JANUARY-FEBRUARY, 2015

Will you get your money's worth from Social Security?

    by Steve Vernon, FSA

 

It turns out that whether you'll get your money's worth from your Social Security benefits depends on the demographic group you belong to throughout your life and your own unique life path. The "Money's Worth Ratios" prepared by the office of the chief actuary of the Social Security Administration can help you figure that out.

 

The bottom line is, some people might end up receiving more than their money's worth, while others might receive less. This post takes a look at whether you might be one of the ones who gets your money's worth from Social Security.

 

Whether you consider Social Security to be fair or not depends on a number of factors, such as whether you could be expected to receive your money's worth from Social Security, your unique life circumstances and whether you take a narrow financial view vs. a broad social perspective. This post discusses the various factors to consider when determining for yourself whether Social Security is fair.

 

It's highly likely that Social Security will continue to evolve to meet the emerging needs of our older citizens and to address the ability of current workers to support the system with the taxes they pay. So it should be part of your retirement plan to understand how Social Security works for you and its overall role in our society.

 

Please keep reading for this issue's helpful articles and stories.

 

Which retirement income solutions generate the most retirement income?

 

Using your investments to generate a retirement paycheck is one of the most important -- and challenging -- retirement planning tasks. One very important factor to consider when choosing the best way to generate retirement income is the amount that a specific retirement income generator (RIG) will pay you at the start of retirement.

 

One way to systematically compare the different RIGs is to calculate the payout ratio for each one. The payout ratio is the amount of annual retirement income you'll receive upon retirement divided by the amount of savings used to generate that income.

 

To help you see how this works, this post calculates the payout ratios for a handful of RIGs. The RIG that generates the highest amount of income may surprise you.

 

Should you start your Social Security benefits early and invest?                        

 

Is it a good idea to start your Social Security benefits as early as possible (at age 62), even if you don't need the income right away to meet your living expenses, and then invest this money for future use? A few readers asked this question in response to the my recent post (immediately above) that analyzed the retirement income solutions that generated the highest retirement paycheck.

 

This is a key question you should ask yourself, and there are a few different ways to look at it. Your answer will depend on four important factors:

  • The rate of return you earn on the invested income
  • The rate that Social Security benefits are increased for cost-of-living
  • What you'll eventually do with the benefits you invest
  • How long you'll live

This post gives you insight into whether this strategy could work for you.

 

Can dividend-paying stocks support your retirement?               

 

Does investing in dividend-paying stocks generate a higher or lower retirement paycheck compared to other retirement income generators (RIGs)? With most other RIGs, your retirement paycheck is funded by a combination of investment income and withdrawals of principal. Therefore, such RIGs as systematic withdrawals and annuities usually have a head start over dividend-paying stocks when considering just the total dollar amount of your retirement paycheck.

 

However, the flip side of this consideration is that using dividend-paying stocks preserves your principal, whereas the other methods use up your principal. So here's a key question to ask when making this decision: How big is the difference in a retirement paycheck between dividend stocks and other RIGs? You'll gain insights into this question with this post.


Planning your retirement? Prepare to live on less             

 

Pessimism reigns among baby boomers when it comes to thinking about their retirement years: 41 percent expect their standard of living to fall, according to a recent study by the Transamerica Center for Retirement Studies. Unfortunately, they may not be pessimistic enough.

 

The actual percentage of boomers experiencing a decline in their retirement living standards will likely be far greater, given most people's modest savings. Read here for strategies to make ends meet during your retirement.

 

Will boomers really be able to work past age 65?                   

 

Many surveys have found boomers saying they want to keep working in their retirement years, but there's been much handwringing about their ability to actually do so. Indeed, a December 2014 survey from Transamerica Center for Retirement Studies provides mixed messages on this topic, offering reasons for both hope and concern. Read here to gain helpful insights into your ability to continue working in your retirement years.


Most women will be their own CFO some day   

 

Nine out of 10 U.S. women will be responsible for their finances at some point in their lives. Widowhood and divorce are the two most common ways for women to be on track for eventual promotion to being their own chief financial officer, whether or not they actually want the job. The good news? Many women tend to underestimate their strengths and overlook their resources, according to the 2015 Fidelity Investment Money Fit Women Survey.

 

So if you start now, you can prepare yourself to survive and thrive during your retirement years. This post will help you get started.


Don't wait for Obama's financial advisor rules 

 

President Obama is asking the U.S. Department of Labor to develop a proposal that would require fiduciary standards for financial advisors and brokers who handle retirement accounts. These proposals would specifically target situations where advisors and brokers have the potential to deliver conflicted advice because the advisors or brokers receive fees or commissions that depend on what their clients invest in.

 

This proposal brings to light a critical retirement planning challenge that has a real, direct impact on the financial security of retirees.Don't wait for these proposals to become effective, which might take years and could eventually be watered down. It's best for you to be vigilant now about managing your retirement savings. Read here to learn how you can protect your retirement security.


Resolve to strengthen your financial security   

  

We often joke about failing to make our New Year's resolutions stick, but evidence shows they can help improve our financial health. A recent survey by Fidelity Investments shows that for people who made a financial resolution at the start of 2014, more than half (51 percent) now feel they're better off financially. In contrast, only 38 percent of those who didn't make a financial resolution now feel they're better off.

 

Did you make a financial resolution for 2015, only to see your resolve weaken? If yes, read here for tips for getting back on track.


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Thanks for your interest, and stay tuned for future newsletters that explore how to best live the rest of your life.
 
Best regards,
 





Steve Vernon 
Rest-of-Life Communications

P.S. If you think this newsletter will help a friend, please pass it along.
 

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 Money for Life

    

Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck

 

My latest book answers two of the most important financial questions you'll ever face:

 

How much money do you need to retire?

 

How can you generate reliable income from your retirement savings that lasts for the rest of your life, no matter how long you live and no matter what happens in the economy?

 

Addressing these questions is one of the most critical challenges facing the retirement industry today. 

 

Money for Life is an easy-to-read, easy-to-understand book that outlines specific action steps and includes illustrations and graphs to reinforce the main points. It describes in simple terms the three methods you can use to generate a "retirement paycheck" from your retirement savings. It explains the pros and cons of these methods, as well as their many varieties and permutations. One critical element is the amount of the retirement paycheck you'll be able to generate, which can vary widely depending on the method you choose to generate retirement income.

 

This new book is available in both print and e-book format.  It complements my other published works on retirement planning -- my book, Recession-Proof Your Retirement Years; my DVD, The Quest for Long Life, Health and Prosperity; and my retirement planning website, Money for Life.

 

Please see my website for details on all of my books and DVDs.
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Welcome to

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We fulfill a need for trusted, practical strategies that you can use to plan your rest-of-life (aka retirement).  We rely on the latest research and analyses, and we'll keep it simple!  And that's all we provide; we don't sell insurance, investments or health products, so we can "tell it like it is."

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Steve Vernon has spent 35 years as a consulting actuary, helping large employers design and manage their retirement programs.  Now he's president of Rest-of-Life Communications, where he specializes in providing unbiased, trusted information about retirement.  He also is a Research Scholar at the Stanford Center on  Longevity, and writes a regular column for CBS MoneyWatch titled  Money for Life.

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For information on keynote addresses, workshops or presentations on retirement issues, visit Steve's website at www.restoflife.com, or email him at [email protected]

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