Articles for January 2017

How Much Will You Spend When You Retire?

Will you have enough money to make ends meet? 

You may have heard that people spend less once they are retired. Statistically, that is true. The question is whether a retiree has enough income to meet his or her expenses.

Ideally, retirees should be able to live comfortably on 70-85% of their end salaries and draw their retirement fund down no more than 4-5% per year during a 30-year retirement. Are these two objectives realistic for the average retiree household?1,2

According to the most recently published Bureau of Labor Statistics data, a household maintained by someone 65 or older had a mean income of $46,627 in 2015 and a disposable income of $42,959 after taxes. That average retiree household spent an average of $44,664 in 2015. So, on average, seniors spent more than they had on hand.2,3

Basic math tells us that 46,627 is roughly 70% of 66,500 and roughly 85% of 55,000. So, a retirement income of $46,627 would correspond to about 70-85% of a typical middle-class salary in 2015. In other words, it appears all too easy for the middle-class worker to transform into the financially challenged retiree.

Why is the average retiree household spending more than its net income? Three possible reasons come to mind. One, the cost of living may be rising faster for retirees than some assume. Social Security bases its cost-of-living adjustments to retiree benefits on changes in the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers). Some economists think Social Security should use a different yardstick. Two, annual health care costs may suddenly jump for some seniors. Three, it is not unusual for new retirees to spend more than they anticipate as they travel and enjoy life.4

How do average retiree expenses break down? Housing costs accounted for $15,529 of that aforementioned $44,664 in 2015 household expenses. Transportation costs took another $6,846. Health care costs made up $5,756 of the total ($3,900 of that went to health insurance, $672 for medicines). Another $1,298 went for mortgage costs.2,3

When you spend more than you make in retirement, you dip into your savings. That fact takes us straight toward a larger problem.

Most baby boomers are approaching retirement with a savings shortfall. The 2016 Employee Financial Wellness Survey from PwC (PriceWaterhouseCoopers) found that 50% of baby boomers had less than $100,000 in a workplace retirement plan. So, drawing down that amount by 4% a year would bring them less than $4,000 in annual retirement income. Of course, some of these employees will be able to tap IRAs, brokerage accounts, or income streams from other sources – but when your workplace retirement plan savings are that scant after age 50, other sources must compensate mightily. For many retirees, Social Security will not take up the slack. The average projected monthly Social Security benefit for 2017 is just $1,360.2

From the numbers in this article, you can glean that the average American retiree faces more than a little financial pressure. If you are a baby boomer who has saved and invested for decades and wants to work longer to give your invested assets a few more years of growth and compounding, you may have above-average prospects for a comfortable retirement.

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com.

Website:  www.cfgiowa.com    

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial. 

Citations.

1 – cbsnews.com/news/how-much-retirement-income-do-you-really-need/ [3/3/16]

2 – fool.com/retirement/2016/12/18/how-much-money-does-the-average-baby-boomer-need-i.aspx [12/18/16]

3 – bls.gov/cex/2015/combined/sage.pdf [8/16]

4 – fool.com/retirement/2016/09/24/heres-why-your-social-security-check-is-hardly-goi.aspx [9/24/16]

 

 

 

Saving $1 Million for Retirement

How can you plan to do it? What kind of financial commitment will it take?

How many of us will retire with $1 million or more in savings? More of us ought to – in fact, more of us may need to, given inflation and the rising cost of health care.

Sadly, few pre-retirees have accumulated that much. A 2015 Government Accountability Office analysis found that the average American aged 55-64 had just $104,000 in retirement money. A 2016 GoBankingRates survey determined that only 13% of Americans had retirement savings of $300,000 or more.1,2

A $100,000 or $300,000 retirement fund might be acceptable if our retirements lasted less than a decade, as was the case for some of our parents. As many of us may live into our eighties and nineties, we may need $1 million or more in savings to avoid financial despair in our old age.

The earlier you begin saving, the more you can take advantage of compound interest. A 25-year-old who directs $405 a month into a tax-advantaged retirement account yielding an average of 7% annually will wind up with $1 million at age 65. Perhaps $405 a month sounds like a lot to devote to this objective, but it only gets harder if you wait. At the same rate of return, a 30-year-old would need to contribute $585 per month to the same retirement account to generate $1 million by age 65.3

The Census Bureau says that the median household income in this country is $53,657. A 45-year-old couple earning that much annually would need to hoard every cent they made for 19 years (and pay no income tax) to end up with $1 million at age 64, absent of investments. So, investing may come to be an important part of your retirement plan.4

What if you are over 40, what then? You still have a chance to retire with $1 million or more, but you must make a bigger present-day financial commitment to that goal than someone younger.

At age 45, you will need to save around $1,317 per month in a tax-advantaged retirement account yielding 10% annually to have $1 million in 20 years. If the account returns just 6% annually, then you would need to direct approximately $2,164 a month into it.4

What if you start trying to build that $1 million retirement fund at age 50? If your retirement account earns a solid 10% per year, you would still need to put around $2,413 a month into it; at a 6% yearly return, the target contribution becomes about $3,439 a month.4

This math may be startling, but it is also hard to argue with. If you are between age 55-65 and have about $100,000 in retirement savings, you may be hard-pressed to adequately finance your future. There are three basic ways to respond to this dilemma. You can choose to live on Social Security, plus the principal and yield from your retirement fund, and risk running out of money within several years (or sooner). Alternately, you can cut your expenses way down – share housing, share or forgo a car, etc., which could preserve more of your money. Or, you could try to work longer, giving your invested retirement savings a chance for additional growth, and explore ways to create new income streams.

