If a public official did not use a blind trust for his or her investments, the only other way to avoid conflicts of interest would be to simply not invest in anything.  They would be limited to owning bank CD’s or treasury bills, etc.  Blind trusts help these individuals avoid being accused by others of conflicts of interest, and also avoid being tempted to take advantage of information they may have.  It’s called a blind trust because the beneficiary cannot see what is held inside the trust.

A blind trust is not just for someone who is super rich or wealthy.  Anyone who is a public official, or who is in a sensitive public position could protect themselves from scrutiny by using a blind trust.  In the trust they would be able to specify the general perameters for investing such as asset allocation (the mix of stocks, bonds and cash), and the timeframe for the investment to be used.  But beyond that, the trustee will manage the particular investments, and would be paid for their services.

This got me to thinking about how many “mud holes” are out there slowing down investor’s retirement plans.  This would include things like excessive fees & commissions, low returns, poor investment decisions, inflation, market volatility and unnecessary taxes.

If fact, I just had a conversation the other day with one of my clients who told me about a mud hole that another adviser had created for her.  The adviser had been managing some money for her invested in dividend paying stocks that were supposed to reduce her risk and generate income.  In 2011, the account lost over 16%!  I was shocked!  How’s that for low risk?!  When we compared that to the way her portfolio with me was performing, which actually made money this year, her comment really hit me.  She said, “I will think long and hard before I ever let anyone but you manage money for me.”  I really makes me feel good to know that I’m helping my clients make money AND take less risk than the market.  With the difficult times ahead that this country is going to be facing, no one can afford to be losing money like that.

How did we do it you ask?  Well it doesn’t happen by accident.  Over the last 16 years I’ve developed a strategic method of investing designed to lower volatility and protect against inflation.  I don’t use any kind of risky derivatives or options or anything like that.  And my clients money is liquid, easily accessible if they ever want or need it.

If you would like to discuss how I can help you protect your assets from the wild swings of the market, and stay ahead of inflation (which is likely to get ugly), then please call me.  My toll free number is 1- 866-983-4222. I will offer you a complimentary review of your current portfolio and show you how we can help you eliminate and avoid the worst proverbial “mud holes” that face investors like you.  Don’t live with retirement plan “mud holes”.  These can be fixed with a little time and effort.  Some are much easier to get rid of than others.  And chances are, it won’t COST you anything to fix these problems in your retirement plan, it will likely SAVE you money and increase your retirement assets in the end.

Ingredients:

• Washed & dried off turkey (giblet bag removed)
• 1 or 2 sticks of butter (depending on the size of your Thanksgiving bird)
• 1 cup chopped pancetta, ham or bacon
• 1 or 2 tablespoons of poultry seasoning (again, depending on size of gobbler)
• 1 teaspoon salt
• 1/2 teaspoon black pepper

Lay the turkey on the counter on its back with the cavity facing you.  With your hands, gently separate the skin from the breast meat.  It’s cold and gross feeling, but you’ll get through it.  Leave the skin attached to the meat at the front of the turkey breast so that it forms a pocket to hold the butter.  Mix the softened butter with the other ingredients.  Now spread the butter over the turkey breast evenly, underneath the skin.  Rub the outside of the turkey with some vegetable or olive oil.  Sprinkle some extra salt on the outside of the bird as a final touch.  Tuck the ends of the wings under the rest of the wing.  This will prevent them from burning to a crisp.  Tie the ends of the drumsticks together with the string provided with your Thanksgiving turkey.

I’m not big on cooking stuffing inside a turkey, I think it tastes better if you don’t.

Heat your oven up to 500 degrees and cook the turkey for about 30 minutes.  Then turn the oven down to 350 and put a meat thermometer into the thickest part of the breast.  It’s a good idea to cover the turkey with some foil for the next 45 minutes to prevent the skin and breast from drying out too much.  Make sure you take it off for the remaining time so the skin gets nice and golden brown.

Don’t go by the per pound cooking time, go by the temperature of the meat.  The USDA says you should cook the turkey till it reaches 160 degrees.  But once you take the bird out of the oven it will continue to cook and the temperature will rise for about 15 minutes.  I recommend taking the bird out when the thermometer reaches 155 degrees for a moister meat.  This is the key to a moist turkey meat.  Don’t cook it too long and crispify it!  After you take it out, plan on letting the bird sit for 30 – 60 minutes prior to carving it.  A 20 lb. bird will take around 3 hours to cook.  But again, don’t go by time, go by temperature!

