Cushy beds take time to construct.
To Think About: Fifty seems to be the magic age marker when you realize that the years for salting away money and investing for retirement have raced by. The younger you are, the lesser the amount you need to invest and save for your future years. The older you are, 50 plus, the more you must invest to get the same amount of income. Is it hopeless if you are just starting to pay attention at 55? No, just more work.
The primary goal of retirement savings and investing is to make your money last longer that you do.
The problem of not planning or having enough is twofold: most think that they are in fairly good financial shape and they are not (after all, I’m going to work forever so I don’t need a lot of money!); and most do not save or invest enough of the monthly income. That, coupled with the fact that the average life expectancy is now in the mid-80s.
What about Social Security? Many refer to it as Social Insecurity. Over 90% of Americans under the age of 39 believe that they will never get back the amounts that they are paying in. They have a better chance to win a multi-state Power Ball Lottery!
Today, the average Social Security payment is slightly less than $800 per month. Living on Social Security alone means that you will be living below the federal poverty level. Presently, almost half our senior population is slated to do just that because of poor or no planning for their retirement years.
Because of the aging baby boomers, substantial amounts of funds will be required within the next 25 years. There’s a strong probability that benefits and payments may be deferred or reduced to ebb the financial drain expected within Social Security and Medicare.
Will there be Social Security in the future? The answer is “yes,” in some form. With the political winds changing, the question is, “What will it look like?” The best advice I can give you is to know what you are projected to get, review any changes in benefits annually (trust me, the media will shout them) and plan to build as much as you can independently.
Social Security is not going away, though some would like to eliminate it totally. It will have some tweaking. Use what you receive as a supplement, don’t plan on it as the main course of your retirement portfolio. After all, it was never set up to be that in the first place.
To Do: Find out how much you have paid into Social
Security and what other types of retirement accounts are available to you
• Call the Social Security Administration at 800-722-1213 and request the PEBES form—Personal Earnings and Benefits Statement. You can also request it online, SSA.gov. It will reflect your earnings and the amount you and your employer(s) have paid in. It will also project the amount of money you can expect to receive when you are eligible. If you find any errors (earnings or payments that haven’t been credited), you have 39 months to notify Social Security.
• Are you presently contributing to a 401(k), an IRA, KEOGH, a tax-sheltered annuity program —403(b) or any other type of pension or profit sharing plan?
• If your employer offers a 401(k) or a 403(b), does it contribute to the retirement account on your behalf? Do you contribute the maximum amounts allowed? Do you have choices of where your money can be invested?
• Guesstimate what you will need in income for when you retire. A reasonable rule to use is to take 75% to 80% of your current expenses in all areas. It’s assumed that you will spend less on consumer items, insurance and taxes. This can be further reduced by eliminating items that your family has declared “not needed.”
Our guesstimate of how much we need per year is x .80 =
• Other than Social Security, guesstimate what your 401(k), 403(b), IRAs and other programs and investments will yield annually. Many offer projections with their annual statements. For guesstimating purposes with your other investments—stocks and mutual funds—take their present values, increase them in value 7% per year until retirement age. Now, calculate a withdrawal of 7% per year on the overall value of the investment for an annual yield.
• More guesstimating—the IRS has a variety of tables that will show you how much you have to withdraw from your various retirement plans at the year you reach the age of 701⁄2 (you must start to withdraw funds
at this age)—check them out.
• When you receive your PEBES form back from Social
Security, add that amount to your other estimates of income from investments and other programs you are in. Are you over, or under, your projected annual income needs?
If you are over, congratulations! If under, you need to re-evaluate your income resources and spending allocations. This is one area where procrastination—deferring until next month or year for a plan of action—doesn’t work.
Money $marts Tip: Do you need a million dollars or
more in the bank when you retire? Probably not, unless you are really spending big money every month. Most people spend less post retirement. If the mortgage is paid off and you don’t have to spend money on work related transportation, clothing, meals, and the like, or money for training and education, you may have reduced your monthly financial needs by several thousand dollars each month. What you need to do is crunch the numbers and make some realistic projections. It’s all part of planning.
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