State pension funds face $1 trillion funding gap-By Mandi Woodruff

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More depressing news for workers who depend on a pension to fund their retirement: State-run pension funds faced a $968 billion shortfall in 2013, up $54 billion from the year prior, according to a new report by The Pew Charitable Trusts. When local pension fund shortfalls are factored in, the total pension funding gap surpasses $1 trillion.

"Policy makers are going to need to find a way to address [this funding gap] and it’s going to have to come down to some kind of plan to pay it down in an orderly fashion," said David Draine, a senior researcher at Pew Charitable Trusts.
On average, state pension plans were only 74% funded. The implications for workers are huge. If states don’t find a way to fully fund pension plans, many workers who have dutifully paid into pension plans may not get back what they’ve put in and young workers may not get to participate at all.

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Source: Pew Charitable Trusts

Fewer than half of states were able to meet their required annual contributions to pension funds in 2013. New Jersey and Pennsylvania were the furthest behind— each was only able to make only half its annual funding contribution. As a result, more than one-third of their state pension funds were unfunded. Overall funding rates were the worst in Illinois (with just 39% funded) and Kentucky (44%), where pension funding levels have declined for three years in a row. Just two states managed to finish the year with 100%-funded pensions: South Dakota and Wisconsin.

It should be noted that Pew’s report only looks at funding rates for 2013 and does not factor in the significant investment gains of 2014 (the S&P 500 index rose around 11% last year, according to data from FactSet). But even if it had, the budget shortfall would still likely exceed $900 billion, the report says.

They probably aren’t wrong on this point. In a recent analysis by Boston College’s Center for Retirement Research (CRR), researchers predicted that the pension funding rate would be 74% for 2014, the same rate as Pew’s report, which looked at 2013. If the market continues to improve, however, that funding level could reach 81% by the year 2018, CRR said.
To close the funding gap, like anyone who’s ever been overwhelmed by credit debt knows, states need to step up, Pew argues.
States have adopted pension funding standards that allow them to drag out their pension debts over a longer period of time (a maximum of 30 years) -- similar to homeowners who want to stretch out their mortgage payments as long as possible. The result is smaller payments that are easier to swallow but don’t actually put a significant dent in the principal debt.

“This is similar to the negative amortization loans some homeowners used in the run-up to the financial crisis,” the Pew report says. “Initial payments on those loans failed to pay down any principal, and homeowners fell deeper into debt as a result.” 

Culled from Yahoo Finance

4 Roads to Early Retirement-By Tom Sightings

Try these strategies to quit your job sooner.

Adopting a frugal lifestyle could allow you to retire at a younger age.

 

