Investing Retirement Assets/Social Security/Retirement Distributions
Understandably, many consumers are very concerned about their security and future. As we saw a few pages ago, the senior today is faced with more fears, concerns, and challenges than, perhaps, any other age group
They have risks and myths that they should learn how to overcome with proper planning, risks and myths that can only shatter their retirement dreams. In the next few pages, we will discuss those OBSTACLES and those MYTHS because with proper planning, their concerns for changes in Social Security and/or the purchasing power of their Social Security benefits and retirement distributions can be addressed to their benefit and satisfaction.
For example, although many people focus on market risk, there are five other risks that can have a crippling effect on your retirement.
#1: Inflation: Since 1950, inflation has averaged slightly over 4%. If that were to continue, a dollar today would purchase only 60 cents worth of goods and services in 10 short years.
#2: Income Taxes: You may think that you have been getting 6% interest on some of your money, but if you are in a combined tax bracket of 33%, you are really only getting 4% interest since part of your interest has been lost to income taxes every year. You could survive on 4% if there were 0% inflation, but a historical annual inflation rate of 4.2% means that you have been going backwards each year.
#3: Lack of Diversification: We all know that we should never put all of our eggs in one basket, but we still do. You should diversify. Spread out your dollars among different alternative. If you do diversify, you are less apt to be seriously affected if interest rates, returns, and inflation go in the wrong direction
#4: Living Longer Than Expected: In the 1940’s, the average male lived to age 62. Today, a woman, age 65, who does not have cancer or heart disease, will probably see her 90th birthday. In 1940, the Census Bureau reported that there were less than 4,000 people age 100 or older. The Census Bureau now reports that there are over 53,000 people age 100 or older. The only unfortunate thing about longer life expectancy is outliving your money. In the past, you had 45 years to work and save money for a comfortable 10-year retirement. Now, you have those same 45 years to work and save money, but you need money for 20 and 30 years of retirement, not 10 years.
#5: Social Security: Since 1935, the Social Security program allowed employees and employers to set aside dollars so that they can retire in dignity. Will Social Security change? Will it disappear? No one currently knows those answers, but everyone knows that they should control their own destiny. We must stop depending upon the government. We must learn how to overcome inflation, reduce current income taxes, diversify, and plan for the future by thinking about our money regularly. We, and no one else, should control our own retirement. Would you now like to take a step toward being more financially independent?
