Social Insecurity: Another Reason We’re Going Broke

Except for recent contributions, all of the money that you’ve contributed to the Social Security system throughout your lifetime has already been spent.

That’s because Social Security is a pay-as-you-go system. Contributions from people working today go to people who are retired today. Your contributions will be long gone by the time you retire.

And, depending on your age and whether the folks in Washington can get their act together, there may not be enough money available for you to cash in when you retire.

Going Broke

While the Social Security system currently is solvent, trustees of the Social Security system’s two funds, which support retired and disabled workers, project in their recently released annual report that the funds will be depleted in 2034. As trustees of the programs noted, the funds “fail the test of long-range close actuarial balance.”

Trustees project that annual benefits paid out will exceed the Social Security taxes workers and employers pay beginning in 2022.

And the trustees may be overly optimistic. The Congressional Budget Office, which tends to make rosy predictions about government programs, estimates that the funds will be depleted by 2030. After that, the amount Social Security pays out every year will exceed what it takes in by more than $400 billion.

“Current benefits for retirees already exceed the system’s payroll-tax receipts,” Martin Feldstein wrote in The Wall Street Journal. “Benefits are therefore payable under current law only by drawing on the so-called trust fund, an accounting record of previous Social Security surpluses.”

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How to Retire Early – Part Two

In part one of “How to Retire Early,” we focused on the need to reduce expenses and control debt.  Doing so can create the foundation for a retirement plan by making money available for investment.

What should happen next?  Here are a few suggestions:Retirement 4

Consider all sources of income.  Typically, retirement income comes from a combination of an employer pension, personal savings and Social Security income.  Compare what you are eligible to receive with what you will need.

If you have a shortfall, consider all of your options for making it up before you retire.  You may decide to work part-time.  It you have a marketable skill, you may even be able to develop a base of business that provides you with enough income to meet your needs without dipping into your retirement savings for a few years.  Or maybe you have space you can rent out to produce more income.

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How To Retire Early – Part One

How would you like to retire early?  Maybe 62 is a good age or maybe you’d like to retire at 60 or even 55.

But unless you’ve won the lottery, have a government pension, or are the favorite niece or nephew of a rich uncle, you may find it difficult to achieve your goal.  If can still be done, though.  You have two options: cut your expenses or increase your retirement savings.  Better yet, do both.Retirement 1

More specifically, you should be able to take that job and shove it at an age earlier than 65 if you do the following:

Cut back on your expenses.  Even people who think they’re living frugally usually aren’t.  How often do you dine out?  Do you stop for coffee on your way to work?  What do you spend on hair stylists, clothing, manicures and pedicures?  Do you do your own landscaping and mow your own lawn?

Non-essential expenses add up.  Review everything you spend and make a cost-benefit analysis.  Determine whether the convenience and pleasure you derive from your expenses is worth the investment.  Maybe Two-Buck Chuck is no substitute for your favorite Côtes du Rhône, but would you rather drink good wine or retire early?  You may not be able to do both. 

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Baby Boomer Bust

Each day, another 8,000 baby boomers turn 65.

The U.S. Census Bureau says there are more than 77 million baby boomers, defined as those born between 1946 and 1964.  By 2030 all boomers will be over 65 and will represent about 20% of the population.

So, given the growing number of boomers who have reached retirement age, why is the unemployment rate still so high?Over 65 retirement

Based on the official U-3 statistics, unemployment is still at 6.2%.  That’s much better than the 10% rate we had in 2009, but it’s considerably higher than the 3.9% rate the U.S. enjoyed in 2000 – which was long before baby boomers even thought about retirement.

If Americans are retiring at 65, that should open up more than a quarter million new jobs per month – on top of job growth caused by economic recovery.  So when the Bureau of Labor Statistics reports that 205,000 jobs were created in July 2014, it’s not exactly a sign of prosperity.

The U-6 unemployment rate, which includes those who have given up looking for work, is still 12.2%, which is practically European.

So why is the unemployment rate still stubbornly high?

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Still Time To Save On Taxes

Flooding is never a good thing, but recent flooding in Massachusetts does have one positive consequence.

If your home is located in a “flood zone,” you have an extension to May 11, 2010 to make a 2009 contribution to your qualified retirement plan or IRA.  

In other words, you can still lower your tax bill by making a contribution to your 401(k) plan or other qualified plan.  Or you can still take advantage of a Roth IRA or Roth 401(k) plan and have your contribution count toward 2009. read more

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Bust-Proof Investing For Boomers

We’ve been focussing on the “senior bust” that many baby boomers will face as they approach retirement. 

So how can baby boomers avoid the senior bust?

The starting point is to understand your finances.  You’ll need to know your current assets and have a good idea of how much you’ll need to live off during retirement.  Assuming your current retirement is not adequate, you’ll need to save more and invest wisely.

Some alternatives include:

Delay retirement.  The longer you work, of course, the more you can save and the longer it will be before you need to draw off of your retirement funds.  Assuming your children are grown and your expenses are minimal, you can probably save a great deal more for retirement than you could when you were younger. read more

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