Tag Archives: social security

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.