Much of the attention went to cuts in entitlement programs like Social Security, which are meant to make up for tax cuts and increased defense spending. Yet what many missed in the Trump budget were proposals that would affect the retirement benefits of federal workers. First, the budget requires federal employees who are part of the Federal Employees Retirement System to make larger employee contributions toward their defined-benefit program than they currently do. That leaves the federal government to contribute up to 13% in order to provide enough funding to make future pension payments. The budget seeks to equalize the amounts that workers and the government pay toward federal pensions. The method the budget uses is to increase the federal worker contribution percentage by a single percentage point each year, gradually phasing in the increase until contributions are split about 50-50 between the federal government and employees. For retirees in the Federal Employees Retirement System, the budget would eliminate cost-of-living adjustments entirely. Only a small percentage of private-sector workers get pension coverage at all, and more employers have been freezing or eliminating private pensions in favor of 401(k) plans and other defined-contribution retirement arrangements. Younger workers who are hired without such benefits have plenty of time to develop their own retirement savings plans, but when changes are made to the benefits of those who are late in their careers or already retired, there's little they can do to adjust their financial planning. The $16,122 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings.
In this segment from Motley Fool Answers, Alison Southwick and Robert Brokamp break down a proper investing and retirement strategy by decade. We have finally reached the twilight years — our 70s, now retired and enjoying time with the grandkids. But when you crossed one financial finish line, you started a different race. Going forward, your priorities are to manage your healthcare costs while ensuring that your savings withdrawal rate will leave you solvent for the rest of your life.
A full transcript follows the video.
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This podcast was recorded on April 18, 2017.
Alison Southwick: Your 70s and beyond are an exciting time. Your years of saving and planning are paying off. You get to volunteer your time, travel, and spoil grandchildren. Sure, your body aches a bit and you’ve got some sunspots and some laugh lines around your mouth, but they are all signs of a life well lived. So what should be your priorities in retirement?
Robert Brokamp: Number one, you want to ensure your portfolio will last as long as you do, and that is understanding safe withdrawal rates in retirement, which is one of my favorite topics.
Southwick: Yeah. I know.
Brokamp: You know. And most people think of 4%. That’s a classic rule of thumb, and it’s a fine rule of thumb, but most people should be taking out either a little bit more or a little bit less depending on your circumstances starting, for example, with your age.
The studies that determine that 4% safe withdrawal rate assume you’ll retire at age 65. But what if you’re 55? What if you’re 75? You really need to learn about how all that goes. I would recommend the three people to read to learn about this type of stuff is David Blanchett at Morningstar, Michael Kitces, and Wade Pfau. If you want to learn a lot about safe withdrawal rates in retirement, go check out those guys.
Number two, you want to learn how to sell investments in a tax-efficient manner. You’re now in…