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Funding a retirement that could span 25% to 30% of your life is a huge undertaking. To help increase your chances for success, avoid these retirement planning mistakes:
Who wouldn't like to predict precisely where the economy is headed? You could then make financial decisions with confidence, including when and which products to invest in, when to lock in mortgage rates, when to look for a new job, and when to purchase major durable goods.
Watching key economic indicators over time should help you understand the signals the economy is sending. While you may not make financial decisions with certainty, it should help you make those decisions with more confidence. Some of the more important statistics to track include:
INTEREST RATES. At a minimum, follow the prime rate, Treasury bill rates, and Treasury bond rates.
INFLATION. The most common measure of inflation is the consumer price index (CPI), which is announced the fourth week of every month for the preceding month. The CPI is a measure of the average change in prices paid by urban consumers for a fixed basket of goods and services. An annual inflation rate below 2% is considered low, 2% to 4% is moderate, and above 4% is high. Expectations regarding inflation have a significant impact on interest rates. Look at the annual rate and whether inflation is increasing or decreasing over time.
GROSS DOMESTIC PRODUCT (GDP). GDP is a measure of the goods and services produced by the nation, and includes consumer spending, business investment, government spending, and net exports. Approximately three weeks after the end of a quarter, the government announces the annual growth rate of GDP. Under 2% is considered low growth, 2% to 5% is considered moderate growth, and over 5% is a boom that is difficult to sustain.
UNEMPLOYMENT. While low unemployment rates generally indicate a good economy, rates that are too low can cause inflationary pressure. A short supply of workers makes it necessary for companies to increase wages to attract employees. Companies then have to increase product prices to pay those wages, resulting in increased inflation. Increasing unemployment rates, on the other hand, can indicate that we are headed toward recession.
CORPORATE PROFITS. How well businesses are performing is an important indicator of the overall health of the economy. A common measure of corporate profits is earnings per share for the Standard & Poor's 500. Comparing this figure to year-ago numbers indicates whether profits are increasing or decreasing.
While you may not be able to predict with certainty where the economy is headed, following key statistics will provide some direction. If you'd like to discuss this topic in more detail, please call 1-800-878-4036.
Approximately 50% of men and 60% of women receive Social Security benefits at age 62, even though those benefits are permanently reduced by 20% (Source: Planning for Retirement, 1998).* Does it make sense for you to receive permanently reduced benefits in order to get benefits for an additional three years? Ask yourself these questions to decide:
Does your family have a history of longevity? From a mathematical standpoint, it takes 12 years for someone who elects benefits at age 65 to receive the same total benefits as someone who elects benefits at age 62, assuming the two individuals have the same earnings. Thus, if you are healthy and expect to live a long life, it may be worthwhile to wait until age 65 to start benefits. Also, waiting until age 65 means that an additional three years of earnings will be included in your benefit calculations. Since your later earning years are typically your higher earning years, this should boost your average earnings and thus your benefit amount.
Do you plan to work after retirement? Individuals under age 70 who work and receive Social Security benefits lose some of those benefits if their earned income exceeds certain limits. In 1998, you lose $1 in benefits for every $2 earned over the amount of $9,120 if you are under age 65. Recipients between the ages of 65 and 69 lose $1 in benefits for every $3 earned over $14,500 (Source: Social Security Administration, 1998). Thus, if you expect to earn wages significantly over these limits, you may want to delay your Social Security benefits.
Will you need to withdraw money from tax-advantaged accounts to supplement your income? One of the primary benefits of tax-advantaged accounts such as 401(k) plans and individual retirement accounts is that your money grows on a tax-deferred basis. It is typically best to allow that money to grow untouched for as long as possible. Thus, you may want to take Social Security benefits at age 62 if it will prevent you from withdrawing funds from your tax-advantaged accounts.
Is your spouse much younger than you? If you are the primary wage earner in your family and your spouse is much younger than you are, you may want to delay benefits. Electing to receive benefits early not only reduces your benefits, but will also reduce your spouse's survivor benefits after your death.
Several factors need to be weighed before deciding whether to take Social Security benefits at age 62 or 65. Please call if you'd like help with the decision. 1-800-878-4036
* Normal retirement age is scheduled to gradually increase from age 65 to age 67. Individuals born after 1937 will be affected by this change. Anyone born in 1960 or later will have a normal retirement age of 67. Although you can still retire at age 62, benefits will be reduced by more than the current 20% (Source: Social Security Administration, 1998).
Would you like to see into the future? How about finding out how you'll be doing financially in 20 or 30 years? We can provide you with a glimpse into your future by completing a complimentary personal retirement analysis for you.
All you have to do is fill out a questionnaire that I will provide. It will ask you basic questions about your financial situation. The completed analysis will provide a wealth of information for you. Whether you are two years or 20 years from retirement - or even if you're already retired - this analysis is a useful tool for you to have.
Your personal retirement planning analysis will provide you with information such as:
By doing this analysis, I will be able to help you project what your financial situation will be during your retirement. If we discover that your portfolio needs to be allocated differently to help you meet your needs, I can help you with that as well. Our goal is to help you seek the resources you need to live comfortably in retirement and the personal retirement analysis is extremely helpful in discovering that.
If you would like to find out about your future, please call us now 1-800-878-4036. Don't delay in planning your future - it's essential that you do it now.
Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.
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