Retirement Planning Blog

The coming year is going to have no Social Security increase for the retirees. According to an announcement of the Social Security Administration, there won’t be any increase in Social Security cost-of-living for the retirees in 2010. And it is going to be for the first time since the automatic increment of inflation came into effect in 1975 that a particular year won’t see any adjustment in Social Security payments.

Currently, the Social Security payments are linked with the Consumer Price index for the Urban Wage Earners and the Clerical Workers. There has not been any increment in the Consumer Price Index between the third quarter for 2008 and 2009. As per the current law, the existing Social Security beneficiaries are going to receive the same amount as they used to get last year. Unlike this year, last year saw the highest increase in cost-of-living adjustment since 1982, when the recipients received a cost-of-living adjustment of 5.8 percent as the consumer price suddenly rose up due to higher gas price. Social Security plays a major role in maintaining the standard of living for the Americans. One can earn a maximum amount of $106,800 subject to the Social Security tax.

In order to fight against the dormant retirement benefit, President Obama gave his nod to the one-time payment of $250 for the seniors and people with disabilities. As per the proposal, 49 million Social Security recipients, 5 million Supplemental Security Income recipients, 2 million veterans, 1 million public-employee retirees, and 500,000 railroad retirement and disability recipients are going to get checks by mail. Only one time payment will be made per individual. It would cost the government $13 billion.

According to the American Reinvestment and Recovery Act, there is a provision to extend the measure for an additional year. In May 2009, $250 was distributed to every senior as economic recovery payment, which cost around $1.37 billion. In the coming year, it is estimated that more than 50 million people will be benefited from this relief, which in turn, will also be helpful for the economy as a whole. As the values of retirement  homes and accounts are declining day by day, the seniors will be in need of such assistance in the coming days.

Retirement is certainly not the end of ‘working world’, at least in these days! More than 15 percent of the American Seniors with age of 65 and above haven’t bid adieu to their working lives completely. According to a recent report from the American Community Survey (ACS) of the Census Bureau, 62 percent of these working seniors prefer to work part-time. But which is most striking, is the fact that more than one-third (38 percent) of them are still working 35 hours a week or more.

According to Braedyn Woodring and David Howard, researchers of the Census Bureau, many seniors retired from their full-time job but chose to work part-time in order to pursue other work-related interests and also to increase their earnings in their post-retirement days. There are also some seniors who do not retire and continue working full-time. And the reason is quite simple – either they do not want to retire from their work, or have inadequate retirement savings.

If we give a close look on the available data, we can find 52 percent of the seniors with an age of 65 or more work full-time in Columbia district, whereas the percentage comes down to 27 in Wisconsin. The higher percentage of full-time working seniors can also be found in other places in U.S. like Nevada (44 percent), Texas (45 percent) and Puerto Rico (48 percent).

When it comes to post-retirement working, men have a little domination over the women. In 2008, about 42 percent of older men worked for full-time, whereas only 33 percent older women worked for full-time in the same year. It has also been observed that the percentage also vary from state to state. The percentage of full-time working seniors (male) ranges from 60 percent in Washington, D.C. to 31 percent in Wisconsin. Similarly, the percentage for women ranges from 45 percent in Nevada to 21 percent in Vermont. However, analysis is yet to be done as why the percentage varies between states.

Recently a letter from AARP was sent to the Congressional leaders asking for their approval for emergency one-time payments of $250 to the seniors. And the reason is quite simple – to provide some relief to the seniors in this time of economic downturn. It is making the lives of people tough and seniors are not any exception. Owing to the low inflation, seniors aren’t going to get a cost-of-living increase in the Social Security payments in 2010 and most likely in 2011 as well. So, the life is going to be tougher for the seniors in the coming days.

With the rising cost of healthcare, the amounts of insurance premiums are also soaring up. Also the out-of-pocket Medicare costs are going up. Though measure has been taken by the U.S. House of Representatives to keep a lid on the premiums for the part of healthcare covering doctors fees and some other non-hospital expenses, however this constitutes only a small part of the healthcare expenses of the seniors.

According to Cristina Martin, Director of Financial Security of AARP, the economic security of many, especially the retirees who hardly have any time to make up substantial 401(k) and stock market losses, has changed a lot since 2008. As the costs of healthcare, prescription drugs and other daily necessity items are soaring up, seniors are going to face more and more problems in the coming days and would badly require some relief.

