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Retire On Social Security
Live Well on a Budget of $1,000 a Month
Today's Commentary
PUBLIC RETIREMENT PLANS AT RISK
THE LOST DECADE OF STOCK MARKET RETURNS PUTS RETIREMENT
BENEFITS IN JEOPARDY
What many retirees fail to realize is how dramatically their
retirement benefits are affected by the overall returns of the stock
and bond markets. To understand the impact lets create a simple
hypothetical retirement plan.
The plan has one employee, Bill, who is 55 in 2001. The employee
will retire in ten years and will live only ten years. The plan will
pay him a defined benefit of $10,000 a year when he reaches the age of
65. Note that even in this simple example we have already made an
actuarial assumption: he will live only 10 years.
In 2001 we begin depositing money into Bill’s account. We
shouldn’t have to deposit the full $10,000 today because the money
won’t be disbursed for ten years and it will grow in value. The
money will be invested in the stock market (bonds make up a large
portion of retirement funds and we will cover that problem in a
separate analysis) but how much should we deposit? For a guide we
look to past history. Over the prior ten years (1991 – 2001) the
stock market rose by about 120% (12% per year). Wishing to be
conservative, we assume that the money will grow by only 10% a year.
That means, for example that if there were only one $10,000 payment
and it was the next year then we would deposit $9,000 today. If it
were two years out we would deposit $8,100. Similarly, since the
disbursements are a rolling ten years out, we only deposit $3,487 each
year (based on those assumptions) which will pay Bill $10,000 a year
for his ten year life expectancy. Thus, over ten years we
deposited a total of $34,870 into Bill’s account and are committed
to pay him a total of $100,000 during his retirement.
You can probably see the problem right away. What happens if the
account earns less than the 10% annual growth rate assumption? What
happens when the stock market goes nowhere for a decade (as has just
happened)?
(That’s why Social Security, as it was originally constructed, was
such a brilliant – Tax. When Social Security was established they
assumed - based on life-expectancy then - that most contributors
would: one, die before they collected any money or two, die very soon
after retirement. The survivors would be happy voters and those who
got nothing would not complain because they would be - dead. The
government gets a lot of money and will only repay a pittance.
Brilliant! Except…beneficiaries did the unthinkable, due to
advances in medicine etc., they didn’t die as planned. But Social
Security’s problems are another subject)
Well, it’s now 2011 and Bill retires. Guess what? The total
gains from the stock market are zero. So, there is only $34,870 in
his account and a “promise” to pay him $100,000. The account is
only 35% funded. It is – underfunded – by $65,130! How long
can you pay Bill the $10,000 a year he is expecting? How much can
the account actually afford to pay him each year for life?
Bill may not know it yet, but he has a BIG problem. Now that you
understand the nature of the problem you will appreciate the meaning
of what “underfunded” means to your retirement and what kind of
problem you may be facing.
The American Enterprise Institute estimates that public pensions are
currently underfunded by THREE TRILLION DOLLARS! If you are the
beneficiary of a public pension plan I suggest – STRONGLY – that
you go to their study to see just how secure your benefits are. Go to
this link: (page 42 – 44).
HERE ARE SOME REPRESENTATIVE LEVELS OF FUNDING:
AlaskaTeachers 37% Alabama
Teachers 42% Arkansas Teachers 45%
Arizona S.R.S. 44%
Calif.Teachers 47% Colorado
State 34%
Conn. Teachers
32% FloridaR.S.
57% GeorgiaTeachers 54%
HawaiiE. R. S. 36%
Iowa 51%
Idaho 51%
IllinoisTeachers
28% IndianaP.E.R.F. 57%
Kansas P.E.R.S. 38%
KentuckyE.R.S. 30% LouisianaS.E.R.S.
35% Mass. Teachers 38%
MarylandP.E.R.S. 43% MaineState
41% Mich. S.E.R.S 46%
Minnesota 45%
Missouri 43%
Missippi P.E.R.S. 39%
MontanaP.E.R.S. 48% N.
Carolina 60% N.
Dakota P.E.R.S. 49%
Nebraska Schools 48% New
Hampshire 34% New JerseyP.E.R.S.
