Synonyms:
-nouns
wealth, riches, fortune, handsome fortune, opulence, affluence; good circumstances, easy circumstances; independence; competence (sufficiency); solvency., provision, livelihood, maintenance; alimony, dowry; means, resources, substance; property; command of money., income; capital, money; round sum (treasure); mint of money, mine of wealth, El Dorado, bonanza, Pacatolus, Golconda, Potosi., long purse, full purse, well lined purse, heavy purse; purse of Fortunatus; embarras de richesses., pelf, Mammon, lucre, filthy lucre; loaves and fishes., rich man, moneyed man, warm man; man of substance; capitalist, millionaire, tippybob, Nabob, Croesus, idas, Plutus, Dives, Timon of Athens; Timocracy, Plutocracy; Danae.
-verbs
be rich; roll in wealth, roll in riches, wallow in wealth, wallow in riches., afford, well afford; command money, command a sum; make both ends meet, hold one's head above water., become rich; fill one's pocket (treasury) [more]; feather one's nest, make a fortune; make money (acquire)., enrich, imburse., worship Mammon, worship the golden calf.
-adjectives
wealthy, rich, affluent, opulent, moneyed, monied, worth much; well to do, well off; warm; well, well provided for., made of money; rich as Croesus; rolling in riches, rolling in wealth., flush, flush of cash, flush of money, flush of tin; in funds, in cash, in full feather; solvent, pecunious, out of debt, all straight.
If you’re planning on getting married or remarried and haven’t been paying close attention to the wedding industry, you may experience sticker shock as you begin calculating costs. An average American wedding costs the newlyweds and their families about $26,000 — and that’s without the honeymoon tab.1
Even with a carefully pruned guest list and modest reception, it can be difficult to pull off a wedding under five figures. Short of eloping, the best way to manage wedding costs is to start early and plan carefully while keeping finances in mind. The following tips can help you get your wedding planning—and your marriage—off to a great start.
1.Communicate with mom, dad and the future in-laws. To avoid misunderstandings, hurt feelings and unexpected expenses, it’s critical to maintain open lines of communication with everyone who is involved in the wedding planning process. This is especially important for brides and their families, as tradition often puts the mother of the bride squarely in charge of planning and dear old dad on top of the checkbook. But things have changed, and it’s not unusual for couples to share costs, or for the groom’s family to chip in.
2.Set a budget. Regardless of who is paying, couples need to identify a wedding budget before working out the details. This number should be based on what you can afford, and should act as your reality check throughout the planning process. Added costs can add up quickly, especially if you aren’t calculating along the way. Knowing the maximum amount you can spend will help you keep a level head as the caterer, bridal shop, florist and other vendors start flooding you with tiered price packages and fancy add-ons.
3.Be flexible and keep your focus. Assuming you don’t have an unlimited budget, this is important mental preparation for the tough decisions you will face in the planning process. You may have elaborate visions in your head of the ideal wedding day, but be prepared to adjust your expectations as you come face-to-face with real price tags for wedding finery. Better yet, focus on the purpose of the day and savor the true meaning. The right attitude can help reduce your stress and lessen the pressure to seek perfection in the not-so-important details.
4.Prioritize. The hard work is in the nitty gritty—figuring out how to allocate your total dollars. If accounting isn’t a strength of yours, seek out the many wedding websites and books that can help you generate an itemized list of expenses. Give the necessary items top billing and then whittle down the extras that can add up quickly and bust your budget. Rose petals as you walk down the aisle? Nix that if you want to keep your floral costs in check. Professional photography? Plan on spending $1,000 or more. Be an informed consumer—research vendors and compare costs before signing contracts.
5.Get a head start. It’s smart to set your date further out if you need more time to save. Set up automated savings between your checking and savings accounts for consistent, non-negotiable contributions. Once you have the amount you need or desire set aside, consider investing in an account where you may earn some interest before the bills begin coming in post-wedding day. Another benefit of an early start is availability. Couples who wait to book their reception hall or photographer will have fewer options and may pay a premium.
