no shore retirement – Jeff Dragon

Contrary to popular belief, the Social Security System actually makes money….sometimes. The only things the trust fund assets are allowed to invest in is treasury securities which they refer to as “interest bearing special issue” bonds. So when interest rates go down, the value of these bonds and notes go up therefore raising the value of the Social Security trust fund. It has happened fairly often in the 10 years or so which typically adds more time to the D-Day moment of when the benefits may have to lowered without some kind of legislative intervention. If the “special issue” bonds go up in value, it generally means the system can stay solvent for another year.

The Social Security Administration comes out with their annual report every year around this time and according to the newest report the above mentioned is exactly what’s happened. They give the prognosis for the program for the next 10 years and the next 75 years using a host of different economic numbers and stats like wage growth, population, mortality and immigration to try to get a handle on how many future claimants there will be.

The harbinger of bad things to come is what’s they call the “net-cash outflows” which means after everything that comes in and costs are taken out, the administration had to dip into the trust fund reserves to cover the shortfall. Recently they’ve been warning that this could happen but at the end of 2018, 3 billion of unexpected income made it profitable.

For 2019, the margin was a little slimmer. At the beginning of 2019, the total was $2,895,174, 945,000(almost 2.9 trillion) and it ended the year at $2, 897, 492, 826, 000 — $2.3 billion higher. So the system didn’t have to dip into reserves to cover the 64 million checks it issues to it’s recipients. However as positive as that is, it was the lowest gain since 1982. What about 2020?

Well I ‘m glad you asked. The Administration’s projections for 2020 not so rosy. A lot of people blame Social Security’s woes on the baby boomers but they might be just part of the problem. Here are some other contributors:

1) People are living longer. The system was never meant to pay people for 20 yrs after retirement. More 80 yrs olds out there than ever.

2) Immigration is down. Usually the people who are immigrants are typically younger and will pay into the system longer ergo supporting more of the older recipients.

3) Birth rates are down. People are not having as many babies as they did in the past. Younger workers pay into it and the older workers’ payments stay funded.

4) More high earners collecting more. These beneficiaries are getting a higher payout than the system has ever paid. And they usually live longer.

There’s a Connecticut democrat named John Larson who introduced legislation that would raise the payroll taxes from 6.2 % to 7.4% and added other rules about any beneficiary with income under $49,000 would not have to report their Social Security income. That was back in 2013– there’s been calls to vote on whether to vote on it(yes that’s really how it works in Congress) to no avail. Social Security has been a 3rd rail for politicians but with the upcoming shortfalls acting sooner than later would be advisable.

That’s all for now. More to come in this brave new decade.

So you’re approaching your “golden years”….you’re out raking the leaves or driving somewhere and it hits you— this will be a major lifestyle change for you. You would are absolutely correct about that. You will have a lot of time on your hands so you may need some money and it will have to last you for the next 20 to 40 years. No matter how much money you have or have saved there are some really bad decisions you can make that could make your retirement a disaster of epic proportions! Here’s just a few:

Firstly – a late in life divorce can cost you both in money and emotional hardship. My client Tom after his divorce became a bit of a recluse and was not terribly interested in having a relationship with anyone but his dog. The betrayal he felt from his ex wife’s extra curricular activities and the way friends and family received the news of his divorce has weighed pretty heavy on his psyche not to mention his 401K which now looks like a 201K comparatively. The Pew Research Center reported in 2017 that the divorce rate for those over the age of 50 has doubled since the 1990’s. Further, for those 65 and older, the divorce rate tripled from 1990 to 2015. Suddenly Tom had to move out of his home that he paid for over the last 30 plus years and his income took a hit as his ex wife got a portion of his assets. Depressed and broke is no way to go through retirement.

Second– Helping your children financially is a tough one because most parents want to help their children if they need something like a few thousand. But when it comes to ten thousand or 50K or higher, it of course can compromise your lifestyle in retirement. If you’ve got a child livig on the street somewhere or they go through a divorce or they need bail money–these are all very tricky propositions. You want to help but at what cost to you and your personal happiness?

Third– Taking Social Security at the wrong time is a killer. If you take it early with out regard to your life expectancy and how not waiting could effect your benefits. The Social Security website is much improved and there are calculators to use to estimate benefits and when to apply for them. Also have you paid into the system long enough? You need 35 years paid into Social Security to get your full benefits. If you don’t have 35 years paid in then you have zeros on some years which can pull down your monthly benefit in a very bad way.

Fourth– Taking your Social Security at the wrong time can be very detrimental to you but also not including your spouse can lead to missing out of some of the very useful benefits that could lead to a Social Security check coming in the household with the opportunity to allow some portion of another spouse’s benefits to increase over time. All while collect something in the meantime. Even if you’re divorced, the spousal benefits can be available.

Fifth– Having big debts going into retirement. How nice is it to have the mortgage paid off and no car payments? Are those payments going to go away if you decide to retire? You call the mortgage company and tell them you’re retired and you’re not going to pay them anymore? How would that go over? Are they going to say, “oh ok yeah well don’t worry about it then. Enjoy your retirement!” Probably won’t go that way. Saving for retirement is important but having no debt is a part of a successful retirement.

Sixth– Not paying attention to income taxes. Distributions from your retirement plan are taxable as ordinary income. In retirement many folks lose a lot of their tax preference items; that is to say the mortgage interest, children at home, business deductions etc may not be available to write off against one’s income making taxes higher. There are ways to structure your income on your non-qualified assets to pay much less in income tax which could be very beneficial.

Seventh — Not having adequate health insurance. According to a study done by Fidelity the average couple will spend $285,000 on health care in retirement(not including long term custodial care costs). Just as a reminder Medicare only covers about 80% of retirement healthcare costs. Plan to purchase supplemental insurance or be prepared to pay the difference out of pocket. Most people pay a supplemental policy commonly called a Medicare Advantage plan or a Medigap policy to cover the costs.

Of course there are plenty of other ways to sabotage your retirement. Spend all of your money investing in swampland somewhere, lose all of your money in the stock market, lend money to people who will never pay you back, living to high, etc. There are plenty of ways to NOT sabotage your retirement too. I hope this list was helpful. More to come. So long for now.