Simply Junior

Many of you are in the red zone right before retirement, or you’ve already retired. No doubt your number one fear is running out of money in retirement. You’re part of a very large and growing demographic force: 35 million over age 65, 50 million drawing Social Security and 78 million baby boomers now turning 62. This means the future demand for everything used by the “retirement set” will increase, and “retirement prices” will rise dramatically. Many of you may have accumulated a retirement nest egg in a pension account, will draw a company pension and/or have other savings and investments earmarked for retirement. Where should you keep your retirement money?

If you’re keeping up with economic and financial developments, here’s what you’re seeing: sub-prime credit meltdown that has destroyed housing and is now spilling over into automobile debt and credit cards; highly volatile stock and bond markets; a weak dollar fueling higher prices for oil and other goods; more unemployment and rising inflation; retail sales, consumer confidence and new jobs creation in sharp decline; drastic interest rate cuts by the Federal Reserve to avoid a recession; a money giveaway stimulus package from Washington to prop up the lagging economy; widespread talk of recession and stagflation. These all add up to troubled economic times which should prompt you to review where you have your retirement money.

You’re told the stock market is the best long term, but “long term” has a different meaning in retirement. Didn’t the dot.com stock market meltdown in 2000-2002 send many retirees back to work and prevent others from retiring? Aren’t the current inflation-adjusted stock market indexes below their previous peaks? Regardless, the loud voices of Wall Street and investment companies are advising you to buy now at bargain prices. Are the markets headed higher or is their advice self-serving? Who can forecast the economy or the stock market?

If the stock market craters as it did in 2000-02 and 1973-74, and you lose some of your retirement money, how will you replace it? Since there will be no second chance, I encourage you to think carefully before you commit your money. If you’ve been told that you’ll do just fine over the longer run (generally meaning ten years), make sure you can wait this long for a market rebound. Also remember that a rebound is not certain!

What about fixed rate places like government bonds, bank CDs and money market accounts? These are rock-solid safe unless your greatest fear is outliving your money. Since current fixed rates are lower than inflation, you’ll be losing purchasing power with these choices. The potential loss of purchasing power will only add to the risk of outliving your money. What about real estate, collectibles and non-market investments? These are not only risky but generally illiquid. Before committing your retirement money, ask yourself this question: “How will I handle the worse case outcome?”

There is one savings place that offers an “opportunity” to make an above-market rate of return without the risk of loss if held to term. It is guaranteed by some of the world’s oldest, strongest and largest financial companies. The rate of return is determined by stock/bond market indexes with owners sharing in the upside potential but avoiding downside losses. The worse case outcome is a guaranteed positive rate of return. The earned interest is income tax deferred until actually withdrawn and there is no mandatory age when the money must be used. Additionally, it can be turned into a guaranteed lifetime income that can be started, stopped and stored. What’s more, it offers penalty-free partial liquidity for emergencies and bypasses probate if the owner names a beneficiary. It can be opened for a small or a large amount, and sometimes more money can be added later. There is no law which limits the amount of money that can be placed in it. It is truly a safe place to keep retirement money.

It is maligned by Wall Street and bankers because it competes with their products. The financial press doesn’t like it either – primarily because they are uninformed, misinformed or just plain biased. I’m talking about fixed index-linked annuities that are offered by insurance companies: the same companies that insure your home, live, health, business and other valuable assets. The worse case outcome is a positive, albeit small, rate of return if held to maturity, but there is an opportunity to do much better. Fixed index-linked annuities are not for everyone, but you need to consider them as one of your safe options for retirement money. Where are you keeping your retirement money in today’s uncertain and troubled economic climate? If in risky places, now is a great time to review your options.

Shelby J. Smith, Ph.D.

February 2008

Years before my husband retired we started thinking about where we would live. Our homework included attending seminars, reading books, and seeking expert advice. From this research we developed 10 key questions. These questions helped us find our retirement community and they may help you so the same.

1. WHERE DO YOU FEEL THE HAPPIEST? Minnesota is a vacation destination for thousands of people. Since we were already in “vacation land” there was no reason to move. We are happy here.

2. DO YOU WANT TO BE NEAR FAMILY? We live in Rochester, Minnesota and many relatives also live here. We love being with them, especially our twin grandchildren. Family plays a big part in where you live.

3. HOW MUCH SPACE DO YOU NEED? Downsizing was appealing, but we could not make ourselves do it. We live in a three level home and it works for us. Determine how much space you will need in retirement. A smaller place may be a better fit.

