Interesting Articles

How Social Security Reform Can Improve Retiree Finances: Jerome Golden

December 19, 2011 By Jerry Golden in Interesting Articles, Social Security Tags: retirement, retirement income, Social Security, Social Security Reform

Understanding the Monetary Value of Social Security Benefits

In my Op-ed published on December 8 by Bloomberg News (at http://bloom.bg/v2UCRq ), I suggested that the Social Security System could be made financially stronger while giving Social Security beneficiaries more choices about how and when their benefits are distributed.

I indicated in last week’s blog that I would show the advantages of a strategy of staging the election of Social Security benefits.

Before doing that, it’s important to establish a principal not well understood – the monetary value of the right to receive income for the rest of your life from a trusted source such as Social Security, a pension plan, or insurance company. Just because this right may terminate at your death (which can be ameliorated with a surviving spouse or beneficiary option) doesn’t mean it has no value. As long you are of average health, that value can be calculated quite readily – and even if you are not of average health, there is still value.

For example, the value of a Social Security benefit of $2,000 per month for a male 66 in average health could be worth $400,000 or more. That’s the personal store of value referred to in my Op-ed piece. What are the implications of that number?

It’s large and can represent a significant part of your retirement savings.
You should have options on how best to utilize that $400,000 of value.
Delaying the election of benefits in whole or in part (under the reform proposal) can grow that value for future consumption.

Certain commentators described my Social Security reform proposal as overly complex. My responses are: (a) it’s a mistake not to provide the beneficiary more choices with so much at stake;(b) Social Security policymakers and administrators can determine how many choices they offer to individual beneficiaries; and (c) there’s a cottage industry today providing Social Security advice, and with this reform they’ll simply expand their tool set.

Jerry Golden
Your Retirement Advisor
www.GoldenRetirement.com

Retiree Choices Could Keep Social Security Afloat: Jerome Golden

December 14, 2011 By Jerry Golden in Interesting Articles, Social Security Tags: retirement, Social Security

In my Op-ed published on December 8 by Bloomberg News (at http://bloom.bg/v2UCRq) I suggested that the Social Security System could be made financially stronger while giving Social Security beneficiaries more choices about how and when their benefits are distributed.

Having already received questions about how this may be possible, this is the first of several blogs to provide more detail about elements of my reform proposal. Let me start with answering some of the critical questions.

Does my proposal represent a privatization of Social Security and turning over $12 to $15 trillion to Wall Street? Definitely not! It simply involves giving beneficiaries more options with their promised benefits. When the article refers to a personal retirement program, it’s not about a private investment account, but how you could customize your Social Security benefits to meet your personal circumstances.
Is the source of the projected savings the result of beneficiaries deferring the election of benefits until, say, age 75 and having Social Security recover their personal store of value at their death? Again, the answer is No, but requires a three-part answer:

While the headline writer changed the original headline above to “Cash in at Age 75 and Help Save Social Security”, there is nothing sinister about deferral. Under current Social Security rules, you can defer from age 66 to 70 and get a 40% increase in benefits. My proposal simply extends that concept.
The article states that any increase in the deferred payments reflects both interest and longevity credits. Thus deferred payments give you credit for the expected recovery to the System from deceased beneficiaries. To illustrate, deferral from age 70 to 75 might produce as much as a 70% increase in benefits.
While some few individuals will elect a 100% deferral, the more likely scenario under this reform is to stage retirement and coordinate the deferral with a savings drawdown and/or other income. A subsequent blog will show the advantages of such a strategy.

Will the future demographics of the country really help when the ratio of active workers to retired workers seems to be decreasing, creating greater pressure on the Social Security system? The answer is yes, but you need to look far enough into the future. While there’s a period with baby boomers retiring when that ratio is decreasing, that phenomenon eventually begins to reverse itself, in quite a dramatic fashion, according to US Census projections. This is particularly true using the Census Bureau’s “high immigration” scenario.

As I wrote to one individual with serious doubts about the proposal, I’m used to some initial skepticism, and I’ve always had confidence in the often predictable stages of any new idea:

*Ridicule
*Resist
*Embrace
*Self-evident

Hopefully, the information in this and future blog will help in beginning the path to the “self-evident” stage.

Jerry Golden

www.GoldenRetirement.com

Debt Deal and Market Downdraft Got You Worried?

August 11, 2011 By Jerry Golden in Interesting Articles Tags: Deb Deal, personal savings, retirement, retirement savings, U.S. Debt Deal

What you can do to protect your retirement savings.

With mind-numbing stories coming out about who won and who lost the debt deal debate, and whether the debt deal really solved anything or only pushed it to a super committee, individual investors are still bewildered, frustrated and nervous. Now, with the stock market falling and interest rates behaving in seemingly irrational ways, Americans are skeptical as to the right strategy to adopt today in planning for retirement.

Here are some smart moves that you and other investors can consider making right now that will save you money and perhaps help you sleep a little more peacefully.

Save taxes on additional savings –
Statistics show that investors are on average increasing their savings, and while economists see that as a negative for the economy, I view this as a positive. However, if the savings are invested in accounts, funds, etc. outside a 401(k) or IRA, everyone should be tax-smart with these savings. While we don’t know what any “tax reform” might bring, I suggest you consider investing a portion of your retirement savings in a no load variable annuity (VA). Not only will that enable you to defer taxes on investment earnings until these funds are withdrawn, it could also help result in a lower tax bracket for you. That might be particularly helpful if tax reform eliminates or caps some of your favorite deductions.

In terms of timing, with the value of these taxable accounts taking a beating these past few days, now may be the time to sell a portion of those securities with little or no gain, and have any market recovery take place in a tax-deferred account. Also, with the tax benefits of annuity-investing in otherwise taxable fixed income options, this new VA account could be invested more conservatively.

