Tag Archives: social security

Key Elements to Retirement Planning

‘YOYO’ Economy Creates New Reality

With Social Security in its 79th year, and with real concerns about the future of the program, there is a different reality for retirement planning than when the agency started many years ago. Preparing for a secure retirement has changed drastically with today’s Baby Boomers living in what many call a YOYO (You’re On Your Own) economy. It is now important to look at retirement planning in a whole new way.

One Phoenix advisor, Andrew Rafal, an investment advisor and founding partner of Strategy Financial Group, offers insight on how to help prepare for the challenges of retirement. “A retirement plan in today’s world will look very different from what it looked like the past. For previous generations, there were company pensions, a well-funded Social Security program and personal savings, including home equity. Today, many retirement savers don’t have those retirement income sources to count on, making planning for requires a much different thought process than generations past,” says Rafal.

While the viability of Social Security is questionable after year 2033, it is still around today. If you’re a Baby Boomer quickly approaching retirement, when and how you file for your benefits is very important to understand. As most people know, you can start claiming Social Security any time between ages 62 and 70, but did you know the longer you can afford to wait, the more your monthly benefit amount grows. This could add up to a significant difference over the course of your retirement. How you file is also important: For instance, a single person has nine different claiming options and couples have 81 all of which could affect the benefits you receive, so it’s critical to evaluate your options carefully.

Another change over the past few years is the decline in the availability of pensions. Many state and corporate pensions have experienced financial difficulties over the years and have cut costs by lowering pension payouts and putting more of the responsibilities to save enough on the individual. Many companies have opted to get rid of their pension program altogether and offer defined contribution plans, such as 401(k) and 403(b) plans and similar, as an alternative.

Rafal says, “This trend away from state and corporate pensions has shifted the burden to the individual who now must contribute enough in order to create a secure income in retirement. In this YOYO economy how well you live in your golden years is up to you and how well you plan.”

No matter where you are on your journey to retirement, it is extremely important to be proactive when building wealth for retirement by saving the most money that you can afford. Put saving on autopilot with automatic payments. If you don’t see the money each month, you may be less likely to miss it.

The key to a secure retirement for most has become personal savings. Unfortunately, the housing and stock market volatility over the past decade stalled many retirement plans. Many have learned over the past decade that accumulating personal wealth, and maintaining it, can be a difficult challenge.

“The “modern retiree” will need to work even harder than generations past to build and manage their personal savings as for most this is all they will have,” says Rafal.

Rafal suggests:

Be cautious with your investments. Extreme stock market volatility and economic uncertainty, as seen over the past decade, shows how unpredictable the economy can be. Take charge of your saving strategies and do not risk too much of your hard-earned money in any one specific savings or investment vehicle.

Be flexible with your investments. Economic conditions often change in a fast-paced global economy, so adjustments to your financial plan may be necessary. The key to success is the ability to adapt to evolving market conditions.

Be strategic with your investments. Choose a variety of different financial instruments and investment vehicles so no one particular investment severely impacts your long-term financial and retirement goals. Diversification is critical to help avoid suffering a huge loss.

While retirement planning has changed over the past decades with some knowledge and guidance, it is still possible to secure a great financial future. One thing is for sure, the earlier you start the better off in the long run you will be so start saving as soon as you can.

Employer Retirement Plans in Phoenix, Ariz.

Do You Have Insurance on Retirement Plan?

You have insurance on your home, your car, your health.

How about your retirement plan?

“People have homeowners insurance to protect against fires and floods,” notes independent financial planner Stephen Ng, founder and president of Stephen Ng Financial Group. “They buy insurance to replace their car if it gets wrecked and they buy health insurance to protect themselves from medical costs.

“But for many people, their biggest material asset is their retirement portfolio. When I look at a new client’s portfolio and ask, ‘Where’s your insurance?’ they look at me like I’m crazy!”

Insure your retirement fund by taking steps to safeguard at least a portion of it, Ng says. As you get closer to retiring, the amount you safeguard will be what you need to rely on for your retirement income.

“Your retirement income should be derived from guaranteed sources, such as Social Security benefits and your pension plan,” says Ng, a licensed 3(21) fiduciary advisor, certified to advise companies about their 401(k) and other retirement plans. “It’s the amount you need to pay the bills and do the other things you hope to do in retirement, so your retirement income needs to be a guaranteed source of income.