6.Don’t stop at wedding planning. It’s tempting for newlyweds to pour all of their resources into their wedding day, when it may be wiser to invest in the lifetime that’s ahead. If more couples planned for their financial future with the same energy and enthusiasm as their walk down the aisle, there would likely be fewer marriages burdened by debt and worry. While you’re in the money mindset, consider creating a financial plan that extends beyond your wedding day with the help of a financial professional. Meeting with a financial advisor before you get hitched is a wonderful way to lay a strong foundation for your life together.
In todays environment, it’s almost comical to ever buy anything that is not on Sale… retailers are clamoring for your dollars.
With the exception of high high end or boutiques, you have finger tip access to many online and discount retailers via the internet for 98% of the things you buy regularly.
- Amazon and Ebay to name a couple
Even if your leary of every buying anything online Large department stores and chains are doing sales monthly - be patient
In addition an under-utilized tool is online gift card exchanges…
Use search sites such as www.plasticjungle.com for your favorite brands and department stores.
You can pick up Gift Cards at good discounts, then COMBINE that with the usual in-store or online sale for SUPER discount shopping
You may be focused on getting in shape for swimsuit season, but take a break from the gym this spring and spend some time on your financial fitness. Here are six tips to help get your investment portfolio into prime condition.
1. Shed the weight of extra accounts. It’s not unusual to acquire multiple retirement accounts over the years, especially if you’ve changed jobs several times. Consider consolidating them to simplify the management of your investments. If you have retirement assets with a former employer, it could be to your advantage to roll them over to your own IRA and achieve more control over how your money is invested. Consolidating accounts may also make it easier to monitor the performance of your investments and gives you the opportunity to ensure they’re properly allocated.
2. Bulk up your retirement savings. Have you given enough weight to what you’ll need in savings to retire comfortably? Are you taking full advantage of employer matching contributions and maxing out your IRA each year? In 2012, you have until April 17 to contribute $5,000 (or $6,000 if you’re over 50) to a traditional IRA. Sock away as much as you can to build your retirement nest egg.
3. Grow stronger. The fluctuating financial markets impact industries and individual investments differently, and often in ways that are difficult to predict. You can strengthen your portfolio by making sure your investment dollars are spread across a variety of investments. With diversified investments, your overall portfolio is not as likely to be derailed should one investment topple in value. Rather than trying to pick individual stocks and time the market, consider pacing yourself with systematic investments and think long-term.
4. Achieve the right balance. In light of the fickle nature of financial markets, even a well-balanced portfolio can look different than what you may have expected over time. Therefore, it’s wise to periodically assess the volatility of your investments across and within asset classes (stocks, bonds, and so forth) and rebalance your portfolio to achieve the desired asset allocation. A financial advisor can help you apply asset allocation strategies, and may have access to tools that will help you decide what may be a good match for your risk tolerance and goals – see tip #6.
5. Trim your waste. The Internet has made it easy to securely monitor your financial affairs while also helping to minimize paper waste. Question every printed piece you receive related to your portfolio. Is it absolutely essential to receive a paper statement? Do you really need to print that 100-page prospectus? Review the options provided by your financial institution and take advantage of their green initiatives if you’re comfortable managing your accounts online. With regard to your personal paper trail, keep in mind that your tax records and supporting documents should be maintained for seven years, while credit card statements can be tossed after a year. When disposing of documents, always use a shredder to keep your personal information safe from identity theft. Follow this advice, and your file cabinet will be slimmer in no time.
6. Enlist a personal trainer for your finances. Like many activities, managing investments is more fun—and potentially more productive—when you have a knowledgeable person by your side. A skilled financial advisor can guide you through simple exercises to help improve your investment fitness and cheer you on in pursuit of your financial dreams and goals. Together you can apply disciplined strategies designed to strengthen your investment portfolio and help you get in the best financial shape of your life.
You may find that your unease about financing your retirement is beginning to increase as the outlook on our economy stays gloomy, and according to a study commissioned by Ameriprise Financial, you are not alone. The New Retirement Mindscape®2011 City Pulseindex examined the 30 largest U.S. metropolitan areas to determine where consumers are the most prepared for and confident about retirement.
