Making a Retirement Budget

Believe it or not, a retirement budget leads to more fun in retirement! In addition, making a retirement budget helps you avoid one of the biggest retirement mistakes people make – which is spending too much too soon.”

Quoted above is an except from an about.com, Money over 55, article. (View full article here- http://moneyover55.about.com/od/budgetingsaving/a/How-To-Make-A-Retirement-Budget.htm)

Why is making a retirement budget so important? There are many factors that you may end up having no control over when it comes to retirement income, such as when you retire, your Social Security, and the rate of inflation. The one thing you CAN control is your personal spending.

It seems as though many retirees throw the budget out the window when they finally have that retirement check coming in, and unwise or excessive spending can end up being a huge detriment if the retirement funds are not covering what is leaving your bank account.

Others haven’t had to budget in many years and are used to living comfortably without much worry for the balance on their credit card. This can all change when you are suddenly on a fixed income.

The wise course of action is to look at your spending habits now and see where you can start adjusting and adapting to make a smooth transition into retired life.

This type of planning is not difficult and can be started with only a few hours of time, but it’s easy to put off. Why not start working on it today?

Here’s what you’ll need:

  • Your last 6 to 12 months worth of bank account statements
  • Your last 6 to 12 months worth of credit card statements
  • Last two paystubs for you (and your spouse if you are married)
  • 10-12 colored highlighters
  • Last year’s tax return

Use the information on the items above to see where your money has been going and use the highlighters to group expenses into categories.

Above referenced article gives 5 steps to using this information to create your retirement budget.

STEP 1 – Make a list of all your fixed or required monthly obligations.

To make a super effective retirement budget, break this list down into three parts:

  • Essentials: This includes expenses that cover food, clothing, housing, transportation and health care.
  • Non-essential monthly obligations: Although we all may think of cable TV as an essential, it is not. Non-essentials are things like cable, cell phone, gym memberships, subscriptions and other items you receive bills for.
  • Required non-monthly expenses: Items like property taxes, insurance premiums, auto registration and home warranties may come up once a year. Be sure to take these periodic expenses and calculate their cost on a monthly basis and include it in your retirement budget.

STEP 2 – Research your costs for health care before and after retirement.

  • Get estimates from your employer, from AARP sponsored health plans, for from an independent health insurance agent (Cornerstone has over 75 Licensed Representatives across the Nation) so you have accurate idea of these costs by expected retirement age. Account for these costs on your after-retirement budget.

STEP 3 – List all your flexible or optional expenses.

  • This all the fun stuff, like travel, hobbies, sports and entertainment.

STEP 4 – Write down some thoughts on how you want to spend your time in retirement.

  • Ask your spouse to do this also. Think about the things you want to be able to spend money on in retirement. Begin to think about changes you may be willing to make that would reallocate money from items that are less important to items that are more important.

STEP 5 – Calculate Fixed verses Flex

  • Total all your expenses.
  • Total all your fixed expenses separately.
  • Divide your fixed expenses into your total expenses.

How much of your retirement income will go toward fixed expenses? Does this align with your thoughts in Step 4 on how you want to spend your time in retirement?

The About.com article concludes with the following thought: “As a general rule of thumb, if you want more fun in retirement, find ways to lower fixed expenses so you can have more flex to spend on the hobbies and interests you most enjoy!”

Cornerstone Representatives are trained to help you make the most of your retirement in a number of different ways. Are you possibly paying too much for your health or life insurance as mentioned in step 2? Are your investments giving you all the earnings they could? Our agents are available, free of charge to answer these types of questions for you. Please don’t hesitate to contact us if you would like help in planning your retirement budget!

The Future of Social Security

Social Security taxes- They’re taken out of every paycheck. We all see the figures every few weeks on our stub and although a small part of us wishes we could hold onto that money, we know that it’s going towards a good cause, so we let it slide. We are appreciative of a system that is supposed to take care of us after we retire. At least, that’s how it used to be.

When Social Security was enacted in the 1930’s it was a great bargain for its recipients because payroll taxes were very low.

“For the early generations, it was an incredibly good deal,” said Andrew Biggs, a former deputy Social Security commissioner as quoted in a Fox News article.* “The government gave you free money and getting free money is popular.”

The article says that if you retired in 1960, you could expect to get back seven times more in benefits than you paid in Social Security taxes and more if you were a low-income worker, as long as you made it to age 78 for men and 81 for women.

However, in recent years those numbers have changed drastically. According to a 2011 study by the Urban Institute, the average married couple retiring last year paid $598,000 in Social Security taxes during their careers and can only expect to collect about $556,000 in benefits if they live into their 80’s.

Fox’s article explains why the decrease is happening.

“The shift among middle-income workers is happening just as millions of baby boomers are reaching retirement, leaving relatively fewer workers behind to pay into the system. It’s coming at a critical time for Social Security, the federal government’s largest program.

“The trustees who oversee Social security say its funds, which have been built up over the past 30 years with surplus payroll taxes, will run dry in 2033 unless Congress acts. At that point, payroll taxes would provide enough revenue each year to pay about 75 percent of benefits.”

This leaves future generations either getting fewer benefits or paying higher taxes, and individuals who fall into this bracket are less than pleased. One recent college graduate states that she recognizes the money she pays in now, isn’t going to be waiting for her when she retires. “If I wanted Social Security 50 years from now I would have to hope that someone else is still working and putting money aside in their paychecks to pay for my Social Security at that point,” she says.

Some have taken a more aggressive approach and opened their own private retirement accounts to ease their worry that Social Security won’t provide adequate benefits in the future.

David Armbruster, Investment Advisor Representative in South Carolina, sees more and more clients of the younger generation, who are interested in finding the best place to invest their funds.

“They know that although their parents and grandparents have been able to rely on Social Security, it may not be there, or be sufficient when their turn rolls around, and they don’t want to take any chances,” he says.  “The biggest problem that we see overall when it comes to retirement funding is that costs are going up and benefits are going down. For our younger generations, it is imperative, more so now than ever before, that they be involved in their own retirement planning. IRA, 401K, Roth IRA and other retirement vehicles are becoming more and more important. These younger generations will be responsible for their own retirements. Gone are the days of waiting for Uncle Sam to pass out a paycheck. Self sufficiency is a must.

“There are a lot of wonderful investment vehicles out there. Some of the best programs around right now are annuities. Inside annuities we can find protection from market risk, guaranteed growth moving towards retirement, and guaranteed income once we get to retirement. For many folks, annuities will be the tool that can be used to create their own “social security” checks. Pensions are a thing of the past. Social security is moving that direction quickly. People are going to have to get smarter about their planning or plan on working for a lot longer.”

For more information on the types of products discussed above visit www.cswta.com.

http://www.foxnews.com/politics/2012/08/07/new-retirees-receiving-less-in-social-security-than-paid-in-marking-historic/

the future of social security

The future of social security