Retire with Dignity

I think one of the goals in retirement planning is to be able to retire with dignity. So what is dignity? According to the definition provided by Mirriam-Webster it is “the quality or state of being worthy, honored, or esteemed”. In other words, to retire with dignity is to retire with more than just the minimum needed to get by. Here's a stat that might surprise you: Nearly half of our nation's 41 million seniors are economically vulnerable, meaning their income is less than two times the supplemental poverty threshold. Benefit cuts to Social Security and Medicare would severely impact these seniors' ability to afford health care, food and other basic living necessities, according to a new Economic Policy Institute (EPI) study.

With all of the advancements made in our society, we are faced with a concerning problem; dismal savings rates, longevity increases that might lead to people spending more time in retirement than they did working, and a lack of financial education and literacy. There is an elephant in the room and we cannot ignore it anymore. We must create a national awareness and initiative to change the current retirement planning models used today.

The reality is that we have a retirement crisis. After a lifetime of hard work, people deserve the opportunity to live their retirement years with dignity and financial independence. But for most of the middle class, this dream of a safe retirement has become a nightmare. This nightmare will impact not only the retirees, who most likely will outlive their retirement savings, but their family members who will have to bear the burden since our government is incapable of providing decent retirement with the mandatory taxation of our wages to fund Social Security which is now bankrupt. Many analysts and lawmakers have pointed to 20 years of alleged solvency as an excuse to delay meaningful Social Security reform. However, if history is any guide to future solvency, the Social Security program could become insolvent much sooner than 2033. See also the report issued by the Social Security and Medicare Boards of Trustees. We do not have Social Security, we have Social Insecurity!

As older Americans transition out of the workforce, either voluntarily or involuntarily, many will find that they cannot afford basic living expenses. They will be forced to make the difficult choice between putting food on the table and buying their medication. The retirement crisis will put an enormous strain on our families, our communities, and our social safety net. We must focus on saving and developing true wealth and stop playing get rich quick gimmicks, stop hoping that the government will take care of us during retirement and stop playing the stock market casinos. The financial advisory industry has spent a lot of money and time to make Americans investors, instead of making them savers and truly prepare them for their retirement years.

I think this is one of the most important social and public awareness and transformation of our society. Regardless of who you are, where you work, or what title you hold, it is your responsibility to share this awareness campaign and through this process we will transform our retirement process and savings and achieve retirement with dignity.

Tax Preferred Retirement Plan Possibly Being Eliminated

The leaders of the Senate tax-writing committee are trying to reform our current tax system by putting every tax break embedded in the tax code up for review – including retirement-savings incentives. Nothing wrong with this, I personally think that there are many tax breaks that are in fact a waste and should be eliminated to help in increasing revenues.

 

However, I question if putting tax preferred retirement plans in the chopping block is a smart idea from our beloved Senators. I am in favor of a fairer tax code that promotes economic growth. However, will eliminating the tax deferral status provided to retirement plan accounts address this goal? I am not convinced. 
We must be keep in mind that the tax breaks for retirement plans are in reality tax deferrals instead of permanent tax write offs. Therefore, workers who put money into retirement plans will have to pay taxes on the funds when they're withdrawn in retirement.Should they be lumped with all of the tax deductions and credits currently overloading our tax code?
I think that we must promote all forms of financial independence now more than ever, instead of creating more dependency in government subsidized programs. Americans should be encouraged to save, specially for the older years, and if there is a tax incentive that makes sense to me is this one. We provide tax breaks to move jobs out of United States, allow companies to defer U.S. tax on their foreign income, and allow companies to siphon profits they earn in the U.S. to overseas subsidiaries, all of these tax incentive are destroying our nation. We have bigger problems than the tax preferred treatment of retirement plans.
I believe that without the tax deferral incentive provided to retirement accounts Americans would not be encouraged to save for their older years and increasing the dependency on being supported by the government. Why penalize good behavior?