The happiest workday is Friday, according to a recent study by the fitness tracker company Jawbone. And people are happier on weekends than they are during the week. In other words, people are happier when they're not working.
Many of us have, for one reason or another, dreamed of early retirement. A TIAA-CREF survey from 2014 suggests that the biggest regret of retirees is that they didn't retire sooner. Maybe our career has plateaued, the workplace has developed a poisonous atmosphere or we are just sick and tired of the job. Some of us have early retirement thrust upon us when we are downsized out of a job for the benefit of someone else's bottom line.
Whether by choice or chance, retiring early is easier said than done. But don't be scared. It may be the key to a happier life. If you hate your job, or if your company is in trouble, the smart move might be to take matters into your own hands, decide whether you can retire early and then map out a way to do it.
Here are four clear routes to early retirement, and one road hazard to avoid.
1. You have enough money. This is the most obvious path to early retirement, but for many of us also the most unrealistic. Nevertheless, there are still a few people who enjoy a generous defined-benefit pension that kicks in after 20 or 25 years of service. This might be enough by itself to enable you to retire. Or maybe you had a good career, lived frugally and built up a substantial retirement nest egg. I know one accountant who retired at age 49. She made a good salary and saved a lot of money. And since she was a financial professional, she was confident she could manage her money. Due to her hard work and diligent saving, she is enjoying life these days.
2. You have another career in you. Technically, this is not retirement. But it solves the problem of hating your job and wondering how to extricate yourself from a bad work environment. One friend of mine who was a production manager at a struggling printing company held a secret desire to become a teacher. He saved up some money, did his research and at age 54 jumped ship to enter a fast-track program designed to train mid-career individuals to become math and science teachers. He left work in November, started the program in January and was teaching middle school science by August.
3. Your spouse has a good job. My brother-in-law took a retirement package from his computer company when he was in his mid-50s. He had a daughter in college and a son still in high school, and I asked him how he could afford to retire with those responsibilities. He smiled and replied, "The secret? A working wife." His wife had worked when she was younger, took off a dozen years to raise their two children and was more than ready to go back to work – at what turned out to be a very convenient time. But he is not the only guy who's enjoying early retirement while watching his wife go off to work every morning.
4. You're prepared to seriously downsize your lifestyle. Some people scoff at professionals who advise us not to retire until we have $1 million in our retirement accounts, or until we can replace 80 percent of our pre-retirement income. If you're prepared to sell your home, move to an area (even overseas) with a low cost of living and just enjoy life rather than try to keep up a middle class lifestyle, you can retire with much less money. It's a serious adjustment, but for some people it's the right thing to do.
Road hazard. If you retire before 65, the age you become eligible for Medicare, make sure you don't go without medical insurance. My friend the teacher stayed on COBRA for the nine months he was out of work, then signed up with his school's medical plan. My brother-in-law had his own retirement medical insurance, and his wife's new job covered the kids. And now, of course, you have the option of buying insurance through your state's health insurance exchange due to the Affordable Care Act.
Finally, don't retire just to get out of a job. Have a vision of what you'll be doing once you leave the workplace – whether it's launching a new business, starting a new hobby or embarking on a road trip. You will probably have to watch your expenses and live a more modest lifestyle. You might be poorer, but you'll probably be happier.

Culled from US News

I'm worried Social Security will run out before I retire. What can I do?-By John Fowler

Getty Images

"Social Security is broken; it's bankrupt; I'll never see a dime of whFool

1. What Is Your Social Security Age? Motley Fool

Chances are if you're a millennial, a Gen-Xer, and dare I say, even a Baby Boomer, you've likely uttered these words, or at the very least you've thought about it in passing. These days it's pretty easy to be a little skeptical about the idea of getting any type of benefit from the Social Security system. What makes it even worse is that if you look at your pay stub, you'll notice that 6.2% of your income (up to the $118k wage base for 2015) is getting gobbled up by Social Security taxes… and if you're really observant you'll notice the 1.45% Medicare tax that you pay on EVERY dollar you make (there currently isn't a cap for this tax). Talk about pouring salt on a wound.
Unfortunately, it gets worse. If you happen to be one of those entrepreneurial types and run your own business, then you'll need to pony up the employer half of the taxes, as well. This brings the combined payment to both Social Security and Medicare to 15.3% of your income. YIKES. With current forecasts estimating that the Social Security Trust Fund will be bone dry by 2033, it's no wonder most people roll their eyes when we bring up the idea of Social Security planning. I mean — who cares, right? We'll never see a dime of that money.
Despite all of the doom and gloom, I'm here to tell you to take heart, my friends. The death of Social Security has been greatly exaggerated. Though don't start planning how you are going to spend your money just yet. There are a few things that you Boomers, Gen-Xers and even… gasp… millennials need to know about Social Security.
If the Well Runs Dry
If and/or when the Trust Fund is "exhausted," it really just means that every dollar that gets put into the Social Security system via payroll taxes will be paid out to claimants. What that means is that there aren't excess dollars for growth, so it's basically $1 in and $1 out. Crossing this threshold will trigger a reduction in benefits for those already drawing on the system. The reduction in benefits means that a Social Security participant will likely only receive 77% of their expected payments at that time, but here's the interesting part. Just by triggering the benefit reduction the Social Security Administration estimates that they would be able to pay out around 70% of promised benefits to future retirees through the rest of the 21st century.
While I'm certain that current retirees aren't exactly thrilled about the idea of taking a 23% pay cut just so future generations get to participate in Social Security, I'm hopeful getting a heads-up 18 years in advance will give those consumers enough time to plan to make up for the shortfall. For those of you who are still working and saving, the good news is that even though your benefits may be a little bit less than estimated today, it appears the system will still be around for some time to come, so you should probably learn a little about it.
Getting the Most Out of Your Payout
First, and this one is an absolute must, be sure to maximize your Social Security payout. For every year beyond the full retirement age that you delay drawing on your own work history, you can earn 8% in delayed retirement credits. This means that just by delaying your benefit from age 66 to age 70, you get an increase of 32%. This alone can help make up for the haircut you'll take when the fund is exhausted.
While getting a guaranteed 8% a year seems like a no-brainer, it's important to realize that maximizing your benefits isn't always about waiting as long as you can to take them. It is almost always about how you and your spouse coordinate your filings so as to get the biggest bang for your buck. Unfortunately, the odds of the average retiree getting this right aren't very good. MassMutual recently conducted a survey where it asked 1,500 adults 10 simple true/false questions about Social Security benefits. Only 28% received a passing grade and only one person answered all questions correctly – not very encouraging.
Now I know what you're thinking: "Who cares? How much of a difference can the way I file really make?" Here is a quick real-world example:

 

A few months ago, I was working with a client who had spent the prior three months talking to representatives at the local Social Security administration office in addition to doing some Internet research. (This first point usually makes us financial planning types laugh a little since we know that Social Security reps are told not to provide guidance on claiming strategies, but I digress.) Because of this, he felt that he had figured out the best way for him and his wife to file, so we put it to the test. We compared his claiming strategy with an approach that our firm felt would be just a little more optimal. The result surprised even me. Using our approach, we were able to get them an estimated $187K in additional income over the course of their lifetimes. I think we can all agree that $187K isn't exactly chump change, so the way you file truly does matter.
Delay Your Benefits Responsibly
Second, and this is a pretty big one, Mind the Gap. Many of the retirees who want to postpone drawing benefits to earn delayed retirement credits just can't afford to. They fail to plan for the income gap that results from the delay of benefits. Because of this, they may be forced to go ahead and draw Social Security early, thus permanently forgoing a much larger benefit amount (remember the $187K). Some go ahead and try to fill the gap by distributing assets from other accounts in a less than ideal way. Both of these scenarios could easily set you up for failure in retirement.
Fortunately, like so many personal financial decisions, a little planning and some minor attention to detail can go a long way. One simple way to do this is to open a separate bank account or brokerage account into which you put a little extra money every month. Someone who puts an extra $100 a month into a brokerage account that grows at a 3% rate for 40 years would have around $90K. (Did you hear that, millennials?) This would give you $22,500 a year, or $1,875/month, for the four-year period (age 66-70) that you are able to earn delayed retirement credits. That's likely pretty close to what your Social Security benefit would be, so it fills the gap nicely. Also, if you can add a little bit more money as you get older, achieve a little higher rate of return, or leverage some type of income vehicle that maximizes the distributions for you, then you could end up with a much larger balance resulting in larger monthly distributions.
Social Security claiming is definitely a tricky subject, but since we know that the system will likely survive for decades to come, it's important to try and learn what you can. For those who want to absolutely make sure that they get it right, consider working with a Certified Financial Planner with expertise in Social Security optimization. After all, it's pretty much a one-shot deal. With few exceptions, once you file you are locked in forever and that's a mighty long time. So make sure that you do it right.

Culled from Credit.com

Workers to access RSAs for mortgage soon —PenCom- by Nike Popoola

The Director-General, National Pension Commission, Mrs. Chinelo Anohu-Amazu, has said that workers in the Contributory Pension Scheme will soon begin to use part of their savings for mortgage loan.

According to a statement obtained on Sunday, she said this during a sensitisation conference for stakeholders in Enugu.

She said that the Pension Reform Act 2014 introduced a provision that allowed contributors seeking to own homes to apply for part of their Retirement Savings Account balance as equity contribution for residential mortgage, subject to the guidelines issued by the commission.

