Archive for the ‘Retirement Planning’ Category

How to Retire Early – Part Two

Monday, July 6th, 2015

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. (more…)

How To Retire Early – Part One

Monday, June 29th, 2015

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.  (more…)

Baby Boomer Bust

Friday, August 15th, 2014

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?


Still Time To Save On Taxes

Tuesday, April 20th, 2010

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.

Bust-Proof Investing For Boomers

Wednesday, March 31st, 2010

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.

Delay Social Security.  Annual cost-of-living increases are calculated using the initial year’s Social Security income as a base, so delaying the start of Social Security for even a few years can raise annual income significantly.  While individuals are eligible for Social Security at age 62, they must wait until age 65 if they want “full” benefits (67 for those born in 1960 or later) and age 70 if they want “delayed” benefits.

Manage risk.  Keep in mind that what your investments earn from day to day or even year to year is not nearly as important as what they earn long term.  Most investors concentrate on short-term returns and don’t spend enough time focusing on avoiding losses.

An investor or investment manager can do much to avoid risk, without sacrificing growth.  A few examples include:

  • Diversify.  Virtually anyone who manages investments recommends that investors invest in a mix of many different types of investments.  For example, the stock portion of an investor’s portfolio may include growth and value stocks; small-cap, mid-cap and large-cap stocks, and international and domestic stocks.
  • Pay attention to the market.  Using technical as well as fundamental analysis can alert investment managers about potential market changes.  Adjusting your portfolio based on these potential changes can help minimize losses.
  • Use stop losses.  Stop losses are used to automatically sell securities when they drop to a certain price.  This allows investors to avoid potentially large losses.
  • Consider convertibles.  Convertible securities combine features of both stocks and bonds.  The income they produce provides downside protection.  In addition, they are typically not as volatile as stocks.

Of course, among the worst mistake investors can make is to sell their stocks when the market is bottoming out.  “Selling low” is also among the most common mistakes investors make.  Those who sold a year ago because they couldn’t tolerate any more losses should learn from their mistake and hopefully will avoid selling at the tail end of the next bear market.

Boomer Budget Busters

Saturday, March 27th, 2010

In our last post, we demonstrated that baby boomers will not be inheriting the trillions that experts predicted would create the wealthiest generation of retirees in history.

Even worse, boomers face enormous expenses, even without considering the potential cost of healthcare reform,   

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 an estimated 20 percent of the population.

The addition of that many retirees is bound to put a strain on both the Social Security system and Medicare, not to mention the long-term care industry.  And that strain will be exacerbated if boomers live longer than previous generations, as expected.

Long-term care.  Consider the cost of long-term care, for starters.  Many of today’s boomers have parents receiving long-term care and it’s costing, on average, $72,270 a year, based on national statistics from the 2009 MetLife’s Mature Market Institute.  Long-term care is not covered by health insurance, Medicare or any other government program, so most baby boomers will have to use their personal savings to pay for long-term care.

The National Clearinghouse for Long-Term Care Information estimates that 70% of people over age 65 today will need long-term care services.  If baby boomers live longer that today’s seniors, the percentage needing long-term care may be even higher.

Social Security.  Social Security is a pay-as-you go system, meaning that the money you have been paying into the system throughout your working life is paying for someone else’s retirement.

When boomers retire, a greater percentage of the population with be retired and a smaller percentage will be working.  That means fewer people will be paying to fund Social Security for a much larger population of retirees.

In addition, when people live longer, they collect Social Security for a longer period and that puts further pressure on the system.  When Social Security was created, retirement typically lasted only a few years.  Today, a person may live for 20 years or more during retirement.

In 1950, there were 16 workers to support each Social Security beneficiary.  Today, only 3.3 workers are supporting payments for each retiree so, not surprisingly, the Social Security tax is 70 percent higher than it was in the 1950s.  The Social Security Administration projects that the ratio will drop to 2.2 workers per retiree by 2025 and to 1.8 workers per retiree by 2070.

Medicare.  Medicare is “headed for a financial abyss,” according to The New York Times, which notes that the trust fund that pays hospital bills will likely run out of money by 2019, “leaving Medicare to limp along with payroll tax collections that would cover only 78 percent of estimated hospital expenditures.”

The Times adds that the trust funds that pay for doctors’ services and prescription drugs is also face rising costs that will drive up premiums and require more funding from general tax revenues.

Will healthcare reform solve this problem?  Don’t count on it.  To keep the overall cover of reform in the $1 trillion range, Congress is proposing a reduction in Medicare funding by up to $500 billion over the next 10 years – just as boomers are retiring and signing on for Medicare coverage.