However, a recent report by the U.S. Census Bureau states that the seniors have done much better than the other age groups last year. Interestingly, the report says that the incomes of the seniors even increased last year. The poverty rate didn’t get affected and remained almost unchanged, which was amongst the lowest in all major age groups. But AARP strongly contradicts this report. According to AARP, if they included the cost of out-of-pocket medical expenses, which were quite high for the seniors than the other age groups, then the poverty rate for the seniors would have become almost double.

Therefore, whatever may the outcome of some reports be, the reality is, seniors are in great need of some financial relief.

Post-retirement is the perfect phase of life to go for a long holiday. You don’t have the head-ache to manage a few days of leave from your office, you don’t have to look after the education of your children, or you don’t have any other commitments which can restrict you to go for a vacation – post-retirement days offer you a wonderful opportunity to spend a few days away from your home and also from all the worries of daily life. And there is more in store for you – as a senior, you are entitled to a number of discounts in your traveling expenses, which make your trip a truly affordable one. Let’s see how you can make your travel a truly affordable one.

The travel industry has come to realize that retirees could be a potential segment of customers in this field of business. They are the ones who can spend some time in visiting various tourist attractions. Seniors are also economically quite strong to afford the cost of the trip as they don’t have children and their education to take care of. So, they can easily spend their time as well as money to go for a pleasant vacation. And realizing it, many hotels, airlines and other transportation services are focusing on providing lucrative discounts to the seniors in order to woo them. A lot of discounts and attractive deals are on offer for the seniors. However, you may need to do an extensive search for that. But these deals certainly lower down the cost of your vacation.

One of the most popular travel discounts that you can find these days is certainly the hotel discounts for the seniors. A number of hotels, chain of hotels and motels offer attractive discounts to the seniors. Hyatt hotels offer 25 to 50 percent discounts to the seniors of 62 years and above. Marriott hotels offer 15 percent discounts to them. Ramada Inn also has good deals for the AARP members, which offers discounts up to 10 percent.

As a retiree, you can save a few bucks on your airfare as well. Though, not many of the airlines are currently offering discounts to the seniors, however Virgin Atlantic and US Airways have some discounts for the seniors in selected routes. If you are going to travel in buses and trains, you can also get some discounts there too. Greyhound offers 5 percent discounts to the U.S. retirees with an age of 62 and above. Amtrak offer discounts up to 15 percent.

Not only these, as a retiree, you can also avail of various other discounts like entry fees in museums, national parks and others. So, retirement brings you a wonderful opportunity to travel in a much lower cost. It is the right time to go for long vacations and see the beautiful world. Bon Voyage!

Are you a user of IRA and 403(b) accounts? Well, according to a recent report by Government Accountability Office (GAO), you might be paying higher fees than 401(k) savers. As a user of 403(k) and IRA accounts, you might be investing in various products like retail mutual funds and variable annuities, which often charge more comparing to the other investments.

As an IRA and 403(k) user, you may also have fewer bargaining power to negotiate for reduced costs. Again, the 401(k) plan sponsors often pool the assets of the participants to negotiate lower fees on investments. As they account balances of the single IRA investors are too low, those don’t get eligible for volume discounts. As a result, the investors need to pay higher retail costs. On the other hand, it has also been observed that, the 403(b) plan sponsors often lack the required resources to hire retirement plan specialists as well. An able retirement specialist can guide you to reduce participant fees, which the 403(b) plan sponsors often get deprived of. On the other hand, a 401(k) plan can offer you bundled arrangements for fees, which in turn, reduces the costs for the participants.

It has been noticed that, the choices of investments also play a pivotal role in the savings of the account holders. While the 401(k) account holders often found investing in the group annuity products and institutional funds, on the other hand, IRA and 403(k) account holders often prefer individual annuities and various expensive mutual funds. As a result, they pay more than the 401(k) account holders.

Finally, at the time of leaving a job, employees do also have an option to roll over a 401(k) balance into an IRA. However, you need to consider it very carefully before you do so. Though in some cases it has been found that, moving assets from 401(k) to an IRA resulted in increment of investment fees, but all 401(k) plans may not give you the same result.