Five Mistakes to Avoid Near Retirement

1. Trying to make up for lost time - if you have seen your retirement portfolio reduced and feel tempted to take unnecessary risk to make up for losses, resist. With the recent surge in the stock market you may think that is time to invest aggressively to make up for lost time, right? Keep in mind that a more aggressive allocation gives you the potential for higher returns, lower returns and negative returns. An agrresive allocation does not guarantee that you will meet your retirement goals, it could help, but it's far from a sure thing. Before increasing investment risk, consider options that will deliver a more reliable outcome: like working longer, spending less
and saving more.

2. Avoiding tax planning - One of the best investments you can make is tax planning. Meet with your tax professional to design projected tax liabilities during your retirement years and make decisions that can help you reduce the taxes. Developing a solid retirement planning now
can make a big difference down the road.

3. Claiming Social Security Without a Plan - Many Americans are potentially leaving dollars on the table due to poor planning when claiming their social security funds. A good financial advisor can help you determine when is the right time and how to maximize your benefits. While some people are simply uninformed, others are dangerously misled by the “conventional wisdom” surrounding Social Security.

Retirees often apply for Social Security benefits early then find themselves regretting the reduced checks for the rest of their lives. There’s a financial penalty for claiming Social Security benefits between age 62 and your full retirement age (66 for people born between 1943 and 1954, between 66 and 67 for those born between 1955 and 1959 and 67 for those born in 1960 and later).

4.Overspending - Many times you may feel tempted to buy that extra toy. As the economy improves you may feel that you need to show it (aka "wealth effect") and it can be a dangerous thing. Increases in your retirement portfolio because the market did well last year doesn't
mean there's now room for the latest model car — unless of course that was part of your original plan. 

Many people fail to adequately address increased longevity. The reality is that we are living longer than ever. Outliving ones' assets should be a primary concern when envisioning
the type of retirement lifestyle that one desires, and then to plan accordingly.

5. Assuming Medicare Covers all Your Health Care Costs - Assuming that you wont have health care expenses during your retirement years because you have Medicare can lead you to a rude awakening. You should estimate that Medicare will cover about 50% of your health care expenses in retirement. Also, you should not overlook the possibility for long-term care. And I'm not talking just insurance policies, though these may be important depending on your financial situation and disposition of assets. Discussions among family members are especially important ahead of time, because the emotional and financial hardships of a long-term illness can be devastating.

Take Advantage of the Retirement Tax Credit

If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA), you may be eligible for a tax credit, depending on your age and income.

Here are six things you need to know about the Retirement Tax Credit or Savers Credit:


1. Income limits

• Single, married filing separately, or qualifying widow(er), with  income up to $28,250
  
• Head of Household with income up to $42,375
  
• Married Filing Jointly, with incomes up to $56,500
  

2. Eligibility requirements

• Must be at least 18 years of age,
  
• Cannot have been a full-time student during the calendar year and
  
• Cannot be claimed as a dependent on another person's return.
  

3. Credit amount


The amount of the credit will depend on the adjusted gross income of the individual or household and the size of the contribution. The maximum contribution amount to which this credit can be applied is $2,000. For households with an adjusted gross income of :

$30,000 and under ($22,500 for individuals) the credit rate is 50%.
$30,001 and $32,500 ($22,501 – $24,375 for individuals) the credit rate is 20%.
$32,501 to $50,000 ($24,376 – $37,500 for individuals) the credit rate is 10%.
For example, married couple with a household income of $32,000 contribute $2,000 to a retirement plan will receive a tax credit of $400 ($2,000 x 20%).

4. Qualified plans

• Employer-sponsored plans such as 401(k), SIMPLE and SEP plans,
• Governmental 457 plan,
• Traditional and Roth IRAs. 

5. Other tax benefits

The Retirement Savings Contributions Credit is in addition to other tax benefits you may receive for retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.

6. Forms to use

• To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.
  
