Although retirement is often referred to as the golden years, several elderly Americans certainly wouldn’t describe this time of their lives in that way.
In fact, research undertaken by the Center for Social and Demographic Research on Aging at the University of Massachusetts in Boston revealed that up to 50% of Americans over the age of 65 who live on their own and around 25% of those in two-person households simply don’t have enough money to cover even the most basic of essential each month anymore.
Measuring Costs with the Elder Index
The Elder Index measures the basic costs that most households have to cover and how well they’re able to afford them. These costs include housing, food, transportation, health care and other basic essentials and don’t take extras into account such as vacations, eating out or entertainment.
Amounts for the Elder Index vary according to an individual or couple’s actual situation. For those who don’t have to pay a mortgage anymore, the Elder Index is just over $21,000 per year for an individual and just under $32,000 for a couple.
The estimates also increase for anyone who’s still renting to around $25,500 for singles and just over $36,000 for couples. Costs for seniors who still carry mortgages rise to around $32,000 for singles and a little over $42,000 for couples. This means that up to half of senior citizens simply cannot afford to cover their basic living expenses from month to month anymore.
Determining Social Security Benefit Amounts
As of January 2022, Social Security Administration has noted that beneficiaries would be receiving a 5.9% increase in payout amounts. This is one of the largest cost of living adjustments that have ever been made to this benefit.
The average monthly Social Security benefit for eligible single seniors will be around $1,565 per month and approximately $3,187 per month for retired couples where both spouses qualify. This equates to around $18,780 and $38,244 per year respectively, which is not nearly enough for recipients to cover basic expenses, let alone any unexpected emergencies that may crop up.
Although Medicare benefits are available to seniors, these may not always cover all medical expenses after retiring either.
Additional Savings are Crucial
Although it may have been possible to live exclusively on Social Security benefits a few decades ago, this is no longer the case – even for seniors who relocate to cheaper cost of living areas. As such, it’s crucial for everyone who is still working to contribute as much as they can comfortably afford towards some form of savings or retirement plans such as an IRA or 401(k).
Even small amounts saved over the course of 20 to 30 years will make a significant difference to a senior’s budget when the time comes to stop working – thanks to the power of compounding interest. If you would like ot learn more about setting aside funds towards your golden years that will allow you to do more than merely get by each month, contact our financial advisors today.
A large number of retirees are extremely concerned because they feel that their pension funds won’t be sufficient to last them for the rest of their lives – especially if current inflation trends are taken into consideration. However, there are a few steps you can take to ensure that your retirement funds will be able to last for as long as possible.
Consider Taking on Part-time Employment
If you’re still physically active and healthy, it might be worth considering taking a part-time job when you reach retirement age – instead of stopping work completely. This will not only help to reduce the amount of money that needs to be withdrawn from your retirement funds; it will allow you to keep busy for at least a few days a week as well – several older folk often find themselves becoming bored quickly when they stop working altogether.
Check Withdrawal Rates at Least Annually
Your withdrawal rates should be checked at least once a year to determine if you’re living off the interest from your retirement accounts or whether you’re dipping into the capital itself. If it’s discovered that you’re dipping into the capital, it’s a good idea to sit down with a financial advisor and see what can be done to preserve your fund. In most cases, it’s recommended that withdrawal rates don’t exceed 4% of the account’s balance over a 12-month period.
Examine your Budget
Unfortunately, not everyone will be able to continue working after reaching retirement age. If you will be one of the individuals who have to stop working, it’s crucial that you start examining your monthly budget and reducing expenses wherever reasonably possible.
Some of the quickest ways to reduce spending can include downsizing to one vehicle, moving into a smaller home or a property that’s in a more affordable part of town and even asking for senior discounts whenever making purchases – it never hurts to ask.
Avoid Taking on Debt
If you still have to pay for vehicle financing or cover the cost of credit card installments each month after retiring, your Social Security and pension benefits will not last nearly as long as they should – especially when taking the high interest rates that are charged on these payments into consideration as well.
Before you can even think about retiring, it’s crucial to ensure that all outstanding debts are repaid in full. This will allow you to free up funds to cover your essential expenses such as taxes, utilities, potential medical expenses, groceries and hopefully a few fun purchases along the way.
Preserving as much of your pension fund and Social Security benefit as possible by being reasonably frugal will allow you to rest assured that there will be enough money for you to live on once you’ve stopped working. If you would like to obtain a little guidance with regards to stretching your retirement funds as effectively as possible, get in touch with our professional advisors today.Continue reading
Most people have not saved enough for retirement. The closer they get to the end of their working years, the more obvious this becomes.