“The process of issuing these guidelines is already at advanced stages and it is our expectation that as soon as implemented, this would facilitate access to home ownership by pension contributors while bridging the housing deficit in Nigeria,” she said.

Anohu-Amazu recalled that 10 years ago, the PRA 2004 was enacted to govern the Nigerian pension reform. Arising from a comprehensive review of its implementation, she explained that the PRA 2014, which repealed the 2004 Act, was signed into law by the President on July 1, 2014.

According to her, the Pension Reform Act 2014 re-enacted the fundamental provisions of the repealed PRA 2004, which included the establishment of the Contributory Pension Scheme, uniform standards for pension administration as well as the National Pension Commission as the sole regulator and supervisor of pension matters in Nigeria.

She added that there were new developments introduced by the PRA 2014 such as the upward review of the minimum rate of pension contribution and the sanctions/penalties for infractions of the provisions of the Act.

Prior to the enactment of the PRA 2014, she said several states in the federation had adopted the CPS and were at various stages of implementation.

She said recent developments with regard to inadequate finances affecting most states of the federation were a pointer to the urgent need for states to adopt the CPS.

Anohu-Amazu said, “In our quest to assist the states in guided implementation, PenCom has established functional offices in the six geo-political zones including Awka for the South-East Zone.

“These offices have been equipped to provide the required technical assistance to states and local governments in their efforts to adopt and implement the CPS.”

Culled from Punch

5 Ways to Fund Retirement Overseas-By Kathleen Peddicord

These interesting and flexible part-time jobs can help finance a move abroad.

Some people choose to earn an income in a country overseas to support or supplement the cost of retirement there. Finding a job in a foreign country is possible, but not always easy. Here are some realistic employment options overseas:
1. Arrange a post overseas through your current employer. This is how David Stubbs and his wife organized their move to Costa Rica. They both worked for Dell in other countries, and requested the chance to continue working for Dell in San Jose. Obviously, this works only if you're working for an international organization with an office in the place where you want to relocate.
2. Set yourself up as a local consultant. What business do you know? Where in the world might your experience and expertise have value? Rod Taylor had been in the pool business in Miami his entire career. His search for the ideal retirement haven took him to Roatan, in the Bay Islands of Honduras, where a lot of people are interested in building pools, but the local talent for building U.S.-standard pools is limited. Taylor was able to parlay his decades of experience into a retirement income.
3. Become an international consultant. If you're an accountant, attorney or money advisor, you could make a great living helping expats and retirees abroad structure and then manage their financial lives in Paradise. One advantage of this consulting approach is that you may not need to be formally registered or licensed locally (unlike a doctor, for example, who would).
4. Cultivate a trade you could practice anywhere. A job that is highly portable is often your best option to work overseas. I'm a laptop-carrying, daily content-producing poster girl for the best mobile trade I know: travel writing. I have at least a dozen good friends who are currently paying for or supplementing the costs of their lives overseas as professional travel writers, and I have communicated with at least a dozen other writers on the road who are eager to file their stories.
To make a go of this, you don't need formal training as a writer. You need an open mind, open eyes, a curiosity about the world around you and a penchant for telling stories. If those things describe you, you could earn an income as a travel writer, even if you've never done it before. One of the most successful and prolific travel writers I know started her professional life as a barmaid. Others have been housewives, engineers, investment advisors and accountants.
One of the many benefits of cultivating a portable profession is that it means the resulting income is on an international scale. If you take a job or set yourself up as a local consultant in a foreign country, you'll be paid like a local in the local currency, which could be a plus or a minus. Before you choose that route, investigate the typical local salary for whatever kind of position you're considering. A professional who might earn $60,000 in the United States, for example, might earn one-third as much in Panama or Colombia and be considered well-paid. Remember that the local cost of living will be less, as well.
5. Teach English as a foreign language. This is one of the most commonly sought and easily arranged jobs overseas. People around the world are eager to learn or practice their English-language skills. And many of these jobs come with flexible schedules and a chance to become part of a new community.

Culled from US News

7 pieces of bad money advice you hear all the time-By Kathleen Elkins

Too much financial advice floating around?

