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Retirement
A Million is Not Enough
Aug 18th
I skimmed CNNMoney.com’s article, “Millionaires in the making”, earlier today. Sure, it’s important to live below your means. However, there is a fundamental problem with featuring potential millionaires. Becoming a millionaire is no longer enough by today’s standards.
Determining how much you need for retirement depends on life span and cost of living. Using the CNNMoney Retirement Calculator, will bring this assertion to life. So, I decided to enter the Rodrigueses retirement needs based on the following parameters:
- Their current age is 27.
- Their annual income is $174,000.
- Their retirement age is 40.
- Their post-retirement annual income is 80%.
- Their life expectancy will be 85 years old.
- No pension or social security income.
Guess what? They will need more than $4.173 million. This is not too far off for the average person. Instead of trying to become a millionaire, most people need to think about how they’re going to save between $5 – 10 million in order to maintain the same living standards.
If this is not a practical goal for your current situation, then there’s always the choice to retire in a foreign country where the cost of living standard is lower and your US dollar will go further such as places in Asia, Central America or South America.
It’s Never Too Late to Start
Oct 18th
I just read an article by Anne Fisher entitled, “Launch a business after 50″. The interesting part of this article is the advice from Jeff Williams, president of BizStarters, a firm that helps people launch their own enterprises. While these tips were targeted primarily at the over 50 crowd, most tips are generally applicable to anyone looking to start their own business.
- Find a business and industry that “…will truly engage you”.
- Determine the income potential and whether or not it matches how much you’re willing to invest. According to Fisher, most new businesses take at least three years to break even, assuming they even last that long!
- Match the physical demands of your chosen business to your energy level.
- If day-to-day variety is important, don’t do something that involves the same routine.
- Evaluate the extent which you’ll need to use technology in your chosen venture. Are you comfortable with this or will you need to hire technical assistance?
- If you’re looking at a franchise opportunity, determine the total expected investment for the first two years.
If you’re in the over-50 crowd, Fisher also recommends checking out Too Young to Retire: An Off-The Road Map to the Rest of Your Life
Planning for Retirement
Aug 12th
by Eric Heckman
It’s no secret now: 77 million Baby Boomers are heading into their 50s and 60s and planning for the next phase of life – retirement. Just as the Boomers have transformed every other life stage, they are now revolutionizing and re-visioning retirement as well.
According to Dr. Ken Dychtwald, the nation’s foremost expert on aging and retirement, two-thirds of people that have lived past the age of 65 in the history of the world are alive right now. Humans have long searched for that fountain of youth, but there was no breakthrough until the twentieth century. Healthcare advanced and before we knew it, we were inundated with “old” people. We have fully embarked on the longevity revolution.
We’re an aging society. The only difference now is we’re not growing old. Our parents did in the past and didn’t have to worry about what to do after retirement because they weren’t going to experience 20 or 30 years of it.
Have you ever realized that in one generation, 65 has gone from being “old” to being middle-aged? Here’s a quick history lesson for you: Otto Von Bismarck developed Europe’s first pension plan in the 1880s. He picked 65 as the age when people were “too old” to work – this age has remained a marker today to begin receiving benefits, such as Social Security. The only problem? During this time, life expectancy was only 45 years old and the average retirement was only 1.2 years.
Many wonder now, “What if I outlive my money, purpose, etc?” What to do after retirement is a question Boomers are beginning to toy with. The linear life plan many used to go by (education, work, leisure) is being replaced with something much more cyclic – education, work, leisure, work, leisure, education, etc. But there is an entire generation who might not be able to retire unless they start thinking about and planning financially for it now.
It’s up to you to determine what kind of retiree you already are or who you plan to be. The following “faces” of retirement were compiled by Dychtwald, Harris Interactive and AIG SunAmerica and appeared in Time Magazine.
1) The Ageless Explorers (27 percent) – youthful, empowered, optimistic, very happy, loves retirement freedom, high net worth, wants work to be part of lives, seeks personal growth.
2) The Comfortably Contents (19 percent) – wants to be free of obligation, living their “golden years,” wants to relax, enjoy the fruits of their labor, high net worth.
3) Live for Todays (22 percent) – adventurous, pursue active life and personal growth, financially unprepared, anxious about retirement, modest net worth, not very happy because they HAVE to work.
4) Sick and Tireds (32 percent) – inactive, unfulfilled, worried about everything, the least happy, low net worth, given up/little interest in anything, living a retirement nightmare.
As you can see, most fall in the Sick and Tireds (perhaps considered the “old” way to retire), but more are beginning to move into the Ageless Explorers face.
Preparing for retirement is taking on a whole new face so it’s never too early, or too late, to start with a strategy. It’s important for you to make sure your financial professional is planning your finances thoroughly. As you can see, you could be getting short changed if the plan lasts for only 15-20 years.
Five Mistakes that Shrink Assets
Aug 5th
by Eric Heckman
Ah, the good old days! Remember when workers could depend on their employers’ pension plan to provide sufficient retirement income? What about when retirees could rely on a dependable Social Security system to make up for any shortfall?
