Manarin Investment Counsel, Ltd.

Retirement used to mean a guaranteed pension, full healthcare benefits and low inflation. Today, most of those things - living costs, health care expenses, social security, pensions and future employment income - are all uncertain.

Saving has become “the new reality” for people who want to ensure a comfortable retirement. In fact, according to this well-written article by Andrew B. Chou – click here  to read the article – retirees should count on funding close to 50 percent of their own retirement income through a variety of sources.

Perhaps this level of saving wasn’t in your original plans. However, the economic factors that contribute to these numbers won’t change anytime soon.

In our “new reality,” the sooner you start saving, the better off you’re going to be during your golden years.

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Remember the old cliché, “today is the first day of the rest of your life”?  Well, it’s true.  And not only is today the first day, but 2012 is the first year of the rest of your life.  Regardless of past mistakes or procrastination, you can take action this year and change.  You can decide to keep your New Year’s resolution to prepare for your financial future.  Here are some tips for getting started:

Increase your Contributions to your Traditional Employer-Sponsored Retirement Plan. This step is basic and absolutely essential, especially for people nearing retirement.  By increasing your contributions at work, you will reap the double benefit of dollar cost averaging your way into the market, and reducing your taxable income.  Dollar cost averaging allows investors to put fixed amounts aside into their investment portfolios over time.  By doing so, more shares are purchased when prices are low and fewer when prices are high.  Along with this advantage, the tax benefits of your pre-tax deferrals are tremendous! Every dollar you earn is taxed (sometimes up to 30% or more), but when you put a dollar in your employer’s plan, that dollar is deducted from your taxable income. Instead of paying the government, you pay your future self – the self who one day won’t be able to work anymore.  Even if you can only increase your contribution by 1 or 2%, you must take this step.  You will be glad you did.

Decide what you will retire to, instead of focusing on what you will retire from. If you haven’t decided how you will spend your 40 free hours a week and 52 weeks of vacation a year, you may find that you don’t have enough money to do anything more than sit at home.  Too many people can’t wait to quit their job and retire.  But these people are more focused on quitting than retiring, and they are often the ones who end up sitting at home watching TV until they die. Knowing how you will spend your time will help guide and motivate you in setting aside funds for your future.  For example, if you decide you would like to buy an RV and travel, estimate what that will cost and compare that to what is set aside.  Then, ask yourself: do I have enough or do I need to save more?

Consolidate Your Accounts. Many people collect several savings or retirement accounts during the course of their career and end up with four or more account statements.  With all of these statements, it’s hard for people to know what they have.  One account may be a Roth IRA they opened in 1996 at Company A; one’s a Traditional IRA they opened in 1985 at Company B (by the way, Company B merged with Company D); one’s a joint account opened in 2001 with Company C; and one’s a variable annuity opened at an unknown time from some bought-out insurance company.  You get the picture.  If you don’t consolidate your accounts, you will spend your retirement trying to track down where your money is.  And, heaven help your heirs if something happens to you and they have to sort through the mess. Consolidating your accounts means taking time to find a financial advisor you trust.  Start by asking friends and family who they use, but don’t stop there. Take time to meet with a few advisors. Ask them about their investment philosophy.  Ask them how they are compensated.  Advisors who offer commission products are no better or worse than advisors who are fee based.  There are valid reasons for both approaches. When you find an advisor whose philosophy and approach matches yours, get to work on consolidating those accounts!

After you’ve taken these steps, don’t repeat the mistakes you made in 2011. If 2011 was a year of procrastination, make 2012 a year of proactivity.  If 2011 was a year in which you ignored your future, make 2012 the year you plan your future.  You won’t regret it.

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How do you know when you can afford to retire? That's the big question most people ask as they approach their retirement years. Not enough people put in the effort to really find out, and come up short. Click here to learn how to do the math.

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All of us who work feel the bite that Social Security taxes take out of our paycheck.  Most of us take comfort in the hope that when we retire, Social Security will be there, giving back all the money that we paid into the system over the course of our careers.  Isn't that how it works?

Well, the short answer is no, it doesn't work that way.  The Social Security taxes deducted from your paycheck are not sitting in a special account someplace, earmarked to be returned to you upon your retirement.  Instead, the taxes you pay today are used to pay benefits to today's beneficiaries, just as when you retire, the benefits you receive will come from the taxes paid by people who are still working.  This arrangement works as long as there are enough people sending in taxes; it doesn't work so well if the number of current workers per retiree is decreasing.

The baby boomer generation (those born between 1946 and 1964) have started to retire.  This large group retiring, coupled with increasing life expectancies and decreasing birth rates, means that the number of retirees will grow faster than the number of workers. 

According to the Social Security Administration, the number of workers sending in Social Security taxes to pay each retiree's benefits has plummeted from 42 workers per beneficiary in 1945 to 3.1 in 2009.  What is more is that this number is projected to go down even further to 2.1 workers per beneficiary by 2040.  Since the ratio of workers to retirees is expected to continue declining, a shortfall in future Social Security funding is likely.

The trustees of the program project that by 2014, the Social Security benefits it pays out will exceed the amount of money coming in.  Moreover, they are forecasting that the "trust fund" will be exhausted in 2037 unless changes are made.

What does all that mean for you?

Well, that depends on how old you are and what changes the United States government decides to implement.  If you are nearing retirement, it is unlikely that your Social Security benefits will change dramatically.  Younger workers, however, are more likely to see sweeping changes in the way Social Security works in the form of higher taxes, lower benefits, or a combination of the two.

Key Point: This was never intended to provide Americans with all of the income they would need in their retirement.  Social Security is only one leg of a three-legged stool that also includes pension plans and personal savings.  With concerns mounting over the stability of one leg of the stool, retirees need to take control of their retirement by investing in personal savings plans such as IRAs and 401(k)s.

Visit us at Manarin.com.

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Photo Credit: Fabricator of Useless Articles

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Yahoo Finance - Conventional wisdom says you need to save $1 million for retirement. 

That target may be easy to remember, but it falls short of the true cost of what's required for post-career comfort.  Longer life spans, the threat of inflation and the uncertain future of Social Security benefits make this long-touted savings advice inadequate for most, advisers say.

Scottrade recently polled 226 registered investment advisers on the topic and found that 71% don't believe $1 million is enough for the average American family.  Most said families need to save double, or more than triple, the amount.

"Younger generations, especially, need to set their retirement goals higher than other generations and start saving as early as possible, "says Craig Hogan, Scottrade's director of customer-relationship management and reporting.

The survey solicited opinions about the current investment habits of Americans.  Questions were broken down by generations to determine advisers' opinions on average investment goals in today's dollars for various groups.

Generations Y (ages 18 to 26) needs to save at least $2 million, according to 77% of advisers.  Forty percent put the figure at $3 million.

Nearly half of advisers (46%) said Generation X (ages 27 to 42) should at least double the $1 million goal.  Twenty-two percent suggested more than $3 million.

For Boomers (ages 43 to 64), 35% recommended $2 million to $3 million.  Thirty percent suggested $1.5 million to $2 million.

KEY POINT:  Be sure to share with your friends and family the importance of allowing time to do most of the heavy lifting to save for retirement.  Start early, save a healthy amount and STAY THE COURSE!

For more information on managing your retirement assets, visit us at Manarin.com.

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