I am retired. I have been retired for six years (Gosh! It doesn’t seem that long!), and I am here to tell you -  from experience – that if you don’t have one million dollars, a part time job, or a side-line business, don’t retire! 

I have another blog – www.retirementonabudget.com- and each day the most visitors I get to that blog arrive there from a Google search “living only on social security” or similar search term.

Folks, it’s tough living on less than you need. And I can almost guarantee you that you are not going to win the lottery or come into a fabulous inheritance, so you had better come up with a great “Plan A”.

Today’s author has some sound advice for those who have not yet retired. For those of you who have retired and are a little short on income, we’ll discuss ways to get by on what you have and ways to earn more in future posts of this blog. And if any of you have comments, advice, or questions - write me - that’s what this blog is all about.

Have a great day,
Woody

Crunching the Numbers – How Much Do You Need to Retire?

Hi Folks,

I debated whether to post this article in this blog or in my other blog, Retirement on a Budget, but as it’s such an insightful little article I just might publish it in both.

Woody

Easing Into Retirement

By Liz Koh

Retirement is something to look forward but ensuring that the experience lives up to your expectations requires some forward planning.

It is common for people close to retirement to wonder if they can afford to retire or whether they are doomed to carry on in at least a part time capacity until their late sixties. Whether you can afford to retire will depend on two things – how much you need to live on and how much wealth you have accumulated. As a rule of thumb, for every $5000 of income you need over and above your pension and assuming a return of 4% after tax and inflation, you will need to have $125,000 invested. If you decide to use up your savings over your lifetime as well as the income from your savings, you will need roughly half as much, say $63,000 invested for each additional $5,000 of income you need. To make an easy transition into retirement, try and live on your planned retirement income for the last one or two years of your working life, and save the difference between that amount and what you earn. For example, if you have saved enough to produce an additional income of $10,000, then try and live on around $31,000 before you retire (you might want to add to this figure any work related expenses such as transport costs).

On your retirement, have a general tidy up of your affairs. Make sure your wills are up to date, take care of any other estate planning issues, and consider granting enduring powers of attorney to a relative or friend, so that they can sort out your affairs if you become mentally incapacitated. Your solicitor or trustee company will be able to assist with these matters. Once you’ve sorted out the paperwork and your budget, you’ll be free to enjoy the retirement you’ve been anticipating.

Here is some sound financial advice from a Certified Financial Planner and you won’t even have to pay for it.

I hope you are having a great day,
Woody

(ARA) – Saving more for retirement is always a good idea, especially now. In 2009, the Employee Benefit Research Institute estimated that Individual Retirement Accounts (IRAs), a cornerstone of retirement savings, sank to a median value of less than $29,000 post-financial meltdown. That leaves many Americans working even harder to recoup their losses and stay on track to make retirement a reality.

The good news is that many people can increase their saving potential simply by learning more about IRA dos and don’ts. Saving as much as possible, handling rollovers correctly and avoiding costly penalties are the keys to success.

“There’s no question that saving through an IRA is a strategic move, but it’s not quite as simple as ‘set it and forget it,’” says J.J. Montanaro, a Certified Financial Planner with USAA. “Staying aware of what to do and what not to do can really pay off, especially now, when you have the opportunity to invest and potentially save on your tax bill.”

Montanaro outlines eight of the most common mistakes IRA investors make when it comes to making the most of this retirement-saving tool:

* Thinking you’ve missed the deadline: Though 2009 is over, it’s not too late to make your IRA contribution count toward this year’s tax bill. This year, you have until April 15 to make “2009″ IRA contributions and claim eligible deductions on your tax return.

* Not contributing enough: Contributions to a Traditional IRA are tax deductible, within limits, so you can help secure your future and cut this year’s tax bill at the same time. If you’re younger than 50 years old, you can contribute up to $5,000 annually. Maxing it out makes for maximum tax savings.

* Not playing catch-up: Age does have its rewards. If you’re 50 or older, you may be eligible to contribute an extra $1,000 (up to $6,000 per year) to an IRA account. This “catch-up” contribution offers a chance to kick your savings into overdrive.

* Assuming you can’t contribute: If you’re a stay-at-home spouse, you can still open an IRA as long as contributions from both spouses don’t exceed your combined taxable compensation. A “spousal IRA” is especially handy when the working spouse is already covered by an employer retirement plan and can’t deduct IRA contributions. What you can deduct will depend on your Modified Adjusted Gross Income (MAGI), but every bit counts.

