All Entries in the "Retirement" Category

Careful If You Relocate - State Budget Shortfalls Mean Higher State Taxes

41 states could go bankrupt by 2009-2010 - the table below shows which are the worst.

As state governments scramble to stay above water - cutting both unneeded and needed services - the local legislatures grapple with ways to increase revenue.

And you know what that means. More taxes for all of us.

No more wondering what I’ll be doing with that $600 federal tax rebate check.

What the federal government giveth, the state government taketh away.

I don’t quite understand why every bank and their grandmother’s bank is getting TARP funds - while the states are left holding the bag.

More than 10 states are considering major tax increases, reports the Wall Street Journal.  These include “Arizona, Connecticut, Delaware, Illinois, Massachusetts, Minnesota, New Jersey, Oregon, Washington and Wisconsin.  California and New York lawmakers already have agreed on multibillion-dollar tax increases that went into effect earlier this year.”

State taxes come in many forms beyond income tax.  Depending on where you live, and what your vices are, you could be nickled and dimed out quite a few dollars.  Here’s some of the taxes being considered for increases in various states.

Cost of living taxes

• Sales tax
• Fuel tax
• Property taxes
• Personal taxes, such as excise tax, and fees for registering your car or boat.
• Reductions of personal exemptions and standard deductions, medical/dental exemptions, and federal income tax deductions.

Target taxes

• Retirement taxes
• Military retirement taxes
• Estate Taxes

Vice taxes

• Cigarette tax
• Alcohol tax
• Gambling tax

What you can do

• Contact your local legislature.  Here’s how.
• Reduce or quit a vice.  Bummer.
• If you’re considering relocating either for job or retirement, you’ll want to take into account the tax burden you’ll be expected to handle at the new location.  Is it higher or lower than where you live now?  Here’s a list of per capita tax burdens by state:

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How Have Your Retirement Plans Changed?

My spouse and I are both in our early fifties, and both of our 401ks have been trashed.  And the clock is ticking.

With only 10-15 years to recover, we’ve had to dramatically re-adjust our retirement strategy.

• As painful as it feels, we are still putting money into our 401ks. We’re actually putting a little more in than we had been.

• We’re paying extra on our mortgage - with the hope of having it completely paid off in the next 10 years.  Tax-wise, right now this doesn’t make sense.  The interest deduction is a big help.  But once we retire, not having the financial burden of a mortgage will be a tremendous relief.

• We’ve had to push our retirement age out at least a couple of years. How many years will be determined by the rate of economic recovery.We realize that - at least at the start of our retirement - we’ll be working part time.

• We’re hoping that a solid national health insurance program is put into place in the next 15 years.

How have you adjusted your retirement plans?

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Pension Cutbacks Could Burn Retirees

What Can You Count On in Retirement?

A friend of mine, retired on a company pension for ten years now, was recently sweating it out.

Seems the health insurance piece of her pension could have been negotiated out of the latest contract just finalized between her union and former employer.

Does a company have the right to take away promised retirement benefits? Is it ethical to just pull the rug out from under these people? Many whom stayed at lower paying jobs for the guarantee of a steady, protected income when they retire?

I say no.

They weren’t working all that time for free.

It’s unfair for employers to change the rules so late in the game.  Planned phase out with new employees is fine, but to mess with someone’s hard earned benefits is comparable to stealing.

These retirees fulfilled their end of the bargain for 25 or 30 years.  It’s time for them to get paid.

• Why Health Insurance Is An Important Part Of Retirement Planning Many people that are planning to retire assume that a great deal of their healthcare costs will be taken care of after they have retired...

“I Haven’t Saved a Dime,” or “Will I Have a Heart Attack When I Retire?”

At Americans’ current savings practices, 4 out of 5 people will not have enough money to retire in their accustomed lifestyle.

A recent study by Hewitt Associates, an international human resources consulting firm, says that “rising medical costs, lengthening life spans, and the declining prevalence of pension and retiree medical benefits” are all contributing to a growing gap between projected retirement need vs current retirement plan savings rate.

I have always heard that if I saved enough to replace 80% of my pay at retirement, I’d be ok. But new studies indicate that, with inflation , 126% of my final pay at retirement will be needed to maintain the same lifestyle.

Big difference.

Hewitt surveyed 2 million employees at 72 large American firms. Their findings were striking.

“On average, employees are projected to replace just 85 percent of their income in retirement, compared to the 126 percent they need. In other words, assuming inflation of 3 percent and a retirement age of 65, an average 40 year old with 10 years of service and earning $83,000 at retirement in today’s dollars would have saved enough to provide just $70,500 per year in retirement in today’s dollars—a $34,000 annual shortfall. In fact, more than 1.2 million employees (67 percent) are expected to have less than 80 percent of their projected needs at retirement.”

Currently, 26% of current employees have not even enrolled in their 401k plans.

If you are one of these people, get enrolled today.

There are some simple rules you can follow to improve your situation at retirement.

• Enroll in your company’s 401k Plan. Start young. Don’t wait. Learn a lesson from the “baby boomers” like me. Transition from social security to 401ks was just beginning when I was in my mid 20’s. Back then, the importance of prioritizing these savings was not yet realized. Now, many of us are in a panic trying to catch up.
• Be sure to contribute at least enough money to obtain the entire company match, if there is one. Most companies at least match 50% on the dollar for the first 6% you invest.
• Look at investment options for your plan, and make wise choices. See a financial planner if you are unsure. Many companies now offer target funds. These funds are set up to modify the risk levels of your investments automatically as you age. But target funds vary dramatically in how they are set up, so approach them with caution. Here’s a recent US News article describing pros and cons.
• Don’t forget about medical expenses in your planning.

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Target-Date Retirement Funds - Driving Into Retirement on Cruise Control

Target-Date Retirement Funds gradually change from a more aggressive, risky portfolio to a more conservative, safe portfolio as you get closer to retirement. They’re meant to take the worry out of retirement investing, but remember, you also give up a certain amount of control. These funds have become popular in the last few years. 4 of 5 major investment companies now offer them.

A few watch-outs to consider

Different funds have different ideas of what percentage ratio allocations should be used. Consulting Firm Watson Wyatt reports that stock/bond allocation ratios for “employees 10 years from retirement varied from 40 percent to 80 percent among target funds started in 2006.” Morningstar found that some funds closing in 2010 had as much as 70% stock allocations.

“The lack of consistent philosophies in this area means that products with very similar names can have very different compositions,” says Robyn Credico, national director of Watson Wyatt’s defined contribution practice.

Fund performance has varied widely. And many funds have only recently started, and so have no record of performance at all. Because of this, if these funds interest you, I recommend sticking with the big players. Vanguard, T. Rowe Price, and Fidelity all have excellent reputations as investment companies. We use T. Rowe Price.

As with any fund, annual expense ratios can also vary widely. Be sure to evaluate fund costs as well as gains when determining which fund is for you. Otherwise, high expenses can eat up those profits.

Examples of how allocations change over time in Target-retirement funds:

Target-Date Retirement Funds may not give you the highest possible returns, but for those struggling to understand the many options available, they’re worthy of consideration.

For more information, start here: Money Magazine’s latest Top Fund Picks and Why.

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Four Things You Need For Retirement

It’s about the money, but it’s not just about the money.

It’s also about -

• Health.
• A Network of Friends and Family.
• Enjoyable Activities.

Read on:

Money

It’s never too early or too late to start saving. But do start saving. Retirement needs to be a line item in your budget, not just an afterthought.

Since the 1980’s there’s been a gradual shift of responsibility for your retirement from company pensions and federal social security to individually held 401k type plans. Many of us have not adjusted to this change, and are behind in our retirement savings.

The big question is always, “How much will I need?” The magic number used to be one million dollars. With inflation, a million isn’t what it used to be. And there needs to be no guessing here. You only get one chance. Start with a well thought out savings plan, and revisit it yearly.