The results show that while three quarters (75%) of Americans say they’ve taken steps to prepare financially for retirement, the economic uncertainly that has persisted over the past year may be taking a toll on people’s emotions. A mere 18% of respondents surveyed say they believe they’ll achieve their dreams in retirement, down significantly from 21% who shared this sentiment in 2010. Likewise, when asked how they feel about this stage of life, more Americans express negative feelings than did so last year, including the number who say they feel worried (24% vs. 21%), anxious (21% vs. 17%) and depressed (10% vs. 8%) when they think about retirement.
While it would be great if a boost in confidence came easily, the best way to feel secure about your financial future is to prepare well for it. Though the options and advice available to you can seem overwhelming, and often complex, there are several simple steps you can take if you’re feeling wary about your post-career years:
1.Start with the basics. Deciding to make a plan is the first important step, but before you get too carried away,determine what you will absolutely need to maintain your lifestyle during retirement. Include basics like groceries, mortgage payments and other financial obligations. You may want to make a list of things that you could live without if you hit a roadblock in the future. It’s also important to consider things like rising healthcare costs and cost-of-living increases. Plan for at least 20 years worth of expenses. The resulting number will be the absolute minimum you’ll need to save to finance your retirement.
2.Consider your lifestyle. One of the most enjoyable parts about planning for retirement is deciding how you might spend your extra free time. Though you could just be looking forward to relaxing, you may also decide to move to a different area of the country, travel, volunteer or spend more time with family and friends. Your plans can always change, but creating a list of activities you may pursue is a proactive way to begin your planning process.
3.Determine expenses. Many people get hung up on this step, as it can come with a tough reality check, but the earlier you tackle it, the more time you have to save for your retirement goals. Calculate how much each of the activities you’ve planned for retirement will cost. Think about and include any hidden costs. For example, spending more time with family can include things like buying more gifts as your family grows, travelling to see family during holidays and even things like helping fund a grandchild’s tuition. Be honest with yourself and accurate with your predictions to get the best idea of what your retirement will cost.
4.Set goals. With your list of activities and associated costs, you can determine how much you’ll need to save for retirement and what kind of income needs you will have after you leave the workforce. Remember that though it’s important to be aware of the “big picture,” try not to let yourself get caught up in numbers with commas. Break your retirement income needs down into smaller goals that can be prioritized. Though you may find you have to make some decisions along the way, knowing what your retirement will cost and being able to work toward several achievable goals to begin with will help you feel more at ease as you continue to plan.
5.Track your progress. Like with all goals, it’s important to set milestones and continue to check in and reflect as you go. Keep in mind that a little time and organization goes a long way. Set one day each month to sit down with your finances. Even if your goal still seems far away or if you’ve experienced a setback, you likely won’t regret spending the extra time to review your progress.
If you still find yourself overwhelmed or needing help to stay on track, consider meeting with a professional financial advisor who can help you budget your finances now and plan for the future. Remember that while it may be a bumpy ride to retirement, the surest way to feel confident about what’s to come is to do all you can to plan for it.
With the New Year comes new rules, and after two years with no inflation adjustments for Social Security, changes are afoot for 2012. Most notably, those who receive Social Security and Supplemental Security Income benefits will see their monthly checks increase by 3.6 percent.
Though this is good news for those on the receiving end, these inflation adjustments also have an impact on those who are still contributing a portion of their wages through Social Security taxes and those who choose to begin receiving benefits early. The changes may not be drastic, but it’s important to consider them as you’re looking at your 2012 financial picture whether you’re still in the workforce, retired or planning to retire.
Higher earnings limit
Every wage earner is subject to the Social Security (FICA) tax up to a maximum earnings amount. The tax does not apply after that earnings limit is reached. In 2011, the rate was 4.2 percent and the earnings limit was $106,800, but is being raised to 6.2 percent and $110,100 for 2012. A similar tax applies to self-employed individuals.
The maximum contribution to Social Security can rise significantly in 2012 as a result of the increased earnings limit and tax rate, and this adjustment will produce extra tax revenues. The maximum employee contribution to Social Security under the reduced earning limit and the 2011 rate was only $4,486 in 2011, but will increase to $6,826 in 2012 for those at the top levels.