* Rolling the wrong way: If you’ve recently switched jobs or lost your job, you can roll the funds from your old employer’s retirement plan into an IRA. Just be sure the transfer is made directly from one custodian to the next – a direct rollover. If the payout goes to you first, it will be subject to a mandatory 20 percent withholding tax. Then, you’ll have only 60 days to move the funds you received, plus the 20 percent that was withheld, to a new account or you’ll have to pay income taxes on the distribution, plus an early withdrawal penalty if you’re not at least age 59 1/2.

* Not considering a Roth: You might be able to save more on taxes in the long run by contributing to a Roth IRA instead of a Traditional IRA depending upon your tax situation. Roth IRA contributions aren’t tax deductible, but the Roth can provide tax-free withdrawals come retirement time. And starting this year, the income restrictions to convert a Traditional IRA to a Roth IRA have been eliminated, opening the door to millions more investors. Ask a trusted financial adviser if opening or converting to a Roth IRA would be the right move for you. It’s important to keep in mind that conversions from a Traditional IRA to a Roth IRA are subject to ordinary income taxes, so it’s recommended that you consult with a tax advisor regarding your particular situation.

* Withdrawing too early: Your IRA is designed to remain untouched until you reach age 59 1/2. If you make a withdrawal from your Traditional IRA before then, you’ll have to pay taxes on the income and investment earnings, and fork over a 10 percent penalty, with some exceptions. While a Roth IRA allows you to withdraw your contributions, not including earnings, at any time without taxes or penalties, you’ll thank yourself later for not raiding the piggy bank.

* Procrastinating: More than any technicality, it’s plain old procrastination that hurts investors the most. Whether its uncertainty in the markets, cash flow concerns or the rising costs of college, there will always be excuses to put off this year’s IRA contribution. But time-honored investing principles show that consistent contributions – through good times and bad – provide the clearest path to long-term investing success. So make the commitment and take action to help secure your financial future now.

For complete IRA details, visit www.irs.gov and search for Publication 590. When in doubt, you can contact professional financial advisors at USAA through www.usaa.com or at (800) 531-USAA (8722) to help you determine how investing in an IRA can help you meet your financial goals.

Courtesy of ARAcontent

The following article was published February 16, 2009 in the Dollar Wise blog of the dallasnews.com (The Dallas (Texas) Morning News website).  This article is about retirees that are truly living on a budget. I thought you would like to read it.

I imagine that a lot more retirees can relate to the folks in this article today than could a year ago when it was first published. And I imagine that a lot more retirees are living only on social security that don’t want to admit it.

Many thanks to Bob Moos and The Dallas Morning News.

Woody

Dollar Wise: Seniors offer model for getting by through frugality

By BOB MOOS / The Dallas Morning News
bmoos@dallasnews.com

Stretching a dollar is second nature to them. Long before the recession deepened, they were experts at making ends meet. Long after the recovery comes, they’ll still be masters of frugality. “We’re survivors,” says Beverly Nash of Dallas, one of more than 10 million Americans who live only on Social Security.

They’re also becoming models for younger Americans forced by the recession to trade in their spendthrift ways for a leaner lifestyle.

“No one goes through life striving to end up on just Social Security, but all of us could learn from these people’s resiliency and resourcefulness,” said Helen Dennis, a consultant on aging.

Retirement was supposed to be built on the proverbial three-legged stool of pensions, savings and Social Security. But life has intervened for many retirees, and two of the legs have been kicked out from under them.

Many retirees worked their entire adult lives but never qualified for a pension or earned enough to put anything aside. Others started retirement with a nest egg but never thought it would have to last 20 or 30 years.

A fifth of older Americans now survive on nothing but Social Security. A third depend on it for at least 90 percent of their income. For a retired worker, the average monthly benefit will be $1,153 this year.

Nash, who’s 74, gets $960 a month from Social Security – just a few dollars more than what the government defines as “poor.”

“I grew up in a one-bedroom bungalow,” she said. “I learned as a child how to hold onto a dollar, and I’ve never forgotten. ‘If you can’t afford it, you don’t need it.’ That’s how I’ve survived.”

Nash has no charge cards.

She calls herself a “strategic shopper.” She shops for clothes at secondhand stores, buys less expensive store brands at the grocery, clips coupons from newspaper ads and carries a wallet bulging with discount cards.

