Most depressing article of the week………….. April 23, 2012
Posted by forwardfinancialplanning1 in Education Planning, Retirement Spending.add a comment
The internet, airwaves, newspapers and magazines have plenty of content that one would find to be disturbing. A recent release by the US Federal Reserve hit me particularly hard. Their research found that Americans 60 and older still owe about $36 billion in student loans. The report stated that 10% of the loans are delinquent and consumer advocates note that it is not uncommon for Social Security checks to be garnished due to unpaid student loans.
When you combine this information with the fact that the fastest growing age segment for holding mortgage debt is 60-69 year olds, it makes one wonder if these individuals will ever be able to live without debt service hanging over their heads. Since student loans cannot be wiped out by declaring bankruptcy, the collectors will most likely harass these people all the way to their grave.
If anyone needed a reason to avoid or minimize debt buildup, this sounds like it to me. Perhaps the Baby Boomers advice for the next generations will be to “make sure you don’t follow in our foot steps.”.
Supplement to February 15 Posting February 20, 2012
Posted by forwardfinancialplanning1 in Annuities, Fixed Annuities, Retirement Savings, Retirement Spending.add a comment
How bad is the savings shortfall cited in the February 15 posting? According to the Employee Benefits Research Institute (EBRI), 56% of all workers have less than $25,000 in savings for retirement. And, 54% of retirees report that they have less than $25,000 saved. Finally, the EBRI found that 42% of retirees say their current level of debt is a problem.
Maybe the EBRI can call across town in DC and advise the Treasury and Department of Labor that their annuity proposal may not even qualify as “a drop in the bucket”.
For retirement funding, we’re increasingly on our own……….. November 28, 2011
Posted by forwardfinancialplanning1 in Pensions, Retirement Savings, Retirement Spending.2 comments
It’s been a well-known fact that the trend in U.S. corporate retirement plans has been away from defined benefit plans (such as traditional pensions) and towards defined contribution plans such as 401k/403b/457 type plans. And, this trend appears to be accelerating. In 2004, only 45 of the 633 Fortune 1000 companies with defined benefit plans had frozen at least one plan (“Freezing a plan usually means the the sponsor has discontinued future benefit accruals for some or all participants). According to a study by Towers Watson & Company, the equivalent statistics for 2010 are that 237 (or 40%) of the 584 Fortune 1000 employers with defined benefit plans have frozen at least one plan.
The implications of this trend???? Individuals are going to be increasingly reliant on their own resources to fund their retirements. This places a premium on “starting early” and continuing to maintain/maximize contributions throughout one’s tenure in the workforce. Making good investment choices and minimizing expenses will also help, but neither of these factors will be nearly as important as maximizing the number of years for investment compounding to do its thing.
A sobering reality of the aging process November 14, 2011
Posted by forwardfinancialplanning1 in Retirement Spending.add a comment
One of the challenges of retirement planning is estimating how much you expect to spend during those years. As we age, discretionary spending tends to decline, but healthcare spending increases. How much?
The Bureau of Labor Statistics reports the following ranges for Heathcare Spending as a percentage of total spending. (1) Age 45-54–5.4% (2) Age 55-64–7.4% (3) age 65-74–11.4% and Age 75+–15.1% of total spending. If we’re going to need these increasing amounts, we better accumulate greater amounts now.
Honey, let’s talk September 28, 2011
Posted by forwardfinancialplanning1 in Retirement Savings, Retirement Spending.add a comment
Financial services firms conduct many surveys of the general public, and they often provide interesting insights into our financial habits and behaviors. Sometimes they reveal some serious shortcomings or areas needing change. A May 2011 survey by Fidelity Investments revealed that 62% of couples approaching retirement don’t agree on the age at which they plan to retire. An additional finding was that 47% disagreed on whether they would continue to work in retirement. There are times when “silence is golden”. However, this is not one of those times!!