Follow these simple instructions and your family and guests will be telling you that this was the best Thanksgiving turkey they ever had!  Now you know how to cook a turkey, and how to cook a moist turkey.

Happy Thanksgiving!

This 13% increase in the traditional turkey dinner costs includes a meal of the following for 10 people:

• 16 pound turkey
• Bread stuffing
• Peas
• Sweet potatoes
• Rolls
• 1 lb relish tray of celery and carrots
• Pumpkin pie with whipped cream
• Milk & coffee

Writing this post is already making me hungry, I’m not sure if I can wait until Thursday for the feast!

But in all seriousness, this rising inflation should sound an alarm to everyone out there.  Costs of the things we use every day are increasing rapidly while many Americans are unemployed or underemployed.  Inflation has historically averaged about 3.5% over the last 75 years or so.  But there have been periods of time where it was much higher than that.  Most of you remember the 80′s when mortgage interest rates were well into the teens.  In fact, a 12% interest rate on your mortgage would have been very good at one time.  I only mention mortgage rates because they do tend to be tied to overall inflation rates in general.  Mortgage rates right now are very low.  In fact, mortgage rates are now much lower than the inflation rate of food, medical care, and housing.

One of the important aspects of personal financial planning is diversification.  Everyone knows that you should diversify your retirement assets into various classes to protect yourself from everything going down at once.  Diversification also protects you from missing out on an investment class that grows at a rate far greater than other classes.  If you have part of your assets in that class you’ll be able to take advantage of that increase.

Buying insurance is another way to diversify your assets.  Putting part of your money into an insurance policy to protect you from a significant loss makes good sense.  I’ve always supported buying insurance for the big things that could creast a catastrophic loss.

I want to suggest today another way to diversify your assets, and protect yourself from major losses.  This may seem crazy to some of you, but to many who are already doing this, it makes perfect sense.  I think every family needs to put some of their assets into buying extra food and other household consumables.  Having a supply of food daily consumables will protect you against rising inflation.  In fact, if you were able to use food today that you bought 1 year ago, you would have essentially earned 13% on the money you invested into that food.  I’ll bet you didn’t make that in the market last year.

Now I know that not all food items can be stored that long before use.  But there are a lot of ways to store food for much longer than a year.  Many canned goods and dry food items are packaged in a way that they can be used well over 1 year later.  Powdered milk and powdered eggs can also be purchased and stored for well over a year.  Wheat, which can be ground into flour can be stored for up to 25 or 30 years.  There’s a ton of information on the web about building up a food storage for your family.

You could also invest some of your assets into food and aggriculture stocks.  But if food becomes difficult to get, you can’t eat your shares of stocks.

We are experiencing food shortages in many parts of the world right now.  This could continue to affect food prices going forward.  Food costs rose by 13% this last year, how much will they go up this next year?

Now I’m not say to go dig a bunker in your backyard and prepare for the end of the world.  What I am saying is to just buy a little extra each time you go to the store.  Find things on sale and buy a few more of them than you normally would.  Turn an extra closet into a food storage pantry and start filling it up.  Gradually build up a storage of food and household supplies as an easy way to protect yourself from rising costs.  And if inflation really gets out of hand down the road, you’ll be glad you did.

The problem is that inflation eats away at the purchasing power of retirement nest eggs.  Over the course of 30 years (a very likely retirement period these days), a 3.5% inflation rate will cause today’s dollar to buy about 36 cents worth of goods.  To look at it another way, someone who can live today on $50,000 a year would need about $140,000 a year 30 years from now (if inflation holds at that pace).

Lately, the Consumer Price Index (CPI), the most common measure of inflation in this country, rose to 3.6% annually in July.  That’s above the historical average, and worries many experts that it could discourage the Fed from too much more stimulus for the economy.

With no cost of living increases in Social Security checks over the last two years, many retirees are beginning to feel the pinch of what rising costs can do to someone on a fixed income.

The truth is, the CPI measurement of inflation may not be realistic for some people.  People in retirement years often spend more than average on healthcare.  The cost of medical care only accounts for 6.6% of the CPI index.  At the beginning of retirement, healthcare accounts for about 25% of your essential expenses, and near the end of retirement if can account for almost 50% of your essential expenses.  As you get into the later years of retirement you tend to spend less on other things like travel, entertainment, transportation & clothing, so you still need to plan on at least a 3% overall inflation rate.