No debt 

The retiree has neither a mortgage nor a car loan. Utilities eat up the biggest part of her Social Security. To conserve electricity, she does her housework by daylight, turns off the TV at 10 p.m. and uses battery-powered lights.

Nash also recently discovered that her limited income qualifies her for extra help with her out-of-pocket expenses for Medicare. She figures she’s almost $200 ahead each month because of that.

The elder-support team at the Senior Source in Dallas routinely helps older adults on fixed incomes check whether they’re eligible for a range of public benefits or private discounts, said team director Lue Taff.

“We look at their income and their expenses, and then figure out ways to ease the squeeze on their pocketbooks,” she said.

Taff’s counselors refer clients to subsidized housing, home repair programs, food banks, extra help with prescription drug costs and utility assistance.

Reining in utilities 

Grace Harris of Dallas, who’s 60 and receives a monthly $674 Social Security disability check, says she’s saved more than $100 a month by applying for low-income discounts on electricity and phone service.

She’s also set rules for herself to keep her electric bills in line.

One is the “one-room rule.” Harris, who lives alone, keeps all lights off in her apartment except the room she’s in. There’s also the “two-week rule.” She does her laundry only once every two weeks so that she has a full load.

When Harris uses up her $52 in food stamps each month, she visits food pantries to tide her over until her next check. Because she doesn’t own a car, she relies on a friend to drive where she needs to go.

“Don’t be ashamed or embarrassed to ask for assistance if you’re at your wits’ end,” she said. “That’s why the help is there.”

Mary Ann Johnson, 70, of Dallas was left with just her Social Security check when her husband died in 2006 and his benefits ended. Yet she soon found she had as many household expenses as always.

“I was devastated,” she said. “I didn’t know what to do.”

Then a friend told her that she could supplement her Social Security income without affecting her eligibility for other government benefits by becoming “a senior companion” who looks after a frail older adult.

The companion program, run by the Senior Source, pairs a senior in financial need with one who requires a little care. The companion sits with the frail senior and may fix meals or help with housekeeping.

Johnson volunteers for 40 hours a week and receives a stipend of $2.65 per hour from the program. Added to her $801 a month from Social Security, the money covers her car loan and pares down her credit card debt.

“It doesn’t seem like a job,” she said. “My client and I visit the senior center for lunch and bingo and sometimes go on bus field trips. I lead a pretty quiet life, so it’s a nice way to get out and about.”

Sam and Jolene Grindele of Cedar Hill have lived from one Social Security check to the next since Mr. Grindele, 77, lost his part-time job at a fast-food restaurant. They receive $1,414 a month.

The two have caught a break on their housing by paying just $375 a month in rent, but they expect they’ll need to move soon because they’ve been told the house where they’ve lived for 20 years is likely to be sold.

Other homes in their neighborhood rent for at least twice as much, so the Grindeles are thinking about moving in with a nearby family member if they can get the money to convert a garage into a bedroom.

Doubling up with children or other relatives to share household expenses is becoming an increasingly common option for older adults who can’t make ends meet on their fixed incomes, experts say.

“We would help with the utilities and other costs, so everyone could gain from the arrangement,” Mrs. Grindele said.

 Pacing expenditures 

Early Porter, an 84-year-old retired clerk in South Dallas, says he survives on $641 from Social Security and $50 in food stamps because he paces his spending so that he has enough money for the entire month.

“People often make the mistake of spending their check all at once and leaving nothing for later in the month,” he said. “You can’t just live for today. You need to have something for tomorrow, too.”

When Porter sits down with his bills, he tries to pay at least part of what he owes if he doesn’t have the full amount.

“If you pay something, bill collectors are more willing to work with you,” he said. “They don’t think you’ve forgotten them.”

As hard as times are now, Porter says he’s lived through worse. He grew up on a farm in Central Texas during the Great Depression. The only reason the family didn’t go hungry, he said, was his mother’s preserves.

“My mother even pickled watermelon rinds after we had eaten the fruit. She wasted nothing. It’s a lesson I’ve always remembered.”

We’ve sure been hearing a lot about reverse mortgages lately. Reverse mortgages have been around for quite a while but they haven’t been pushed near as much as now. Many retirees have lost so much in this recession that they are looking everywhere for help, and a reverse mortgage offers that help. So that is a good indication that someone is making lots of money off other people’s pain and has opened another door for wolves in sheep clothing to “come to the rescue”. 