How do you stack up? April 15, 2011
Posted by forwardfinancialplanning1 in Retirement Savings, Retirement Spending.add a comment
The Scottrade survey referenced on April 13 gives us all a grounds for comparison on retirement savings. The statistics were as follows: Retirement savings in the $0-25,000 range–39%; Not sure–24%; $25,001-$100,000–14%; $100,001-$250,000–9%; $250,001-$500,000–7% and More than $500,000–7%. Being “an average American” in this comparison is probably not something we should seek.
More observations on retirement preparedness April 13, 2011
Posted by forwardfinancialplanning1 in Retirement Savings, Retirement Spending.add a comment
A recent Scottrade survey of 1,000 adults published in USA Today highlights the woeful state of retirement preparedness in our country. They found that 39% of respondents have less than $25,000 saved for retirement and an additional 24% aren’t even sure of the amount they’ve saved. While we have no information about the age distribution of respondents, it’s probably safe to assume that it mirrors the nation as a whole. Also, when these two segments are added together, we have a statistically inferred glimpse at nearly 2/3 of the US population. Since the well heralded retirement of the baby boomer generation will swing into high gear over the next ten years, it’s looking increasingly likely that Social Security will become the only source of retirement income for an enormous slice of our population. Congress better get to work shoring up its financial underpinnings!!
Pension myths March 15, 2011
Posted by forwardfinancialplanning1 in Pensions, Retirement Spending.add a comment
Numerous articles have been written lamenting the demise of traditional employer sponsored pension plans. Clearly, the trend over the past 25 years has been for more employers to offer defined contribution plans like 401(k) and 403b(7) plans instead of defined benefit pension plans. However, these pension-related articles have created the impression that previous generations enjoyed generous and widespread defined benefit coverage. Actual data tells a different story.
According to research by the Investment Company Institute, 21% of retirees and their spouses received income from an employer retirement plan in 1975. That percentage is lower than the third of retirees who received income from an employer plan last year. And, the median income in 1975 was only $4,500 (in 2009 dollars) versus $6,000 today. Some might argue that the larger current amount emanated from the employees payroll deferrals, but it must also be remembered that employer matching funds and earnings represent substantial proportions as well. Thus, we see that the defined contribution plans are doing at least as well as defined benefit plans in replacing income in retirement
Bush Tax Cut Extension Subtleties January 9, 2011
Posted by forwardfinancialplanning1 in Income Taxes, Retirement Spending.add a comment
The extension of the Bush tax cuts captured much of the media’s attention at year end, but several nuanced, yet important details went mostly unreported. A favorable option for seniors subject to Required Minimum Distributions (RMD’s) from retirement accounts is a good example. While not originally part of the Bush tax legislation, in recent years Congress has allowed seniors to satisfy RMD requirements by donating their applicable distribution directly to a qualified charity. This one step approach is very beneficial to the charitable organization as it receives the entire RMD as a contribution, rather than a contribution from RMD proceeds that has been reduced by the contributor’s federal income tax liability.
Another positive, but mostly unreported nuance, is that a senior can execute one of these “RMD contributions” to charity in January of 2011, and treat it as if it was done in 2010. This special exception was included because Congress waited until mid-December of 2010 to pass the tax legislation which did not give taxpayers much time for implementation.
Do you feel lucky?? August 9, 2010
Posted by forwardfinancialplanning1 in Financial Planning, Retirement Savings, Retirement Spending.add a comment
Good financial planning entails projections based on reasonable assumptions. Many clients struggle to accept retirement projections that extend out to age 95 or 100 as they doubt that they’ll live that long. Often, they’ll cite life expectancy figures in the mid eighties and fail to recognize that life expectancies reflect only the mid-point (50% of sample lives longer) of a population. The Standard Retirement Services organization puts this dilemma in perspective with the following observation. They note that “one of each ten employees who reach age 65 will live for only four more years while one of the ten will live for 34 more years.” Which do you think you’ll be??