The good news is, there are ways to hedge your portfolio against the inflation enemy.  Things like stocks, real estate and commodities have historically outperformed inflation.  More recently, inflation protected bonds have also helped investors stay ahead of rising costs.  Many fixed and variable annuities now offer riders that automatically boost income payouts to policyholders each year.

The bottom line is, you need to plan on doubling or tripling your income over a 30 year retirement, even with modest inflationary numbers.  This can definitely be done with some careful planning, and by using a diversified approach to allocating your nest egg.  Working with a competent financial planner will help you accomplish this.

Judging from President Obama’s impactful speech last evening, the Administration has at long  last recognized the severity of America’s unemployment crisis and the need for a comprehensive policy response.

U.S. President Barack Obama, flanked by Vice President Joe Biden and Speaker of the House John Boehner, addressed both houses of the U.S. legislature to highlight his plan to create jobs for millions of out of work Americans on September 8, 2011 in Washington, DC.

The program is a credible attempt to address structural obstacles that undermine economic growth and employment.  Its effectiveness, however, is hostage to two factors that will become clearer
over the next few days.

Let us start with the good news.

After a painful and, for many, inexplicable delay, the Administration is finally shifting from an ineffectual series of ad hoc measures to a comprehensive program that targets key impediments to job creation.

The emphasis is rightly on employment incentives, labor market reforms, infrastructure, and improving the
functioning of the mortgage market.  There are even efforts, albeit even more limited in nature, to bypass clogged credit pipes, alleviate pressures facing our schools, and reduce bureaucracy. And there is a token attempt to
provide more summer jobs for teenagers.

I suspect that many would agree with me that, having finally identified the key areas, the President should have
been much bolder upfront — proposing deeper, more ambitious and more detailed structural reforms.

Yet he deserves the benefit of the doubt as he did point to the possibility of reinforcing the program over
time.

Now, for the bad news.  The effectiveness of this program is far from guaranteed as two big — and critical issues — are outstanding.

First, we have to wait until next week for the fiscal component of the program. Specifically, the cost of today’s announcements needs to be offset over the medium-term by credible reforms to both taxes and budgetary spending. Second, it is not clear whether this inherently centrist program will succeed in sufficiently bringing together a highly polarized congress.

Democrats and Republicans now have a choice. They can either coalesce around the President’s program, drawing comfort from individual elements that appeal to them; or they can hold out for more and, in the process, turn the pursuit of their personal best into an enemy of the public good.

A lot is at stake, especially for those that have been jobless for too long but also for American society as a whole. Let us hope that Washington is, collectively, able and willing to follow through. If it does, tonight’s speech could well mark the initiation of America’s economic Sputnik moment.

by Susan B. Garland
Monday, August 29, 2011

The death of a spouse is one of the most devastating events of a person’s life. To make matters worse, at a time when you feel incapable of dealing with life’s routines, you’re slammed with an avalanche of financial tasks that require immediate attention. This can be particularly stressful if the surviving spouse, usually the wife, did not play an active role in the household finances.

But despite the pressure to do so, this is precisely the wrong time to make major financial decisions. If you act precipitously, you may make costly mistakes that will be tough to unwind later. “I tell my clients that they should be in a decision-free zone for six months to a year,” says Karen Folk, a certified financial planner in Urbana, Ill.

Don’t put your house on the market. Don’t give away money to your children or charity. Don’t sell stocks or bonds. And don’t agree to move in with an adult child, says Folk. Eventually, any of these steps may make perfect sense. But take a breather in the overwhelming weeks and months after a spouse dies.

One other no-no: Don’t allow a salesperson to talk you into buying financial products, such as an annuity or life insurance. “Ambulance chasers will catch you when you are vulnerable,” warns Kathleen Rehl, a certified financial planner in Land O’Lakes, Fla. Rehl wrote “Moving Forward on Your Own: A Financial Guidebook for Widows” (Rehl Financial Advisors, $20) after the death of her husband in 2007. To drive home her point, Rehl recounts the story of a widowed client who was paid a visit by an insurance agent. The agent came to deliver the proceeds from her husband’s life insurance policy, and he persuaded her to sign over the check for a new policy that she did not need.

A case in point for not making big decisions soon after a spouse’s death is Maureen Saunders. The financial chores following the death of her husband, Hubert, from pancreatic cancer in 2006 at age 65 were crushing enough. Although Saunders, now 58, balanced the checkbook, her husband was the main financial decision-maker, especially when it came to investments. His death left her “in uncharted waters, not only emotionally and spiritually but also financially.”