4. DO YOU LIKE THE CLIMATE? We have lived in the South and, though we enjoyed it, missed having four seasons. The Minnesota climate suits us just fine. Other climates may suit you.

5. WOULD YOU HAVE A SUPPORT SYSTEM? We have an excellent support system: family, church friends, community contacts, and social services. Evaluate your support system before you decide to move away from it.

6. IS MEDICAL CARE READILY AVAILABLE? Rochester, Minnesota is home of Mayo Clinic so it is a retirement destination for many. When it comes to top-notch medical care we could not be in a better place. Health may determine where you live.

7. WHAT ARE THE TAX RATES? Minnesota has a 6.5% sales tax and the city of Rochester adds more. Our taxes are a bit high, but we are willing to pay them for the quality of life we enjoy. Taxes can be a big budget item so do your research beforehand.

8. WOULD YOU HAVE ACCESS TO CULTURAL EVENTS? Rochester has many cultural events and if we want more we drive to Minneapolis-St. Paul. Friends have moved to university towns to take advantage of concerts and seminars. Your retirement place may depend on the arts.

9. WHAT WOULD YOUR CURRENT HOME NEED? Our home is 18 years old now. To keep it market ready have painted walls/trim, remodeled the kitchen and master bath, installed new carpet, added book shelves and a second fireplace. You may wish to get professional advice about home trends.

10. CAN YOU AFFORD TO LIVE IN YOUR CURRENT HOME ON A RETIREMENT INCOME? For us, staying put was cheaper than moving. Older homes were not selling and local realtors told us to stay put if we could afford to. It was good advice.

Many baby boomers are making the same decision. Sixty per cent of baby boomers plan to stay in their current homes, according to “Retirement Living News,” an electric newsletter published by http://www.retirementliving.com. Instead of moving to a retirement community you may discover, as we did, that you are already there. Welcome home.

Copyright 2006 by Harriet Hodgson

Federal and Postal employees sign onto a “compensation package” when they become employees of the Federal Government or the U.S. Postal Service. Regardless of which agency of the Federal Government an individual works for, an employee of the Federal Government or the U.S. Postal Service is under one of two basic systems: FERS – an acronym for “Federal Employees Retirement Systems” – essentially those employees first hired after December 31, 1983; or CSRS – standing for “Civil Service Retirement System” — those pre-1983 employees. There are some intertwining “cross-overs”, termed as “CSRS Offset”, etc., but for our purposes in discussing Federal Disability Retirement benefits, it is sufficient to simply identify the two main generic designations.

Whether under FERS, CSRS, or CSRS offset, every Federal and Postal employee has multiple benefits when becoming an employee of a Federal Agency or the U.S. Postal Service: salary; health insurance options; life insurance options; Thrift Savings Plan (TSP) contributions; FECA (Federal Employees’ Compensation Act) rights – essentially, the Federal Form of Worker’s Compensation; and Federal Disability Retirement benefits under FERS or CSRS.

Of course, when an individual first becomes employed by the Federal Government or the U.S. Postal Service, it is rare that one takes much notice about the latter two “benefits” as part of the total compensation package. For, how many employees would ask their potential employers about the laws governing employee benefits available if injured on the job, or more rarely, benefits allowable if a person becomes medically disabled from being able to perform one or more of the essential elements of one’s job?

It becomes of great importance, however, when a medical condition begins to impact one’s ability to perform the job that one became employed for, with the Federal Government or the U.S. Postal Service. In such a case, what one doesn’t know, can indeed hurt you. Since you only have one (1) year from time you are separated from Federal Service to file for Federal Disability Retirement benefits under FERS or CSRS, it is important to know your rights. Furthermore, because it is not your agency which determines whether or not you are eligible for Federal Disability, but rather the Office of Personnel Management who reviews and determines whether or not you are approved or disapproved, it is important to have the proper legal representation to secure your financial future.

There are multiple issues governing the preparation and submission of a Federal Disability Retirement Application, including: completion of the proper and necessary Standard Forms; the gathering of the proper medical documentation in order to meet the legal eligibility criteria and prove by a preponderance of the evidence that you are eligible; citation of the proper legal authorities in order to persuade the Office of Personnel Management that you meet the necessary criteria; and overcoming any objections concerning “reasonable accommodations” that the Federal Agency or the U.S. Postal Service often alleges, and which can create one of multiple stumbling blocks in the path to obtaining Federal Disability Retirement benefits under FERS or CSRS.