• IRS Publication 590, Individual Retirement Arrangements (IRAs),
  
• Publication 4703, Retirement Savings Contributions Credit
  
• Publications and forms can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676)
  

Baby Boomers Taking A New Look At Retirement

A recent AllState-National poll found that Baby Boomers are pushing back their initial retirement plans from an average of 60 years to 66 years. In addition, the results of the poll showed that 68% of the Baby Boomers expect to work in some form after retirement. The concept of retirement age is no longer what used to be 10 years ago. According to a survey conducted by Wells Fargo & Co in August 2011, 76% of the middle class Americans surveyed considered that “it is more important to have a specific amount saved before retirement, regardless of age, while only 20% say it is more important to retire at a specific age, regardless of savings.”
Other results of the Wells Fargo survey:

1. 25% of middle class Americans say they will “need to work until at least age 80” to live comfortably in retirement.
   
2. 74% of middle class Americans expect to work in their retirement years, including 39% of all respondents who will need to work to make ends meet or maintain their lifestyles, while 35% say they will work because they want to, rather than out of financial need.
   
3. Among middle class Americans age 40 to 59, 54% say they will “need to work,” compared to 34% of those age 25 to 39. Accordingly, only 25% of those between the ages of 40 and 59 say they will work in retirement because they “want to,” versus 45% of Americans between the ages of 25 and 39.
   
4. Of the Americans who will work in retirement, 47% say they will do “similar work” to their pre-retired years, while 42% say they will work in a position that requires “less responsibility.”
   

These changes in behavior bring some interesting questions and potential implications in our society. Will baby boomers be physically and mentally able to work later in life? Be efficient and productive until ae 80? What will it mean to the young generation entering the workforce in the next 10 to 15 years from now? And, how does our system of retirement savings need to be reformed to help reduce the savings gap?”
This recession has taken a heavier toll on the middle class than past recessions. However, the “sandwiched generation” (those near-retiree sandwiched between the already retired and the young generation) will feel a heavier burden since their retirement savings and real estate values have both declined substantially in the last 7 years. This has caught many near-retirees by surprise and now will force them to stay in the work force longer than they anticipated.
There is still time to make corrections in your retirement plans if you are in that “sandwiched” situation. It will take immediate action and potentially making some strong and sacrificial changes over the next 5 to 7 years to make sure that you can enjoy a comfortable retirement.

Reality Check: Most Americans Don’t Have a Retirement Plan

The population may be aging, but that hasn’t gotten a lot of Americans to plan for retirement. According to a survey released by ING Retirement Research Institute, 71% of Americans lack a formal investment plan to help them reach their retirement goals.

The study, conducted by the ING Retirement Research Institute, showed that nearly half (48%) of respondents aged 25 to 69 who are employed full-time and earn at least $40,000 a year don’t feel prepared for retirement. That’s despite the fact that 75% of that same group do contribute to their workplace’s retirement plan. The study also found that only 43% of those surveyed calculated how much money they will need to continue their current lifestyle once they retire. And only 28% are working with a financial professional to help meet objectives.

Basics of Retirement Planning

Retirement planning is probably the number one reason why people do personal financial planning. Most people like to daydream about the things they hope to do someday when retire. Making those dreams come true is an important part of the retirement planning.

There is a lot information available on this topic, sometimes I think too much. However, it is important to remember that your retirement goals and objectives are unique and should not be based on a "cookie-cutter" approach. This is one area that you should not be cutting corners. Retirement planning is an interactive process of clarification and adjusting of goals as our lives unfold and new circumstances evolve. 

Mapping out a retirement plan is particularly complicated for today’s middle-aged baby boomers. They face financial pressures that other generations have not had to deal with - such as supporting kids in college while at the same time providing help to aging parents. This squeeze forces many to postpone retirement planning. Also, the current situation of our economy has put undue pressure on their retirement planning.

