of the other spouse’s benefit. Put simply, if your benefit is worth $2,000 but your spouse’s is only worth $500, your spouse can switch to a spousal benefit worth $1,000 — bringing in $500 more in income per month.

These are just a glimpse of what you should know about Social Security — before you retire. I’ll be covering more in future posts.

Click here to read more about what you should know about Social Security — before you retire.

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The Longer You Work, The Better Your Retirement Can Be

Many older Americans are in the dog house when it comes to having enough for a financially secure retirement. Given that, there’s hope: the longer you work, the better your retirement can be.

The longer you work, the better your retirement can be

I know. The idea of working past your “official” retirement age is not a pleasant thought, especially if you’ve spent most of your career in a job you don’t like. But what if you had a job you really enjoy? One that challenges you every day? One that rewards you for being older and wiser than those young Gen X and Gen Y whippersnappers? It could happen — and you can make it happen.

Plan now to follow your passion instead of retiring.

Here’s a look at each of five job categories with a high demand for retirees:

Health Care

Home health aide and personal aide top a Bureau of Labor Statistics list of job fields expected to grow the fastest by 2018. The pay is modest, with median wages of roughly $20,000 for each in 2008. But caregiving work can be a good fit for those looking to work 20 to 25 hours a week and do something meaningful.

Retail

Many retailers welcome seniors as customer service employees or cashiers because they have found that older workers are very good at making customers happy, according to Coleman. Other retail jobs available for seniors may include retail manager, floor supervisor, stock-room associate, greeter or food company demonstration worker.

Government

Two government agencies in particular — the Department of Veterans Affairs and the Transportation Security Administration — are known for seeking older workers. Both agencies have openings requiring little or no experience.

Computers/Technology

One of the most popular profession switches for older workers and retirees is going into computer-related work, according to Jim Toedtman, editor of the AARP Bulletin. The jobs entail such tasks as data entry or working with data communication systems and networks.

 Temp Work

Like seasonal retail work, temporary help in an office or elsewhere can be an ideal match for an older worker and employer. The worker offers flexible hours and experience and gets the opportunity for new challenges and limited-term working assignments that sometimes lead to full-time positions.

Some of these options may be just right for you — or they may not — but you get the idea. Start planning now to pursue your passion — and even make some money doing it! The longer you work, the better your retirement can be.

Click here to read more about work opportunities for retirees.

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Protect Your Biggest Retirement Asset – Your Home

Like many Americans, your home is probably your largest financial asset. As such, it can be a tempting target for scam artists. Here are some tips to help you protect your biggest retirement asset — your home.

Protect your biggest retirement asset – your home

Be suspicious of ads with:

  • Official-looking seals or logos that imply some kind of government status, for example making you think they come from the VA or HUD. Although government agencies do guarantee some loans, they are not involved in the actual lending or advertising of loans.
  • Promises of amazingly low rates – which may turn out in the fine print only be in effect for a short period and then will readjust to a higher amount.
  • Promises that a reverse mortgage will let you stay in your home payment-free. Typically borrowers with reverse mortgages still have to keep up with tax and insurance payments – and will most likely lose their homes if they don’t.
  • Announcements of “pre-approval” and large amounts of cash or credit available to you. Typically there’s no guarantee that you will be approved for a loan, or the size of the loan, until you go through a standard qualification process.

Be wary of any offer that “sounds too good to be true” — it probably is. Be wise, be cautious and protect your biggest retirement asset – your home.

For more information, or if you need help assessing an offer, click here to go to “Ask the CFPB (Consumer Financial Protection Bureau).

Click here for more information on mortgage deception.

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You Can Salvage Your Retirement Plan

Even as our economy flounders out of the “Great Recession” and staggers toward the “fiscal cliff,” you can salvage your retirement plan.

You can salvage your retirement plan

The same principles of saving and investing that have worked in the past still apply today, in spite of what many “professionals” are saying. The first step is to build and execute your plan based on these four criteria:

  1. How much you currently have saved and can add to your savings each month.
  2. What long-run rate of return you’re aiming to receive.
  3. How much money you need to live each year and how bad inflation will be.
  4. When you plan to retire and how long you expect to live.

You may have little or no control over some of these factors, but others, you do.

You can decide that you don’t need quite as big a home in retirement as you did while raising a family. You can choose to work a few more years. Alternatively, you can choose to sock a bit more away or try to reach for higher returns.

Don’t base your decisions on what you wish had happened, how much money you’d like to have, or where you want to live. Work with the facts, please.

The first step in rebuilding your retirement is to figure out where you are now. As painful as it might be, open your plan statement and take a good, hard look at the numbers you see. That’s your starting line for your future.

After that, it’s a question of balancing your priorities:

  • Your time.
  • Your risk tolerance.
  • The amount you can realistically invest.
  • What sort of retirement lifestyle you want.

