Bass Financial Solutions, Inc.

You’ve worked hard during your lifetime to accumulate assets to pay for your retirement. You’ll soon be knocking on the door to retirement, or maybe you’ve already entered, and it’s time to check out the new environment. Here are some hazards you’ll need to address.

Inflation: According to the Department of Labor, during the last 25 years, overall prices have risen 115%. The average annual increase has been 3.1% — meaning an item costing $1 on 12/31/1981 would have cost $2.15 on 12/31/2006. An individual living on a fixed income in retirement over the 25-year period would have only 47% of the purchasing power today that he/she had in 1982. Given the recent run-up in oil prices, the looming federal deficit and global political situation, there is little optimism future inflation will be lower. Inflation for retirees can be expected to worsen as the demand for health care escalates in response to four million baby boomers a year turning age 60 - that’s one every eight seconds. This will continue through 2024. Medical advances have made giant strides in increasing life spans which means even more pressure from an aging population. Over the same 25 years, the medical care component of the Consumer Price Index (”CPI”) shows that what cost $1 in 1982-84 now cost $3.36. Since health decreases with age, you’ll probably be spending a lot more on medicine, doctors and hospitals during retirement than during your working years. This will complicate things as you’ll probably be living on mostly a fixed income. With 61% of Americans believing they’ll need at least $500,000 in accumulated assets in order to retire (Source: Retirement Corporation of America, USA Today), there exist a huge gap for many retirees. Make sure your retirement plans include inflation of not less than 3.5% annually.

Taxes: There are so many taxes we seldom stop to add them all up. Consider the following partial list: federal, state and local income taxes; sales taxes; property taxes; gasoline; alcoholic beverages; tobacco; telephone; and if you work, add Social Security and Medicare. Make no mistake about it, taxes levied on businesses - FICA, unemployment, franchise, income, etc. - are passed to consumers as higher prices. All the various taxes were recently added up and amazingly the marginal tax rate exceeded 40% regardless of income level (Source: NBER, Kotlikoff & Rapson). In retirement you’ll even pay taxes on your Social Security unless you have a very low annual income or your money is in tax-deferred annuities. You can do something about the tax bite in retirement, and plans should be tax efficient. For example, investigate the use of tax-deferred fixed annuities so that earnings are not taxed until withdrawn for use; use qualified money first in retirement and postpone Social Security benefits as long as possible; consider the feasibility of putting money into a Roth IRA that grows tax free.

Unsuitable Risks: Safety of principal should be your primary objective in retirement with growth a distant second. Over long periods you may earn more by putting your money at risk in the stock market, but you’ll need the discipline to ride the market cycles and postpone the use of your money until the long term. Of course, if you have more than needed for your retirement - don’t forget inflation and taxes - then you can afford to take risks with what you’ll not need. The fact is most retirement-minded Americans consider growth their number one objective - that’s why the first question is always “how much will I make”. The first question should be “how safe is my money”. Will Rogers said it best: “I’m more interested in the return of my money than the return on my money”. If you have your retirement money in an investment whose value is determined by the market (stocks, bonds, diversified portfolio, commodities, hedge funds, etc.) you are taking risks and could lose all or some of your retirement nest egg. There are no exceptions: “higher potential earnings mean higher risks”. When you invest money in risky places, there are no guarantees you’ll get it back. When you put money in safe places, you are guaranteed that you’ll get it back with interest if held for the stated term. If preservation of principal is your prime objective, then a safe money place is your only option.

Going It Alone: Not working with a financial advisor is probably the biggest risk you’ll take with your retirement money. Retirement is the largest purchase you’ll ever make, and you can’t borrow money to pay for it. The money you’ve saved is all that is between a worry-free retirement and panic - so don’t attempt to navigate the hazardous world of investments without a financial advisor. Professional help doesn’t cost, it pays.

Give us a call at 770-932-9679 or send an email to: support@bassfinancialsolutions.com.