Will Social Security be there when we need it?

This morning I read a report on new Social Security Statistics.  The Department of Labor and the Social Security Trust Administration released figures that show that there are now only 1.75 people working full time for each person receiving Social Security

This is from Nilus Mattive at Weiss Research:

Fact #1. As recently as 2009, the Social Security Administration was predicting that the program would begin taking in less than it paid out in 2017.

Fact #2. Then, just one year later in 2010, the Social Security program took in less money than it paid out. (The first time since the 1980s.)

Fact #3. This annual shortfall was blamed on the poor economy — i.e. fewer employed people paying in and others choosing to retire early, thus increasing the amount of money being paid in benefits.

Fact #4. At the time, the Social Security Administration said it would only be a temporary slip and that a permanent state of deficits would actually begin in 2016. (Note revision from previous estimate.)

Fact #5. In 2011, the Congressional Budget Office came out and said that the Social Security program had already entered a permanent state of annual deficits. (Woops again.)

Source – Link to full story:  http://www.moneyandmarkets.com at Money and Markets

++++++++++++++++++++++

The politicians keep telling us that people on social security don’t have to worry that coming reforms will only affect the young.  But with facts like these I am not so sure.

If you are retired –or about to retire from a state or city government, your pension is at risk.  Here is a great article by Nilus Mattive, author of Dividend Superstars Newsletter.

Dead ahead: State and city pension FAILURES!

Nilus Mattive

Last week The New York Times dropped a bombshell, reporting that “policy makers are working behind the scenes to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.”

This is truly huge news, with far-reaching consequences. But it shouldn’t come as a surprise if you’ve been reading my columns …

Back in July, I explained how state pension funds around the country had essentially blown their fiduciary responsibilities to retirees and their broader constituencies.

Specifically, I wrote:

“They have been consistently underestimating how much money they’ll need down the line. In essence they are pretending that inflation doesn’t exist …

“Second, despite the major losses they actually experienced in their portfolios, they are acting as if those losses haven’t completely happened yet. Instead, they are basically just figuring that things will turn around if they wait long enough …

“And interestingly enough, when these same investors were winning big a few years ago, they put off contributing more of their current earnings into their accounts … essentially letting their profits carry the day, or even borrowing money from their accounts!

“Even today, with their balances way off what they should be, they are failing to contribute to their accounts. Some are even playing ‘shell games,’ by moving money around to make it look like they’re in better shape than they really are.

Then, this past September, I discussed some of the specific state pension plans at risk of imminent failure, along with arguments and steps legislators were employing to wiggle out of past promises.

Now, you’ll get no argument from me that many employee organizations expected — nay, demanded — far too much every time they went to the negotiating table. Yet I still place most of the blame for this impending crisis on career politicians.

Like coddling parents who never say “no” to their children, they were willing to promise anything to get elected and then to stay in office …

They were happy to ignore budgets and dole out money that wasn’t even in the kitty yet …

And they stubbornly put off pending problems, acting as if the piper would never show up asking for payment.

From capitol to capitol, it was just one big game of musical chairs. Now the needle has careened off the record with one last deafening screech.

Worse, the States Are Just One Facet of

This Massive National Pension Crisis!

Similar pension problems are emerging among U.S. cities, too — where local governments can already declare bankruptcy and, in some cases, hang pensioners out to dry.

And even in places where constitutions currently protect pensions, mounting problems at the state level may ultimately unravel — or at least sharply impact — retirement benefits at the local level.

Just take a look at the latest headlines and you’ll see just how widespread the problems are …

In New York City, pension costs have more than quadrupled in the past decade, from $1.5 billion in 2001 to $7 billion this year! That’s why Mayor Bloomberg recently echoed Governor Cuomo’s state-level battle to rein in pension costs, threatening huge layoffs unless unions accept drastic retirement reforms.

Meanwhile, in Cincinnati, lawmakers currently owe retirees about $1 billion more than they have socked away. And as this story explains, it’s a real mess.

Just some of the highlights:

* “[There are] policies that allow some workers to retire with pensions of up to 90 percent of their three highest years’ salary, guaranteed 3 percent annual increases, lifetime health coverage at negligible cost and other benefits far beyond those found in most private and public retirement plans.”

* “From 2000 to 2009, investment earnings failed in half of the years to meet an 8 percent [return] goal.”

