J U LY 2 0 1 2
Real Numbers: How Much You Need to Save for Retirement
How much money does a typical
worker need to save every month
in order to have a reasonable
chance of financing a secure
retirement? New analysis from
the Center for Retirement Research at Boston College (CRR)
came up with a broad overview
of the rates needed by different
age groups and income levels.
To estimate necessary savings
rates, the researchers first sought
to determine what level of
retirement income would provide
an equivalent standard of living to
a
retiree’s
final
year
of
preretirement income. After they
took account of changes in
various tax burdens, commuting
expenses, housing costs, and
other factors, they estimated that
a single worker earning $20,000
prior to retirement (the CRR
study’s “low” income) would need
about
$17,600
afterwards,
including Social Security benefits
calculated according to the
current
formulas.
Someone
earning $50,00 (“medium” income) would need about $40,000
after retirement, and someone
earning $90,000 (“high” income)
would need about $73,000. Both of
these estimates also assume the
current levels or Social Security
benefits.
Here’s how the projected savings
rates work out for a consumer at
each level, assuming a normal
retirement age (67) and an average
annual investment return of 4%
after inflation is taken into account:



A low income retirement saver
would need to set aside 8% of
income each year starting at
age 25. If the same person
were to wait until age 35 to
start, they rate would go up to
12% of income per year. If the
same person were to wait until
age 45, the necessary savings
rate would rise to 20% per year.
A medium income retirement
saver starting at age 25 would
need to set aside 12% per year.
Waiting to start until age 35 to
start the savings program
boosts the rate to 18%. Waiting
until 45 pushes it to 31%.
A high earnings saver would
have to set aside 15% per year
starting at 25. If he or she
waited to start until age 35, the
rate would increase to 25%.
Waiting until 45 causes the
required savings rate to rise to
42%.
Keep in mind that if Social Security
were to be cut back, savings rates
would increase proportionately to
cover any reductions in anticipated
benefits. Also keep in mind that if
real investment returns average
higher than 4% in the future, the
amount of savings can be reduced
somewhat. But the researchers
noted that ”...the effect of the rate
of return on required savings
rates, for workers at all earnings
levels, is smaller than the effect of
the age at which saving starts
and, especially, the age of retirement.” In other words, starting
your savings program earlier and
then working longer could have
the greatest impact on your financial readiness for retirement.
To see the CRR analysis and
view the recommended savings
rate for your situation go to http://
bc/edu/briefs/how-much-to-savefor-a-secure-retirement.html.
Of course, every situation is
different, give us a call and we
can help you determine a savings
rate that corresponds to your
unique situation.
March 2012 — This column is provided
through the Financial Planning Association, the
membership organization for the financial planning community, and is brought to you by Paul
Light, CFP®, a local member of FPA.
Tidbits…
$904 Billion...Total of U.S. education loans outstanding in the first
quarter, up 3.4% while mortgage and
credit card debt were falling. Student
loan delinquencies rose 8.69%, up
from 6.13% in 2003.
(Bloomberg
Source: Investment News June 4, 2012)
Paul Light, CFP®
Mid-Year Reality Check: Covering Your Bases in
Uncertain Times
Imagine playing a complicated game,
but the rules of the game are
changing, and the new rules have yet
to be announced. That’s what income
tax planning is like this year. In fact, if
there was ever a year to spend some
quality time with your financial
professional, this is it. Here are a few
items to discuss.
How will higher rates next year
affect you?
Federal income tax rates are
scheduled to jump in 2013, with the
bottom (10%) rate disappearing, and
the top rate increasing from 35% to
39.6%. Starting in 2013, high wage
earners — those with wages
exceeding $200,000 ($250,00 for
married couples filing jointly and
$125,000 for married individuals filing
separately) — will also have to pay an
additional 0.9% in the hospital
insurance (HI) portion of their payroll
tax, commonly referred to as the
Medicare portion.
Of course, the current federal income
tax rates may be extended again, but
it’s far from a certain bet, and the odds
are that any action would not take
-28.4…Percentage decline in the
fastest-shrinking U.S. industry over
the last five years — newspapers.
Online publishing, however, increased 24.3 percent.
(Council of Economic Advisors, LinkedIn)
Source: Journal of Financial Planning May2012
87…
Percentage of adults who
changed their spending and/or saving
behavior in 2011 to have more money available for emergencies.
(AARP)
Source: Journal of Financial Planning April 2012
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place until after the presidential
election. That means any financial
plan you put in place has to
account for this uncertainty. And
the uncertainty extends beyond just
tax rates, because a number of
popular tax breaks are also
scheduled to expire at the end of
the year, while others have already
expired.
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Potential investment moves
Tax rates that apply to long-term
capital
gain
and
qualifying
dividends
