Filed under: Personal Finance, News, Lynnette Khalfani-Cox
Today marks the 75th anniversary of
Social Security. For anyone who is putting payroll taxes into this program, there is both good news and bad news. The good news is that in 75 years, the Social Security system has never been a day late or a dollar short. For over seven decades, the system has paid out promised benefits to workers who've contributed to the system, as well as their families. Another bit of good news: The Social Security Trust Fund has $2.6 trillion in reserves, and that money is collecting interest every day.
Unfortunately, the overall outlook for Social Security is far from rosy.
That $2.6 trillion in reserves won't last forever. Especially with this country running such a huge deficit. Not to mention high unemployment of 9.5%. With 15 million people out of work, that means lots of dollars simply aren't being added to the system in the form of payroll taxes. This is occurring even as more people are living longer, and thus collecting more Social Security benefits for extended periods. All of this helps explain why, if the government does nothing to fix Social Security, the program will run out of money in 2037, according to the
2010 Social Security Trustees Report.
Even more alarming: In 2010, for the first time ever, Social Security will pay out more in benefits than it will collect in payroll taxes. The same thing will happen in 2011. So clearly something needs to be done.
http://xml.channel.aol.com/xmlpublisher/fetch.v2.xml?option=expand_relative_urls&dataUrlNodes=uiConfig,feedConfig,entry&id=922304&pid=922303&uts=1281731183
http://cdn.channel.aol.com/cs_feed_v1_6/csfeedwrapper.swf
10 Deadly Sins of Retirement
Sin No. 2: Passing Up Free Money
If your company still offers a 401(k) "matching" program to which it will contribute a certain percentage of whatever amount you contribute, we hope that you are taking full advantage of that match. Otherwise, shame on you! This is free money! We've heard from some people who aren't contributing to their 401(k) because they are scared of losing money in the market. We say "hogwash!" Every dollar your employee contributes is pure profit! And no one said you have to invest your 401(k) in individual stocks or mutual funds. Review your plan choices to find an investment option that fits your comfort level.
Getty Images
WireImage.com
BlackVoices.com
10 Deadly Sins of Retirement
Retirement Wreckers to Avoid
Warning: Make the wrong decisions in today's treacherous economy, and it could kill the retirement of your dreams. It doesn't matter if you're 30 or 70, your nest egg is at risk, and the money moves you make now are critical. Do you want to live on baked beans and boxed macaroni and cheese in your twilight years? We didn't think so! So click through our gallery as the Dolans warn you about 10 deadly sins of retirement planning.
10 Deadly Sins of Retirement
Sin No. 1: Not Getting Started Right Now
This may sound simple, but this is hands-down, the No. 1 deadly sin of retirement planning. If you haven't started socking money away for retirement, do it now. Not next month or next week or even tomorrow. NOW. Just $100 a month will go a long way. In fact, thanks to the power of compounding, $100 a month at 8% annual interest will turn into $50,000 in just twenty years. $200 could, eventually, turn into almost $100,000! To see how fast your money could multiply, plug your numbers into our easy-to-use calculator.
10 Deadly Sins of Retirement
Sin No. 2: Passing Up Free Money
If your company still offers a 401(k) "matching" program to which it will contribute a certain percentage of whatever amount you contribute, we hope that you are taking full advantage of that match. Otherwise, shame on you! This is free money! We've heard from some people who aren't contributing to their 401(k) because they are scared of losing money in the market. We say "hogwash!" Every dollar your employee contributes is pure profit! And no one said you have to invest your 401(k) in individual stocks or mutual funds. Review your plan choices to find an investment option that fits your comfort level.
10 Deadly Sins of Retirement
Sin No. 3: Putting All Your Eggs in One Basket
Putting too much of your retirement nest egg in one basket is actually a common "sin." You might love your employer's stock, your favorite mutual fund or even a "safe" bank CD. But if something should happen to your company, your fund or your bank, you could be in deep trouble. We've heard heartbreaking stories from people who lost everything because they had all their money in their company stock when it plummeted. Diversity can help your nest egg grow consistently and safely.
10 Deadly Sins of Retirement
Sin No. 4: Underestimating How Much You Will Need
Now let's talk about everyone's worst fear -- outliving your money! Many people completely underestimate how long they'll live and how much they'll need. Your everyday expenses such as groceries, gas and even household utilities, likely won't drop much, if at all, once you retire. Plus, other costs, such as medical care and long-term care -- will go up. Don't fall into this trap! Assume that you'll need 100% of your current income in retirement to maintain your pre-retirement lifestyle. Many people use 70%-80% as a rule of thumb, but unless you plan to dramatically scale down your lifestyle in retirement, you really need to aim much higher (especially considering inflation).
10 Deadly Sins of Retirement
Sin No. 5: Raiding Your Retirement Funds Early
Come on, do you want to have a carefree retirement, or not? Raiding your nest egg early is not going to enable that to happen. We don't care if you need a new roof or that your child can't get a scholarship. Consider taking out a fixed rate home equity loan for the roof and have your child get a student loan for college. We know it sounds harsh, but the point is, do whatever you have to do to NOT touch that retirement account!