How long will a million-dollar retirement fund last? If it is completely uninvested, you could draw down about $35,000 a year from it for 28 years. The upside here is that your invested retirement assets could grow and compound notably during your “second act” to help offset the ongoing withdrawals. The downside is that you will have to contend with inflation and, potentially, major healthcare expenses, which could reduce your savings faster than you anticipate.

So, while $1 million may sound like a huge amount of money to amass for retirement, it really is not – certainly not for a retirement beginning twenty or thirty years from now. Having $2 million or $3 million on hand would be preferable.

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com.

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – investopedia.com/articles/personal-finance/011216/average-retirement-savings-age-2016.asp [12/8/16]

2 – time.com/money/4258451/retirement-savings-survey/ [3/14/16]

3 – interest.com/retirement-planning/news/how-to-save-1-million-for-retirement/ [12/12/16]

4 – reviewjournal.com/business/money/how-realistically-save-1-million-retirement [5/20/16]

 

 

 

The Top Ten Retirement Planning Excuses

Ten common “reasons” why someone does not plan for retirement. 

#10: “I’m too busy

Stop procrastinating. How does the saying go? The best time to plant a tree is 30 years ago. The second best time is … TODAY.

#9:     “It’s too soon

It’s NEVER too soon. The sooner you start planning, the better chance you stand of having the kind of retirement you want.

#8:     “It’s too late

Think again. Even if you’ve already retired, it’s important to consider how you’re receiving income and how long it will last.

#7:     “I don’t need to

This one baffles me. If you’re simply giving monthly to a savings account and hoping for the best, you may be in for an unpleasant surprise someday.

#6:     “I don’t have enough money to get started

Starting small is better than not starting at all, and if you plan well, you should eventually have more to work with.

#5:     “My finances are a mess

Consider speaking with a Financial Professional who can look at your complete financial picture and help you to develop a plan to make your “mess” work for you.

#4:     “The Government will take care of me

If you’re planning to retire on Social Security alone, I would advise you to create a back-up plan at the very least.

#3:     “Between my savings and my 401(k), I’ll be fine

Saving for retirement without an income distribution plan could be a mistake. Have you considered inflation? Taxes? If you live to 100, will the money last?

#2:     “I don’t want to think about it

If you bite the bullet now and put a firm plan in motion, you may not have to think about it again for quite some time.

#1:     “I don’t know how

If you knew everything there was to know about financial planning, you’d probably be a financial advisor yourself. If you’re putting off retirement planning because you don’t know how to begin, consider speaking to a professional who does.

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com

Website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC.  Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor.  Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

 

Could Education Debt Shrink Your Social Security Income?

$1.1 billion has been garnished from retirement benefits to pay back old student loans.

Do you have a federal student loan that needs to be repaid? You may be surprised at what the government might do to collect that money someday, if it is not paid back soon enough.

If that debt lingers too long, you may find your Social Security income reduced. So far, the Department of the Treasury has carved $1.1 billion out of Social Security benefits to try and reduce outstanding student loan debt. It has a long way to go: of that $1.1 billion collected, more than 70% has simply been applied to fees and interest rather than principal.1,2

How many baby boomers & elders are being affected by these garnishments? Roughly 114,000 Social Security recipients older than 50. In the big picture, that number may seem insignificant. After all, 22 million Americans have outstanding federal student loans.1,2,3

What is not insignificant is how quickly the ranks of these seniors have increased. According to the Government Accountability Office, the number of Americans older than 65 who have been hit with these income cuts has risen 540% since 2006.2

A college education is no longer an experience reserved for the young. As older adults have retrained themselves for new careers or sought advanced degrees, they have assumed more education debt.

The financial strain of this mid-life college debt is showing. Since 2005, the population of Americans aged 65 or older with outstanding education loans has grown 385%. The GAO says roughly three-quarters of those loans have been arranged for the borrower’s own higher education.2

Separately, data from the Federal Reserve Bank of New York shows that student loan balances held by Americans older than 60 grew from $6 billion in 2004 to $58 billion in 2014. No other age group saw education debt accumulate so dramatically in that time.1

In 2015, the GAO found that a majority of federally backed student loans held by borrowers older than 75 were in default – that is, a year or more had transpired without a payment. Overall, just one in six federal student loans are in default.1,3

Paying off a student loan in retirement is a real challenge. Household cash flow may not readily allow it, and the debt may not be top of mind. Even declaring bankruptcy may not relieve you of the obligation. The Treasury has the authority to garnish as much as 15% of your Social Security income to attack the debt, and it can claim federal tax refunds and wages as well.1

Is this the right way to solve this problem? It seems like cruel and unusual financial punishment to some. Taking a 5%, 10%, or 15% bite of a retiree’s monthly Social Security benefit is harsh – possibly harsh enough to induce poverty.

In 2015, more than 67,000 people age 50 and older carrying unsettled federal student loans had their Social Security benefits taken below the poverty level because of these income reductions. A Social Security recipient is allowed to retain at least $750 of a garnished monthly benefit – but that $750 minimum has never been adjusted for inflation since that rule was established in 1996. Last year, the federal government defined the poverty level at monthly income of $990 for an individual.2

Some people file for Social Security without knowing that they have unpaid student loans. As the GAO notes, 43% of the borrowers that had their Social Security incomes docked because of this issue had loans originated at least 20 years earlier.2

Is some forgiveness in order? That can be debated. A student loan is not a gift, and a student borrower is tasked to understand its terms. On the other hand, it is a pity to see people go back to school or train themselves for new careers at 40 or 50 only to carry student debt past their peak income years into retirement.

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com.

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.    

Citations.

1 – time.com/money/3913676/student-debt-into-retirement/ [6/30/15]

2 – marketwatch.com/story/more-borrowers-are-losing-social-security-benefits-over-old-student-loans-2016-12-20 [12/20/16]

3 – time.com/money/4284940/student-loan-payments-debt-college/ [4/7/16