Come 2010 and the Roth IRA Conversion is going to play the most crucial role in investment decisions as never before. Starting next year, the existing requirements of $100,000 income test is going to be waived as everyone can convert their existing traditional IRA to a Roth IRA. Unlike the other Roth IRA Conversions, 2010 Roth IRA Conversions provide an unprecedented opportunity to hive up tax free retirement income to the retirees. You can now even pay the taxes due on a conversion as well as remove income limits. Due to some significant changes in the new Roth IRA Conversion rules, it has become pretty crucial for the investors to learn the rules clearly in order to take the full advantage of it.

Before we learn more about the 2010 Roth IRA Conversions, just take a look at the two different forms of IRA – the traditional IRAs and the Roth IRAs. It’s 1998 when the Roth IRAs were implemented for the first time. Many opted to convert from the traditional IRAs to Roth IRAs, where many others had to stay away from it due to income limits and some other restrictions. According to the existing Roth IRA Conversions rules, one cannot get converted to Roth IRAs from the traditional one if his/her modified gross income crosses $100,000 mark. There are several advantages of Roth IRS over the traditional one. You don’t get tax deduction for contributing to a Roth IRA. The contributions grow without taxes. And when you withdraw the amount, you don’t even have to pay any taxes. But, in spite of all these advantages, many had to stay away from it for some constraints. However, the 2010 Roth IRA Conversions have brought a wonderful opportunity to the tax payers to get converted to this.

So, where is the 2010 Roth IRA Conversion different from the existing one? To be very frank, it’s in several ways. The new Roth IRA conversion rule allows you to convert your traditional IRA to Roth IRA even if your adjusted gross income goes beyond $100,000. Moreover, you can spread the income tax due on 2010 conversion over next two years. It means, one can include the 2010 conversion amount as taxable income in 2011 and 2012.

Now the question is, who can take advantage of the 2010 Roth IRA Conversions? The golden rule is, learn the rule well. According to the new rule, anyone can convert an existing IRA to a Roth IRA, but it doesn’t imply that anyone can fund a Roth IRA. Good practice would be to start funding a traditional IRA. If you don’t qualify for making traditional IRA contributions or Roth IRA contributions on a ‘before tax’ basis, you can still qualify for making contributions to traditional IRA on an ‘after tax’ basis. If you have been investing in a non-deductible IRA since 2006 through 2010, you will be able to convert those IRAs to Roth IRAs next year as per the new rule.

It has been seen that many investors stay away from making non-deductible contributions to IRAs. There might be several reasons for this. First of all, these are not tax deductible; these also provide a minimal tax shelter. However, by converting these into Roth IRAs, you can easily overcome those drawbacks.

It is always good to be well-informed. And it is also true when it comes to Roth IRA conversions. A bit of knowledge can work wonder for your. Learn the new Roth IRA conversion rules and be prepared for an exciting investment journey.

Believe it nor not, it’s true! It has been observed that it’s quite possible for the school employees to get paid twice! Wondering how it became possible? Well, let’s start with the real-life story of Janice Collette.

It was June 30, 2003 when Janice Collette, the Personnel Director of South-Western Schools received a letter upon her retirement from the service from the district saying, “thanks and appreciation for your past service”. Interestingly, Janice got the letter at a time when the district had already decided to rehire her for future assignments. To be more precise, the district decided to bank upon her service for one more term just the month before her retirement. The end result – Janice, at 58, keeps on working for South-Western schools drawing an annual salary of $107,000 for her present assignment, while getting a pension of almost two-thirds of her $86,000 salary per annum at the same time for her past assignment. So, exciting enough, isn’t it? Well, at least for Janice.

According to the latest reports, in the last school year, the State Teachers Retirement System of Ohio had to disburse more than $741 million in pension benefit to 15,857 faculties and staff members who were still working for the system. It leads to a second retirement plan for thousands of employees. It has been found that, on an average, a retired re-hired professional earns a pension of $46,000 per annum, which is higher than the median household income of Ohio in 2007. To add with this, you include the present salary of the employee and the amount would surpass well ahead of $100,000 per annum in most of the time.

Since the enforcement of the law that allowed employees to rejoin their organization after retirement, a steady rise of the number of retired rehirees could be observed. If the current growth rate of 5 to 12 percent per year is maintained, by next year, the number of retired rehirees would become almost twice the number of 1999. Now the question is, where the number is heading for? Can it de-stable the system? Let’s see what the State Teachers Retirement System has to say on it.

