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“Is that all it needs……………?” July 28, 2015

Posted by forwardfinancialplanning1 in Social Security.
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We continuously read articles predicting the imminent demise of Social Security and lamenting Congress’ lack of action in addressing its shortfalls.  Read an article on the Fox Business website which (if accurate) puts the problem into a much clearer perspective.  Note also, that the following relates only to the Old Age and Survivors’ portion of the Social Security system, and not its Disability component.

The Trustees report noted that the program has an actuarial deficit of 2.68% of taxable payroll.  Due to this shortfall, the fund is paying out more in benefits than it is taking in from current workers.  It obtains these needed dollars from paying out some of the interest it is earning on its many years of accumulated surplus.  By law, this surplus has been invested in US Treasury debt which of course, pays (albeit, low) interest to the Trust Fund.  The Trustees are forecasting that by 2034, the on-going shortfall will consume all of the interest in addition to the principal of the Treasury bonds.  At that point, the program will only be able to pay about 75% of its promised benefits since it will merely be redirecting current in-flows back out in the form of benefit payments. (If that sounds to you like a Ponzi scheme, you are correct).

But what does this “2.68% of payroll actuarial deficit” really mean??  According to the article, it suggests that if an additional 2.68% was coming into the fund, it would not be drained for at least 75 more years.  Since both the employee and the employer are currently assessed 6.2% of payroll for Social Security, an increase of 1.34% on the tab for each party would fix the problem.

I’d be willing to bet that if you told the typical US citizen that they could remedy Social Security’s problems by coughing up an additional 1.34% of their pay, they’d be looking for a place to “sign on.”  Employers may object because of the collective aggregate increase in their payroll costs, but they would most likely adjust their overall cost structure to preserve this pillar of US retirement security.

Now, if we can only give the Trustees the right to invest elsewhere than in low yielding US Treasury debt, we may really fix this mess!!!


Behind the scenes of student loan debt September 8, 2014

Posted by forwardfinancialplanning1 in Education Planning, Social Security.
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It’s a well established fact that student loan debt is an enormous problem in the US, with the total loans outstanding topping $1 trillion. But here’s a finding that points out how the pain is extending far past the students and recent graduates.

Student loan debt typically can’t be discharged in bankruptcy and the government can even garnish Social Security checks to recoup what it’s owed. One might think that this government recourse rarely comes into play as “surely, student loans are paid off by Social Security time”. That would be a bad assumption as US Treasury Department data cited by Bankrate.com indicates that 122,056 Social Security recipients had their checks garnished in 2012 because of delinquent student loans, up from only 6 in 2000.

What a way to spend your retirement!

“You can’t fix stupid….” August 7, 2014

Posted by forwardfinancialplanning1 in 401k plans, Financial Planning, Retirement Savings, Retirement Spending, Roth IRA, Social Security, Traditional IRA.
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I’ve heard people mutter these words many times over the years, but always felt that they were a bit too fatalistic. After all, everyone has the capacity to learn, although the inclination and motivation to do so may be lacking. However, after reviewing a section of the Federal Reserve’s Report on the Economic Well-Being of the U.S., I’m starting to think there’s some truth to such a cynical adage. When asked how they and their spouse will pay for expenses in retirement, an incredible one quarter of all respondents and 14% of those aged 45 and greater chose the answer, “I don’t know.”

I mean, at least they could have said, “winning the lottery……”

The “great experiment” may be soon reaching some conclusions October 2, 2013

Posted by forwardfinancialplanning1 in Pensions, Retirement Savings, Retirement Spending, Social Security.
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Much has been written about the private sector’s shift from employers offering defined benefit plans like traditional pensions, to defined contribution plans such as 401(k)’s, 403b’s, SEP’s and SIMPLE’s. Some pundits have termed this a “great experiment” in shifting retirement plan funding/management responsibility from the employer to the individual. Proponents of the shift applaud its emphasis on self reliance while opponents claim that it’s an abdication of responsibility on the part of employers. Still others point out that defined benefit pension plans, as well as employer based health insurance were employer responses to the wage and price controls imposed by the government after World War II. Being hamstrung (by not being able to raise wages) in their attempts to attract scarce talent in the late 1940’s, many employers offered pensions and health benefits in order to compete. Therefore, says this line of reasoning, employer sponsored retirement benefits are really a vestige from a very different era of US history. Further, they say employer responsibility for funding retirement was not a societal-wide plan, but merely an unintended consequence of government interference in the free market for labor.