“Then you look for your ‘play checks.’ That’s the money you don’t absolutely have to have, so you can still try to grow it, and take risks with it, in the market.”

Ng offers these tips for insuring your retirement plan:

• Invest a portion of your portfolio in annuities.
Annuities are long-term investment options through insurance companies that guarantee you payments over a certain rate of time, which could be the rest of your life or the life of your spouse or other survivor. Note: The guarantee is subject to the financial strength and claims-paying ability of the issuing insurance company.

• If you leave your job, quickly roll your employer-sponsored 401(k) into an IRA.
While 401(k)s are a great tool for saving, particularly if your employer is providing matching funds, if you were to die, the taxes your survivors would pay on your 401(k) would be much higher than on an IRA. That’s because they would have to inherit the money in a lump sum – that could easily take 35 percent right off the top. The lump-sum rule does not apply to IRAs. While your spouse would have the option to inherit your 401(k) as an IRA, your children would not. So, take advantage of your employer-sponsored 401(k), but if you leave the company, convert to an IRA or ROTH IRA. You can also begin transferring your 401(k) funds to an IRA at age 59½.

• Consider converting your IRA to a ROTH IRA.
For protection from future income tax rate increases, you should consider slowly converting your tax-deferred IRA funds into a ROTH IRA. Yes, you’ll have to pay the taxes now on the money you transfer, but that will guarantee that withdrawals in your retirement are not taxed – even as the money grows. If you plan to leave at least part of your IRA to your children, they’ll benefit from a fund that continues to grow tax-free.

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Politics and Social Security

The issue:

Unless Congress acts, the trust funds that support Social Security will run out of money in 2033, according to the trustees who oversee the retirement and disability program. At that point, Social Security would collect only enough tax revenue each year to pay about 75 percent of benefits. That benefit cut wouldn’t sit well with the millions of older Americans who rely on Social Security for most of their income.

Where they stand:

President Barack Obama hasn’t laid out a detailed plan for addressing Social Security. He’s called for bipartisan talks on strengthening the program but he didn’t embrace the plan produced by a bipartisan deficit reduction panel he created in 2010.

Republican challenger Mitt Romney proposes a gradual increase in the retirement age to account for growing life expectancy. For future generations, Romney would slow the growth of benefits “for those with higher incomes.”

Why it matters:

For millions of retired and disabled workers, Social Security is pretty much all they have to live on, even though monthly benefits are barely enough to keep them out of poverty. Monthly payments average $1,237 for retired workers and $1,111 for disabled workers. Most older Americans rely on Social Security for a majority of their income; many rely on it for 90 percent or more, according to the Social Security Administration.

Social Security is already the largest federal program and it’s getting bigger as millions of baby boomers reach retirement. More than 56 million retirees, disabled workers, spouses and children get Social Security benefits. That number that will grow to 91 million by 2035, according to congressional estimates.

Social Security could handle the growing number of beneficiaries if there were more workers paying payroll taxes. But most baby boomers didn’t have as many children as their parents did, leaving relatively fewer workers to pay into the system.

In 1960, there were 4.9 workers for each person getting benefits. Today, there are about 2.8 workers for each beneficiary, and that ratio will drop to 1.9 workers by 2035.

Nevertheless, Social Security is ripe for congressional action in the next year or two, if lawmakers get serious about addressing the nation’s long-term financial problems. Why? Because Social Security is fixable.

Despite the program’s long-term problems, Social Security could be preserved for generations to come with modest but politically difficult changes to benefits or taxes, or a combination of both.

Some options could affect people quickly, such as increasing payroll taxes or reducing annual cost-of-living adjustments for those who already get benefits. Others options, such as gradually raising the retirement age, wouldn’t be felt for years but would affect millions of younger workers.

Fixing Social Security won’t be easy. All the options carry political risks because they have the potential to affect nearly every U.S. family while angering powerful interest groups. Liberal advocates and some Democrats oppose all benefit cuts; conservative activists and some Republicans say tax increases are out of the question.

But Social Security is easier to fix than Medicare or Medicaid, the other two big government benefit programs. Unlike Medicare and Medicaid, policymakers don’t have to figure out how to tame the rising costs of health care to fix Social Security.

Social Security’s problems seem far off. After all, the program has enough money to pay full benefits for 20 more years. But the program’s financial problems get harder to fix with each passing year. The sooner Congress acts, the more subtle the changes can be because they can be phased in slowly.