The State Teachers Retirement System believes that rehiring retired personnel neither leads to early retirement of the employees, nor it costs the system more money. According to the rule, in order to retire, an employee either has to be 55 years old or should have served the organization for 30 years. According to the spokeswoman Laura Ecklar, the system is not allowing anybody any special privilege. They are only following the state statute. Moreover, according to her, the majority of retired rehirees get the opportunity to join in jobs that offer $20,000 a year or less, which are more like part-time jobs and hence it saves a lot of money for the system.

Whatever be the amount they earn while rejoining their organization, school employees get the unique opportunity to enhance their earnings by getting paid twice. And it also makes you wondered sometimes, isn’t it?

COLA stands for Cost of Living Adjustments and not Coca-Cola as some might think. COLA is a special retirement benefit which is based on the monthly payment inflation index. After the enactment of the law, an automatic Cost of Living adjustment was provided by Social Security. Through these adjustments, the retirement benefits get increase according to the increase in the rate of inflation.

COLA can be determined by a number of ways. Usually, the calculation is based on the increase in the Consumer Price Index (CPI-W) in the third quarter on the third quarter index of the previous year. The process is pretty simple and is based on some factors such as the Social Security benefits, income of the applicant, the price index, the market condition and so on.

In most cases, the COLA benefits are announced in the month of October every year. The adjustments in the accounts are paid every year in the month of December. The amount of the COLA benefits that you will receive depends as per the CPI-W. Cost of Living Adjustments are also based on the inflation. At times, the yearly COLA can be as high as 14.3% while sometimes it can even come down to 1.3%. Cost of Living adjustments for the year 2008 was around 5.8%.

To cope up with recent recession and also enjoy good benefits, you need to manage your monetary resources in a prudent manner. Proper monetary and financial management is needed to be financially stable even after you retire. There are a number of ways you can do financial planning for retirement years.

Some of the proper means that you can follow are:-

More savings: One of the best ways to manage your money is to make savings. Proper savings can always add to your retirement funds and help you with financial stability in the long run. Try to have a tendency to save. Always have an estimate of the savings and the revenues. If you see that your expenses are exceeding the revenue, it is time to cut down on them and add to your savings.

Opt for 401(K) account: The 401(k) account is one of the best ways to manage your funds. 401k account comes in 401k retirement plans which are mostly employer sponsored plans and provides you with good amount of benefits. At times, 401(k) matching contributions are also provided. If your employer provides such matching contributions, readily accept the offer. The earnings and the investments that you make in the account can reap benefits in the future years.

Have an Individual Retirement Accounts (IRAs): The IRA plans are one of the safest yet lucrative ways to earn good profits. By opting for a retirement account, you can enjoy better benefits in the long run. In addition, the IRA accounts are also entitled to a number of tax exemptions. There are mostly two types of IRA accounts: Traditional IRA and Roth IRA accounts.

Invest in stocks: Proper money management can also take place if you properly invest in the stock market. Try to have a diversified portfolio and invest your money into various channels. Ideally, a diversified portfolio should include stocks, equities, bonds, debentures and other short and long term investments.

The irrevocable life insurance trust is a special type of a trust which allows the exemption of the life insurance amount for the estate tax that you are paying. However, it cannot be changed which makes it at times unfavorable. In spite of some of the drawbacks, these types of trusts are very much preferred because they provide good benefits and tax savings on the estates.

The main objective of the ILIT (Irrevocable Life Insurance Trust) is to reduce the taxes by a considerable amount. However, you need to go through the decisions to forgo an ILIT as there are regular changes in the estate tax rules which may make your money fluctuate over a short period of time.

Irrevocable life insurance trusts also allow for marital exclusion on an unlimited basis. As such, no estate taxes are applicable on the life insurance proceeds that are paid to the spouse after the death of the main applicant. However, in case of the death of surviving spouse, the proceeds or the amount are transferred to his or her estate.

While setting up an ILIT, it is advisable that you take advice from the attorney. An estate lawyer who is expert in estate planning is the ideal choice. You also need to decide on the trustee, the beneficiary of the life insurance and other factors before deciding on the policy.