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Social Security and Retirement Planning Dilemmas and Obstacles

Personal_Finance / Pensions & Retirement May 25, 2010 - 09:40 AM GMT

By: Nilus_Mattive

Personal_Finance

Best Financial Markets Analysis ArticleI’m getting so many reader questions about my parents’ Social Security and retirement, I could write a book about them.

You want to know:

What are my parents planning for their retirement?


What dilemmas and obstacles do they face?

What is their son — yours truly — telling them to do?

These are great questions, and today I want to give you the best answer I can without compromising their right to privacy.

Fortunately, they have an only child who happens to be the financial expert of the family. And fortunately, dad and I are both planners by nature. We’re both conservative. And while we tend to expect a lot from each other, we’ve also managed to keep a very open line of communication going.

My message to him:

“Dad, you’re turning 63 this August. You only have a couple years in the workforce left. And retiring isn’t as simple or easy as it was in YOUR dad’s day.”

He doesn’t like to hear it, and he tends to downplay the dangers. But it’s true, and he now fully admits it. Here are just three of the big challenges he — and millions of other retirees — face today …

Retirement Challenge #1: The Social Security Mess

Yes, my dad will start collecting Social Security sometime this decade. It’s only fair since he paid in for more than three decades.

At the same time, as I’ve pointed out frequently, the Social Security system is broken. It’s going to run out of money if changes aren’t made. The average monthly benefit check going out this year is just $1,067! And future taxes on benefits could easily reduce the already barebones payments further!

“Dad,” I say, “that money will be nice if you get it. But we’ll be lucky if it pays your electric bill ten years from now!”

Retirement Challenge #2: Pension Plan Woes

As a lifelong state employee, my father also has a pension plan. But pensions aren’t what they used to be.

We all know private plans have failed left and right, and many more companies have just discontinued their plans without much warning at all.

And I’ve told you how the Pension Benefit Guaranty Corporation — the government backup for failed plans — is massively underfunded by billions and billions.

Now, even state and local government plans — like my dad’s — are at risk of collapse.

The reason: Crunched budgets from Harrisburg to Sacramento.

In fact, a recent study conducted by Joshua Rauh of Northwestern University basically said 45 out of 50 state pension plans were at risk of failing in the next 10 to 20 years!

Retirement Challenge #3: Soaring Costs on Everything from Healthcare to Gasoline

Some Basic Cost Increases 1999-2009

Meanwhile, retirees’ costs have been steadily (or sharply!) rising.

“Dad, it costs more to fill our cars … more to put food on our tables … and A LOT more to get quality health care, especially the older we get,” I remind him.

“Yes, but I have benefits from my state job,” he fires back. “I’m okay, bud. We’re fine.”

Unfortunately, he forgets about the possibility of ending up in an assisted living facility, which ISN’T covered by his plan … as well as countless other possible threats.

According to the 2010 Retiree Health Care Costs Estimate survey from Fidelity, a typical retired couple spends more than $250,000 of their own money for healthcare! And no, I’m not confident that any new system our country launches will change that.

Bottom line …

If My Dad Wants to Successfully Fund His Retirement He Really Needs to Manage His Nest Egg Better!

Even though he goes by “Larry,” my dad’s full name is the same as mine — Nilus Lawrence Mattive.

But unlike me, he has never been an investor in the traditional sense. He’s never bought individual stocks for himself. He’s never owned a bond except for traditional U.S. Savings bonds that he bought to help with my education. And he’s certainly never used ETFs, options, or any of the other investment vehicles that have become popular in recent years.

Instead, he’s stuck to the basics — working hard, staying conservative, and saving a little every year.

He put in 32 years working in the State of Pennsylvania’s mental health and retardation facilities, when he could have earned a heck of a lot more by moving to the private sector.

Meanwhile, he never took sick days. Instead he cashed out all that accrued time when he switched jobs in 2007

My daughter Vela has given my dad an even bigger perspective and a lot more fun!
My daughter Vela has given my dad an even bigger perspective and a lot more fun!

And for the last three years as he’s continued to work, my dad has kept that money — his sick time and individual retirement contributions — sitting in a money-market fund earning practically zero.

Nothing Bothers Me More Than Watching My Dad’s Retirement Money Earn a Meager 0.3 Percent a Year … So I’ve Finally Decided to Put My Foot Down

It’s one thing to be a little conservative. It’s another to earn absolutely nothing from the money you worked so hard for.

Do you realize that at current interest rates it would take my dad more than 140 years just to double his nest egg?

Clearly, I’ve got to get my dad’s butt in gear because he doesn’t even have one tenth that amount of time!

I’ve been begging him to let me take charge of his account and put all my investment knowledge to work for him. And I think we’re on the verge of making that happen — it will just take another very frank discussion or two.

But it will be worth it … because I absolutely KNOW I can get him a much better return on his nest egg starting right now. He’ll simply have to step out of his comfort zone a little bit more, and trust me.

It’s the least I can do for him after all he’s done for me over the years.

My dad is always telling me, “These are the best years of your life. When you’re the bridge between the younger family members and the older.” So I think he recognizes that the “changing of the guard” is taking place.

In the meantime, I would love to hear more from you on my blog. What are you and your family doing to plan for retirement? Stop by and let me know when you get a chance.

Best wishes,

Nilus

P.S. Dad, I know you’re probably reading this. We’ll talk more when you come to visit for Memorial Day weekend! =^)

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


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