Saunders had to wrangle with the life insurance company, which didn’t believe she was her husband’s beneficiary. She had a “total meltdown” in the bank when she discovered, after bouncing some checks, that the Social Security Administration had rescinded Hubert’s latest direct-deposit benefit payment. She proved that her husband died after the deadline to be eligible for that month’s payment, but it took weeks for the government to return the money. She did not realize that she would not be eligible for a survivor benefit until she turned 60. “You’re so vulnerable and raw, and there is always another form to fill out,” says Saunders, who lives in St. Petersburg, Fla.

The checklist below can help surviving spouses figure out which tasks to address early on. The tips apply to husbands and wives.

Gather the documents. If your late spouse ran the household finances, it would be great if he left behind an organized filing system as well as all the passwords you need to access computer files. But if you need to dig through the piles yourself, Rehl recommends starting a filing system using colored manila folders. Among the headings: banking, bills, credit-card statements, taxes, life insurance policies and estate documents.

You’ll need to gather Social Security numbers, birth and marriage certificates, military discharge papers, company benefits booklets, car titles, powers of attorney, and current statements for bank, brokerage and retirement accounts. Get 10 to 25 copies of your spouse’s death certificate. The funeral director can help with this. Many financial institutions require a death certificate to close an account or to change ownership of investments.

You’ll need the certificate to transfer title on real estate and to claim life insurance and veterans benefits. Make sure to pay your bills for credit cards, utilities, car loans, property tax, insurance premiums and the mortgage. You could incur late charges if you let these tasks slide. (If you are hit with such charges, ask for a waiver due to the circumstances.) Notify Medicare and other health insurance companies that you will no longer pay your spouse’s premiums. Also cancel club memberships and magazine subscriptions that you don’t need. Explain the situation and you may get a partial refund. Folk suggests that you keep a joint checking account for at least a year. “Occasionally, odd checks to the deceased spouse come in,” she says. “If you close or retitle the account, there won’t be a place to put them.”

Get some help. Charles Simon, a certified financial planner with Taconic Advisors in Poughkeepsie, N.Y., suggests creating a “financial support team.” The group could include an accountant, a lawyer, a financial planner, and a trusted friend or family member who has good financial skills. “In the first six months, you’re in a state of shock,” says Simon, a widower who counts many surviving spouses among his clients. “Your team can help you when you’re least able to attend to details.”

Before Veronica Cavalla’s husband, Peter, died in 2008 at age 68, he managed part of the couple’s investments while a broker handled the rest. Cavalla, 64, says the broker wanted to take control of more of the investments, so she began initialing documents. She didn’t know what she owned. In addition, the new widow couldn’t follow her lawyer’s instructions to retitle property or take other steps to prepare the estate for probate and estate taxes. “Part of my problem was that I was so embarrassed because I didn’t know what people were talking about,” says Cavalla, who lives in Poughkeepsie and recently retired as a registered nurse. “Unless it was a simple matter, I avoided it.”

Eventually, Cavalla’s frustrated lawyer recommended that she see Simon, a fee-only planner who helped her plow through the paperwork. “I should have hired him right away,” she says. If you need to find a fee-only planner, contact the National Association of Personal Financial Advisors (www.napfa.org; 847-483-5400).

Assess your cash flow. While you should postpone big financial decisions, you should take stock quickly of your expenses and income. Make a list of your income sources: Social Security, pension payments, dividends, interest, job earnings and IRA distributions.

Write down your fixed expenses, such as groceries, mortgage payments, utilities and insurance. “Look at your checkbook to see if there are recurring payments on your credit card,” says Simon. Check your deceased spouse’s check register, too. Make a separate list for your discretionary costs, such as gift s and travel.

Some income payments may decline. For instance, if your husband was receiving a Social Security benefit and you were getting a 50% spousal benefit, the spousal benefit will disappear. But some expenses will end as well, such as your spouse’s Medicare premiums.

If you are short on cash, start chipping away on the discretionary spending. “I used to have a 32-foot boat,” says Saunders. “Now I have two kayaks.”

Rehl says new widows should build a reserve for one to two years of expenses in a liquid account, such as a bank money-market account. “Widows worry, ‘Will I be a bag lady?’ ” Rehl says. “With a liquid account, no matter how the market is going, they will feel secure.”

Collect life insurance benefits. If you can’t find the life insurance policy and you don’t have an agent, go through checkbook registers and canceled checks to see if there were any checks written to an insurance company. For a fee, the MIB Solutions’ Policy Locator Service (www.policylocator.com) might help you find the application. Your spouse also may have had a group policy through an employer or former employer or professional or fraternal organizations.