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There is a mind-boggling amount of financial advice out there — so much that it can be difficult to separate the noise from the facts, or know who and what to believe.
We turned to the experts and asked them about the advice we hear all the time that we're better off ignoring.
Rethink these seven common money tips, even if you hear them on a daily basis:

1. Save 10% for retirement and you'll be set.

Better advice: Save twice that much, if you can.
This may have been true at one time, but experts seem to think we need to set aside much more than 10% of your net income to retire early and with options, especially now that our life spans are significantly longer.
Michael Egan, a certified financial planner and partner at Egan, Berger & Weiner, LLC, says that a minimum of 15% of your paycheck needs to be dedicated to retirement funds, and 20% is ideal.
"A lot of millennials are going to be in a unique position that we haven't seen in probably 40 or 50 years," he tells Business Insider.
"I would bet that Social Security itself would be reduced, or at least delayed, dramatically, and they're probably not going to have a pension, which means practically every dollar they live on during retirement is going to be something they saved themselves."
It is particularly important to start saving as early as possible, he emphasizes, especially since the bigger purchases that come along later in life — a house, car, and raising kids — may take away from your retirement savings. "It's never going to get any cheaper to live than it will be before you get married and have a family," he says. "So start young."
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(Flickr / Chris JL) Start saving when you're young — it'll pay huge dividends in the future.

2. Start saving for your kid's education right away.

Better advice: Take care of your own retirement first.
Obviously, your child's education is important, but "your number one priority in your 30s — even if you have a family — still has to be retirement," says Egan. Think long term, he advises: "If you don't get retirement fully funded, you're going to be on your kids' payroll for 15 or 20 years," which could end up being more expensive in the long run than student loans would be.
"Make sure you're on pace for a decent retirement before you start setting aside money for college," he says. "Once you're on pace for that, and you have extra funds that you can set aside for a goal like college, definitely do that." He recommends starting with a 529 savings plan.

3. Avoid credit cards at all costs.

Better advice: Use credit cards responsibly.
Even financial guru Dave Ramsey says to stay far, far away: "There is no positive side to credit card use," he writes on his website. "You will spend more if you use credit cards. Even by paying the bills on time, you are not beating the system! But most families don't pay on time."
The actual cards are not the root of the raging credit card debt problem — it's how we use them.
In fact, there are many benefits to having one, or multiple, credit cards, especially if you use them responsibly.
In addition to offering rewards, most credit cards also offer insurance, such as travel insurance, car rental insurance, and fraud protection. It's also important to use one in order to establish good credit, which will allow you to make big purchases later on, like a car or home.
Start by selecting a good credit card and then focus on establishing smart credit card habits — and if you have debt already, be diligent in your payments.
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(Flickr / John Lambert Pearson) If you use them correctly, it can be beneficial to have multiple credit cards.

4. Close unused credit card accounts.

Better advice: Use your least-favorite credit cards periodically and pay them off in full.
If you're switching credit cards, it may seem smart to cancel you old accounts, but that can actually hurt your credit score. While closing a card doesn't shorten your account history, it decreases your total amount of credit available, and therefore increases your credit utilization rate, which could negatively impact your credit score.
Additionally, commitment counts, and hanging onto your cards can boost your credit score. "Lenders like to see a long history of credit, which means that the longer you hold an account, the more valuable it is for your credit score," writes Ramit Sethi in "I Will Teach You To Be Rich." "As long as there are no fees, keep it open."
Don't just keep it open — keep it active. If your account remains inactive for a long period of time, credit card companies can take it upon themselves to close your account.
John Ulzheimer, credit expert at Credit Sesame, recommends setting a calendar reminder and use old cards sporadically. "My advice would be to put them on a revolving door," he says, "just to knock the dust off them, and to use as an incentive for the issuer not to close it underneath you."