Retirement – this is a time to pursue dreams by exploring new dimensions of life. This is again the time for some people to get mentally paralyzed with loads to stress and stressful thoughts about how life’s going to be the next phase. Whatever way does retirement come in to one’s life, it’s true that he or she deserves the best and the choicest wishes, as the person is going to get a transition into an entirely new phase of life. The most meaningful and aesthetic of all are those retirement wishes, where you use some really thoughtful words of inspiration and encouragement. Wish the person a life flooded by the waves of happiness and cool splashes of peace – a healthy life, both mentally and physically.

The evidences of the unfulfilled seniors have been observed to be more prone to health problems followed by severe mental depression – usually compounded as time passed by. A good wish with a thoughtful message works like panacea. What to write on a retirement card is the most talked about topic of debate, when it comes to retirement wishes. Here are some points that works like magic:

Write something that comes from your within – from the core of your heart. Your retirement wishes wordings must make the person feel his energy soared higher and spirits lifted to a great height.

Your retirement wishes wordings should give your wish fervor of inspiration and encouragement to flag on a new voyage in the next phase of life. Your wordings should be such that could sprinkle the grains of inspiration on the retired person to gear up a new journey of life even at the age of 60s.

If you are a co-worker of the person who’s retiring from his or her job, it would be really appreciable if your wordings can reflect the memories of the past moments that you spent with him or her in the canteen and conference room.

Retirement quotations and thoughtful sayings on retirement can give your speeches and wishes a special dimension. A beautiful retirement quotes can make your remarks come to bloom and set a distinctive tone for your message that can bring one of life’s most significant changes.

Here are some of the really awesome quotes that you can start off your remarks with:

“It has become clear to most of us that we don’t want “our father’s retirement”; the only thing that needs to be retired is old ideas about retirement.
Our greatest fear and insecurity for our later years should not be about the Social Security system or about being broke but rather about being without purpose and meaningful work.” – Mitch Anthony, author of The New Retire mentality

“Age is only a number, a cipher for the records. A man can’t retire his experience. He must use it. Experience achieves more with less energy and time.” – Bernard Baruch, financier, statesman.

“When I was younger I could remember anything, whether it happened or not; but my faculties are decaying now and soon I shall be so that I cannot remember any but the things that never happened.” – Mark Twain, author.

With your employee 401k retirement plan, becoming a millionaire is incredibly easy. You simply enroll in your employer’s plan, look over the fund choices your company offers to invest in, and then select how much of your pay you want to contribute. Then just relax and watch your retirement account increase. Every now and again just take a look to see if you need to re-balance your account. It is all automatic and you likely won’t even notice the money missing from your paycheck every month.

While a retirement 401k account can seem boring, there are plenty of reasons to get excited:

This activity can make you a multimillionaire with very little effort. A 25-year-old making $40,000 a year who invests 10% of their salary into their 401k plan would have $1.9 million when they are ready to retire (assuming 10% average annual return). Now, let’s that same person receives a 5% raise is received every year. That 401k plan is now worth $3.2 million. Would you be able to live comfortably off of $300,000 during retirement? That’s what you could expect to earn just off the returns on that nest egg. Note that this does not even take into consideration employee matching benefits that would also boost your 401k. This is free money you could be leaving on the table if you are not taking advantage of your company’s matching program.

Time is the investor’s best friend when it comes to building wealth and making your retirement account grow. The sooner you start contributing toward your 401k, the more money there will be at retirement. Compound interest is so powerful that the time variable probably pays a bigger role than you think. The person above, for example, who’s making $40,000 and starts contributing at 35 will only have $1.1 million – a difference in nearly a million dollars.

Your 401k makes it easy for you to invest like a millionaire and put your money directly in an investment account before you are taxed on your income. Self-made millionaires are experts at minimizing their income so they don’t have to claim as much on their taxes. Since your 401k acts as a tax shelter and contributions are pre-tax contributions, you pay less taxes on your take-home pay, invest with tax-free money, and assist in remaining in a lower income tax bracket altogether.

These are just a few benefits of taking advantage of your employer’s 401k plan. Get started now if you haven’t already, or push as much money as you can if you are already enrolled in your company’s plan. At the very least, take full advantage of your company’s matching program so you are not passing up free money.