Another mistake that should be avoided is treating retirement planning as purely an investment planning exercise. Even though the financial aspect of the retirement planning is critical there are other factors that must be taken into consideration. As our lives  unfold, new circumstances emerge, new values are embraced and new emotions may develop. The retirement planning process is a delicate balance between the financial and non-financial  realms. According to age, personal characteristics, and circumstances, the range of applicable investment tools varies too. For example, annuities are not  for the 30 years old, while sector funds are not for people in their seventies, even though there are both good financial vehicles.

Because of what we have discussed here, it important that retirement planning be started early and be reviewed on an annual basis. There are many ways to develop a proper retirement plan, do not allow that your plan to be designed around the goals and objectives of another person, you wont be happy with the results. Finally, a sound plan requires the ongoing counsel of a financial professional who can help you obtain your retirement objectives.

Retirement Planning - Important Questions You Must Ask Yourself

The decision of how to handle your retirement is entirely yours. You can either develop a plan of action or leave the burden in the hands your children. One thing that is for sure is that every day that goes by we are all getting closer to our retirement; we are all aging.
On January 1, 2011 the first baby boomers turned 65 and they will start they next phase in life. In the past, retirement used to be blissfully perceived as being a delightful transition from a busy life filled with responsibilities and burdened with the costs of raising the children to the peaceful financial and physical freedom of retirement; how wonderful :)

The reality is that retirement has become for many a nightmare. We are living longer, many times outliving our savings, social security does not cover our retirement expenses, the cost of health care continues to increase at paces that were never imagined. Conclusion: The rules of the game has changed; retirement is not what it was for your parents.

Unfortunately, hope is not a viable strategy. The only solution is to properly plan for your retirement years. Currently with the new events in our economy many feel confused, even scared. However, "doing nothing" about it is the worse strategy you can take. Now more than ever your must plan for your elderly years. Once again the decision is yours on how you want to live those years.

Planning for your retirement doesn’t have to be hard, but there are a number of bases that you must have covered to accomplish success. To make sure that you are on the right track to seeing the retirement future you always dreamed of, there are a number of important questions that you will first want to ask yourself. The answers to these questions are important when developing a retirement savings plan.

1. What does retirement mean to you? Each person has their own definition of retirement. Some would slow down the amount of hours they are working right now. Some people may consider starting their own business, write a book, or become consultants. For others, retirement is taking over a new hobby, travel, and volunteering their time and resources to the mission(s) that are close to their heart. This question will define the amount of resources you need to sustain the lifestyle you want during retirement.

2. When do you want to retire? Your expected retirement date is critical since it represents your goal date. Based on your goal date your retirement savings plan will be determined. When setting this date, it is important to be realistic. The sooner you want to retire the sooner you must start building your funds to meet the lifestyle you defined in question number 1. Also, the earlier you want to retire (even if you plan to work part-time) the harder your retirement funds must work to ensure that they last for the duration of your retirement.

3. Am I making use of my company’s 401(k)? Are you employed? If so, do you have a 401(k) through your workplace? If you are employed full-time, you should. Are you contributing to your account? If not, this is a step that you must start taking now. It doesn’t matter whether you want to retire in 20 years or in 5 years, any bit of money that you can put aside will help. This is because your funds in your retirement funds are tax deferred. Also, if you are one of the lucky ones that still have a 401(k) with company matching (regardless of the amount) it will help you build up retirement funds on a tax deferred  basis. Company matching is "free money" being deposited in your account; you should consider maximizing this benefit.

4. Do you foresee any potential health problems? This is difficult question for many to address. I think we need to be honest with ourselves so our retirement planning be successful. Are you aware of family health problems?

5. Am I in debt? Once again, another difficult question but extremely important. If you are in debt, now is the time to start taking action. Debt can have a negative impact on your retirement goals and dreams. If the answer to this question is "Yes", now is the time to create a budget for yourself. The money that you are able to save can be spilt to repay your old debts, as well as add more money into your retirement savings.

These are not all of the possible questions to ask as part of your retirement planning. My goal here is to motivate you to take action. Now is the time to meet with you trusted financial advisor (whomever that person is; CPA, attorney, life insurance agent, etc) and develop a retirement savings plan. Your financial advisor can help you with tax aspects , financial projections, help you with the preparation of a budget, etc.