are
scheduled
to
increase in 2013. The maximum
rate on long-term capital gains will
jump from 15% to 20%. And while
qualifying
dividends
currently
benefit from being taxed at the
rates that apply to long-term capital
gain, in 2013 they’ll be taxed at
ordinary income tax rates. Potentially higher rates in 2013 could be
a motivating factor in your
investment strategy. For example,
you might want to consider selling
investments that have appreciated
in value to recognize the long-term
capital gain in 2012, before the
maximum rate is scheduled to
increase. Alternatively, you might
want to consider timing the sale of
an investment to postpone the
recognition of a capital loss until
2013, when it could be more
valuable.
Thank You for
Your Business!
Inside this issue:
Mid-Year Reality Check:
Covering Your Bases in
Uncertain Times
1
How Can I Reduce Debt
From Outstanding
Medical Bills?
2
Stock Market Update
3
Roth conversion — is this the Real Numbers: How
year?
Much You Need to Save
4
for Retirement
Continued on Page 3...
The information contained in this newsletter is derived from sources believed to be accurate. You should discuss any legal, tax or
financial matters with the appropriate professional. Neither the information presented nor any opinion expressed constitutes a
solicitation for the purchase or sale of any security.
How Can I Reduce Debt From Outstanding Medical
Bills?
Millions of working-age Americans from all income groups are
struggling to pay medical bills
and manage accumulated medical debt. Many will continue to
face problems with medical bills
for years after their care was
provided.
If you have been hit with unexpected, costly medical expenses, consider some of these tips
for coping with your situation.
Talk to your
provider.
health
care
If you find your medical bills are
piling up faster than you can pay
them, don’t hesitate to call your
service provider and be honest
about your situation. Ask for a
reduction in fees or discuss
setting up a payment plan that is
satisfactory to both of you. It
never hurts to ask, and you may
be pleasantly surprised to find
that it is not difficult to negotiate
a solution.
Avoid using credit cards or
bank loans to finance debt.
Perhaps the only positive aspect
of medical debt is that health
care professionals rarely report
payment information to credit monitoring bureaus unless the debt has
been passed off to a collection
agency. On the other hand, credit
card and installment loan data is
routinely reported. So the wiser
strategy may be to deal directly
with the doctor or hospital to work
out a payment plan, especially if
you are concerned about maintaining a healthy credit score.
Review your bills carefully.
Medical bills typically arrive long
after the service was rendered and
they are notoriously complex,
including multiple line items for
physician time, laboratory tests,
radiology, etc. Take time when the
bills arrive to read through them
and make sure you agree not only
with the services performed, but
also the details of how much
coverage is provided by your
health
insurance.
Tap into your emergency fund.
cover your entire debt, they can
help finance a payment plan that
enables you to chip away at the
debt a little each week, each
month, etc.
Obtain disability insurance
Disability insurance is critical safety net to deploy in the event that
you become ill and cannot work.
This type of policy, which is available through employers, will pay
you a portion of your salary for a
predetermined period of time,
depending on the type of policy.
For additional help with your
medical debt, contact The Access
Project at www.accessproject.com
or call 617-654-9911. The Access
Project provides free counseling to
people
with
medical
debt,
regardless of their income
This column is provided through the Financial
Planning Association, the membership organization for the financial planning community, and
is brought to you by Paul Light, CFP®, a local
member of FPA.
If there ever was a good argument
for maintaining an emergency fund,
an unexpected medical bill it is.
While emergency funds may not
"According to data compiled by Jeremy Siegel of the University of
Pennsylvania, stocks have provided average annual real returns (after
inflation) of 6.66% for all 10-year periods going back to 1871…There
have been 14 10-year periods where stock returns have been negative,
including this one. In every one of the previous 13, the subsequent
returns have exceeded 10% real, about 50% more than average, and
more than double the return of government bonds. So every time
stocks have performed poorly for 10 years, they have performed better
than average for the next 10 years, and they have beaten bonds every
time by an average of 2 to 1, yet investors can't put money in bond
funds fast enough, and continue to redeem equity funds."
A strong finish in June couldn’t
overcome equities’ difficulties
earlier in the quarter as Greece
narrowly avoided a shutdown with
its Eurozone peers. The Dow and
the S&P 500 held up the best,
while the Nasdaq and Russell
2000 saw bigger quarterly losses.
Nevertheless, the previous quarter’s performance means that all
four domestic indices still have
strong gains year-to-date.
Anxiety about Europe also led to
skyrocketing demands for U.S.
Treasuries; as prices rose, the
10-year yield hit a historic low in
June. As the global economy
showed signs of slowing, oil prices
fell dramatically, ending at roughly
$85/barrel.
governments
have
struggling to assist
such as Spain.


