On Aug. 9, state representative Warren Kampf (R-157), hosted a “Money and Life” seminar, which provided advice to those planning for retirement.
“It’s something we think is useful and interesting to our community,” Kampf said. “I hope to be useful to them, as it’s my whole purpose of being a representative.
Kampf represents Phoenixville Borough, Tredyffrin and Schuylkill townships in Chester County, as well as parts of West Norriton and Lower Providence townships in Montgomery County.
Throughout his district, he hosts a series of informational seminars, focusing on such issues from energy shopping for seniors to the state budget. He also hosts regular town meetings, both as a phone conference and in person, with the most recent being held July 30 at the Phoenixville Area High School.
The Aug. 9 retirement presentation was the second of Kampf’s two “Money and Life” seminars this summer, the first of which took place Aug. 7 at the Tredyffrin Public Library, and discussed ways of saving for college.
Doug Hepburn, a certified public accountant (CPA) with the Pennsylvania Institute of Certified Public Accountants (PICPA), presented at both seminars.
Living Longer and Planning Better
The event took place in the Lower Providence Community Library, where Hepburn revealed why the retirement age of 65 (set by 1889 German chancellor Otto Von Bismarck), wouldn’t necessarily apply for today’s retirement planning.
“Mortality back then was 63,” Hepburn said. “There are a lot of things to consider, because we’re all living longer.”
According to Hepburn, today’s mortality rate is an average of age 81 for males and 84 for females.
Hepburn encouraged those planning for retirement to consider the costs for daily living. He estimated that 70 percent of pre-retirement earnings are needed to maintain the individual’s standard of living, which would include:
- Basic necessities: food, house, taxes
- Various insurance costs
- Elderly parent care
Throughout his presentation, Hepburn deconstructed and explained several post- retirement saving strategies, starting with Social Security.
According to www.ssa.org, the official website of the Social Security Administration, the full retirement age is 67 for those born after 1937. While the website states that Social Security benefits may be received as early as age 62, reduction in benefits will occur until the full retirement age is reached.
However, Hepburn said that there are ways to take full retirement Social Security early, without being penalized.
He also said those who continue to earn income after retirement, and if unearned income isn’t a factor, may have their Social Security taxed at a maximum of 85-percent at the individual’s tax rate.
Hepburn did agree with an audience member’s observation that deferring Social Security until age 70 (the latest someone can apply for Social Security), would hold an 8-percent increase in Social Security income from the full retirement age until age 70.
“It seems counterintuitive, yes,” Hepburn said. “But, in today’s market place, where can you get 8-percent guaranteed?”
He also said that a married couple could take a spousal benefit. He explained that should a working spouse defer until age 70, the non-earning spouse could still take up to 50-percent of the working spouse’s Social Security at the non-earning spouse’s retirement age. Once the working spouse turns 70, both their Social Security incomes could be combined.
401(k) and IRA
“Regardless of how you invest your money, 401(k) is the best way to do it,” Hepburn said. “Because, you’re putting in money before it gets taxed. You pay yourself, before you pay the IRS.”
Hepburn called the traditional 401(k) plan one of the last best ways to save, as the employer automatically takes out small amounts each month from each paycheck, tax-free.
The traditional IRA, or individual retirement account, is similar, but is typically processed through a custodian institution, such as a bank, where the individual has control of the account.
He added if an individual is able to do both a 401(k) and IRA, they should do so.
When discussing which might benefit an individual more, a traditional 401k or IRA versus a Roth 401k or IRA, Hepburn said it depends.
“If you look at Roth-type vehicles versus traditional-type vehicles, it’s really a hedge against tax rates,” Hepburn said.
According to the PICPA website, in most cases, Roth-type vehicles can allow for early withdrawal without penalties. Hepburn said that heavy penalties accompany early withdrawal from traditional vehicles.
According to Hepburn, Roth-type vehicles are more beneficial if tax rates go up, and the opposite would apply if tax rates go down.
In his personal opinion, Hepburn predicted that the tax code will be simplified and that rates will go down as a result.
He also shared an observation in which he found Congress to modify the tax code every 38 years, with the next modification possibly occurring in 2016.
Hepburn also referred to annuities, purchased as a contract through a financial company, which could be taken as a lump sum or through structured payments, similar to a pension. Hepburn said that such contracts may have high set-up fees, and that it might not be a good investment now, as interest rates are low.
Start Saving Early
A question and answer period followed Hepburn’s presentation. Among those speaking with Hepburn was Cathy, 57, of Wayne.
“I thought it was very informative,” she said.
Cathy said that several of her friends her age haven’t really given much thought to discussing retirement plans, as daily life keeps them busy.
“We’ve got other things to talk about besides money,” she said.
Susan Becker, 54, of Chesterbrook, said that her friends her age do discuss retirement plans, but are unsure the best courses of action.
“Yeah, we’re all petrified right now,” Becker said. “We used to say, ‘Retirement, I’ll worry about that when I’m older.’”
With only 13 years to go, she said that she found the presentation to be helpful.
As a presenting volunteer of the PICPA, Hepburn said he has heard similar comments at his various presentations.
“The ‘Baby Boom’ population is just starting to figure all this out, and it’s scary,” Hepburn said after the event. “The PICPA wants to get the word out.”
At each presentation, Hepburn explains that self-discipline is the key factor in seeking financial literacy and ultimately gaining financial stability.
“What’s the root cause of poverty?” Hepburn asked. “It’s not understanding money.“
“The more you put away now, the better,” he said.
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