Monthly Archives: June 2013

We Thought You Might Like to Know

Millionaire Retirees – The maximum monthly Social Security retirement benefit paid  to an individual retiring in 2013 at the full retirement age of 66 is $2,533. A $3 million investment earning 1% annually on a tax-deferred basis would generate $30,000 per year or $2,500 per month of taxable income. Actual results will vary with market conditions particularly for long-term investments. There is no guarantee the illustrated rate of return can be achieved. (source: Social Security). One thought for you to consider is that your Social Security benefit can be considered the fixed income part of your overall retirement asset allocation.

Did you know that Banks Must Protect Depositors’ Social Security And Other Federal Benefits From Garnishments? Many federal benefit payments are exempt from execution or similar legal process even after the payments are deposited in a bank account. Covered benefits. Protected from garnishment under the final rule are Social Security benefits, Supplemental Security Income (SSI), Veterans Affairs benefits, Federal Railroad retirement benefits, Federal Railroad unemployment and sickness benefits, Civil Service Retirement System benefits, and Federal Employee Retirement System benefits, where payment of the benefit is made by ACH direct deposit. Other federal benefit payments that are exempt from garnishment are not covered by the rule. Depositors who receive those benefit payments must continue to claim the exemption in the court or from the agency that issued the garnishment order.
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401k The Good News/Bad News

Fidelity Investments reports that the average 401(k) balance among 12 million participants in plans that they manage was $77,300 at the end of 2012. This average balance for workers 401(k) accounts (of all ages) is the highest level on record ever.

Today’s Boston Globe reports that Fidelity Investments recently advised that the average balance in client accounts hit a record high of $80,900 at the end of March, a 75 percent increase since early 2009.

That’s the good news- an impressive percentage gain. Now for the bad news. It’s not enough money.
Drilling deeper into Fidelity’s data, the average balance for workers who are 55 and are nearing retirement is $143,300. It’s not nearly enough money with which to retire. Do the math. The US Census Bureau reports the median income (3 year average) in Massachusetts was $62,809,  which by the way was ranked in the top 5 states. 
Fidelity’s report also shows that for workers age 55, who have contributed to the same plan without interruption for ten years, the average balance is $243,800. The average contribution for participants age 55 to 59 is 10 percent. It’s not enough.
Assuming you are in your 50’s, where should you be now in terms of your financial position for retirement?  More than anything it’s a function of what you think your spending will be in retirement.  While you may be done with paying for tuition and maybe weddings, and if you were really diligent perhaps your mortgage is paid off, however the spending of an active senior is most likely similar to the pre-retirement spending at least for the first decade. The old rule of thumb of 75% of your earnings will leave you feeling short.
Most of us do not have the pensions that our parents had a generation ago. Today it is all on you to save for your retirement through 401k plans at work or through SEP IRAs etc if self employed.
The math is pretty simple- you need to accumulate a bucket of capital that will generate cash flow to you from the day you retire til the day you die- which may be  as much as age 100 although many do not believe it. What if you’re wrong and you live for a very long time?
Run your numbers: If you do not have a trusted financial advisor who does this for you, freely available calculators can be used to get an idea of what you should be saving. Here are two:
Step up your contributions: 10% is not enough for the majority of the population.
Add the over age 50 Catch Up contribution of $5,000.  In 2013 the maximum pre-tax contributions allowed to a 401(k) type plan if you are age 50 by the end of the year, is $23,000 ($17,500 plus $5,000). If you are self employed and use a SEP IRA the annual limit is $51,000.
Invest for growth. The idea of getting more conservative (usually by shifting into bonds) as you near retirement age defies the logic that you will need to continue to invest for two or three decades more while you are retired. Also shifting into bonds may be setting yourself up for the next bubble to burst as interest rates inevitably rise and bond values suffer.
Diversify your portfolio across many asset classes and rebalance at least annually. See the results of a diversified asset allocation portfolio in the following chart: