Do You Have a Retirement Back-up Plan?

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Do you have a retirement backup plan – just in case you are one of the many millions of people who don’t have a $1 million retirement portfolio by the time you turn 65? I’m not saying that you shouldn’t do your best to build the largest retirement investment portfolio you can. But I am posing this question to encourage you to have a backup plan, just in case your retirement savings don’t turn out to be quite as large as you had hoped.

Let’s say that by the time you retire, you have some money put aside for retirement, but not nearly as much as you need for a full retirement. What can you do?

Here are some suggestions…

A Lower Cost Lifestyle

If you won’t have the kind of financial resources that you will need in order to maintain your current standard of living in retirement, this is the obvious first choice. Adopting a lower cost lifestyle will eliminate the need for so much income, as well as the amount of investment capital is necessary to produce it.

Frugal Lifestyle

Some ways to adopt a lower cost lifestyle include:

  • Downsize your living arrangement.
  • Move to an area where housing is much cheaper (this will be easier to do since you won’t be as job dependent)
  • Get out of debt – loan payments raise your cost of living.
  • Practice living frugally now, so you’ll be ready by retirement.
  • Embrace family, friends and faith, rather than high cost entertainment.

The less money that you need to live on, the less you will need to save for retirement – which works extremely well if you unable able to save much at all.

Bonus: Adopting a lower cost lifestyle well before you retire can free up money to help fund your retirement savings between now and then.

Getting Out Of Debt

We just discussed this above, but it’s an important topic especially as it relates to retirement. In the past 20 or 30 years, people have gotten so comfortable living with debt during their working years, that they simply carry it right into retirement. But whether you have a lot of money or just a little, debt is a drain on a comfortable retirement life.

Pay off Debt With Savings

Think about it logically – if debt is a problem during your working years, how will it suddenly become an non-problem once you retire? Answer: it won’t, in fact it will become an even bigger problem. This will be true whether you have a mortgage, car payments, and certainly credit cards. Every one of those debt obligations will eat away at whatever income you have in retirement.

If you don’t believe that you will have a sufficient amount of money for your retirement years, paying off your debt may be the single best alternative strategy. The last thing you want to do is to spend your retirement years paying off debt from your working years. In fact, if retirement savings will be light, then paying off all of your debts should be a priority.

Bonus: Paying off debt now can free up your income to help fund your retirement savings between now and then.

Making Extra Money

Even the combination of living a low-cost lifestyle and getting out of debt may not be sufficient to enable you to retire in any sense of the term. You may need to combine those efforts with making extra money.

On the surface, that flies in the face of the whole idea of retirement. After all, who wants to work in retirement? And if you do have to work, is it even really retirement?

If you have little or no retirement savings, you may have to accept the very real possibility of semi-retirement, rather than full retirement. If you’re healthy and you have solid skills, that may not be a bad thing either.

You can think of semi-retirement as a time to do the kind of work that you really like, rather than work that you have done all of your life in order to pay your bills. The combination of a side business or a part-time job, along with a monthly Social Security check may enable you to live relatively well even without a substantial amount of savings.

Spend some time thinking about what kind of work you would actually like to do. The funny thing about work is that if you like doing it, it’s really not like work at all. That’s the kind of work you need to find.

Do some research to come up with work you might want to do in retirement. Use the time between now and retirement to get the venture started, whatever it is. You can have a nice side business built up by the time you reach your retirement years, if you start building it now.

Bonus: A side venture started now could also provide you with extra income to help fund your retirement savings between now and then. Are you seeing a pattern develop?

Retirement Planning

Building A Generous Emergency Fund

Even if you don’t think that you will have nearly enough money saved up to afford a comfortable retirement, save money anyway! Having a large emergency fund for retirement that you can tap for unexpected expenses can keep you out of debt and protect what income you do have for regular living expenses.

Yet another bonus: Once your emergency fund is large enough, you can begin shifting any additional savings into your retirement savings between now and then.

Do you ever worry that you will not have enough money to retire comfortably on?

No More Checks For Social Security Benefits

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I’ve been waiting for this day to come for a long time (actually, it came a few months ago)! Effective May 1, 2011, applicants filing for Social Security and Supplemental Security Income (SSI) benefit payments must choose either direct deposit or the Direct Express® debit card. There will be no option to receive your Social Security benefits by check.

This means that the Social Security Administration will not have to bear the cost of printing, mailing, and replacing checks for beneficiaries and recipients. Those that were already receiving their benefits by check before May 1, 2011, will have until March 1, 2013 to switch to direct deposit or the Direct Express® debit card.

How To Receive Your Social Security Benefits Through Direct Deposit

Since you no longer have an option to receive your Social Security benefits via a live check, there isn’t much for you to do. If you already have a bank account, you can set up direct deposit of your Supplemental Security Income or Social Security benefit payments through your bank.

You can also call the Social Security at 1-800-772-1213. Just have your bank information and Social Security number available when you call, and they can set things up for you. Since there are more stringent regulations on when a creditor can garnish Social Security benefits, those who avoided direct deposit as a means to ‘hide’ their benefits, should no longer have to do so.

Are There Any Exceptions To Receiving Your Social Security Benefits Electronically?

Those who are 90 years of age or older may still choose to receive paper checks. This also goes for those who are able to document a disability.

In my mind, these are the people who would benefit from electronic payments the most – they may have trouble getting to a bank to cash their checks, and then trying to buy things in person with cash.

What Is The Direct Express MasterCard?

If you are set to receive Social Security benefits, and you do not enter direct deposit information, your benefits will be paid through the Direct Express Debit MasterCard instead of by a paper check. The card is just what it sounds like, a debit card that you can use wherever MasterCard is accepted.

Your monthly benefits will be deposited onto your debit card, instead of deposited into your bank account. You will receive a personal identification number (PIN), that will allow you to withdraw cash from an ATM or merchant who provides cash back.

You are allowed one free cash withdrawal per deposit at ATMs in the Direct Express network. Also, you are able to make free withdrawals at the teller window at any MasterCard member bank (most banks).

You can even sign up for low balance alerts by phone, email, or text message. Unfortunately, if you wish to receive regular monthly statements, you will have to pay $0.75 per month. Although, you are able to view the last 90 days of activity online (which may be enough for most people).

There are other fees associated with the card, which you can find here.

The Bottom Line Regarding Electronic Social Security Benefits

According to the Social Security Administration, 85% of those receiving benefits do so electronically. Therefore, this new regulation will have no effect on the majority of beneficiaries.

I wasn’t able to find an estimate regarding the amount of money that will be saved by moving everyone to electronic payments, but with only 15% of recipients receiving paper checks, the numbers can’t be that great. This isn’t going to be the move that saves Social Security!

As with any of the social welfare programs, there is a real danger of it not being around in it’s current form in the not-to-distant future. Therefore, it is imperative that we take full advantage of the IRA contribution limits, 401k contribution limits, and a 401k employer match, while there is still time.

The decision on how to receive these payments is a major issue for those with no other forms of income. For others who still have time, we need to do everything we can to avoid depending on Social Security benefits to fully support us in retirement! For those who believe that they have run out of time, here are a few late retirement planning tips to help you catch up.

photo by DonkeyHotey

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The Treasury Department’s New Regulation To Protect Social Security Benefits

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Recently, the United States Treasury Department put a new rule into place that seeks to protect those the garnishment of Social Security benefits. When you are collecting, and depending on, Social Security benefits, it can be extremely difficult to deal with debt collectors. To then have your bank garnish your Social Security benefits, can put you in a position where you have very few options.

According to an article on Market Watch:

Before the new rule, when debt collectors pursuing an unpaid debt secured a court-ordered garnishment, the bank often would simply freeze the money in the debtor’s account, whether or not it included federal payments, such as Social Security benefits, said Margot Saunders, an attorney with the National Consumer Law Center.

The easiest thing for a bank to do in this instance is to freeze the entire account, regardless of the source of the deposits. The problem with that type of response, is that it can leave the recipient – oftentimes an elderly person – with no way to pay for basic living expenses.

There are actually rules and exemptions in place, which govern when and how a debt collector can garnish Social Security benefits, but as Saunders points out, “It’s very, very difficult for an elderly person to step through the hoops that are required for exemptions… In the meantime, while they’re going through that process, they have no money.”

Having all of your money frozen at once can lead to financial disaster for someone in a social welfare program.

A New Rule For Banks Ordered To Garnish Social Security Benefits

In an effort to help beneficiaries avoid undue hardship, the Treasury Department will now require banks to verify whether the money in the accounts came from an automatic deposit of federal benefits (including Social Security). If so, the bank is required to leave two months’ worth of federal benefits in the account untouched, so that they can be used to cover living expenses.

However, if the benefits were deposited more than two months in the past, or if they were deposited by check (no matter how recent), then the bank is free to freeze the entire account. The recipient will then have to follow the normal procedure for claiming an exemption in their state.

You may not think that there are a lot of people who are affected by this, but the National Consumer Law Center says otherwise:

NCLC estimates that more than 1 million federal-payment recipients annually had their benefits garnished in a bank account. That estimate is based on “the number of complaints and concerns we get from lawyers around the country,” Saunders said. She said legal-aid lawyers cite such garnishment as among the most significant consumer problems, second only to mortgage-related issues.

This new rule will be a welcome relief to many who were already struggling to make ends meet, and pay off debt at the same time. Whether they be dealing with student loan repayments, credit card debt, or medical debt, they will now be given a little bit of breathing room while they consider their options.

Garnishment Of Your Social Security Benefits By The Government

Keep in mind that this new law only governs court orders directed at banks (after the benefits have been paid). It is still possible to have money withheld from your payments at the Federal level, before you receive a disbursement.

According to the Social Security Administration, here are a few common circumstances in which the Federal government can garnish Social Security benefits:

  • To enforce child support or alimony obligations under Section 459 of the Social Security Act;
  • Internal Revenue Service (IRS) can levy against benefits to collect unpaid Federal taxes according to Section 6334(c) of the Internal Revenue Code;
  • IRS can collect taxes due by levying up to 15 percent of a monthly benefit until the debt is paid;
  • IRS allows beneficiaries to have a portion of their check withheld to satisfy a current year Federal income tax liability according to Section 3402 (P) of the Internal Revenue Code;
  • Other Federal agencies can collect money from benefits to pay a non-tax debt owed to that agency according to the Debt Collection Act of 1996 (Public Law 104-134); and
  • Under the Mandatory Victim Restitution Act, certain civil penalties provide the right to garnish benefits under 18 USC 3613.

This list looks similar to the circumstances in which your tax refund can be garnished. This is why it is so important to take care of all debt before you retire, and never become a cosigner for a loan.

It is much easier to deal with these issues when you have a lot of options, instead of waiting until bankruptcy and debt are all that you have in front of you.

photo by DonkeyHotey

Social Welfare Program Payments Account For Over One Third Of U.S. Wages!

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According to a recent article by CNBC, various government welfare payments account for more than a third of all salaries and wages across the entire population of the United States! That is an amazing statistic when you stop to think about it what a social welfare program really is.

Welfare Payments Gone Wild

Now, when I speak of welfare payments, I am not just referring to payments made to the poor. Social Security, Medicare, and another popular social welfare program – unemployment – are all included! Here is what the article had to say about the numbers:

Even as the economy has recovered, social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.

So 35% of total wages and salaries will be nothing more than government handouts! The fact that this number was only 10% just a mere 40 years ago should alarm many!

