This week’s CBTV show is entitled, “Have You Created a Rock Solid Retirement Plan? If Not, Don’t Wait Another Day!”
For the first time in 3 years, 55 million Social Security recipients will see their monthly benefits increase. Starting in January 2012, the Cost-of-Living Adjustment, or COLA, will return, with a 3.6% increase in Social Security benefits. Low inflation prevented the COLA from increasing benefits over the past two years, which was the first time this happened since “inflation-tied increases” were enacted in 1975. While the Cost-of-Living Adjustment is a much-needed raise for retirees receiving Social Security benefits, it’s estimated that approximately 75% of recipients won’t realize the full effect of this increase. This is mainly due to an expected increase in Medicare Part B premiums, which are automatically deducted from these checks before the government mails them. So, even though recipients will “technically” be getting more in benefits, most retirees will not “actually” see a significant increase.
Social Security is a major source of retirement income, if not the sole source for millions of retirees. However, it’s important to remember that Social Security is a “benefit” and should be considered as just one component of a comprehensive retirement plan. The future of Social Security is uncertain. The program continues to run at a deficit, and without some major changes by Congress, trust fund reserves are expected to be exhausted by 2036. But, that’s only part of what is becoming a growing problem. Which is this - the 3.6% increase in Social Security benefits for 2012, isn’t even keeping up with the current annual CPI-W inflation rate of 4.4%, or the “main” CPI of 3.9%! In fact, since the Cost-of-Living Adjustment was first introduced in 1975, the annual increase has been less than the annual rate of inflation more than half the time.
As we all know, government benefits will not cover every expense you will have in retirement, which means you must create your own comprehensive financial plan, to make sure you cover all the expected and unexpected events in life.
So, here are 4 key elements of a comprehensive retirement plan:
1) Develop an Income Plan: You must know how much money you will need to live comfortably in retirement, which is typically 70% of your pre-retirement salary. From there, you need to know what financial resources will be available to you in retirement, and then how to withdraw those funds in the most tax-advantageous manner. You should also create a reliable income stream that will last throughout your retirement years, such as a lifetime income annuity.
2) Buy Long-Term Care Insurance: Nursing home facilities can cost more than $80,000 per year, and health insurance, Medicare or disability insurance will not cover this expense. While long-term care insurance can be expensive, the cost of long-term care is much more expensive. The possibility of a mental or physical disability only increases with age, which is why LTC insurance becomes an increasingly important benefit for all of us!
3) Create an Estate Plan: An estate plan should be developed as early as possible, to reduce the financial burden on your family. This includes creating a will, living will and possibly a trust, naming an executor of your estate, and setting up a durable power of attorney to appoint someone to handle your financial and medical affairs, if you are unable to do so in the future.
4) Purchase Life Insurance: There are a variety of life insurance policies to consider today, but the main objective of life insurance is to protect your family against the loss of income, if you pass away. Life insurance provides financial security to your beneficiaries, and is another great way of guarding against the unexpected.
These 4 key components are essential for anyone putting together a comprehensive retirement plan. They can provide retirees with extra benefits and security, that go above and beyond what you will receive through Social Security or a pension, and can protect you against life’s unexpected surprises!
I would like to hear from you on this week’s important topic. Have you crafted a retirement plan that will see you through to the end? Have you protected yourself from the unexpected events in life? Let me know. Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!
-Matt
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