You need to have a professional financial planner run the savings numbers for you based on:

• when you choose to retire.
• life expectancy.
• outstanding debts.
• whether or not you’ll be paying for your own health insurance.
• whether or not you wish to work after retirement.
• what type of life style you wish to have.

Choose a financial planner unaffiliated with any money products. Otherwise, their goal will be to sell you their product, not look out for your best interest.

Play with some of the money calculators on line. Get comfortable with the idea that you alone are responsible for how well you will live in your senior years.

Health

You want to be alive and kicking come those golden years.

Eat right.

Lots of fruits and vegetables! Choosing lots of different colored produce guarantees you’re getting a variety of nutrients. Go organic on the “toxic twelve:”apples, bell peppers, celery, cherries, imported grapes, nectarines, peaches, pears, potatoes, raspberries, spinach and strawberries.

Remember, each meal you eat, you make a decision- will I eat a good meal, or a bad meal? If you mess up at breakfast, try to be good at lunch. Most of us aren’t good 100% of the time. I figure if I’m good 80% of the time, my body can recuperate from the other 20% of the time that I’m trashing it.

Exercise. No excuses. Buy a book or a bicycle, join a gym, or get a group of like-minded friends together and start your own group.

The minimum-

For cardio: 3-4 times aerobic something or other per week for 30 minutes. Running is great, but other exercises which avoid impact will be better for your joints in the long run.

To know you are reaching an aerobic heart rate:

You want to get your heart beating at a rate 70%-80% of its maximum heart rate. This is called the target zone. To calculate your target zone:

1. Subtract your age from 220. This is your maximum heart rate.
   • For example, I am 49 years old. 220 - 49 = 171. 171 is my maximum heart rate.
2. Calculate the upper and lower number of beats for your target zone.
   • For me:
     • 171 x 70% = 120 beats per minute
     • 171 x 80% = 137 beats per minutes
3. So I need to get my heart rate between 120 and 137 beats per minute.

To measure my heart rate, I check my pulse by counting the number of beats per 10 seconds, and multiplying by 6.

For muscle and bone strength: Minimum weight resistance exercises 2-4 times per week for 15 minutes.

I accomplish this with a set of dumb bells and a weight bench in my basement. If you’re just starting out, there’s a number of good books out there, or you can join a gym and work with a personal trainer.

Here are some exercise books I’ve enjoyed over the years:

Start Strong, Finsh Strong, by Kenneth Cooper
Body for Life by Bill Phillips
The Fat-Burning Work Out by Joyce Vedral

A Network of Friends and Family

Take the time to form friendships, whether it be by

• joining a club,
• having coffee regularly at a local coffee shop, or
• getting to know people by blogging.

Once you get out there, you’ll find a lot of people such as yourself doing the same thing. Make some younger friends. If you’re in a couple, try to have a few separate friends.

Engaging in Enjoyable Activities

Free time at last! This is what you’ve been waiting for! Finally you have the time to pursue your lost passions. Rekindle a hobby, work on your golf handicap, go to that museum.

Remember, your biggest enemy is inactivity, both mentally and physically.

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Is Phased Retirement the Best Option?

I would have never considered phased retirement ten years ago. But now, with sixty-five looming - only fifteen years away - the idea of working part-time during retirement doesn’t seem so bad. There are a number of benefits. I might be able to retire earlier. I could potentially maintain my health benefits, and reduce the amount of money I’m depleting from my savings.

It would also give me more flexibility now, in paying down my current mortgage. For example, if I live very frugally between now and retirement, I can pay the mortgage off. This would be essential if I were to retire completely. However, what if I could pay it down to within five years of completion, and refinance at the beginning of a phased retirement? Not only would I have more money to live on between now and then, by refinancing, I’d greatly reduce my monthly payment, making it manageable.

In these turbulent economic times, of dropping 401ks, spiraling health costs, and a troubled social security system, for some of us at least, it will take major creativity to maintain our current lifestyle in retirement. Phased retirement is a nice option to have available to help ensure that happens.

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