5. Retire as soon as you can.

Better advice: Retire when you can afford to, both financially and emotionally.
"The days of retiring and sitting on the front porch are over with," Larry Rosenthal, certified financial planner and president of Rosenthal Wealth Management Group, tells Business Insider. "Retirement is strictly a lifestyle decision. Some people want to keep working, while others wants to get out of the stress and pressures that come with a job as soon as possible."
Retiring early can certainly be your goal, but it doesn't have to be. We don't all have to follow the same path.
Rather than focusing on an early retirement, determine your long-term goals and exactly what you want your future to look like. Then, create a sound financial plan that will allow you to save enough money to reach those goals and retire with options and flexibility.

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(Flickr / Doug Wertman) "Retirement is strictly a lifestyle decision."

6. Wait and take your Social Security at age 70.

Better advice: Consider your options before deciding when to claim benefits.
While waiting until age 70 to claim or begin your Social Security benefits in order to max them out is applicable for some people, it's not the best option for everyone, Rosenthal emphasizes.
"Oftentimes, people mess up their Social Security decision," he explains. It may be best for you to wait, or it may be best for you to start receiving your checks as soon as you can, at age 62. "Sit down, run it out in a financial plan, and see which was is best for your family," he advises.
Many other experts agree that 70 cannot be the universal age for people to start claiming Social Security benefits, and some explain how claiming early can actually be very beneficial.

7. You need a financial planner no matter what.

Better advice: If your assets are uncomplicated and you feel comfortable managing them, you might not need professional help right away.
There are certainly times when hiring a financial planner is a good idea, but not everyone needs one, and some people are better off without one. Even the financial planners say so.

"If you are in a situation where your assets are modest and need to either get out of debt or build up your emergency fund, you already have your plan. Just go out and do it. Don't waste money on someone to tell you something you already know," writes Neal Frankle, a certified financial planner and owner of personal finance website Wealth Pilgrim.

If you do decide to invest in a financial planner, Sethi recommends using a fee-based adviser, rather than a commission-based adviser. "If they're paid on commission, they usually will direct you to expensive, bloated funds to earn their commissions," he writes in "I Will Teach You To Be Rich." "By contrast, fee-based financial advisers simply charge a flat fee and are much more reputable."

Culled from Business Insider

3 ways to make your money last in retirement - By Sharon Epperson

Older Americans are living longer than ever with a record high life expectancy of nearly 79, according to the latest research from the National Center for Health Statistics. Women generally live longer than men, to an average of 81. That means for many couples, at least one spouse will live into their 80s, 90s or even to beyond 100.

If that happens, you want to make sure you don't run out of money when you're 85. How can you ensure that your nest egg will last through your final years?

1. Plan for at least two or three decades inr etirement. The most recent NCHS data show someone now 65 is expected to live at least 19 more years. It's likely you could live that long, or longer, if you are in good health and your parents and grandparents lived a long life.

2. Save as much as you can in your tax-advantaged retirement accounts-401(k)s and IRAs-as well as taxable accounts for long-term investments. A married couple can stash away up to $36,000 in 401(k)s this year (up to $48,000 if they are 50 or older.)
Maxing out on regular or Roth IRAs will add another $11,000 to a couple's nest egg in 2015, or $13,000 if you're both 50 or older. But few Americans can save that much every year. Many are facing a retirement savings shortfall: A recent EBRI survey shows for those on the verge of retirement savings deficits can vary from about $19,000 to nearly $63,000.


3. Some financial advisors suggest buying longevity insurance, a type of deferred annuity that offers guaranteed income for life, to help supplement retirement savings later in life.
Here's how it works: You invest money upfront-at say 55 or 65-in exchange for future payments. (Longevity insurance doesn't usually kick in until you're about 85.) The payout benefit is calculated at the time that you invest, usually just before or after you retire.


The size of the payout is based on how old you are when you buy the insurance. Generally, the younger you are when you buy it, the larger the annual benefit. But there is a big downside: You either use it or lose it. If you die before the benefit kicks in, the money you put in is lost.

Still, several insurers have recently launched longevity insurance contracts for 401(k)s and IRAs and some financial advisors say it may be worth investing a small part of your portfolio in a longevity annuity contract, in addition to owning stocks, bonds and other assets. It's another way to further diversity your nest egg since you may live longer than you expect.

Culled from CNBC