In general, the time to move up in tax class, e.g., regular IRA to Roth IRA, or taxable to tax deferred, is on a market downturn.

Lower Fees – While the government is
doing some belt-tightening, as are those who may be increasing their savings, why not ask financial service providers to do the same? That means you should:

Look for no load products;
Invest in low cost index funds; and
Find an advisor (if you use one) that charges asset-based fees of .50% or less.

These lower fees make any additional savings even more valuable. If the provider argues that you’ll get more value from their higher fees, then I would counter by stating that in this environment, the economy and the government moves or non-moves trump whatever the provider offers.

These are just two of my Seven Golden Rules intended to dramatically increase sustainable retirement income from Personal Retirement Savings.

You can find the Seven Golden Rules, and more about saving and investing for retirement, at www.GoldenRetirement.com.

Jerry Golden
President
Golden Retirement, LLC
www.GoldenRetirement.com

Derek Jeter – A Hall of Fame Approach to Retirement Investing

July 12, 2011 By Jerry Golden in Interesting Articles

During the press conference following the game when Derek Jeter got his 3000^th hit – a home run no less – he was as expansive in his comments as I’ve ever heard him. Since I wrote about “Derek Jeter and Scorekeeping” in April, I’ve been paying close attention to both his on-field performance as well as his off the field comments.

While Yogi may be better known for his Yogi-isms, Derek made a few statements that may apply to both a Hall of Fame approach to baseball as well as to the average investor’s own “Hall of Fame” approach to Retirement Investing.

To paraphrase, Derek said that he might have a bad at bat, or a bad game, or even a bad month, while stating that “I take pride in going out there every single day and trying to be as consistent as possible.” And he also doesn’t seem to care whether his 3,000 hits are singles, doubles, triples or home runs. This long term winning approach will, in my opinion, assure him a first round election into baseball’s Hall of Fame when he becomes eligible.

And what does that have to do with Retirement Investing.

You need to look at the long term, and intraday, daily, weekly, or monthly moves in the market shouldn’t get you down.
You need to be in the game to win. Jeter’s longevity and durability enabled him to become the 4^th youngest player to reach 3,000 hits. Investment studies confirm that missing key days in the market can create significant lost opportunities.
You should shoot for getting on base rather than the home run. Diversifying between equities and fixed income, and among funds and ETF’s, seems more prudent than swinging for the fences.
Finally, as his long term teammates praised Derek for his constant preparation, so too should average investors have a plan (continuously updated) for their retirement Investing.

Durability, longevity, consistency and preparation – the right approach to a career and to investing.

Jerry Golden
President
Golden Retirement, LLC
www.GoldenRetirement.com

Social Security – A Modest Proposal for Reform

July 5, 2011 By Jerry Golden in Interesting Articles, Social Security

Seems like most of our close friends are concerned about Social Security – everything from the best age to start taking payments, to certain apparently favorable (possibly unintended) opportunities around spousal elections that even the local Social Security office may not be familiar with. A cottage industry has even grown up around providing education and analysis about Social Security elections.

And it’s just not my age group doing the talking. Many people under 40 say they don’t expect Social Security even to play a part in their retirement. The Social Security Board of Trustees in its annual report showed that if things continue as they are, funding will run out in 25 years–just in time for those now 40 and under to start turning 65.

But in the political arena, any talk of reforming Social Security remains the “third rail” – essentially a kind of political suicide.

Mark Twain said that everyone talks about the weather, but no one ever does anything about it. I’m not running for political office or working at Social Security, so I’d thought I’d see what I could come up with by applying my industry and actuarial experience to this enormous challenge.

Let’s start with the notion that transparency and clarity are essential to any successful financial program, of which Social Security is among the largest for so many people.

Next, let’s do something unconventional: let’s look first at the benefit side, rather than the funding issue: after all, benefits are the reason the program exists and starting there will at least help us properly frame the solvency challenge. Here are a couple of scenarios I’ve come up with so far:

Why not make our benefits transparent by keeping us posted on their actuarial present value, or in other words what it would cost you to purchase those benefits in the market. Let’s call this “Social Security Benefit Value”. When I ran some numbers a few years back I found that mine is around $600,000, which was at the time the cost of providing a COLA protected immediate annuity with a starting payment equal to my benefit amount This kind of value can’t be cashed in — but it can be “spent” on a personalized income benefit plan for the individual
What if we then permit our Social Security Benefit Value to be used for any number of income possible options while keeping its value constant — based on age, benefit level and market based actuarial assumptions. So we might take my Social Security Benefit Value and let me take lower payments in return for providing my beneficiary (spouse or children) at least 10 years of payments.
As another example, a new benefit option might be one that lowers current payments, but raises payments if an individual needs care, or uses the value to self-fund a portion of their home care costs.

Transparency of this kind will help us see Social Security as a true benefit with a defined personal value Politicians can then see this value as a liability that has to be funded. From the perspective of the Social Security Trust Fund I see this approach as extending its life as more retirees elect to defer or stage their retirement.

If this structure were also adopted in the pension and 401(k) sectors, we could be given more choices, including the ability to better-integrate retirement programs with Social Security. As I mentioned in an earlier piece, such a system for Social Security and pensions could facilitate the new reality of “staged retirement”.

Is this workable? It’s already been applied in the private sector in the form of what’s called a “flexible immediate annuity contract,” so the administrative technology and actuarial methodology are in place.

But my central point is that there are far more options around Social Security than the headlines would lead you to believe — if we stop focusing solely on the problems, and open our minds to creative new solutions.

Jerry Golden
President
Golden Retirement, LLC
www.GoldenRetirement.com

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