The “golden days” of retirement plans occurred not too long ago. But today, a large portion of the burden for retirement savings has been placed on the individual. Instead of pensions, a majority of tomorrow’s retirees will rely on income from a combination of Individual Retirement Accounts (IRAs) and employer-sponsored plans such as a 401(k).
In my years as a financial professional, I have seen the changes and with that, I have come up with the five common mistakes that may shrink your retirement assets, as well as ways to avoid them.
Mistake no. 1: Taking Rollover Distributions Directly: When changing jobs, workers are sometimes tempted to cash in some or all of their retirement plan assets. This mistake can be costly for many reasons, but mainly because you may pay income taxes on your pre-tax contributions. You may avoid this common pitfall by transferring the assets into a traditional IRA or another eligible retirement plan.
Mistake no. 2: Not Contributing Enough: A number of companies match employee contributions of up to 6 percent of the employee’s annual salary. As a result, many employees only contribute that amount to their employer-sponsored retirement plan. Contributing the maximum can be an excellent way to help ensure your retirement future.
Mistake no. 3: Failing to Capitalize on Catch-Up Provisions: Those age 50 or beyond, can take advantage of so-called “catch-up” provisions. If you’re nearing retirement, these provisions may provide a smart way to boost your asset base.
Mistake no. 4: Taking Too Much in IRA Distributions: At age 70, the IRS requires you to begin taking distributions from your IRA. But, the IRS considers taking distributions too slowly just as big a mistake as taking them too early. The penalty for withdrawing too little can be severe, with penalties and income taxes adding up to as much as 75 percent on the amount that is not distributed as required.
Mistake no. 5: Disorganization: According to the U.S. Department of Labor, it is estimated that the average person will change jobs 10 times before retirement. If workers open a retirement account with each employer, they acquire a lot of paperwork to manage. Over time, some people lose track of their paperwork. If that employer loses track of your address, you may never see that money again.
I recommend making a checklist for your retirement planning. It should include what you plan to do with your 401(k), your IRA and your consolidation of existing accounts.
Understanding Social Security
Apr 22nd
by Eric Heckman
The Social Security retirement program has been a basic part of American life since 1940. The program is the foundation of many people’s retirement income. It’s unlike any other income because you can’t outlive Social Security benefits and benefits won’t lose their value. Social Security can’t lose its value because it’s always adjusted to keep up with inflation. The amount of your retirement benefits are based on three things: how much time you spent in the workforce, how much money you made and the age you start receiving benefits.
Most people understand the basics of Social Security, but many are surprised by one thing or another when they start receiving it. And it’s usually not a pleasant surprise. There is a lot of speculation of what will happen to the future of Social Security and a lot of talk can be confusing.
Many believe the Social Security program will be unable to provide benefits for those who have contributed to it over the years. The fact is Social Security funds are solvent and they’re taking in more revenue annually than they need to pay out in benefits. According to AARP, Social Security will be able to pay 100 percent of promised benefits until 2042. At that point, incoming tax revenue could still cover more than 70 percent of promised benefits.
Although many people aren’t aware of this, Social Security can also provide benefits when someone retires, becomes disabled or dies. A spouse or children may receive benefits based upon the eligibility of the deceased person. Widows and widowers who collect survivor benefits can switch to their own retirement benefits as early as age 62. In many cases, they can begin receiving one benefit at a reduced rate and then switch to the other benefit at an unreduced rate at full retirement age. However, they will only be paid the higher of the two benefits, not both.
Another fact that’s not widely known is some people have to pay federal income taxes on benefits. This usually happens only if you have other substantial income. This is based on rules set by the Internal Revenue Service (IRS).
It’s important to understand more than just the basics of Social Security. Besides learning more about the benefits, you can also take measures to ensure you get everything you deserve. The following are five tips that will help you prepare for the largest source of retirement income:
1. Make sure you get full credit – As you read your statement, double-check the years you have worked. If you think there is a mistake, check your own records or contact a former employer for information.
2. Compare figures – Look at the amount of benefits you will receive at age 62 compared to your full retirement age.
3. Know what you will receive – Understand that you don’t necessarily get out of Social Security what you put into it. The system places a percentage of your average lifetime earnings that were subject to Social Security tax. And ironically, the less you contribute to the system, the better the investment is and the greater the replacement percentage may be.
4. Don’t forget about Medicare – If you’re getting Social Security benefits when you turn 65, your Medicare Hospital Benefits start automatically. If you’re not getting benefits at that age, you should sign up for Medicare close to your 65th birthday.
5. Research – Visit the Social Security Administration Web site for publications and online resources to help you understand your benefits, how to apply for benefits and the history of the Social Security program. You can also apply for benefits online at http://www.ssa.gov.
About Eric Heckman
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU brings a wealth of knowledge and over 13 years of experience to the field of financial planning. Contact him at (408) 297-9800.