Norhill Wealth Strategies

Planning for The “Golden Years” 
  
There’s a saying that if you have your health, you have everything. Well, that’s not exactly true – without adequate resources, you could enjoy a long, healthy retirement at a far lower standard of living than you’d prefer!
 
When preparing for retirement, it’s vital to keep in mind the importance of money to your quality of life during your “golden years.” And with retirements now stretching as long as 20 to 30 years – and beyond – ensuring your retirement dollars outlive you is a paramount concern.
 
Failing to Plan, or Planning to Fail?
 
It’s been said that he who fails to plan, plans to fail. And nowhere is that concept illustrated more starkly than with retirement planning. A sound financial plan can be the difference between the retirement of your dreams and the nightmare of discovering you have too little money, too late to change financial course.
 
A disciplined retirement preparation plan, diligently followed, will help you develop realistic objectives … assess progress toward your goals … and make periodic adjustments to keep you on track.
 
How Much Retirement Income Will YOU Need?
 
Government research has determined that most Americans need between 60 and 80 percent of their pre-retirement income in order to maintain their standard of living during retirement. However, many financial experts have raised this figure to between 80 and 100 percent of pre-retirement income, citing skyrocketing healthcare costs, lengthening life spans, and the ever-present threat of inflation – which can rob a retirement portfolio of purchasing power over time.
 
Of course, how much you will need in retirement will be a function of your goals, time horizon, and spending habits. Those who want to purchase a second home and travel frequently will obviously need more than those who prefer to stay at home in their paid-off house. Consider these factors when estimating your future retirement income needs:

• Your support of children who will be self-sufficient by the time you retire
• Your current work-related expenses that will be dramatically reduced in retirement, such as commuting costs, daily meal expenses, dry cleaning bills, etc.
• Whether your mortgage will be paid off prior to or early in retirement
• Whether you will need to continue your monthly savings amount or begin to spend that amount for necessities
• Your tax bill in retirement 

Sources of Retirement Income

Once you have estimated your target retirement income, you can begin evaluating your potential sources of regular income. In general, your income sources will fall into one of these three categories:

1) Government sources. The Social Security system was inaugurated during the Great Depression to augment retirees’ incomes. Most experts feel that the system will remain solvent throughout much of the 21st century. Even so, a rising retirement age and cuts in benefits could reduce your monthly Social Security check. Benefits are based on the amount you earned during your working years.

2) Employer-sponsored plans. Many employers offer company-sponsored retirement plans, which generally fall into two categories. Defined benefit plans, which are normally funded by the employer and guarantee a retirement benefit based on a formula comprising number of years on the job and employment earnings. For example, a traditional pension is a defined benefit plan. Defined contribution plans, on the other hand – such as 401(k), 403(b), and 457 – rely on funding from employees, matching funds from the employer, or a combination of the two. The employee owns an account balance (subject to company rules regarding vesting) of contributions and earnings. Upon changing jobs, an employee may be able to roll over assets into the new employer’s plan or into an IRA. At retirement, the employee decides how to withdraw the balance he or she has accumulated.

3) Personal savings. This is perhaps the most overlooked aspect of retirement planning. Personal savings include, but aren’t limited to, balances in savings accounts, directly held assets, home equity, shares in a partnership or business, and even collectibles such as artwork and coins.

How to Get – And Stay – On Course

How can you determine whether you’re on track to reach your retirement goals, and to make adjustments if necessary? We can help you develop a sound financial plan based on your specific situation, monitor it regularly to ensure you’re making progress toward your objectives, and recommend occasional adjustments to help you stay on course.   

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice.  Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss.

The Real Story Behind Inflation

If the same methodology that was used in 1980 to chronicle the double digit inflation of that era were in use today, we would have an inflation rate of ten percent right now, according to Shadow Government Statistics (http://www.shadowstats.com). ; We are entering a massive era of stagflation which recalls to us our writing in Catastrophe, published two years ago, that “inflation may well be the enduring legacy of the Obama presidency.” 

How does the federal government understate the inflation rate?

1. It excludes food and fuel costs from its rate of “core inflation.”  Each month, the Federal Reserve calms national inflation fears by pointing to the low rate of core inflation, currently at an annual pace of just 2.1%.  It reaffirms that the economy is meeting the goal set for it by the Fed of keeping core inflation around or below two percent.

Claiming that food and fuel are too unstable to be included in the inflation rate, it excludes precisely those areas in which inflation is felt most deeply.  In the past year, the cost of commodities from corn to soybeans has doubled and the price of gasoline at the pump is one third higher than it was one year ago.  The average American household budget devotes one-third of its cash to food and energy costs.  Leaving these elements out of the inflation rate has no justification.

2. It substitutes less expensive products when prices rise.  When prices go up, the economists who generate the Consumer Price Index substitute less a expensive alternative product for the one that has risen in price.  For example, if the cost of steak goes up, the CPI does not reflect the increase, but simply replaces steak with hamburger in computing the price index.

3. It excludes “hedonistic” products as price rises.  The Fed adjusts for price rises by dumbing down the luxury elements of the products whose price it measures.  It might, for example, measure the price of cars without air conditioning as a way of avoiding reporting the increase in the cost of automobiles.  Even when the luxury features cannot easily be removed from the product, the CPI economists assume that they are.

4. In averaging the price of different commodities, it uses a geometric — not an arithmetic mean.  Since the geometric mean, which compares the square roots of product prices, comes out lower, it understates the rate of inflation.  See the table below comparing two products’ prices a year apart:

Commodity                      Start Price         Final Price       Expenditure Increase

A                                       $1.00                 $1.00                  $0.00   
B                                         $1.00                 $1.50                  $0.50                                    
Total Expenditure       $2.00                 $2.50                  $0.50

To the layman, an increase in total spending of 50 cents on a base of $2 would represent a 25%  increase in price.  But that uses the arithmetic mean.

The geometric mean compares the square root of (new price / original price) multiplied by the same for the other commodity.  Using this method of calculation, the increase in price would only be 22.5%.

The CPI switched to geometric comparison in 1994.  But no matter how the federal economists bend and twist the data, most Americans realize that we are in for a massive bout of inflation.

And this inflation is dramatically different from the last hyper inflation of the late 70s and early 80s.  That inflation was caused by too much money chasing too few products.  To slow down the economy and tame price increases, the Fed raised interest rates.  But this inflation has nothing to do with demand.  Rather, it is caused by the upward push of costs like gasoline, taxes, food, health insurance, and, soon, interest rates.  This cost-push increase in prices cannot be tamed by cooling off the economy, which is, in fact, so cool already that it is approaching zero growth.

Warren Elkin of Norhill Financial is your safe money strategist.  When it comes to your hard earned dollars, he can keep your money secure as it grows.  Warren Elkin can be reached toll free at 877-476-5051- or by email at elkininc@aol.com.  To learn more about him check out www.warrenelkin.com.