Quarterly Economic Perspective

Under pressure from Italy and
Spain, European Union leaders agreed that a single body
—possibly
the
European
Central Bank— should oversee banks in all 17 Eurozone
countries, and that details
should be finalized by year’s
end. Once that is in place, the
current bailout fund and its
replacement, the European
Stability Mechanism, will be
able to lend directly to struggling banks in countries whose

been
them,
Unemployment remain stalled
at 8.2%, partly because more
people are once again trying
to reenter the workforce, and
the first-quarter economic
growth
of
1.9%
was
substantially lower than the
previous quarter’s 3%.
Implementation of the Patient
Protection and Affordable
Health Care Act will proceed
in the wake of the Supreme
Court’s
ruling
that
the
health-care reform legislation
is constitutional. The 5-4
decision held that the penalty
be paid by those who chose
not to buy health insurance as
required by the law is constitutional as part of Congress’s
power to tax and spend.
There was a glimpse of good
news in the housing market.
The Commerce Department
said new home sales shot up
in May to their highest level in
more than two years, and the
S&P/Case-Shiller index of
home prices ended the quarter with gains in 19 of the index’s 20 cities and slowing
year-over-year
declines.
Meanwhile, the Commerce
Department said construction
spending was up from last
year.

The Federal Reserve will
extend its “Operation Twist”
bond purchases through the
end of the year. The program,
which will use the proceeds
from sales of short-term
Treasury bonds to buy longer
maturities, is intended to
stimulate the economy by
keeping long-term interest
rates low.

Though durable goods orders
were up in May, manufacturing
data from the Institute for
Supply Management and the
Federal Reserve’s industrial
production number showed
some slowing. Meanwhile,
retail sales were up 5.3% from
last May, with nonstore retailers showing the biggest gains.

The silver lining to a sluggish
global economy was moderate
inflation at both the consumer
and wholesale levels. The
Bureau of Labor Statistics said
the Consumer Price Index was
2.3% higher than last May,
while wholesale prices were up
less than 1% in a year.
Mid-Year Reality Check: Covering Your Bases in Uncertain Times,
Cont from page 1
If you’ve been on the fence about
converting traditional IRA funds to
a Roth account, you ought to give
the matter one last hard look
before the year ends. That’s
because when you convert a
traditional IRA to a Roth IRA the
converted funds are subject to
federal income tax in the year you
—Bill Miller, in a market commentary dated October 17, 2009
Light Financial Services, Inc.
Stock Market Update
Page 2
Light Financial Services, Inc.
make the conversion.
If tax rates go up next year, so
will the effective cost of doing a
Roth conversion. Additionally,
qualified distributions from Roth
IRA are free from federal income
tax. That could make a big difference in retirement if you’re paying
tax at a higher rate at the time.
Whether a Roth conversion is right
for you depends on a number of
factors. If it makes sense to you,
though, it might pay to think about
acting now, rather than later.
As always, feel free to call or
schedule an appointment if you
have any questions or concerns
regarding your financial situation.
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