Client Newsletters at GreenPath Debt Solutions, November 2008

GREENPATH CLIENT NEWSLETTER
NOVEMBER 2008

Retirement and Social Security:
What the Future Holds is Up to You

Lately, many worry that sizable Social Security benefits, while once something to be depended on for retirement funding, are the rights and expectations of only a previous generation of retired workers. Many young adults, just beginning their careers, are wary of whether they will receive any benefits when they retire at all, while many looking to retire in the next five to ten years feel that "sizable benefits" are still a reasonable expectation.

Nobody knows what "sizable" means these days. It's a relative term that can mean a great deal or nothing at all, depending on your personal financial circumstances. With people living longer than ever before, retirements are lasting as long as 20 or 30 years. If a retiree's nest egg doesn't last as long, they will have nothing to depend on except for Social Security income during these years. It can be a frightening reality.

Social Security benefits typically comprise about 40 percent of what the average worker was making when he/she was working. It isn't very much when you consider other changes like loss of health and dental insurance benefits and the ever-increasing costs of everyday living and items like food, fuel, heat and electricity.

But the Social Security Administration is quick to point out that Social Security was never meant to be the sole source of income in retirement. On a very informative Frequently-Asked-Questions site focused on Social Security's future (www.socialsecurity.gov/qa.htm), the Administration offers an important reminder:

"It is often said that a comfortable retirement is based on a 'three-legged stool' of Social Security, pensions and savings. American workers should be saving for their retirement on a personal basis and through employer-sponsored or other retirement plans."

GreenPath counselors certainly agree, but they also suggest another "three legged stool" to consider - one you can use to empower yourself and reduce some of your retirement worry:

Understanding: Get to know how Social Security works.
Knowledge: Seek information about the future of this important benefit program.
Preparation: Plan how you can make the most of your benefits - whether you'll be receiving them soon or far off in the future, and whether or not they will be "sizable" or merely supplemental.

Begin at www.socialsecurity.gov where a wealth of information and planning tools can unravel many of the mysteries of your future. And, of course, apply the same "three legged stool" theory to your daily financial decisions and your monthly budget for success today.

Planning to Take Advantage of the New First-Time Homeowner's Tax Credit?

Signed into law July 30, 2008, the Housing and Economic Recovery Act of 2008 will - among other things - extend a tax credit of up to $7,500 to first-time homebuyers. The tax credit, for ten percent of the purchase price, up to $7,500, is subject to income caps ($75,000 for single people and $150,000 for couples who file taxes jointly) and a specific timeline. Homeowners are eligible for the tax credit if they bought their home after April 8, 2008, and before July 1, 2009. Sounds good, but many don't realize that this is a tax credit, not a tax deduction. It reduces the homeowners' tax bill by up to $7,500 for the tax year in which the purchase was made, but, once repayment begins - two years after your purchase date - taking the whole credit then will mean an increase of $500 per year on your tax payments for 15 long years! It's really an interest-free loan. So use it if it works for you, but know what you are getting into and plan the repayment into your budget!

Making the Most of Your Social Security Benefits

While decisions about when you retire, and when you begin drawing on your Social Security benefits are very personal, GreenPath encourages clients to ensure their decisions are informed, and to carefully consider their personal circumstances when planning their retirements.

If you are thinking about balancing your post-retirement budget and stretching your Social Security dollar, it may serve you well to know that the earlier you dip into your benefit, the smaller each check or electronic deposit will be - on a monthly basis.

Why? Monthly benefit amounts can differ substantially based on your retirement age. If you draw on your benefits early, you will receive lower monthly payments for a longer period of time than if you start drawing on them later, after you've reached your full retirement age. It's because the amount you receive when you first get benefits sets the base for the amount you will receive for the rest of your life.

If you choose to, you can start getting a reduced Social Security benefit as early as age 62. Just how much it is reduced depends on your age when you start receiving it. For example, if you were born in 1954, your full retirement age would be 66. If you decided to apply for benefits at 62, you would receive 75 percent of your full benefit amount. If your full benefit would have been $1000, you would only receive $750 each month.

Conversely, if you delay your benefits until after full retirement age, you can receive a benefit credit that makes your monthly payment larger by as much as 30 percent. The specific amount of the increase depends on how long you delay benefits and gets larger until you reach age 70, at which time you can receive an additional eight percent in benefits. All in all, you may end up receiving the same amount in benefits in your lifetime as someone who started collecting earlier, but your monthly benefits will be larger. More to reckon with when reconciling your budget each month!

Don't Go "Red" on "Black Friday"

The biggest shopping day of the year is upon us. "Black Friday," the day after Thanksgiving and a day renowned for sales and crowded shopping malls, could just as easily be called "Red Friday." After all, many people have not even finished paying for what they spent during last year's gift-giving season and their monthly credit card payments show it. Since one of the worst financial moves a person can make is to pile new debt on top of old, GreenPath, along with the National Foundation for Credit Counseling, offers the following practical suggestions for socking away some spending money between now and Black Friday, November 28, 2008:

Each night, empty the change in your pocket into a jar, either literally or figuratively!
Cut $5 per day out of your incidental spending; put it into the jar.
Avoid impulse purchases, but pretend you spent it anyway; add what you would have spent to the jar.
Examine your budget, especially all spending categories that are not fixed, and resolve to carve $10 per month from each. You know where to put it.
Avoid bank fees by resolving to use only in-network ATMs. Pay your jar the fees instead.
Buy your gifts with cash (studies show people who do, spend less!); add the savings to your stash and use it to pay down some debt!

Comment? Suggestions?
Write to the editor at editor@greenpath.com