Currently, there are proposals in congress to extend the reduced, 4.2 percent rate for the employee portion of the Social Security tax for 2012, but it is unclear whether the extension will happen.1
Note that all earned income is subject to the 1.45% Medicare tax (the employee portion is also matched by 1.45% employer portion). No earnings limit applies for this tax. Beginning in 2013, this rate will increase by 0.9 percent for an employee whose wages are over a threshold of $200,000 (or $250,000 for those who are married and filing jointly).
Earnings limitation for early retirees
Full retirement age as defined by Social Security currently stands at 66 years old for those born between 1943 and 1954, but retirement benefits can be collected as early as age 62. Under the new adjustments, if you start accepting Social Security prior to your full retirement age and are still working and earning income, you could lose some of the benefits, but those who work while collecting benefits after reaching full retirement age will not have reduced benefits.
If a person under full retirement age is receiving social security and has an income that reaches $14,640 in 2012, his or her Social Security benefits could be reduced by $1 for every $2 of earned income above that limit. If 2012 is the year you will reach full retirement age at 66, you can earn as much as $38,880 (the limit is lower for those who reached full retirement age in 2011) before sacrificing Social Security benefits. In that case, $1 will be deducted from benefits for every $3 of income you earn above the limit. In the month you reach full retirement age, the earnings limit no longer applies. From that point forward, there is no reduction of Social Security benefits regardless of your earnings.
Keep in mind that once you begin receiving social security benefits, you’ll need to do a special calculation to determine if these benefits may be included in your gross income for tax purposes. Those with the lowest incomes do not pay taxes on Social Security benefits while those with the highest may need to include up to 85% of benefits in their retirement tax calculation.
Though the technical aspects may feel overwhelming, it’s a good idea to know where you and your family fall as these changes take effect in 2012, especially if your income is at or near the maximum earnings subject to social security tax, if you’re planning for retirement or if you’re about to begin collecting your Social Security benefits.
Remember that planning ahead is the best way to mitigate the effects of these and any other changes that may affect your financial situation in 2012. Consider working with a financial advisor or tax professional to help you create your overall financial plan for the New Year and the future.
“Rates can’t go lower.” Or so advertisements from mortgage companies have been claiming for years. But it’s possible that now, it’s more true than ever. According to research done by Freddie Mac, the average rate on a 30-year mortgage in the U.S. dropped below 4% for the first time ever in 2011. Rates on shorter-term, 15-year mortgages are even lower.
For some, this may create a great opportunity to refinance your mortgage, but doing so often isn’t the best decision financially for families in certain circumstances. Here are four things to consider before you make any decisions:
1. How much equity do you have?
Refinancing may be a priority for homeowners with disadvantageous loan terms or who owe more on their home than it is worth. But these situations can make it difficult to qualify for refinancing. Your first step should be to consult with your mortgage company about whether arrangements can be made to structure a different financing package for your home.
If you do have equity in your home, you have more flexibility. In cases where the amount you owe on the mortgage is significantly less than the value of the home, it’s possible to structure a payment that may be dramatically lower than your current monthly mortgage expense. If the amount of equity is not much different than the current value, the payment will be closer to what you already have, but would likely be an improvement due to the recent decline in interest rates.
2. Why do you want to refinance?
Locking in a historically low rate can be appealing, but is it a fit for you? If you are within a few years of paying off your mortgage, it may not make sense for you to re-start with another 15- or 30-year mortgage. If you’re focused on reducing your total debt, financing your home for an extended period of time may not be a favorable move.
Many who do have significant equity in their home refinance to “cash out” some of that equity for other purposes. But it can be risky; this strategy backfired on many homeowners when housing prices crashed in recent years. Those who took out too much cash were suddenly “underwater,” owing more on their house than it was worth when its value declined. If the rationale for refinancing is to access cash, be sure it is for a worthwhile purpose like paying down more expensive debts such as credit card balances or financing an improvement on your home that could boost its value.
3. Are you in a position to refinance?
If you have run into credit problems due to the sluggish economy, refinancing may not be as easy as it used to be. Households need to have a sufficient credit score — usually 700 or higher — to be able to qualify for a conventional mortgage.