38%
New MexicoP.E.R.F.
50% Nevada
42% N.Y. State & Local 56%
Ohio P.E.R.S. 51% Oklahoma
P.E.R.S. 42% Oregon P.E.R.S. 58%
Penn. State E.R.S. 44% Rhode Island
E.R.S. 29% S.
Carolina 42%
S. Dakota 53%
Tenn.State & Teach. 51% Texas
E.R.S. 49%
Utah
45% Virginia
R.S. 47% Vermont
State 50%
Wash.P.E.R.S. 2/3 54%
Wisconsin 54% W.
VirginiaP.E.R.S. 48%
Wyoming 46%
You can’t look at these levels of funding and believe that everyone
is going to get what they think. Should the markets – decline
further – these coverage figures will get even worse. This is why
we have been urging retirees not to expect that they will get what
they’ve been promised and to live beneath their means. When it
comes to your retirement it may prove best to plan that it is you
ultimately who may be the main source of your financial security.
A good way to get your expenses under control and save money is to
invest in our guide: _RETIRE ON SOCIAL SECURITY_, available on this
website.
HOW WILL EARLY RETIREMENT AFFECT WHAT YOU RECEIVE IN SOCIAL SECURITY
BENEFITS?
The table below is for beneficiaries who were born between the years
1943 and 1954. Full retirement age for those born in this period is 66
years. You can begin collecting benefits as early as age 62. The
following table provides the percentage of your full retirement
benefits that you will receive should you decide to retire early.
Examples of how much your Social Security benefit will be reduced by
early retirement if you would receive $1,000 a month at full
retirement age of 66. You decide to retire early at age 63 and three
months. You would receive 81.7% of your full retirement benefit
($1,000) which would be $817.00 a month. Wait one more month and the
monthly benefit would be $822.00. You want to retire early but need at
least $900 a month in benefits. You would have to wait until age 64
and 6 months before you would get (90% of your full benefit) $900.00.
AGE YOU RETIRE % OF BENEFIT YOU RECEIVE
SPOUSE % OF BENEFIT
62 75.0%
35.0%
62 + 1 month
75.4
35.2
62 + 2 months
75.8
35.4
62 + 3 months
76.3
35.6
62 + 4 months
76.7 35.8
62 + 5 months
77.1
36.0
62 +
6 77.5
36.3
62 + 7 months
77.9
36.5
62 + 8
months 78.3
36.7
62 + 9 months
78.8
36.9
62 + 10 months
79.2
37.1
62 + 11 months
79.6
37.3
63 80.0
37.5
63 + 1 month
80.6
37.8
63 + 2 months
81.1
38.2
63 + 3 months
81.7
38.5
63 + 4 months
82.2
38.9
63 + 5 months
82.8
39.2
63 + 6 months
83.3
39.6
63 + 7 months
83.9
39.9
63 + 8 months
84.4
40.3
63 + 9 months
85.0
40.6
63 + 10 months
85.6
41.0
63 + 11 months
86.1
41.3
64
86.7
41.7
64 + 1 month
87.2
42.0
64 + 2 months
87.8
42.4
64 + 3 months
88.3
42.7
64 + 4 months
88.9
43.1
64 + 5
months 89.4
43.4
64 + 6 months
90.0
43.8
64 + 7 months
90.6
44.1
64 + 8 months
91.1 44.4
64 + 9 months
91.7
44.8
64 + 10 months
92.2
45.1
64 + 11 months
92.8
45.5
65
93.3
45.8
65 + 1 month
93.9
46.2
65 + 2 months
94.4
46.5
65 + 3 months
95.0 46.9
65 + 4 months
95.6
47.2
65 + 5 months
96.1
47.6
65 + 6 months
96.7
47.9
65 + 7 months
97.2
48.3
65 + 8 months
97.8
48.6
65 + 9 months
98.3
49.0
65 + 10 months
98.9
49.3
65 + 11 months
99.4 49.7
66
100.0 50.0
YOUR MONTHLY MEDICARE PAYMENT TO SKYROCKET
So, we have health care reform – Obamacare. In case you missed it,
as part of the new health care, your contributions to Medicare will
skyrocket. But guess when the big increases come? Come on, this
shouldn’t be difficult. Let’s see…it is now 2011 and the
election is when?