What this means is that if you are in a room with 99 other people (say at a supermarket), 35 of them would completely rely on a social welfare program for their wages! There is no way that this nation can continue to function in this state for much longer!

“The U.S. economy has become alarmingly dependent on government stimulus,” said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients.

Instead of being a nation of people who worked as hard as we could in order to support ourselves, and making sacrifices whenever needed, we are now people who depend on the government to support us, without any real effort on our part! I would say that we are not just dependent on government support, but we actually feel entitled to it.

Now, obviously Social Security is different because most of the people who are collecting benefits are retired and are receiving income based on contributions they made while working. The system is set up so that current workers support those who are retired, so this assessment doesn’t really apply to them.

A Social Welfare Program In Trouble

Even though I stated that Social Security should be seen in a different light than the other welfare payments, the thought of it should immediately bring to mind all of the baby boomers that plan to retire within the next decade or so!

Many people are simply not prepared for retirement, which means that they will depend even more heavily on Social Security to support even the most basic needs. Whether you are a baby boomer or not, take a look at the current IRA contribution limits and 401k contribution limits, and prepare yourself for retirement!

One of the proposed ways to fix this problem has been to reduce either Social Security or Medicare…or both! Unfortunately, most people are blindly hoping for another way…

A Wall Street Journal/NBC News poll released last week showed that  less than a quarter of Americans supported making cuts to Social Security or Medicare in order to reign in the mounting budget deficit.

Those poll numbers may be skewed by a demographic shift the likes of which the nation has never seen. Only this year has the first round of baby boomers begun collecting Medicare benefits—and here comes 78 million more.

So, we are already at 35% of the population receiving welfare payments, and now we are expecting about 78 million more retired baby boomers!?!? I honestly don’t know if there is anything that can be done to turn this around – unless we make some major changes to how our economy functions!

Most people are aware of the fact that we won’t collect enough in Social Security taxes to cover outgoing benefits in the future (and the current payroll tax holiday sure isn’t helping)! Here is how the article summarizes our current crisis:

Social welfare benefits have increased by $514 billion over the last two years, according to TrimTabs figures, in part because of measures implemented to fight the financial crisis. Government spending normally takes on a larger part of the spending pie during economic calamities but how can the country change this make-up with the root of the crisis (housing) still on shaky ground, benchmark interest rates already cut to zero, and a demographic shift that calls for an increase in subsidies?

That’s the key question! Not only will we have a huge surge in the amount of retirees looking for government benefits, but because of the tremendously weak (and it will weaken more in the future) housing market, high unemployment and underemployment, and increasing public healthcare costs, we will surely face an unprecedented amount of citizens looking for complete government support!

Unfortunately, most politicians are only interested in the short term, so the future looks pretty bleak! What’s even worse is that many of the developed nations are facing the same problem! Here is another quote from the article:

At the very least, we can take solace in the fact that we’re not quite at the state welfare levels of Europe. In the U.K., social welfare benefits make up 44 percent of wages and salaries, according to TrimTabs’ Schnapp.

“No matter how bad the situation is in the US, we stand far better on these issues (debt, demographics, entrepreneurship) than other countries,” said Steve Cortes of Veracruz Research. “On a relative basis, America remains the world leader and, as such, will also remain the world’s reserve currency.”

If we existed in a vacuum, then maybe we could feel good about our nightmare not being as scary as others. However, since many of the world economies are so connected, this means trouble for the entire world population! So while we are focusing only on ourselves – thinking about various credit card benefits, finding a cosigner for our loans, and identity theft – the economy could very well be crumbling before our eyes.

photo by renjith krishnan

Join The Discussion:

  1. Are you shocked that 35% of all wages are based on payments from a social welfare program?

  2. Do you think that there should be a limit to these welfare payments?

  3. Do you find comfort in the fact that other nations are doing worse?

  4. How do you think we can return to being a nation full of people who support themselves?

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