Employment status could be another factor. A number of Americans, some involuntarily, have recently left the workforce and started their own business. If you don’t have an established record of income yet as a business owner, it might be a difficult time to obtain a new mortgage. Ask about this upfront when you contact your mortgage company to make sure it’s worthwhile for you to pursue the mortgage application process.
4. Determine the terms that suit your needs
If everything else works out and refinancing seems to be a good choice, the final question is whether to opt for a 15-year or 30-year mortgage. An adjustable-rate mortgage is also an option, but since the terms of those loans are subject to change, it may not make sense given the historically low rates that exist today.
If your primary goal is the lowest possible payment, a 30-year loan makes sense. If you are trying to focus on reducing debt and accumulating wealth, a shorter-term loan may make more sense; the total interest paid on a 15-year loan will be significantly lower than with a 30-year mortgage. While monthly payments will be higher, a 15-year loan offers more long-term advantages for these homeowners since the financial obligation of a mortgage will no longer exist after 15 years, allowing you to concentrate on retirement or education savings.
If you ultimately decide to refinance, be sure to compare costs of different lenders. The breakeven point on the cost of the loan (the number of years you need to keep the mortgage before the costs of obtaining a new loan are overcome) is a critical measure of whether refinancing is a worthwhile move for you.
We regularly hear news reports about a decision by the Federal Reserve (the Fed) to raise or lower interest rates or to leave them unchanged. Recently, Federal Reserve Chairman Ben Bernanke announced that the Fed would hold the line on interest rates it controls until the middle of 2013. The announcement of the Fed’s interest rate policy over an extended period of time was unprecedented. So does that mean the rates that have the most impact in your life will remain unchanged over the same period?
The simple answer is no. The Federal Reserve’s interest rate policy can impact the rates paid on your interest-bearing accounts, bonds you may own or the rate you will pay on your auto loan. But the impact may be indirect as other factors can also affect how the market sets interest rates on other instruments.
Comparing short- and long-term interest rates
The Fed controls monetary policy, influencing the availability and cost of money and credit to help manage the direction of the economy. While the Fed has a number of tools at its disposal, one of its most powerful is control of the Federal Funds (or “Fed Funds”) interest rate. This is the rate that banks charge each other for overnight loans of money from reserves that are held by the Fed. The free market actually sets the rate, but the Fed establishes a target for it.
If the Fed is trying to boost economic growth, particularly during a recession or period of slow growth, it will lower the Fed Funds rate. If the economy appears to be growing too fast – meaning that there is an increased threat of a serious inflation problem – the Fed will usually raise the Fed Funds rate target to try to moderate that growth. We’ve seen both types of actions happen on multiple occasions.
For example in the early 1980s, the Fed raised short-term interest rates sharply in a move to help thwart what was a period of rampant inflation in the U.S. This move is credited by many with helping to break the inflation problem and set the economy on a path of steady growth tied to modest inflation.
The challenge today has been quite different. The financial crisis that exploded in the fall of 2008 steepened the recession. Since December 2008, the targeted Fed Funds rate has been 0 to 0.25 percent, as low as it can be set. While the economy eventually regained some momentum, the rate of recovery has been so slow that the Fed has not adjusted its target rate since that time, and now apparently won’t before the middle of 2013.
What the Fed can’t control
While the Fed’s stance on short-term interest rates influences other interest rates, such as those on bonds or home mortgages, other factors can come into play as well.
For example, longer-term interest rates are often closely tied to fluctuations in the cost of living. If the inflation rate should suddenly jump, chances are that interest rates on government and corporate bonds and on personal borrowing instruments (mortgages and car loans) would rise as well. History shows that interest rates tend to track on a path similar to the inflation rate.
In fact, a sudden bout of inflation would likely cause the Fed to change its own interest rate stance sooner than 2013, which could contribute to a sudden upturn in longer-term interest rates.
Another potential concern is that investors in U.S. government bonds, which are issued to deal with the nation’s debt, may start shifting money away from that asset class. If the demand for bonds issued by the government declines, the yield on those securities could move higher. That was already happening in 2010, as the economy showed promising growth. But yields on longer-term government debt securities have declined again lately due to signs of slower economic growth and fears about the risks of another recession.