When you file a claim, you may have choices regarding how you will receive the money. Read the fine print carefully. In some cases, an insurance company will place your funds into its own money-market funds and send you a checkbook. Turn down this option, and then place the money in a federally insured bank account or a money-market fund. If you’re instead considering guaranteed monthly payments for life, seek the advice of your lawyer or financial adviser.

Prepare the estate. Until you meet with your estate lawyer, hold off on placing your spouse’s assets in your own name, says Wynne Whitman, an estate lawyer with Schenck, Price, Smith & King, in Florham Park, N.J. If you touch assets in your spouse’s name, you’ll lose any opportunity to “disclaim” the property — that is, allowing those assets to go directly to your children or other heirs. If you forgo these assets, they will not count against your federal or state estate-tax exemption when you die.

You have nine months from the date of your spouse’s death to file a federal estate-tax return. Some states have earlier deadlines for filing returns for state estate and inheritance taxes.

Whitman suggests that you save all receipts related to the estate, especially if the estate’s value is close to or exceeds the estate-tax exemption. “The funeral is a legitimate expense and so is a post-funeral gathering,” says Whitman. “You will need every single deduction.”

Assuming you had named your spouse to make financial and health-care decisions on your behalf in the event you became incapacitated, you will need to designate a new agent for your financial power of attorney, health-care power of attorney and health-care directive.

Check with the employer. If your spouse was employed at the time of his death, call the benefits administrator to ask about benefits due to you. Besides life insurance, these can include unpaid salary and bonuses, accrued vacation and sick pay, left over funds in a medical flexible spending account, and stock options.

You’ll also need to check on pension benefits. Assuming your spouse was retired and you were both receiving monthly pension benefits in the form of a joint and survivor annuity, notify the plan administrator immediately, says Rebecca Davis, a lawyer with the Pension Rights Center, in Washington, D.C. Depending on the type of annuity you chose, you could be due 50%, 75% or 100% of what both of you were receiving before your spouse died. “If you have a 50% option and the plan keeps paying the 100% benefit, it could expect you to send back the overpayment,” says Davis.

If your spouse had a 401(k), it makes the most sense to roll the account into an IRA — assuming you get the go — ahead from your estate lawyer. If your spouse still had accounts from former employers, consolidate them into one IRA. The custodial firm that holds your IRA can help with the paperwork.

The 401(k)-to-IRA rollover can be dicey. Ask the 401(k) administrator to make a direct transfer to the IRA. If the plan instead sends you a check, get it into the IRA within 60 days. If you miss the 60-day cutoff, the IRS will consider the money to be a withdrawal and you will pay tax on the entire amount.

If you were receiving health coverage under your spouse’s employer plan, you may be able to continue on the group plan for 36 months through COBRA coverage. (An employer with fewer than 20 employees is not required to provide COBRA coverage.) Ask the plan administrator if the company will continue picking up the employer’s premium subsidy.

Roll over an IRA. If you are the only beneficiary of your spouse’s IRA, you can roll the retirement plan into your own IRA tax-free. (There are other steps you must take if you are one of several beneficiaries.) Before doing so, make sure your spouse, if he was 70 1/2 or older, took his required minimum distribution before he died. If he didn’t, you must take his RMD by December 31 in the year he died or pay a penalty.

In the following years, after you’ve rolled the plan into your own IRA, you can skip distributions until you’re 70 1/2, allowing the account to grow tax-free. Once you turn 70 1/2, your required distributions will be based on your life expectancy.

It may be wise to forgo a rollover if you’re younger than 59 1/2 and need to tap the account. By leaving the account in your spouse’s name and remaining as a “beneficiary,” you will not pay a 10% penalty on any withdrawals. After you turn 59 1/2, you can roll the account into your own. If your spouse left you a Roth IRA, you can claim the Roth IRA as your own, in which case distributions are never required during your lifetime.

Claim a Social Security benefit. A widow or widower is entitled to a survivor benefit that is equal to 100% of the deceased spouse’s benefit, as long as the survivor waits until full retirement age to collect. You can collect a survivor benefit as early as 60, but your benefit will be permanently reduced a bit for each month you claim before your full retirement age. (It’s reduced by 28.5% if you claim at 60.)

If you were collecting a spousal benefit, you can “step up” to a survivor benefit. At that point, the spousal benefit will disappear. If you are younger than full retirement age and decide to wait to claim the full survivor benefit, you will stop receiving the spousal benefit. If your husband dies before claiming a benefit, you will be eligible for a survivor benefit equal to the benefit he was entitled to at the time of his death.

