Wisdom of Rich Dad

Couples who are currently married, or who have stayed together at least 10 years, tie their working records — and the resulting Social Security checks — together as long as they both live. In the case of Social Security payments, the result is often better for the couple. Spouses have Social Security claiming options that single people don’t.

Here are a few ways couples can boost their Social Security benefits:

Utilize Spousal Payments

Spouses are entitled to a Social Security payout of up to 50 percent of the higher earner’s check if that amount is higher than benefits based on his or her own working record. Retired couples in which one spouse did not work or had low earnings have the most to gain from this provision. However, low-earning spouses must wait until what the Social Security Administration calls the “full retirement age” to collect the full 50 percent. (For baby boomers born between 1943 and 1954, the full retirement age is 66.)

Benefits are reduced for spouses who collect before their full retirement age. For example, a low-earning spouse whose full retirement age is 66 would only be eligible for 35 percent of the higher earner’s benefit at age 62. The spousal benefit does not increase above 50 percent of the higher earner’s benefit if claiming is delayed beyond the full retirement age.

Claim and Suspend

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Robert Kiyosaki doesn’t hesitate to rock the boat.

To the best-selling author of Rich Dad, Poor Dad, the worst thing you can do with your money is to stash it away in a 401(k).

“The worst advice most people take is that they go to school, they get a job and then they get a 401(k),” said Kiyosaki.

Take that, conventional wisdom!

For Kiyosaki and his team, the financial boogeyman is income taxes.

“Taxes are going up, and taxes are your single largest expense throughout your life,” Kiyosaki said.

And the 401(k) is one of the biggest offenders, said Tom Wheelwright, Kiyosaki’s tax specialist.

“All a 401(k) does is defer or postpone your taxes to a later date,” he said. “A 401(k) really presumes that when you retire, you’re going to be poor. It presumes that you’re going to be in a lower tax bracket than you are today.”

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Just how much are you going to need in order to retire comfortably?

It may be the biggest financial question in your life. With 80 million baby boomers now heading into the flight path for retirement, it’s a pressing one, too.

Yet a horrifying number of people have never even asked it — and may not know how to find answers.

Earlier this month, a survey from the Employee Benefit Research Institute, a leading nonprofit in the retirement field, found that fewer than half of workers, 46%, had tried to calculate how much they would need for a comfortable retirement.

That is even scarier than the data showing that most people haven’t saved enough. (And the two, of course, are closely related. One of the biggest reasons people haven’t saved enough for retirement is that they don’t realize how much they will need.)

So how do you go about working out the answer? There’s a simple five-step approach.

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Usually I cringe when our leaders in Washington try to help improve our finances. I’m afraid their efforts may do more harm than good. But two new ideas being discussed inside the Beltway could actually make it easier to prepare for retirement. Both center on the income you’ll generate from your 401(k).

First, in January, the Obama administration said it wanted to promote the availability of annuities in 401(k)s and similar plans. Only 22% of such plans now offer them.

This initiative isn’t as detailed as some annuity ideas that have been floated. But as long as annuities are not mandatory — or laden with onerous fees — I favor the notion of making them an option since they would allow more workers to turn some of their nest egg into guaranteed income for life.

The second idea is a Senate bill that would require your 401(k) to inform you of the projected monthly income you could expect at retirement based on current savings.

I agree with the concept: We should encourage people to focus on the income their 401(k)s might generate, rather than their balances. But it seems to me you’re better off knowing how much income to expect if you keep saving until you retire. That’s the approach Social Security takes with its annual statements.

How long it will take for these initiatives to get through the legislative and regulatory process is anyone’s guess, but in the meantime you can put the concepts into practice in your own planning.

If you’re near retirement, see how much income your savings would yield through an inflation-adjusted immediate annuity. You can find a calculator that will provide such a figure by Googling “Vanguard Lifetime Income Program.” Then combine that figure with your Social Security benefit, which you can get from the Retirement Estimator at ssa.gov.

If you think you’ll have trouble living comfortably on the sum of these two figures, you may want to think about postponing retirement.

If you’re years from retiring, see if you’re on the right path. Many 401(k)s offer tools that project income given how much you’ve saved, how much you’re contributing, and how much longer you plan to work.

In either case, you’ll get a decent sense of how much income you can expect. And when it comes to gauging your preparedness, the feds have it right: Income’s the thing.

I want to know what exactly is a retirement plan and is it government funded or..
Is it , for example, $10 you put into the retirement fund every month and at the end of , lets say the year , you have – $120. ??

If that’s the case then why should I even have a retirement fund. I can just put it in my savings account can’t i ? Am i wrong. Please help me.

Retirement plans are basically accounts that are designed to grow and keep up with (or exceed) inflation. You put money into it as you go, and it grows that way, but it also accumulates interest. Most retirement accounts also include stocks and bonds that grow with the economy (or shrink with it sometimes), so it’s like continuously making a little extra money in the background.

Most IRA’s (individual retirement accounts) are tax-deferred. This means that you don’t have to pay taxes on the money that you put into it… yet.

The difficulties are that

1) you don’t get immediate access to the money – in fact, you are hit hard with penalties if you try to withdraw from it before you are officially retired, and

2) when you retire, then when you draw money from the account, you are taxed in a high bracket – as if the money in your account is your annual income (which means you could be in the 50% tax bracket if there’s a lot in there). It’s great for getting to keep more of your money now and also being able to have enough money to live off of when you retire, but if that’s where all of your money is going, then you are going to get creamed on taxes later on.

There are also other retirement account types, including Roth IRA’s and 401(k)’s. Those you get taxed on now, but there is little or no penalty for early withdrawal and you don’t pay taxes on it when you withdraw in retirement. The downside to those? There’s a limit to how much you can put in those.

Then there are pure stocks and investments, not part of IRA’s. The only difficulty with those is that you are taxed 15% of how much they grow (it will be 30% if Obama has his way).

The government funded retirement plan is called Social Security. The Social Security system is incredibly flawed (have you ever heard of a Ponzi scheme? Look it up. Social Security is the biggest one ever, and it’s mandatory). When you get old enough, the government pays you to be retired. The amount, though, is really not very good. You can only live off of it if you also have other retirement income.

The reason you would want a retirement account is because those grow on their own, faster than inflation. Putting your retirement into a regular old savings account, the money will not grow fast enough to keep up with inflation, and you are therefore by default losing money instead of actually keeping it.

Now don’t get me wrong, you do need a regular old savings account because you need a backup stash of money that you can get at quickly (whereas retirement funds you can’t get very easily until you are retired). But to have a savings account as your retirement plan is not a good idea.

If you start it now, then you’ll have more when you retire.

~ Robert Kiyosaki ~

On the cover of the October 19, 2009 issue of “Time” magazine ran this headline: “Why It’s Time to Retire the 401(k).” The cover picture was ominous, showing a 401(k) sinking like the Titanic.

I recommend reading this entire article, especially if you do have a 401(k). My concern is that the flaws of this retirement plan will grow into personal tragedies as the first of approximately 75 million baby boomers retire, leading to the biggest stock market crash in history.

But in spite of the apparent problems with the 401(k) plan, the darlings of financial media continue to tout its benefits. The same month “Time” ran its article, “More” magazine’s financial guru, Jean Chatzky, wrote an article about using low-interest savings to pay off high-interest credit cards. In the article she states, “There’s no better guaranteed return on your money (except, perhaps, a 401(k) match).”
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