Tag Archive | "Roth IRA"

Myths About Social Security and Retirement


Social Security has been a major issue among retirees for some time now — along with their children who are afraid Mom and Dad will move in with them. With all the hype, it’s sometimes hard to dig down to the truth behind the stories — and it appears that it’s mostly hype that’s fueling our anxiety. So, to help relieve some of that anxiety, here’s the truth regarding some of the myths about Social Security and retirement.

Myths about Social Security and retirement

Myth #1: Social Security funds are running dry, so you should collect as soon as possible.

The most recent government-issued report projects that Social Security will run out of funding by 2033. This is earlier than previously expected, but doesn’t necessarily mean Social Security will be gone in 20 years. It means system revenues won’t be capable of paying 100 percent of promised benefits under the law. The Social Security Administration estimates that benefits could be reduced by 22 percent at that point and may continue to decline if Congress doesn’t intervene.

Meanwhile, an increasing number of Americans are taking Social Security at the minimum age of 62, according to SmartMoney. But experts insist that it pays to wait. For each year you hold off on collecting Social Security after reaching full retirement age – which is typically age 66 for baby boomers – you’ll get an 8 percent increase in benefits. So waiting till 70 means about a third more income.

While it’s true that funds are decreasing, taking them early does mean less money. On the other hand, as more boomers retire — even if they wait until 70 — they will put an enormous strain on the system. Hopefully this has been taken into account when doing the projections.

If you have money in a 401(k), IRA or other retirement fund, you shouldn’t rely too much on that, either. Most of these plans invest in mutual funds — primarily stocks — and when thousands of boomers start to take their money out of the market at the same time — well, I won’t say a crash is inevitable, but you really should take a look at your retirement investments, make sure you understand what’s going on and that they’re performing the way you expect.

This leads us to the second myth.

Myth #2: You’ll be able to live comfortably on Social Security alone.

If you’re counting solely on Social Security to support you after retirement, you might find yourself in a difficult financial situation: The average Social Security payment to a retired worker is around $1,234 per month – slightly more than the Federal minimum for a month’s wages.

So unless you’re prepared to supplement Social Security with savings or a pension, be prepared for a challenge. Consider cost-cutting measures, like minimizing housing expenses, as well as earning extra income. You can work and claim Social Security benefits at the same time.

Myth #3: You’ll be eligible for Medicare as soon as you can collect Social Security.

I know. It’s not strictly about Social Security, but Americans are woefully delusional about how much their medical care will cost after they retire. Most guess about $50,000. The truth is, it’s more likely to be about $250,000.

Americans can’t earn Medicare benefits until age 65, but can collect Social Security as early as 62. Exception: If you collect Social Security Disability, you’ll get Medicare coverage automatically after two years.

The Social Security program was never meant to be the sole source of income for retirees. Unfortunately, that’s become the situation for many of us. You can plan for a secure retirement — including Medicare and Social Security benefits — as long as you understand the myths about Social Security and retirement.

Click here to read more about the myths about Social Security and retirement.

Posted in Medicare, Planning for Your Retirement, Retirement Plan Challenges, Social SecurityComments (0)

Tips on Retirement Planning


In my research, I occasionally come across something unusual. Like this. I don’t recall ever having seen anything from the Gonzalez Inquirer – Serving Gonzalez County, Texas and the surrounding areas since 1853,  but here are some great tips on retirement planning:

Don’t think of your home as a retirement asset.

Whether you are a new homeowner or near retirement, you should not think about your home as a retirement asset, for these reasons:

  • A home is, first and foremost, a place to live, and you will always need a place to live.
  • Your home is an inherently un-diverse investment.
  • A home may be subject to debt, which means it is less valuable than it appears and could be an ongoing expense when living in retirement.
  • Relying on a home as retirement savings tends to discourage other saving.

Maximize Roth assets.

A Roth IRA or 401(k) can provide tax-free income, if you hold the account for five years and have attained age 59 1/2.  Roth IRAs also have the added benefit of being exempt from the tax rules requiring distributions starting at age 70 1/2 .

I have to take issue with this one because of the fees and expenses involved with mutual fund investments (like 401(k)s and IRAs). In addition, as baby boomers retire in larger and larger numbers, they’ll have to start taking distributions which will certainly put a heavy strain on the price of stocks, possibly driving prices down and decreasing the value of all our retirement investments.

Have a retirement income plan.

Some financial professionals suggest 80 percent of your pre-retirement income is a good retirement income goal. With this goal you can then compare your expected monthly retirement income from Social Security and any pension plan to your target monthly retirement income amount.

Plan for inflation and increasing health care costs.

Inflation and health care costs are twin traps that can erode the value of your retirement plan if you do not consider and plan for them

Maximize Social Security as insurance protection.

For most Americans the decision to defer Social Security payments as long as possible is an important action to ensure not outliving one’s assets. Social Security is typically a large source of retirement income, and its value is enhanced because it is government guaranteed and provides inflation-adjusted payments.

Here, we also have a potential problem and it’s another big one, once again thanks to baby boomers.

The longer we wait to retire, the greater our payments are projected to be — if the system is still solvent. And that’s a big “if” especially if all the other boomers decide to do the same thing and Congress continues to play chicken with entitlement programs.

Stress test your retirement plan.

For example, how would your retirement plan work if your investments grow at 3 percent a year instead of 8 percent? Stress testing your retirement plan could suggest you change your planning assumptions.

It would be fair to say that at few times in our history have futures of so many been so precarious. It would be well for all of us to consider our uncertain economy and take advantage of these tips on retirement planning.

Click here to read more on retirement planning from the Gonzalez Inquirer. I’m sure they’ll appreciate the traffic to their website.

Posted in Planning for Your Retirement, Retirement Plan Challenges, The EconomyComments (0)


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