As summer reads go, it might not prove to be as interesting as “A Dance with Dragons” or “ESPN: Those Guys Have All the Fun.” But for gurus and nerds (like me), it’s pretty darn close.

 Yes, retirement-focused (some might say retirement-obsessed) folks are spending their summer days and nights, and in some cases their vacations, combing through the just-released 2011 edition of “Fast Facts & Figures About Social Security” in search of whatever insights can be gleaned about the current state of retirement in America, and what, if any, items we can put on our collective to-do list.

And the latest edition, which answers the most frequently asked questions about the programs the Social Security Administration (SSA) administers, doesn’t disappoint. The book, among other things, highlights basic data for the Social Security (retirement, survivors and disability) and Supplemental Security Income (SSI) programs.

Here’s what experts say you should do or consider given the facts and figures in the 2011 version of this “book,” which is published by the SSA.

Read the report, “Fast Facts and Figures About Social Security, 2011.”

Social Security is a major source of income for older Americans

It might not come as a surprise, but the first item of note is this: About one in every five Americans, or nearly 60 million people, receive some type of benefit or assistance from Social Security. And about 80% of those beneficiaries are age 62 or older. And for those beneficiaries, it’s an especially important source of income for older Americans.

Consider: In 2009, Social Security represented 38% of all income going to Americans aged 65 and older. That’s up eight percentage points from the 30% in 1962.

“Workers tend to dismiss Social Security as a major source of their retirement income,” said Andy Landis, author of Social Security: The Inside Story, 2011 Edition and the founder of Thinking Retirement. “The data say not so fast. Social Security represents the largest source of their income. Social Security provides more income than any of the other legs of the retirement stool — more than earnings, savings or pensions. Workers need to wake up to the reality that Social Security is vital for their retirement finances.”

Others, including Jason Fichtner, Ph.D., a senior research fellow at the Mercatus Center at George Mason University, are of the same opinion. He noted that 66% of all beneficiaries now rely on Social Security for 50% or more of their income in retirement, while 35% rely on benefits for 90% or more of their income.

For non-married beneficiaries, which includes widows and widowers, the numbers are even more staggering, Fichtner said. Some 73% rely on benefit payments for 50% or more of their income and 43% rely on Social Security for 90% or more of their income. See the chart on page 7 of Fast Facts & Figures, which shows the percentage of aged units receiving Social Security benefits, by relative importance of benefits to total income relative importance of Social Security benefits. (In addition to that chart, Fichtner said he tends to focuses on three other charts when reading Fast Facts & Figures: Receipt of Income, 1962 and 2009; Shares of Aggregate Income, 1962 and 2009; and Relative Importance of Social Security, 2009.)

Not surprisingly, a spokesperson for AARP, the lobbying group for older Americans and which recently called on Congress to protect Social Security benefits, had these observations about Fast Facts & Figures: “The report shows that Social Security is the single greatest source of aggregate income for retirees, and represents a greater share of aggregate retirement income today than it did in 1962,” said Cristina Martin-Firvida, AARP director of Financial Security and Consumer Affairs.

By contrast, she said the share from earnings in 2009 is about the same as it was in 1962, and the share from asset income is lower (15% in 1962 and 11% in 2009). “Undoubtedly, an unpromising job market, depressed housing values, and an unstable equities market have all made retirement today less financially secure,” said Martin-Firvida. “This data underscores the critical importance of maintaining the earned, guaranteed and inflation-protected benefit that Social Security offers Americans in retirement.”

Earned income is a big source of income too

While Social Security represents a large percentage of total income for older Americans, earned income is an important source of income as well. In fact, at 29%, it represents the second largest source of total income for Americans aged 65 and older in 2009. The odd thing about earned income, however, is that the percent of total income that earnings represented in 2009 is about the same as it was in 1962.

But those numbers don’t tell the whole story. According to Fichtner, the percentage of ‘aged units’ (basically those age 65 or over) that report receiving ‘earnings’ was only 26% in 2009, down from 36% in 1962 — while the percentage of people 65 or over receiving Social Security has rapidly increased to 87% in 2009 from 69% in 1962. “What this tells you is that Social Security benefits are now a universal income source for those Americans age 65 and over,” he said. “And, it’s a very important source of income to keep people out of poverty.”