* To solve the problems, “trustees are considering proposals to raise retirement ages, lower annual cost-of-living adjustments, shift a greater share of health costs to retirees and alter pension calculation formulas.”

Look, we’ve already seen this movie with corporate pension problems over the last decade. Countless plans failed … countless more were shuttered for current employees … and a whole mess of people lost important benefits there were counting on.

Plus, as I’ve noted in the past, the government’s backup insurance plan for these failed private plans is itself underfunded by many billions.

With these same issues appearing in cities and states from one coast to the other, a lot of folks have been asking if Washington will step in.

Well, if that New York Times article is any indication, the answer is yes — Washington may step in to LET state and local governments renege on at least some of the benefits they owe retirees!

It’s not like Uncle Sam really has a choice. In addition to owing private pensioners more than what’s in the kitty, there’s also that pesky issue of massive shortfalls in the Social Security program.

So What Can You Do to Protect Yourself?

It doesn’t matter if you’re a government worker or just a regular citizen … this national pension crisis is going to affect you — directly or indirectly.

It may mean a sharp decrease in your retirement benefits. Or it could reduce the public services available in your city or town. And it will almost definitely lead to higher taxes.

So I suggest you get as much information as you can on the rapidly developing state and local debt crises striking our nation … and learn how to hedge against these problems with new investments that are now available.

In addition, I consider it absolutely critical that build up your own income-generating portfolio as quickly as possible, preferably in tax-sheltered accounts.

I’m helping my own dad do this right now, because we recognize that his state pension is no more guaranteed than anyone else’s.

As the latest headlines demonstrate, past promises to retirees are no longer sacred and benefits are no longer guaranteed. So if you’ve been putting off your personal protection plan, please make it your first priority in 2011.

Best wishes,

Nilus

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

by Nilus Mattive 08-24-10

Fidelity just released a new report and it’s pretty depressing.

The upshot? A record number of Americans are making hardship withdrawals from their 401(k) retirement plans. Worse yet, the number of U.S. workers borrowing from their plans is also at a 10-year high!

I’ll get to why this is so disheartening in a moment. But first …

A Quick Look at the Ways to Remove Money from a 401(k) Plan

The 401(k) plan is the most ubiquitous retirement account in the United States, and for good reason: Any money employees contribute is not counted for income tax purposes. Instead, it’s taxed — along with investment earnings — upon withdrawal.

So how and when can money come out of a 401(k) plan?

The first way is upon retirement, which is defined by the tax code as the contributor reaching age 59 ½. At that point and beyond, any money that comes out of a 401(k) plan is simply taxed as regular income.

The second way is through separation of employment. In this case, the contributor has four choices, which boil down to:

1. Leaving the money where it is
2. Rolling it over into a new employer’s plan
3. Rolling it into an Individual Retirement Account
4. Withdrawing it.

When done correctly, the first three options don’t result in any taxes or penalties. However, the fourth option DOES (unless the employee also happens to meet the conditions for retirement discussed above).

In short, money that comes out of a 401(k) plan before the contributor reaches age 59 ½ results in both regular income taxes being due but ALSO a 10 percent early withdrawal penalty.

The third way is through what is known as a “hardship withdrawal.” While they’re not required to do so, most 401(k) plans allow contributors to remove money under certain circumstances — including medical expenses, the purchase of a principal residence, tuition and related educational costs, and funeral expenses.

Individual plans have some leeway in how they specifically define “hardship” and what particular events can trigger withdrawals, but the IRS does provide the following guidelines:

“For a distribution from a 401(k) plan to be on account of hardship, it must be made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need. The need of the employee includes the need of the employee’s spouse or dependent.

“Under the provisions of the Pension Protection Act of 2006, the need of the employee also may include the need of the employee’s non-spouse, non-dependent beneficiary.

“A distribution is not considered necessary to satisfy an immediate and heavy financial need of an employee if the employee has other resources available to meet the need, including assets of the employee’s spouse and minor children. Whether other resources are available is determined based on facts and circumstances.”

In a few specific cases — such as death, permanent disability, or termination of service after age 55 — the IRS will not impose the 10 percent early penalty on these withdrawals. But in most other cases it will.

Worse, employees will also be required to pay ordinary income taxes on the amount removed.

And they will most likely be barred from contributing any new money to any employer retirement plan for at least the following six months!

The fourth way to remove money — temporarily — from a 401(k) is through a loan. Many plans will also allow participants to take out loans from their 401(k) accounts.

Generally, these loans have five-year terms — unless it’s for a primary residence — and carry fixed interest rates. Repayments must be made in regular installments, and everything goes back into the 401(k).

Now, Here’s Why I Find All the Current Borrowing and Withdrawing So Troubling …

Obviously, a lot of Americans have hit rough patches lately … and other sources of credit remain in short demand … which is why hardship withdrawals are at an all-time high.

Borrowing from a retirement account now could leave you struggling down the line …

But with so many people nearing retirement already grossly underfunded, watching even more money flow out of their accounts is going to prove catastrophic down the line.

And since most of those withdrawals are getting hit with not just regular taxes but also the additional 10 percent penalty, we’re talking about a lot of nest egg money getting vaporized before it even goes toward their immediate needs!

Oh, and get this — Fidelity said 45 percent of the people who took a hardship loan last year took ANOTHER ONE this year!

What about all the 401(k) borrowing going on?

Well, on the surface it’s better to take a loan than an outright withdrawal because taxes and penalties aren’t assessed.

Still, there are a couple of things I find problematic:

#1. Unlike hardship withdrawals, there are no hard-and-fast rules on loans. So there’s no guarantee that this money is truly being borrowed for dire circumstances. People could simply be tapping their future retirements in the same way that they tapped their home equity a few years ago.

#2. While it’s true that this money should ultimately be repaid, and at least the interest will go back to into the retirement account, it essentially means that very little new money will be contributed. The end result will be a lower final balance and the loss of the very tax advantages that make 401(k)s attractive in the first place.

Look, if you’re absolutely stuck right now, then you’ve got to do what’s necessary. But in my opinion, you should avoid 401(k) hardship withdrawals at all costs … and think long and hard before you consider borrowing against your future retirement.

After all, the other typical sources of retirement income are looking shakier than they ever have before … and the folks tapping their 401(k)s may find themselves completely out of options in their golden years.

Best wishes,

Nilus

© 2010 by Weiss Research, Inc. All rights reserved.

Here is a great article by Amber Dakar from Money & Markets about 5 unconventional ways to cut your daily living expenses and save money.

5 Unconventional Ways to Save

by Amber Dakar

Federal income tax returns are due in eight days. And as you’re scrambling to get yours finished, how you’ve spent your money in 2009 should be fresh on your mind. That’s why this is a great time to start (or revisit) your personal savings plan for the rest of this year.

Now, we all know about the “conventional” ways to save — including opening a traditional savings account, starting a Christmas club account, accumulating debit card rewards or bank points with our everyday purchases, and setting up monthly automatic deposits to savings accounts.

So, today I’d like to explore five unconventional methods for socking away a little extra cash each month …

Savings Strategy #1: Separate your long distance phone carrier

Instead of bundling all your phone services, consider separating them. There are several long distance phone carriers that charge you cheap rates for only the long distance calls you make.

How it works: They charge about 3 cents or 4 cents per minute with six-second billing increments and no minimums or monthly fees.

For instance, if you call someone out of state and talk for an hour or so, your bill can be as low as $5 or $6, including taxes and fees, for the month. And if you don’t talk to anyone in a month, your bill is zero!

Pioneer Telephone is one example of a company that offers this type of service. But there are plenty of others with similar services. Just do a quick Internet search and you’ll find lots of choices.

Savings Strategy #2:   Enroll in your local utility company’s budget plan

By enrolling in a budget plan, participating customers pay about the same amount each month, no matter what the temperature does.

Your utility company’s budget plan might not save you money, but it could make budgeting each month a whole lot easier.

How it works: The utility company looks at your energy usage for the previous 12 months. Then, your monthly budget billing amount will be based on the average of your actual bills during the last 12 months.

While it may not actually save you money, the predictable nature of this payment system makes it much easier for you to budget. And that means it will be far easier for you to find ways to regularly plan and save.

Savings Strategy #3: Switch to a cash-back gas credit card

If you haven’t done so already, consider applying for a gas-company credit card that offers cash-back rebates with your purchases.

For example, BP Plc has the following program for their customers: If they buy Amoco Ultimate gas they will earn a 2 percent rebate on every $1 of net purchases made at BP locations with no limit on the number of rebates they can accumulate in the program.

Then, for every $25 earned in rebates they can receive a $25 BP gift card … receive a check for the amount … or donate the rebate to an environmental charity.