A key point to keep in mind is that even though the Federal Reserve may be committed to maintaining a low Fed Funds rate for the next two years, it doesn’t mean that rates on other types of instruments might not change between now and then. If you are considering buying or refinancing a home or locking in a CD rate for an extended period of time, remember that interest rates on most types of debt are subject to fluctuation independent of Federal Reserve policy.
In the face of the skyrocketing costs of health care services and insurance coverage, one benefit that can give households some relief is access to a Health Care Flexible Spending Account (FSA). If your family is taking advantage of an FSA, this might be the season when you have to decide how much money to defer from each paycheck toward your FSA. As you make your plans, keep in mind that rules about FSAs are undergoing changes as part of the recently enacted Affordable Care Act.
FSAs allow individuals to set aside pre-tax dollars from their paychecks into an account that reimburses them for qualifying out-of-pocket medical expenses. You can reduce taxable income by using this account for everything from co-pays or deductibles on doctor visits and prescription medicines to LASIK eye surgery and major dental work. The ability to use pre-tax dollars for these expenses is a way to stretch the value of your salary to help you cope with out-of-pocket medical expenses.
A new restriction for 2011
If you participate in an FSA, you should be aware of an important change that became effective on January 1, 2011. You can’t use FSA dollars to offset the costs of over-the-counter drugs unless they are purchased with the authority of a doctor’s prescription (there is an exception for insulin). This means you must submit a prescription along with a receipt for the purchase to your FSA provider to be reimbursed for the purchase of over-the-counter medications.
If you are having thoughts about trying to work around this new restriction on the use of FSA dollars, think again. If you use FSA money to purchase non-qualifying medical products or services, the amount will be included in your gross income and you could be subject to an additional penalty tax of 20 percent.
More flexibility for children
The Affordable Care Act requires employers who offer dependent health care coverage to cover adult children up to age 26. Recently, many employers have started providing more flexibility with FSAs, too. In the past, most employers restricted the use of FSA dollars to costs for dependent children. But now many employers allow the money to be used for an individual’s children who will not turn 27 before the end of the year.
Changes in the future
Since there is no regulatory limit, many employers allow you to make contributions of up to $5,000 to your Health Care Flexible Spending Account. If you have major out-of-pocket expenses to deal with, such as a child’s braces or a specialized surgery that is not covered under your medical plan, you might want to try to schedule them to occur before 2013.
Starting that year, the annual maximum limit you will be able to contribute into your FSA will be $2,500. That will reduce your options on how much pre-tax money will be available to pay for large medical expenses.
The specifics of a plan can vary by employer so be sure to find out how your FSA option works.
Investment Strategies Amid Downgrades, Downturns and Slowdowns
Investors are being forced to cope with what many perceive as unprecedented circumstances in the economic and political environment. At the same time that the U.S. economic recovery appears to be slowing, one independent agency downgraded its rating on debt issued by the U.S. Treasury. Confidence that government policymakers can do anything significant to help improve the environment is low.
These and other concerns are contributing to a sense of unease for many investors. How should the major events occurring in the global environment affect your personal portfolio strategy?
Here are five realities to give you an appropriate perspective on the challenges that lie ahead:
#1 – The downgrade may be justified, but might have been premature.
Standard & Poor’s shifted the nation’s credit rating from AAA to AA+. Part of their rationale appeared to center around concerns that a dysfunctional political environment will prevent budget issues from being resolved in an effective manner. However, history is filled with examples of how American politicians have forged deals to resolve crises. It may not be fair to discount the potential that policymakers will come to agreement not just on budget issues, but other legislation designed to give the economy a boost.
#2 – The economy is being tested, but a repeat of 2008 is not inevitable.
Recent memory can have a significant impact on investor behavior. The financial crisis that put the global economy on the brink in the fall of 2008 (and contributed to a 50 percent+ drop in the value of the S&P 500 stock index) remains etched in most of our memories. Fears have been raised that we may be facing a similar situation this year spurred on in part by the problems many governments (Greece, Ireland and Spain to name a few) are facing with their own debt issues. But it is not a foregone conclusion that we’re headed for the same result as three years ago. Circumstances are different today. For instance, many of the economic problems in the last downturn were related to the housing market bubble and excessive consumer debt. Today, housing prices are dramatically lower and consumers have begun to wind down their debt. There are other challenges facing the economy today, but a “double-dip” recession in the U.S. is far from certain.
