Archive for August 2008

It’s a perennial question. When you reach age 62, you can apply for Social Security benefits, but they’ll be significantly reduced for life. Or, you can wait until you’re old enough for full benefits (a sliding scale between ages 65 and 67, depending on when you were born). Which is best?

The question isn’t easy to answer, since it depends, among other things, on the age of your future demise. If you die at age 64, you’ll get nothing if you wait. But if you last to age 100, you’ll suffer 35 years of reduced benefits for the sake of a few years of payments early on. Where’s the break-even point?

You can spend hours poring over Excel spreadsheets if you want. But according to The Center For Retirement Research at Boston College, there’s a way you can have your cake and eat it too
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The old saying “you snooze, you lose” is especially applicable to saving for retirement.

No lesser a genius than Albert Einstein once declared “the power of compound interest” to be “the most powerful force in the universe.” That’s probably true; and the second most powerful force is arguably the power of regular saving. Together, they’re “thermonuclear” in power—but only if they have enough time to operate.

For example: based on reasonable historical assumptions, a 55-year-old will have to put away $610 per month in order to have $100,000 saved up by age 65. If he or she had started 10 years earlier, only $216 per month would need to be saved in order to achieve the same result. And if the savings program had begun at age 25, only $50 per month would suffice!

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Tens of millions of baby boomers are approaching retirement age. Over the course of the few decades, this enormous segment of the population will stop contributing to Social Security, Medicare, and private investment programs. It will instead be drawing upon these institutions to the tune of trillions of dollars. This will result in enormous dislocations for the economy as a whole, shaking its very foundations. Still, some people—like deputy assistant secretary of the Navy Russell Beland—insist on sticking their heads in the sand and pretending that the problem will go away by itself.
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Barack Obama has come up with an intriguing solution to the Social Security funding crisis: Keep the existing payroll tax for those earning less than $102,000 per year, also tax incomes above $250,000, and levy no tax on earnings between $102,000 and $250,000, creating a "donut hole" in the middle.
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Having owned an employment agency for twenty years, Linda Miller thought she was well-off enough to retire four years ago, and she did.

Now, she’s back at work selling Avon cosmetics. Why? “All the money is going for gas and groceries,” she laments.
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