I hope you find this information help you. I welcome any ideas and questions you may have about this subject.

Simple Steps in Planning for Your Retirement

Retirement planning is an important aspect of our lives. As good stewards and responsible members of a family we must include retirement within our overall family financial planning. If you are married, you naturally should do this planning together with your spouse.

One of the areas that needs to be address in any financial planning is the behavior of the family members towards money. This most be handled with care to avoid unnecessary conflicts. In the end the family goal should be towards the preservation of wealth and being good stewards of the wealth. After all, what is the point of saving and investing really hard if your partner is a secret spendthrift running up huge debts. Ultimately they’re going to drag your finances down to their level.

You need to sit down with your loved ones and talk about what you’d like retirement to hold. Perhaps your ideas about retirement differ. Your spouse may want nothing more than to give up work while you want to work until you drop because you just love it. Whatever the scenario may be, it helps talking things through.

Here’s an action plan for how to effectively join forces with your spouse to drive for that retiring wealthy finishing post:

ߜ Establish when you both want to stop work. One of you may be younger and therefore have longer to go to build up a full state pension entitlement. If there is an age gap, perhaps the older person in the marriage can carry on working for a little while to build up a big enough cash pot to allow the younger person to retire earlier than would otherwise be the case.

ߜ Decide between you how much you need. You need money to take care of life’s basics plus cover emergencies. You may have very different ideas of how much money you both need in old age.
* Warning: Don’t underestimate your financial needs. Certain outgoings cease after your retirement but you have more free time on your hands. Filling this costs money: You may want to travel several months of the year, take up golf, dine at fancy restaurants twice a month, serve on a ministry at church or planned giving to a special church project. A retirement spent watching television all day is no fun: Plan carefully so that you’ve got enough cash to enjoy yourself.

ߜ Examine how much you’re on course to receive. Do not wait until retirement to determine how much to expect over your retirement. This may not be a pleasant surprise. Now is the time to meet with your financial advisors to estimate your retirement funds and make the necessary corrections to meet your retirement goals.

ߜ Calculate how much you need to reach your joint goals. In order to buy retirement income for you both to live on – normally through an annuity – you need a big pot of cash.

* Tip: One way to protect your retirement savings and extend it through your expected life after retirement is through the purchase of an annuity. The concept behind an annuity is very simple. You hand over your savings to an insurance company and it pays you an income until your death. The amount of income you get depends on how much money you hand over and the annuity rate when you purchase the annuity.

ߜ Agree on what you’re willing to sacrifice to reach your dreams. It stands to reason that in order to build up a big enough cash pot to enjoy a comfortable retirement you have to save, invest, and work really hard. You can’t do any of this without making sacrifices whether that is curbing your spending, paying a portion of your income into a pension or simply setting time aside to monitor your savings and investments.

ߜ Determine what you want to leave behind for loved ones. If you have children it’s likely you’d like them to benefit financially on your death. If that’s the case you want to ensure you’ve enough money to take care of your combined needs in retirement and leave a tidy legacy for your children, perhaps taking out a life insurance policy to benefit them as well.

Scary Statistics

Based on a recently released study by Transamerica Center for Retirement, more than 21 million of Americans rely on their social security for their retirement. With all of the recent conversations in Washington about the health of the Social Security Administration, it is imperative that workers fully understand their benefits and what impact any changes the government makes would have on their retirement. Placing their trust in the hands of the government to fully or partly cover for their retirement could bring an unpleasant surprise in their elder years.

Other facts released as part of the survey:

* 55% were female
* 52% were in the age group of the baby boomers
* 65% have household income of less than $75,000

How To Address The Concern of Outliving Your Retirement Savings

One of the worst nightmares for an investor is to outlive his/her retirement savings. However, there is a solution to this concern through the purchase of a longevity insurance product. A "Longevity Insurance" provides guaranteed income typically starting after you turn 85, in exchange for an initial investment made some 20 years earlier. Payouts are fixed and cover you and your spouse for as long as you live. With some variations of this product, you can also opt for a death benefit, which guarantees that your account will hold a certain value that can be paid out to your heirs if you die before the payout age.