Not all that big a benefit

While Social Security represents a large percent of income for older Americans, the actual amount of the benefit seems somewhat small, according to Alicia Munnell, the director of the Center for Retirement Research at Boston College. The average Social Security benefit amount for new awards in 2010 was $1,193 per month, or $14,316 per year according to Fast Facts & Figures.

According Janet Barr, the chairperson of the American Academy of Actuaries Social Security Committee, Americans preparing for retirement should take the time to learn how their Social Security benefit could be affected by the decision of when to retire.

By delaying retirement, the Social Security benefit amount goes up due to additional earnings and years of service, Barr said. It also increases because an early retirement reduction is not applied (5% or 6.66% per year before Normal Retirement Age or what some call Full Retirement Age or FRA).

In cases when retirement is delayed beyond the Normal Retirement Age, a delayed retirement credit also increases the benefit amount (8% per year after Normal Retirement Age), she said.

“Waiting a few years to retire could provide a 25% increase in benefit, which would boost a $1,200 per month benefit to $1,500 per month,” said Barr.

No increase in OASI filings

The economy is down and the unemployment rate is still high. But the number of people applying for Social Security is flat, according to Landis’ read of Facts & Figures.

“One thing that surprised me is that the number of OASI (The Old Age Survivors Insurance, meaning retirees and survivors) claims were the same in 2009 and 2010 (4.7 million in both year),” said, Landis. “I would have thought with all the unemployed, more people would be filing for retirement. Not so. The data show that retirement-age workers are hanging onto their jobs rather than retiring and filing for Social Security — perhaps a fair measure of financial readiness for retirement, or lack thereof.”

Disability claims and SSI public assistance claims are up

On the contrary, Landis noted that disability claims are up, as are SSI public assistance claims. And to some, including John Laitner, the director of the University of Michigan Retirement Research Center, that spells trouble.

The Old Age Survivors Insurance (OASI) fund, from which retirement benefits are paid, continues to grow modestly, Laitner said. The OASI fund is expected to grow from $2.4 trillion in 2010 to an estimated $2.5 trillion in 2011. (See page 3 of Facts & Figures.) But the Disability Insurance (DI) trust fund is shrinking, and has reached a very low level. The DI fund is expected to fall from $180 billion in 2010 to an estimated $154 billion in 2011.

What’s more, disability awards have grown faster since 1970 than those for retirees, Laitner said. The annual number of awards to disabled retired workers rose from 1.3 million in 1970 to 2.6 million in 2010, while for disabled workers it increased from 350,000 in 1970 to 1 million in 2010. And if that wasn’t bad enough, the average age of retired beneficiaries has risen slightly since 1960, but the average age of disabled beneficiaries has fallen.

According to Facts & Figures: “The average age of disabled-worker beneficiaries in current-payment status has declined substantially since 1960, when DI benefits first became available to persons younger than age 50. In that year, the average age of a disabled worker was 57.2 years. The rapid drop in average age in the following years reflects a growing number of awards to workers under 50. By 1995, the average age had fallen to a low of 49.8, and by 2010, it had risen to 52.8. By contrast, the average age of retired workers has changed little over time, rising from 72.4 in 1960 to 73.7 in 2010.” (See page 17.)

Said Laitner: “In my opinion, long-run concerns about the financial solvency of both OASI and DI are warranted, but between the two, DI seems to raise the most immediate alarm.”

Elderly households not slipping behind

After correcting for inflation, both married couples and singles in 2009 have roughly double the income of those aged 65 and older in 1962. According to Facts & Figures, the median income of a married couple aged 65 or older was $43,114 in 2010, up 111% from $20,424 in 1962.

By contrast, wage growth has lagged in past decades, said Laitner. According to the Economic Report of the President for 2011, average wage and salary income for 25-65 year old college graduates rose, after correcting for inflation, 60% from about $50,000 in 1963 to about $80,000 in 2009. And that high school graduate wage and salary income showed almost no gain for the same period.

“We all wish that economic growth could be faster,” said Laitner. “Nevertheless, the data offers some reassurance that elderly households are not slipping behind younger households in a difficult period.”

More than a retirement program

Another often overlooked fact about Social Security is that it’s much more than a retirement program, said Munnell. “Some 31% of benefits go to those under 62,” she said.

Here’s the breakdown according to Fast Fact & Figures: There are more than 54 million beneficiaries in current-payment status. And 64% of those beneficiaries were retired workers and 15% were disabled workers. The remaining 21% were survivors or the spouses and children of retired or disabled workers.