I am not taking a stand on reverse mortgages. I’m not that knowledgeable. I’m sure many of the reverse mortgage providers are honest, straightforward business people – although I’m not as confident since learning how unscrupulous many of these mortgage companies were in putting people in homes they couldn’t afford.  I have been poking around though, looking for the best sources of trustworthy information about reverse mortgages. It seems that many of the available helps have their own agenda (why am I not surprised?), so be very careful. The very people that helped get us in this mess are the ones we are turning to for help. That is a lot like asking the man who stole your food for a meal.

I am only going to recommend two sources of reliable information about reverse mortgages: HUD and AARP:

Here is HUD’s (http://www.hud.gov/buying/rvrsmort.cfm) overview on reverse mortages: 

“Reverse mortgages are becoming popular in America. Reverse mortgages are a special type of home loan that lets a homeowner convert the equity in his/her home into cash. They can give older Americans greater financial security to supplement social security, meet unexpected medical expenses, make home improvements, and more.”

“If you are interested in a reverse mortgage, beware of scam artists that charge thousands of dollars for information that is free from HUD!”

“To report fraud or abuse in the reverse mortgage program, contact your local homeownership center.”

Here is the link to begin reading what AARP has to say about reverse mortgages.

http://www.aarp.org/money/personal/reverse_mortgages/ It will take you a long time to read all the good information they give you.

Both HUD and AARP have a ton of information about reverse mortgages. I see no reason to go anywhere else.

Happy retirement,
Woody

Well, its tax filing time again and time for all the tax scam scum to come out of the woodwork. And, as seniors are probably the largest targeted group, we must be particularly vigilant.

It seems that every city and state has their own little group of scammers targeting their area as well as the national crooks.

 Best advice – use prudence and common sense:

 If you get a phone call offering to help you with your taxes, try to get a name and phone number, then give this information to the police . . . or just hang up. By all means do not get involved in a conversation with these people.

• If you get unsolicited mail offering help with your taxes. Trash it.
• If you receive unsolicited emails that appear to be from the IRS, it is probably a tax scam. The IRS does not send emails about taxes. Don’t open the attachment and don’t click the link. Forward the email to phishing@irs.gov. 
• Almost every city in the United States has organizations that offer seniors free or low cost help with preparing their taxes and the local newspaper will always have articles telling about these groups. Use this information.
• If you can afford it, hire a CPA that is in the tax business full time. Many of the tax preparation businesses open only during the season and hire temps just for that season. These temps are given a crash course in tax preparation and then turned loose. Good luck on getting the best advice. 

Happy Retirement,
Woody

PLEASE NOTE: I am also publishing this post in my other blog, www.retirement-on-a-budget.com

THE COMMON MAN’S ADVICE ABOUT RETIREMENT INCOME 

I am not a financial advisor – I have a financial advisor (and a darn good one) but, for some reason, most of my friends (retired and still working) do not use financial advisors. Some of them have stock brokers, some manage their own 401k accounts, some manage their savings using mutual fund accounts and, I’m not sure, but I think one of them uses the old “under the mattress” system <grin>. 

Lots of folks don’t like to discuss the way they manage their retirement money. I guess they think they might have to explain and/or defend their method of money management. But over the years I have collected a few pieces of good advice from these people (except from the guy with the lumpy mattress) about how they calculated their retirement income and expenses and whether they had enough to retire. I am not going to explain these tidbits of advise, shoot, the experts write books explaining these things so I’ll just pass them along to you.

 (Boy, I bet I’ll catch all sorts of flack from this!)

 1. If you haven’t retired, save no less than 10% of your salary in a retirement account. Cut back on your living expenses, get a second job or whatever it takes to save at least that amount. It sure beats cutting back on living expenses and getting a second job after you retire. Trust me.

 2. If you are considering retirement, do this: Take 4% of your retirement savings. That is how much you can withdraw from your savings each year and not deplete your savings before you die. Now add that amount to the amount you will draw from social security, pensions and your other dependable sources of income.

Now, list all of your living expenses and all of the extras you are considering (more golf, more travel, etc) during retirement. Don’t leave out a thing. That old “You will only need 85% of your pre-retirement income in retirement” is a lot of bull. Don’t believe it. Most folks spend more after they retire than when they worked.

OK. Is the amount of your retirement income more than your anticipated expenses? Congratulations, you can retire in relative comfort. If it’s not, see number 1 above.   

Does this seem too simplistic? That’s OK, but it sure works for a lot of successful people I know – - not counting the guy with the mattress account.  

Woody