And there are plenty of other gas companies offering similar rebate programs. A simple Internet search will yield plenty of choices.

Savings Strategy #4: Review your auto insurance bill

We’ve all seen the commercials telling us to shop around for a better rate because we may be paying more than necessary with our current carrier. And in some cases it can be true!

You may find you’re being overcharged by a company you’ve been loyal to for years. So, it’s best to at least shop around to see if you’re getting the best rate possible. A couple of phone calls or web searches can really pay off.

It also makes sense to revisit the individual line items on your current bill. You may find overlap with other insurance plans you have — such as the policy from your healthcare insurance provider — or pieces of coverage that no longer apply to your current situation. Cutting a few superfluous options will yield big savings without sacrificing your overall protection.

Savings Strategy #5: Download coupons online

If you’re looking for discounts on your purchases, they’re probably just a mouse click away.

Taking the time to search for online coupons could mean big savings on products you regularly buy.

One popular website is coupons.com, and all you need to get started is your zip code. The site will tell you which coupons apply to your area. Another website I like is SmartSource.com, the self-described “#1 Website for Printable Grocery Coupons.”

Plus, if you buy items online, it almost always pays to do a quick search for coupons that apply to the particular online store or product you’re looking at.

And if you have an iPhone, an application like Yowza can also help you save money while on the go. The app finds deals and coupons in your geographic area … then, at the cash register, you show the clerk the Yowza deal on your mobile device and they’ll simply scan the barcode on the screen!

One word of warning: When visiting these websites or downloading mobile phone apps, some stores you patronize may not honor online coupons or deals. So before you run out the door with your online coupons in hand, please check with your local store to see if they accept them.

Best wishes,
Amber

+++++++++++++++++++++++++

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

Once you retire, living on a fixed income has its challenges. One of the best ways to manage your money and make sure you meet your needs and avoid unnecessary debt is to budget. Too many seniors plan only with long-term budgets, but one of the tricks for successful budgeting is to have interim short-term budgets. (See step #1)

Unless you budget your money, you’re begging to go deeper into debt, and making it impossible to save. Take these steps to figure out how much money is supposed to go where so you can control your spending accordingly.

Steps

• Create a budget every time you get money. For most people, this is once every two weeks. Sometimes it’s weekly, sometimes it’s monthly. Either way, it’s a regular interval, and it’s the best time to decide how you’re going to spend your money. Make a personal rule that you won’t spend any of your paycheck money until you’ve worked out your budget.
• Make a list of all the things you’ll need to pay for until the next paycheck, such as:
  • Rent/mortgage
  • Utilities
  • Medicare/Medigap Premiums, medications
  •  Food/groceries
  • Vehicle payments, insurance, maintenance (e.g. oil changes, tire rotations), Gas
  • Any debt payments
• Anticipate how much you’ll need to pay for each and write that amount next to the corresponding item on the list. You can also opt to pay for a fraction of something that isn’t going to be due until after the next paycheck. For example, if your rent is $800 due on June 1, you just got paid $700 on May 12, and your next paycheck will be $700 on May 26, it may be wise to set aside $400 from this paycheck for rent so that you only need to take $400 out of your next paycheck to pay for rent.
• Add up all of the amounts (we will call this your regular expenses) and subtract it from your paycheck amount. Do you get a negative number? Then you are living way beyond your means. Something has to go, or you will have to find a way to supplement your income. If you have money leftover, split that money up into a few groups:
• Savings. Ideally, this should be about 30% of your paycheck, although even 10% (if you do it consistently) is pretty good. Build up enough savings for an emergency fund (6 times your regular monthly expenses), then start saving money to invest.
• Emergency money. I like to keep about 25% of regular monthly expenses in an emergency fund. This would cover things like sudden unexpected car repairs, or extra medications if you get sick or that Grandson’s birthday you forgot.
• Spending money. This is whatever is leftover after you subtract emergency money and savings money. It’s what you’d spend on things like clothes, eating out, movies, gifts, and anything fun, basically. If you start to cry when you realize how little fun money you have, then you need learn How to make some extra money.

Keep everything but your spending money out of reach. Leave everything (except your spending money) in the bank. Withdraw all of your fun money in cash, and leave your debit card (and credit card[s]) at home. Use the cash for anything you want, just make sure you make it last until your next paycheck. You might not want to carry it on you all at once, but having physical cash will help you keep better track of your fun money than using a card.