Here is how much the government will be deducting from your Social
Security checks.
2011 Monthly deduction - $96.40
2012 MONTHLY DEDUCTION - $104.20
2013 MONTHLY DEDUCTION - $120.20
2014 MONTHLY DEDUCTION - $247.00
That's a 150%+ increase in three years!
Care to guess what the deduction was when Medicare began in 1965? How
about $3.00.
Remember the old adage about never letting the camel stick its head
in the tent? Government intrusion always starts small and for the
common good but just like the camel, once you let the head in, the
whole camel will soon follow and you’ll be the one out in the cold
(or eaten alive).
Today’s video:
THANK YOU HELEN, $20 DONATION
THE ECONOMIC OUTLOOK FROM LONDON
Watch the video:
MILITARY RETIREMENT BENEFITS UNDER REVIEW
Military pensions and health care for active and retired troops now
cost the government about $100 billion a year, representing an
expanding portion of both the Pentagon budget and the deficit. Last
year, for every dollar the Pentagon paid service members, it spent an
additional $1.36 for its military retirees, a much smaller group. Even
in the troubled world of state and municipal pension funds, pensions
almost never cost more than payrolls.
The Defense and Treasury Departments set aside more than $75 billion
each year to pay current and future benefits. As of year end 2009,
the retirement fund is far short of enough money to cover its total
costs, with assets of $278 billion and obligations of about $1.4
trillion. The government covers the shortfall by – you guessed it
- issuing more debt.
Currently service personnel who retire after 20 years are eligible
for pensions that pay half their salaries for life, indexed for
inflation, even if they leave at age 38. The typical beneficiary is a
retired noncommissioned officer, with an average pension of about
$26,000 a year.
They are also eligible for lifetime health insurance through the
military’s system, Tricare, for a small fraction of the cost of
private insurance. The annual fee is just $460 for families and has
not risen in years, even as health care costs have skyrocketed.
Consequently, working veterans shun employer health plans in favor of
military insurance. Critics of the system say the contribution could
be raised substantially and still be far lower than what civilians pay
for employer-sponsored health plans, typically about $4,000.
Under the debt ceiling agreement the Pentagon must find $400 billion
in reductions over the next 12 years (A whole $400 B over the next
TWELVE Years - how will they ever manage?). Even this small
reduction may make the unthinkable – thinkable: reduction in
retirement benefits for the military. Further, if Congress does
not adopt the recommendations of the “super” committee the
mandated reductions in Pentagon spending would more than double, to
about $900 billion, (a whole $75 B a year)and that would hit just
about every category of defense spending.
One of the proposals in Washington from the Defense Business Board
would make the military pension system more like a 401k plan. Under
it, the Pentagon would make defined contributions to a service
member’s individual account (service members may make additional
contributions). Mr. Panetta has said that if adopted, the plan would
not apply to current military personnel.
_We've said it before, we'll say it again about retirement
benefits - this is just the beginning. It's going to get a
whole lot of ugly in the years ahead. Govern your actions
accordingly. Live beneath your means and put money aside for your
future. Our guide will help you cut your expenses and still live
well - available on this site. _
Read more:
http://www.nytimes.com/2011/09/19/us/retiree-benefits-for-the-military-could-face-cuts.html
TAXPAYERS VOTE TO CUT PUBLIC PENSIONS
FACED WITH A POSSIBLE 23% TAX INCREASE, TAXPAYERS IN HOLLYWOOD,
FLORIDA VOTED TO CUT THE PENSIONS OF ITS FIREFIGHTERS, POLICE AND CITY
EMPLOYEES.
With their backs against the wall, facing a $38 million deficit, and
unable to reach an agreement with the city’s unions, Hollywood
leaders took the high risk action of putting the issue to a public
referendum. If taxpayers chose to vote down the pension changes, the
city would be forced to lay off 75 employees and consider raising the
tax rate by 23%.