Well, if this is truly a “great experiment”, we may start obtaining some data over the next few years. In a recently published research report entitled, “Age and Retirement Benchmarks: Key Analytics that Drive Human Capital Management”, the ADP Research Institute forecasts that 18% of the US workforce will retire in the next five years. If ADP’s predictions come to pass, we’ll soon see how well the aforementioned shift to individual retirement responsibility is going to play out.

Preliminary results do not look very good. Report after report covering “retirement readiness” finds that the average 401(k) balances of these “soon to be” retirees average in the low $100K range. While $100,000 is not an insignificant sum of money it’s clearly not going to last through a potentially long (30+ year) retirement. And, with Social Security also showing strains, one has to wonder how it’s all going to end. Stay tuned.

There might be a problem here…….. April 27, 2013

Posted by forwardfinancialplanning1 in Personal Budgets, Retirement Savings, Retirement Spending, Social Security.
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We’ve commented at times in the past about the lack of retirement preparedness within the US population. The recent Employee Benefits Research Institute (EBRI) 2013 Retirement Confidence Survey puts this in perspective. It found that 46% of workers have less than $10,000 accumulated for retirement. This means that in essence, an enormous proportion of the population will be relying on Social Security as their sole souce of retirement funding. This is a system, of course, that is already showing signs of distress and was never intended to be a sole source of funding for retirement. At the risk of being characterized as “unduly pessimistic”, it appears that as our US population ages, it’s going to be quite a burden on the productive portion of our society.

Is anyone claiming to be a “leader” in Washington paying attention?

“Down Under” financial challenges similar to our own October 18, 2011

Posted by forwardfinancialplanning1 in Pensions, Retirement Savings, Social Security.
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Recently had the pleasure of spending two weeks “down under” in Australia and took some time to review several of their financial publications.  Due to a Chinese driven commodities export boom,  the Australian economy is far more healthy than ours in the United States.  However, a study released by commercial bank, Westpac reveals that Australian women share many of the same retirement concerns as their US counterparts.

The study found that only 13% of Aussie women feel very financially secure.  Almost half report that they feel it is unlikely that they will have the required level of wealth to retire comfortably. About 35% stated they have no idea of their superannuation (an Australian retirement plan similar to a combined Social Security/401k plan) fund balance.  Nearly 70% don’t use a financial advisor, but 36% wish they had a better understanding of the Australian superannuation program.

Much like women in the US, Australian females end up with lower superannuation balances than men because of a 17% gender pay gap as well as “career pauses” for child bearing.  Fully 64% felt that having children significantly affected their ability to work continuously and substantially impacted their working career cycle.

So, despite being below the equator, and a half a world away, women in Australia face most of the same retirement challenges found in the United States.

Is Social Security a Ponzi scheme? September 23, 2011

Posted by forwardfinancialplanning1 in Social Security.
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Republican presidential candidate, Rick Perry took a lot of heat in the press recently  when he described Social Security as a “ponzi scheme”.  Without taking sides in the presidential nomination or election process, let’s take a look at the valididty of Perry’s claim.

According to Investopdia.com, a ponzi scheme is “a fraudulent investing scam that promises high rates of return at little risk to investors.  This scam actually yields the promises to earlier investors, as long as there are more new investors.”

Here’s some relevant facts about the Social security program:

(1)According to an analysis by Dean Leimer of the Social Security Administration,  the first retirees in the system–those born before 1901 earned an 18.04% annual return on their contributions.  People retiring this year earned 2.5%. 

(2) According to a 1996 paper by Cleveland Federal Reserve Bank economists,  Jagadeesh Gokhale and Kevin Lansing, Ida May Fuller, the first Social Security benefits recipient received benefits approaching $20,000 while having only contributed $22 in payroll deductions.  

(3) In 1945, the earliest program data which is available, there were almost 42 contributors supporting each beneficiary.  That ratio has been falling for years and in 2010, stood at less than three contributors for each beneficiary.

The press rarely includes such factual data with their reporting—after all, it’s their job to sell newspapers—–not to provide useful information to support or refute headlines.  However, adding such facts seems to support Perry’s contention. 

What do you think??

Social Security Knowledge May 23, 2011

Posted by forwardfinancialplanning1 in Social Security.
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Most Americans have a general awareness of the Social Security program but lack in-depth knowledge.  Most would also express a desire to know more.   The Center for Retirement Research at Boston College has published two good primers on the subject.  The “Social Security Claiming Guide” provides a good foundation for the decisions that claimants must make.  The “Social Security Fix-It Book” examines the current issues faced by this social program and lays out a variety of possible courses of action.  Both are worthwhile reading and can be found on the Center for Retirement Research website.