One of the main concerns of many individuals approaching the retirement age is the valuation of their current retirement savings and how to catch up. One solution is to increase the risk to and exposed your retirement account to equities in order to bring enough growth in the portfolios. However, this can come at a costly price. One solution to consider is a longevity insurance product. These longevity insurance products are effective in combination with an investment strategy. With a guaranteed income starting at a predetermined point in time, you'll basically take the biggest unknown out of your retirement-planning strategy; "how long your money should last?". You could be more aggressive with your investments and fine-tune the size of your withdrawals without the fear of running out of money.

Recently Mr. Peng Chen, Morningstar’s president of the investment management division, reported the following:

1. many investors do not estimate how long they will live and end up shorthanded on retirement funds.

2. people who are overly optimistic about how long they will live may have a too-frugal existence in retirement.

3. roughly half of retirees live longer than their life expectancy.

4. financial markets are far more volatile than many financial planners account for, and

5. retiree’s exposure to stocks and bonds can put their retirement savings at risk.

One alternative is to combine a traditional product like a mutual fund in combination with a longevity insurance product. As an investor you should consider when saving for your retirement the following:

1. age

2. financial market risk tolerance

3. retirement expenses

4. longevity, and

5. bequest goals

If you're someone who is concerned with the possibilities of outliving your savings, you may want to consider longevity insurance. However, this must be done with careful analysis of the risks. I strongly suggest that you meet with your financial advisors before you make a decision to purchase this type of product. Finally, consider the following final notes:

1. longevity insurance products are not for everyone and should be carefully reviewed before you sign any documents to ensure that they meet your specific needs, and

2. when choosing this type of insurance product, you're buying income that that will start in for 20 years or more. Therefore, make sure that company being considered has a good reputation and solid financials. You can check a company's credit rating with services like Standard & Poor's and A.M. Best.

Are You Ready to Invest?

We grew up in a world in which the news about the failure of Social Security is almost as constant as the news about the failure HMOs. We all know that it is unlikely that many people who are currently contributing to social security will ever see the money we've invested into the program. Therefore, we must look for alternatives and stop our reliance on the government for a comfortable retirement that doesn't appear to be available.

This is the reason we must take matters into our own hands and investing not only for our retirements, but also for emergencies and other matters such as fix broken houses, buy new cars, or pay hefty insurance deductibles for medical care. There are many reasons we choose to invest and very few that would ever be considered the wrong reason. The question remains, because there are so many out there who are not yet investing, with so many reasons to invest, are you ready to invest? Why? Here I share with you a few situations that should consider in your financial planning:

1. If you have children and a job that doesn't offer a pension plan or matching retirement fund then it is probably a good idea to invest on your own. Even if you don't have corporate provisions for contributions you have alternatives such as Roth IRAs that will give you a tax break for investing some of your money and helping to plan for your own retirement.

2. If you have children that will some day need dental work, medical services, and/or college educations it is about time that you began those savings plans. Yet again there are tax deferred and tax fee options that are available and having this money invested ahead of time can save you so much money later on that it is worth making a few sacrifices along the way to secure the future of your children.

3. If you want your retirement to be a nice comfortable existence and not to be spent in your future daughter-in-law's closet you need to be ready today to begin investing in your future retirement. Please consider the following, life expectancies are longer than ever, and the costs of living are continuing to rise at alarming rates. If you're not ready to invest you need to figure out why and fix the problem so that you can be ready to invest and soon.

Investing in your financial future is the greatest gift you can give yourself by far. If you aren't sure where to begin or how, perhaps it's time to seek the services of a qualified financial advisor. His advice may prove invaluable and may give you a much more comfortable future than you would have ever imagined left to your own devices.