Taxpayers responded by casting their votes to strip the city’s
police, firefighters and general employees of their current pension
plans, saving the city $8.5 million.
The changes, which go into effect October 1, mean fire, police and
general employees will have to work longer in order to retire, will
receive a smaller percentage of their salary as pension and will no
longer be able to include vacation and cost of living increases into
the pension formula.
The yes vote on the referendum has broad implications for other
Florida cities who are struggling with the costs of public pension
benefits. _(This is only just beginning. Don’t be surprised in
two years if we’re reading about stripping benefits to those already
retired! It’s going to get a whole lot of ugly.)_
Union leaders responded by saying they will challenge the vote in
court. _(Eye roll)_
Read more:
http://www.miamiherald.com/2011/09/13/2404725/hollywood-voters-getting-say-on.html#ixzz1XwU2pfvO
SOCIAL SECURITY – THE REAL FIGURES
The current Social Security Trustee’s report states “There were
about 2.9 workers for every OASDI beneficiary in 2010. This ratio had
been extremely stable, remaining between 3.2 and 3.4 from 1974 through
2008, and is lower for 2009 and 2010 due to the economic recession.
_(Oops, they neglected to state that in 1945 there were 42 workers per
beneficiary. Isn’t that like - material?) _The ratio of workers to
beneficiaries is projected to decline, even as _(another assumption:
“as” not - IF) _the
economy recovers, because the workers of the baby-boom generation are
being replaced in the workforce by lower-birth-rate generations. This
ratio reaches 2.1 by 2035 when the babyboom generation will have
largely retired, with a further gradual decline thereafter due to
increasing longevity.”
Full Report at:
2011%20SOCIAL%20SECURITY%20TRUSTEES%20REPORT.pdf
I have a problem with their “estimate” that there are 3 (rounded)
workers for every beneficiary. It begins with another material
misrepresentation. The Board of Trustees reports that there were
156,725,000 covered workers who paid _SOME_ social security taxes in
2010 (And SOME is the critical word). It also reported that there
were 53,398,000 beneficiaries in 2010. So… all you do is divide
the workers by the beneficiaries and you get - Presto, 2.9!
NOT SO FAST!
First, anyone who paid ANY social security taxes (even one dollar!)
was counted as a worker. So if you worked for one day and paid
$1.00 in social security taxes you were counted by social security as
a worker supporting the system.
According to the Bureau of Labor Statistics there were 111,714,000
million FULL TIME workers in 2010. Full time workers, not someone
who worked for a few weeks or only a few hours a week all year, those
are the workers one should use to determine how many workers are
really supporting the system.
However, of that total there were 18,073,000 government workers
(local, state, or federal employees). (Note: The benefits for these
employees are not paid for by the private sector. They are paid for
with tax dollars or borrowings which must be repaid. Consequently
their payments are not revenue but expenses for the American
taxpayer.). Since they do not contribute to the system, these
workers should also be removed from the base.
That leaves 93,641,000 workers to support 53,398,000 beneficiaries, a
ratio of 1.75. It would take a great deal of research to determine
just how much all the part time workers contribute but you can assume
that it isn’t a lot. I would venture a guess that it would require
four part time workers to contribute the equivalent of one full time
worker. That gives an approximate coverage ratio of two to one (down
from 42 to one in the year before the baby boom generation started
arriving).
Ladies and gentlemen, when the board of trustees uses such obviously
flawed statistical analysis in something as simple as a coverage
ratio, one should seriously question their other conclusions.
We’ve said it before, we’ll say it again: things are going to get
a lot tougher in the years ahead. GOVERN YOUR ACTIONS ACCORDINGLY.
_LIVE BENEATH YOUR MEANS! _Our guidebook, available on this site,
will help you save the money you’re going to need in the future
while still living well today. Try it, you’ll like it!
Today's video:
MONEY-SAVING TIPS - AROUND THE HOME
HOME ENTERTAINMENT
Enjoy programs and movies for little or nothing - By now we assume
that everyone is aware that if you enjoy movies Netflix is the way to
go. For just $8.00 a month they stream movies into your home TV.
