401k Source

The 401k Source

1. Where will my retirement income come from?

According to the Social Security Administration, many retirees receive income from four main sources:

1) Personal Savings and Investments

2) Earned Income

3) Company Pension Benefits

4) Social Security Income

2. How much will my income need to increase to keep up with the cost of living?

The cost of living (as measured by the Consumer Price Index) has fluctuated, but has averaged between 4% and 5% per year over the past 20 years. While recent inflation has declined to 2% to 3% annually, Financial Planners recommend that retirees compensate for inflation when preparing retirement income projections.

3. If inflation averages 5%, how much will I need in the future?

Assume you retire at age 60 and need $4,000 per month retirement income. Assuming 5% inflation, at age 65 you will need $5,105 to buy the same goods and services. At age 70, this amount will rise to $6,515. At age 75, you will need $8,315 to maintain the same purchasing power as $4,000, 15 years earlier.

4. What percentage of my final working earnings will I need in retirement income?

Retirement planning resources suggest 66% to 75% of final earnings as a “rule of thumb.” However, many people have to adjust to a 1/4 to 1/3 drop in their income. We recommend that as you near retirement, you make a monthly “needs” budget based on past spending (review your check register for the last year) and combine that with a “wants” list.... items like travel, golf, entertainment, gifts, etc....so that you have a carefully considered income goal, rather than just an estimate based on your final year’s salary.

5. Before I retire, is there a way for me to project my retirement income?

With today’s technology, there are many financial planning computer programs that are reasonably accurate. For more detailed planning as you approach retirement, seek the advice of a professional such as a licensed financial advisor, a Certified Public Accountant (CPA), or another advisor experienced in retirement preparation.

6. Where can I go to find answers to questions about Social Security Benefits?

We have found Social Security Administration offices in our area to be quite helpful. A call to the local Social Security office any time you have a specific question will probably be welcomed. Also, a number of books that describe Social Security benefits are available at most bookstores or the public library.

7. When should I file for my Social Security? What will I need when I file for Social Security?

Normally, you should file for Social Security three months before you plan to receive benefits. You will need:

1) Your Social Security card

2) Proof of your age

3) Tax forms from the previous year

4) Marriage certificate/divorce documents, if any

5) Death certificate, if applying for survivor benefits

Call your Social Security office for further details prior to visiting the office.

8. What is the maximum Social Security I can be paid if I retire this year at age 65?

A worker retiring (in 2002) at age 65 could receive as much as $ 1,400 – $1,500 per month, depending on past contributions to the system. Source: Social Security Administration

9. What’s the best way to get an accurate estimate of my Social Security benefits?

Request a “Personal Earnings and Benefit Estimate Statement” form from the Social Security office, complete and send it in, and you will receive a record of your wage history and an estimated retirement benefits statement. You can also request a Social Security Statement through the Internet at www.ssa.gov/SSA_home.html.

10. Will Social Security keep up with the cost of living?

Although Social Security has had cost of living adjustments in the past, because of well-known changes in demographics, we do not recommend relying on Cost of Living Adjustments (COLAs) to increase benefits at the rate of inflation in the future.

11. If I decide to retire before my normal retirement age, should I file for Social Security early at the reduced rate? What is the reduction?

For individuals born in 1937 and prior, normal retirement (the age at which a recipient is entitled to 100% of his or her SSI benefits) is 65 years of age. For each month you choose to collect social security income before the “normal” retirement age, your payment is reduced by .555%. The earliest you can collect is age 62 and the benefit would be 80% of your “normal” SSI.

For individuals born after 1937 the reduced benefit is 79.17% at age 62, and the normal retirement age increases from 65 and 2 months to 67 years of age, depending on the year of birth.

The complete table of Social Security Full Retirement and Reduction by Age can be found at www.ssa.gov/retirechartred.html.

Source: Social Security Administration