Take the time to face the facts – however bad they may be – make the necessary choices – however painful they may be – and you can salvage your retirement plan.

Click here to read more about how you can salvage your retirement plan.

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Australians Can Teach Us About Retirement

I think it’s common knowledge that the chances for a financially secure retirement are — for many of us — about as good as our chances of winning the lottery, but the challenges of planning for retirement face the citizens of other countries as well. There’s a lot Australians can teach us about retirement.

Australians can teach us about retirement

Faced with many of the same problems as we here in the U.S. face,

Australia made changes to their pension system in order to serve retirees more efficiently.

During the ’90s, Australia looked at demographics and realized the need to improve retiree pensions. In addition to a means-tested pension system, the Aussies began a mandatory program, where employers contribute (currently 9 percent) to investment funds. The compulsory “Superannuation Guarantee” is augmented with private savings and non-superannuation programs to provide a third leg for retirees.

Superannuation is “an organizational pension program created by a company for the benefit of its employees.”

The first thing we should learn is to limit access to retirement funds.

While individually owned, stringent guidelines restrict participants’ access to Superannuation funds prior to retirement.  Conversely, Americans have relatively easy access to retirement funds. Human nature and temptation being what they are, no one should be surprised to learn 50 percent of employees cash in 401(k) plans when switching careers.

Don’t pay fund managers more than is absolutely necessary, unless you like giving money away.

Our current hodgepodge of IRAs, 401(k), 403(b), et al, allows financial croupiers to rake profits from participants. Recently I found a 403(b) participant at Northwest Florida State College paid over 3 percent annually on their deferrals. The Class C shares used had an annual expense ratio over 2 percent and the advisor tacked on an additional 1 percent.

Take the time to learn about investingplease!

In addition to good wines, Australians appear to put more emphasis on financial literacy programs than we do.  A sobering Securities and Exchange Commission report found Americans lack understanding of rudimentary financial concepts like interest rates, mortgages, risk and inflation.  More advanced ideas like portfolio diversification or differences between stock and bonds flummox investors.  The lack of basic fiscal knowledge inhibits your ability to retire comfortably.

Many of us are woefully ignorant about the most basic investing concepts. There’s a lot Australians can teach us about retirement.

Click here to read more about investing wisely and what Australians can teach us about retirement.

Posted in Creating a Personalized Retirement Plan, Planning for Your Retirement, Retirement Investment Options, Saving for Retirement0 Comments

What’s Your Retirement Planning Style?

Planning for retirement is serious, but there’s nothing wrong with the occasional lighthearted look at the subject. Mr. Spock or Homer Simpson: What’s your retirement planning style?

What’s your retirement planning style?

The Homer Simpson style

“I’m outta here! Take this job and shove it! Now let’s go to Moe’s Bar to have some beer, then we’ll go eat some donuts. I’ve got $10,000 coming to me because my Uncle Louie just kicked the bucket. That should be enough to fund my retirement.”

Does this sound familiar? Research indicates it describes the retirement plans of many Americans.

…various surveys show that about half of all Americans retire without calculating how much money they really need to generate a retirement income that will last for the rest of their lives. In fact, many just guess at the answer, and they guess way too low.

Please read on; Mr. Spock’s more logical approach is something you should seriously consider.

The Mr. Spock style

Spock would make careful plans that would increase the odds that he’ll live long and prosper. He would be carefully setting money aside in his 3001(k) plan, sponsored by his employer, Starfleet Command. He would have used his fingertip computer to calculate how much he should be saving to generate a lifetime retirement income. He’d know that the best way to accumulate savings for retirement is to invest in broad-based, galaxy-wide index funds with the lowest possible expenses.

He’d also know that the best time to draw down his government-provided benefit from the United Federation Security system would be to wait until age 80, even though many people start United Federation Security benefits at age 70, the earliest possible age with the lowest possible benefit. (Note to readers: The earliest age to start Social Security for our earth-based Social Security system is 62, which produces the lowest possible benefit. Most likely, you’ll be better off delaying the start of your Social Security benefits at least until age 66 and even better, to age 70.)

in addition to wisely saving and investing, Mr. Spock would do more.

Spock would also have read up on the various methods he could use to generate retirement income from his retirement savings so that he’d have a paycheck until age 140 — not an unrealistic age for a Vulcan who takes care of his health.

Spock would also most likely realize that at some point in his career at Starfleet Command, he’d need to move on to some other type of employment.

Having planned and invested wisely — and made plans for a second career — Mr. Spock will be in a good position to face the future with confidence.

He wouldn’t lose any sleep worrying that he’d need to live on a rocky moon in a remote part of the galaxy, just to make ends meet.

So, are you a Mr. Spock or a Homer Simpson? Probably somewhere in between. You best bet is to follow the example of Mr. Spock — after all, it’s only logical — when you evaluate your retirement planning style.

Click here to learn more about your retirement planning style.

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