If you’d like to watch old television programs or current ones
without the commercials, try , TVLand.com, or TVClassicshows.com
For free music try some of the internet radio stations such as
nutsle.com, stereomood.com and jingo.com.
PHONE SERVICES
The best bargain in phone service is Skype.com. You can video call
anywhere in the world for – FREE. Your only out-of-pocket expense
might be a video cam to connect to your computer. These cams are
available at Radio Shack and elsewhere for $20-$40. Install the
software from Skype and call worldwide for free.
If you don’t want to spend the money for a video cam, you can call
overseas for free through Freephone2phone.com. In exchange for
listening to some short ads you get 10 minutes of free time to
landlines in over 55 countries.
LOCAL BARGAINS
Most are now familiar with the coupon site groupon.com. Here’s
another for bargains and coupons available to people 50 and over in
your area, sciddy.com. Select what service you are interested in
(restaurants, travel, home & garden, sports, shopping etc.) and your
location and they provide discounts and specials for seniors.
FREE LAND, HOMES FOR $500.00
Many rural areas of the country (i.e. Colorado, Iowa, Kansas,
Minnesota, and Nebraska) are facing severe economic problems and are
offering free land (and tax breaks) to those willing to build a home
and live there. Do a web search for “free land” or go to
cfra.org for details.
For more information on where and how to buy a home for $500.00,
check our blog for the article titled: “Homeowners escape Property
Taxes – Buy Property Back at Fractions of a Cent on the Dollar”.
HOMEOWNER’S INSURANCE
One of the most common expensive claims on homeowner’s insurance is
from a break in the water hose to your washing machine. Water damage
from such a break can be extensive and expensive. Many insurers will
reduce their insurance premium by as much as 10% if you take just one
simple inexpensive step: replace the rubber hose with a stainless
steel burst-proof hose. Stainless steel hoses are available at
hardware stores for about $20.00. Installing one will save you far
more than the cost in reduced insurance premium and potential damage.
_ADDITIONAL MONEY-SAVING TIPS ON CUTTING HOUSING EXPENSES, INCLUDING
WAYS TO LIVE FOR FREE, ARE IN OUR GUIDE TO CHEAP LIVING, RETIRE ON
SOCIAL SECURITY – A GUIDE TO LIVING WELL ON A BUDGET OF $1,000 A
MONTH, AVAILABLE ON THIS SITE_.
If this or any of our other free money-saving tips or news we have
provided saved you money, a donation will help assure that this site
continues to provide information useful to your life.
HOMEOWNERS ESCAPE PROPERTY TAXES
BUY PROPERTY BACK AT FRACTIONS OF A CENT ON THE DOLLAR
Detroit's property tax rates, 65 mills for homeowners and 83 mills on
other property owners, are the highest in the state, according to a
recent Citizens Research Council of Michigan report. The average
statewide rate is 31 mills for homeowners and 48 mills for other
property owners.
Detroitproperty owners are using a little-known loophole to erase tax
debt by letting their properties go into foreclosure and then buying
them back a month later at the Wayne County Treasurer's auction for
pennies on the dollar. Critics described it as a growing problem as
the foreclosure crisis deepens. A record number of properties —
nearly 14,300 — are expected to be auctioned this fall, and
officials predict more owners will try to buy back their properties.
Owners often buy back their properties using the same name under which
they lost them. And there's generally a low risk of getting outbid
because of the glut of vacant land. Last fall, at least 6,847 parcels
in Detroit went into the city's inventory after they didn't sell at
auction.
The savings can be enormus. At the September auction, the
properties' prices are the debt that's owed. But in October, the
county treasurer sells offwhatever is left at a $500 opening bid.
That's where most of the sales happen,including owners buying back
their properties. One owner bought back her storefront on West Seven
Mile last year for $15,000, eliminating nearly $37,000 in debt.
Another owed $23,100 on two buildings and a parking lot on Conant, but
bought each back for the minimum $500.
Read the full article:
THE OH-BOMB-AH JOBS PLAN
Watch the video:
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and the secrets to living well for less. Cheap living can actually be
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