Room to raise the maximum annual wage base

Experts often recommend a combination of increasing taxes and lowering benefits as a way to save Social Security from going bankrupt. And one of the ways to increase taxes has to do with maximum annual wage base subject to Social Security tax. For 2011, the wage base subject to Social Security tax is $106,800, which is the same as what it was in 2009 and 2010.

Given his read of Facts & Figures, Landis figures Uncle Sam has some leeway to raise the maximum wage base. “One issue being discussed today is the growing wealth gap between the top quintile and all other quintiles,” said Landis. “The Social Security taxable earnings ceiling — $106,800 this year — sheds some light here: It has not kept pace with higher incomes. Currently about 84% of all earnings are taxable for Social Security, trending steadily downward from 89% in 1990. That leaves some ‘headroom’ to raise the earnings ceiling to capture more earnings, strengthening Social Security’s solvency.”

The payroll tax gift

One other item of note about Fast Facts & Figures is this: The publication reports that the Social Security payroll tax is normally 6.2% for OASI and DI combined. A special provision has lowered this to 4.2% for 2011. Said Munnell: “The employee payroll tax is 2 percentage points lower than employer (for 2011). Does everybody know they’re getting a tax cut?”

In other words, keep on working. “Actuaries and other retirement experts suggest that those close to retirement might want to continue to work in 2011 to take advantage of the lower tax rate,” said Barr. “Their Social Security benefit amount will not be impacted by the lower tax rate since general revenue reimburses Social Security for the lower tax rate.”

Longer life expectancy

Social Security actuarial studies show that Americans are living longer after reaching age 65 than they have in the past. “Because of this, actuaries have said that we need to either save more for retirement or work longer than we have in the past,” said Barr, who also noted that the American Academy of Actuaries often points to the traditional model of a three-legged stool for a secure retirement — Social Security, employer-sponsored plans and personal savings. “All three elements need to work together to support a longer life expectancy,” she said. “Retirees should not rely on only one leg of the stool to support their entire retirement. As you said, this means they may need to consider working longer or saving more.”

A bond trader looks on as Treasuries rally.

This weekend the US Treasury was downgraded by Standard & Poors from its AAA credit rating to AA Plus.  This is an historic event for our country, and not in a good way.  It signals a very real black eye on the financial strength of our system.  This downgrade is now being followed by a string of similar downgrades on other government issued financial instruments, basically anything that has exposure to or is tied to the Treasury.

What is surprising about this rating downgrade is that money is now flowing out of stocks (just like all last week) and going into Treasuries.  You would expect people to be selling the Treasury on this downgrade news, but instead they are buying it.  So there is obviously still a great level of confidence in our Treasury bonds, much more so than our stock market at this point.

What could possibly happen in the future is that mutual funds and other institutional money funds who have rules about only owning AAA paper could be forced to sell the Treasury bonds and other US Govt agency paper.  We could also see selling of our Treasuries by foreign countries that are big holders of our bonds like China and Japan.  But this is yet to be seen.  For now, safe money is flowing into the Treasuries and that is a positive thing.  I think this signals an important fact about the role that the US plays in the global financial system.  No other country is able or willing to be at the center of the global financial system.  As bad as it is here right now, there really is no other better alternative place to park safe dollars.

Here are a few quotes from some of my favorite investment professionals about this downgrade:

“The U.S., which was cut Aug. 5 to AA+ from AAA at S&P, merits a “quadruple A” rating.  Financial markets create their own dynamics, but I don’t think we’re facing a double dip recession,” - Warren Buffett, age 80, yesterday in an interview with Betty Liu at Bloomberg Television.

“The future role of rating agencies will also now come under close scrutiny, bringing to the fore the question of who rates the rating agencies?  S&P’s action will likely unite governments in America and Europe in an effort to erode their monopoly power and operational influence.  This will also force all investors to do something that they should have been doing for years: conduct their own ratings due diligence, rather than rely on outsiders.”  – Mohamed A. El-Erian, CEO and co-CIO of PIMCO.

Only time will tell how this will impact the credit markets.  It could eventually lead to higher interest rates for everyone on things like mortgage rates, credit cards, and car loans, but for now that is not happening.  Money is flowing out of stocks and into bonds.  Washington is pointing the finger at Standard & Poors and the Tea Party for this whole problem.  Standard & Poors is blaming an inept Congress for the problem.  Pointing fingers is not going to solve anything.  Especially while Congress is on vacation.

Don’t take this the wrong way, it is a step in the right direction.  We just need them to take many more, and much bigger steps.

I thought this cartoon said it all…thanks Jack for sending it!