The good news is that there is a minimum of seven different bills which could help if they were to be passed by Congress. Even more amazing is that some of these bills are prompting the cooperation of both Republicans and Democrats.
Retirement Enhancement and Savings Act (RESA)
If this bill passes it would require employers to tell their employees how much their 401(k) is worth in retirement – not just how much they have currently invested in it.
The idea is that telling people how little is invested in their retirement will generate greater motive to save.
Strengthening Financial Through Short-Term Savings Act
This second bill is designed to help people handle unexpected emergencies. People could sign up at work to have some earnings placed away, tax-free. The idea is to deter people from withdrawing from their retirement accounts, which often comes with heavy penalties.
The Millennial Problem
What does this have to do with millennials? Millennials are a sizable generation in American, which were born between 1982 and 2000. Their biggest worry is that they will never see as much as 80 percent of what they are paying into social security.
The fear is well-founded. Current funding levels for SSI will officially begin paying out higher amounts than it brings in during 2021. By the year 2034 the benefits people receive will need to cut by around 23% to offset this.
How to Fix It
There are a few ways that Congress could potentially fix the problem, although none of the solutions are particularly appealing for anyone. They are, however, better than the option of paying into a fund only to be unable to withdraw your rightful amount come retirement.
The current options being thrown around Congress include:
- Lift the wage cap so all wages are taxable. As of right now, the ceiling for taxed income is $128,400.
- Raise the full retirement age (again). This is currently set at 67 but moving the full retirement marker up another year or two can help offset some of the losses.
- Increase legal immigration so there are more young workers in the country, which would increase the amount of money going towards funding social security.
What Can Be Done?
If Congress doesn’t do anything than millennials will need to plan ahead for a shortage in social security funding, which could potentially drop monthly benefit amounts drastically. Exactly what can be done will depend on your risk tolerance, income limits, and other individual factors, but a few ideas include:
- Closed-end funds – Specialized portfolio usually concentrated within a specific niche or geographical location.
- Real estate investment trusts – Investments in properties producing income or mortgages.
- Asset management and business development companies – Investing in companies who invest in small companies who are likely to grow quickly.
- Master Limited Partnerships – Investment in the production of energy, transportation, processing, etc. This can include anything which generates 90 percent of its revenue from natural resources.
You probably expect Social Security to account for the majority of your retirement income. As such, it only makes sense to know as much as possible about these benefits. Here is some important information about Social Security we think you should know about.
#1. Your filing age can affect your benefits
Many people will become eligible to draw money at age 62. Even so, that does not always mean you should file for Social Security benefits at that time. Your monthly checks increase if you wait until full retirement age, which varies based upon the year you were born. For those born in 1960 or later, that age is currently 67 (not 65 as is commonly thought). The Motley Fool estimates that by filing too early, people can lose out on as much as 25% of their lifetime benefits.
#2. Put off collecting payments, but do not delay too long
You are not required to draw Social Security just because you have reached full retirement age. In fact, waiting past your full retirement age can net you an estimated 8% more in earnings each year. However, those benefits only extend so far, as they stop accumulating after age 70. After that time, there is no longer any incentive to wait.
#3. Your benefits may be smaller than you have anticipated
The average monthly Social Security payment is just $1,404 as of January 2018. That’s not an especially generous figure for most folks, as it comes out to less than $17,000 annually. Many retirees are shocked to discover just how little they are entitled to draw, and are unprepared to live on that amount. The truth is that Social Security was never intended to replace one’s income, but rather was designed to supplement pensions and other savings during your retirement years.
#4. Your Social Security income could be subject to taxes
Thirteen states including Vermont, Minnesota, and Connecticut all tax Social Security benefits to some degree. Others may tax benefits only if you have other income from interest or earnings. Your part-time earnings could even be subject to higher taxes in many states. This means you should not count on any set amount of “take home pay” until after you have reviewed state and local tax laws.
#5. Survivors can draw benefits
In some cases, widows and widowers can be eligible for survivor benefits. Generally speaking, if you are at full retirement age you can draw the same amount your husband or wife received before passing. You may even begin drawing benefits at age 60, provided you have not yet remarried (remarrying after age 60 will not necessarily render you ineligible). Disabled children are sometimes eligible for up to 75% of a parent’s benefits as well.
Knowing how Social Security works can help you get the most from this benefit. Planning to maximize your Social Security benefits is good, but saving and investing in other areas is even better. Speak with a retirement planner to ensure that Social Security is not the only income you must rely on.Continue reading