#3 – Good news is often hidden
In periods like these when troubling news leads the headlines, investors are often surprised when markets perform well. This is due to the fact that some market observers are looking beyond the headlines to see other trends that are favorable. The same is true in today’s environment. Corporate profits remain strong and companies in the U.S. and elsewhere generally have solid balance sheets. Emerging markets are growing robustly and will likely help spur ongoing economic activity in other parts of the world, including the U.S. Prices for gasoline have moderated in recent weeks, boosting consumer purchasing power. Even in difficult times, seeds of future prosperity are planted.
#4 – Stocks may offer more attractive value than bonds
Many individuals have been pulling money out of the stock market and investing in bonds (or bond funds). Yet with interest rates on U.S. Treasury securities near their historic lows there appears to be limited upside. Worse yet, bonds paying extremely low interest rates can be risky for investors. If interest rates begin to rise, bondholders could be in for a negative surprise. That’s because bond prices decline when interest rates rise. Stock values, meanwhile, remain well below the peak they reached in the fall of 2007 before the dramatic, 50 percent downturn occurred. At that time, the S&P 500 Index topped out at 1,565. Today the S&P 500 is 20 percent to 25 percent below that all-time peak. This indicates that upside potential remains over the long run, though the market will likely continue to suffer through ups and downs along the way.
#5 – Market gyrations should not overtake your investment strategy
Are you a long-term investor? Most everybody should be, at least with a portion of his or her portfolio. Even if you are retired or close to it, you may need to invest some of your money in stocks to help meet increasing income needs over the course of what could be a long retirement. If you are uneasy with your current asset mix, it is worthwhile to review your holdings and determine if there is a more appropriate solution for your circumstances. Keep well diversified, and avoid putting too much of your money into a single asset or asset class to limit the risk of a dramatic change in its price. Don’t let today’s headlines overwhelm your investment decision process.
Will Social Security be available for you when you retire? Based on how much chatter and misinformation surrounds the subject, you may be surprised by the answer. Barring dramatic changes, Social Security will continue to provide benefits for all future retirees, including you. The real question is how much you will receive in benefits.
A “pay as you go” program
It is important to understand just how Social Security is structured. While the system faces financial challenges due in large part to demographic trends of a large baby boomer population retiring, it is not “going broke” as many have stated.
The primary source of benefits for current retirees is the Social Security (FICA) tax paid by working Americans. This is an ongoing source of revenue for the program. Therefore, benefits will be available indefinitely assuming the FICA tax remains in place.
What concerns forecasters is that, along with ongoing tax receipts, the Social Security program has become increasingly dependent on a “trust fund” that has been building for decades. The trust fund is a pool of money that represents the excess of tax receipts generated over the years beyond what was needed to pay current benefits. As the large baby boomer population begins to retire, the trust fund will slowly be depleted in order to fulfill all promised benefits to retirees.
Life after the trust fund
The only part of Social Security that is “going broke” is the trust fund. It is projected that if no changes to benefits or the tax structure occur, the trust fund will be depleted by about 2037.
The trust fund has faced challenges before. In the 1980s, changes to the tax rate and benefits eligibility were put in place in order to delay the potential depletion of the trust fund. It is possible that additional changes will be implemented at some point in the future to extend the life of the trust fund and maintain benefit levels that are close to what future retirees expect to receive.
But even if the trust fund is exhausted, benefits should continue. The Social Security Administration estimates that ongoing revenues to the program (through the FICA tax) will generate sufficient dollars to provide benefits equal to at least 75% of what future retirees would expect to receive based on the current structure after 2037.
Planning ahead
The ongoing uncertainty about funding for Social Security creates issues for those who are trying to plan for their needs in retirement. While you should be able to count on some form of Social Security well into the future, it is prudent to use conservative estimates. Assume that monthly payments will be only about 75% of what you may have previously anticipated, and plan on overcoming the gap with dollars generated by personal savings. This may require you to commit more dollars toward your retirement, even though some form of Social Security will most likely be around for you when you retire.
