Securely taking Social Security

It surely is one of the most difficult and consequential of decisions for Baby Boomers: When can I retire and, more importantly, when should I start collecting my Social Security benefits.

Well, a writer at CNN.com (of all places) has done some of the heavy lifting for us:

"Say you want to retire at 62 and would draw a Social Security benefit of $1,125 a month. That's 25 percent less than the $1,500 you would collect if you waited until age 66.

"By age 77 and 11 months (let's call it 78) you'd have collected roughly $216,000 in total benefits, whether you opted for early benefits ($1,125 x 192 months from ages 62 until 78) or full retirement age benefits ($1,500 x 144 months from ages 66 until 78).

"But your break-even age is actually later when you factor in the investment value of your early benefits. Even if you don't invest those early benefits directly, taking them might mean you can leave other savings to keep growing. That could add three to five years to your break-even point...."

She even linked to the Social Security Administration's breakeven calculator.

The full piece is here. It is worth your time.

It's Never Really Enough, Is It?

So, how much money do or will we need to retire comfortably? And what does that mean exactly anyway...comfortably?

I think a reasonable definition is: Will Mrs. BoomVista let me buy a new car when I want to? OK, more seriously, a reasonable definition is: Enjoying your retirement while spending wisely and modestly and, most importantly, without becoming obsessed by your bank account or net worth.

Coop, a loyal BoomVista, sends along some advice that passed through his computer the other day. It comes from a firm called Daniel A. White Associates, which says it "solely serves the financial needs of those nearing retirement and those already retired."

Much of it is pretty obvious, but it never hurts to review the obvious. Here is the material, which some bracketed remarks from BoomVista:

As retirement rolls into view for the Baby Boomer generation, many people are wondering if their nest egg will provide the quality of life they have been dreaming about for so many years.

There is no universally accepted method for calculating how much money is needed to cover retirement expenses. But a comprehensive evaluation of your financial situation will improve the accuracy of whatever planning tool you use to measure your nest egg. Here is a summary of information you will need.

- Retirement expenses. Start by figuring out current living expenses, then determine what will change in retirement. Most retirees spend less on expenses like food [Huh?] and clothing, but many spend more on travel and second homes. Don't forget health care when estimating your annual retirement budget in today's dollars. [That's certainly the biggie, isn't it? BoomVista's plan - Have Mrs. BoomVista continue working for the health insurance...pretty much forever. :) ]

- Cash flow sources. Be conservative on what you expect from Social Security, although President Bush has promised full benefits for everyone born before 1950. [See this previous post.] Pensions, annuities and reverse mortgages will reduce the amount you need to withdraw from investment accounts. [Many other experts advise extreme caution when considering reverse mortgages.]

- Future events. Downsizing to a smaller home or selling property will add to your nest egg. Money you expect to inherit should be included in your calculations.

- Investment return and risk. How much risk you are willing to take will affect how fast your nest egg grows and how safe it is after your retire. While you are still working, you can take more risks to increase investment returns because you will have time to recover from a stock market setback. But once you've retired, it's advisable to reduce investment risk in order to protect your nest egg from sudden declines in value when you need to make withdrawals.

- Retirement date. People who work past 65 will have a bigger nest egg and fewer years of retirement expenses to cover. [They also will get more work-related aggravation.] Some retirees have found they should have kept their jobs for a few more years.

- Expect the unexpected. Don't rely on formulas based on average investment return, inflation and longevity rates, because deviations from the norm can throw off projections. [This is good advice.}

- Keep saving. The best way to improve your odds for a carefree retirement is to keep adding to your nest egg. [Duh.]

Good News, Bad News

So, the nation may have a little extra time to deal with the...timebomb...that is Social Security and Medicare, but once again, we Baby Boomers are inadvertently causing a problem and, once again, we'll be penalized.

Once again, something we were promised , something on which we depended, will be reduced, curtailed or withdrawn.

Yesterday delivered news that, as the Associated Press put it, "Fewer benefits, more tax money and some accounting magic have bought an extra year of life for Social Security and Medicare, trustees of the government's two largest benefit programs said Monday."

Still, the article said, the Medicare trust fund could crash by 2019 and the Social Security trust fund could run dry by 2041.

"Today's report reinforces the need for Congress to address runaway entitlement spending that will bankrupt future generations of Americans," said House Republican leader John Boehner of Ohio.

Yep, that's you he's talking about, Mr. and Mrs Runaway Entitlement Spending. That's where we're wasting money. Not on an ill-conceived war gone bad. Not on Halliburton. Not on bridges to nowhere in Alaska or tax cuts for the super-rich. You. You and your oh-so-precious Social Security and Medicare funds, those safety nets you've been buying on the installment plan for the last 40 years or so.

Shame on you.

So, what's the plan? Should we end that expensive war? Rollback those tax cuts? Nah. Here's the preferred plan, according to the Social Security trustees' latest report:

"An immediate increase of 16 percent in payroll tax revenues or an immediate reduction in benefits of 13 percent or some combination of the two."