10 Deadly Sins of Retirement
Sin No. 6: Putting Retirement Savings Last on the Priority List
How many people have you talked to in the last month who are putting off retirement because they have not saved enough money? Our answer is, "Too many." We all have lots of personal financial obligations competing for our hard-earned dollars: paying off debt, buying a home or car, putting the kids through college. Don't let today's distractions derail your future personal financial well-being. Make saving for your future a top priority.
10 Deadly Sins of Retirement
Sin No. 7: Retiring Too Early
If you've saved "enough" by age 62, should you retire? Not necessarily -- especially if you're healthy and can work a few more years to help make up for any investment losses you may have experienced lately. Plus, at 62, you'll only get partial Social Security payments. Depending on what year you were born, you can collect full payments anywhere between age 65 and 67. See Social Security's benefits page to calculate your optimum time to retire.
10 Deadly Sins of Retirement
Sin No. 8: Mis-Managing Your Tax Advantaged Retirement Account
If you mis-manage your IRA or 401(k), your wallet (and future) will pay the price ... and dearly! Here are a few critical rules that too many people break:
1.If you change jobs and you need to move your 401(k), you MUST move it into another 401k plan or another qualified account within sixty days from the withdrawal.
2. You can't make a withdrawal on your IRA or 401(k) before the age of 59 ½ (though there are exceptions).
3. You MUST start making yearly withdrawals from an IRA or SEP when you reach 70 ½.
Break any of these rules, and you'll be in for a boatload of extra taxes and/or penalty fees.
10 Deadly Sins of Retirement
Sin No. 9: Not Having a Plan ... and Sticking to It!
The old saying is true -- if you fail to plan, you plan to fail. Without a plan, you can't answer critical retirement planning questions such as: How much can you live on once you pick up your last paycheck? How much can you afford to sock away for retirement? More importantly, how much do you need to save? Surveys report that 59% of people who take the time to calculate how much they need to save, end up increasing the amount of money they are putting away!
10 Deadly Sins of Retirement
Proposals To Fix Social Security
Right now, there is talk of raising the age at which people receive Social Security benefits, taxing workers more, and even privatizing Social Security. Who knows which proposals will win out? The truth is that none of us has a crystal ball. So while the politicians battle in out in Washington, D.C. and in towns and cities all across America, here is what you can -- and should -- do about Social Security: Simply put, you should decrease your reliance on it. Why? Because it just might not be there when you need it. This is particularly true for those 40 and under.
All women also need to be especially vigilant about the Social Security dilemma, because most of them haven't saved enough for retirement. Yet, a shocking number of women between the ages of 25 and 64 (75%, to be exact) say they're relying on Social Security for their retirement, according to a recent survey from
Prudential Financial. Check out the survey at
Prudential.com/women, and also get tips and advice there for making sure you're on track to achieve a comfortable retirement.
How to Decrease Your Reliance on Social Security
Here are five strategies for saving more and reducing your reliance on Social Security:
- Consider downsizing your home or relocating well before retirement
Most people downsize to smaller homes or relocate to less expensive parts of the country after the kids leave the house or when they retire. Do it sooner to shave housing costs dramatically -- saving yourself tens of thousands or even hundreds of thousands of dollars that could be stashed into a retirement fund.
- Pay down consumer debt quickly and think twice about taking on new debts
Having long-term debts, like student loans, credit card payments or car loans hinders your ability to save for the future. When you pay off these debts, you can start putting that money into your retirement nest egg.
- Start saving and planning earlier -- i.e. in your 20s, 30s and early 40s
Stop the cycle of procrastination, and don't try to play catch up when you're 50 to 60 years old, as most people do. Also, don't buy into the notion that you "can't afford" to save. Honestly, you can't afford
not to.
- Get professional help
Long-range financial planning isn't rocket science, but it does help to have a reputable, trusted professional offering guidance and advice.
No matter how preoccupied you might be with today's bills and today's concerns, if you fail to save adequately now, and count on Social Security as the sole source of your retirement income -- or for the bulk of it -- you could be making a very big financial mistake.
![]()
Lynnette Khalfani-Cox, an award-winning financial news journalist and former Wall Street Journal reporter for CNBC, has been featured in the Washington Post, USA Today, and the New York Times, as well as magazines ranging from Essence and Redbook to Black Enterprise and Smart Money. Check out her New York Times best seller
'Zero Debt: The Ultimate Guide to Financial Freedom.'
Permalink | Email this | Linking Blogs | Comments
Lynnette Khalfani-Cox, an award-winning financial news journalist and former Wall Street Journal reporter for CNBC, has been featured in the Washington Post, USA Today, and the New York Times, as well as magazines ranging from Essence and Redbook to Black Enterprise and Smart Money. Check out her New York Times best seller 'Zero Debt: The Ultimate Guide to Financial Freedom.'