Richard's Retirement Report

 

July 10, 2008

Spending plan

Planning for retirement needs to include a spending plan.  A spending plan includes a detailed listing of your current expenses and any expected future liabilities compared to your financial resources - including a list of your income sources and/or assets.

Examples of your assets and income sources include:

employment
savings
investment accounts (also personally held company stock certificates)
annuities
real estate
employer retirement plans (pensions, 401(k), 403(b), 457, deferred compensation plans)
IRAs (Traditional, Roth, etc.)
Social Security
veterans benefits
alimony
business residuals or sale of business (installment sale)
inheritance

The traditional 4% withdrawal rule has been turned upside down and inside out with more retirement theorists acknowledging that what works for the goose may not always (and often does not) work for the gander.  Everybody’s retirement circumstances are unique and change over the course of their retirement.  A defined spending plan is a critical component of one’s retirement strategy, but only if it is adaptable to changing life goals, emergencies, and market conditions.

Working with experienced financial planners like Chet and Patti can be a big help when deciding which income source/assets should be tapped and when.  There can be large tax and life style consequences by not carefully planning the liquidation of assets.

Some income sources like pensions and Social Security have variable benefits that depend upon your average working income and at what age you begin collecting benefits. Other factors to consider when creating a retirement spending plan include your health, family longevity, inflation, retirement, and legacy goals.  Without a defined spending plan, retirees may find their plans for the future in disarray.

 

 

June 16, 2008

What steps should I take to prepare for retirement?

Retirement can be a life-long goal that some find to be the best time of their lives. For those who are prepared, they are free to pursue a myriad of interests including hobbies, travel, sports, volunteering, and spending time with family and friends to name a few. Others prefer to continue working part time especially if they love what they do.

What to do with your time may be one of the biggest challenges facing those nearing retirement and deserves serious consideration. Studies have shown that continuing to be active both mentally and physically is important to sustain your health.

The sooner you are able to identify what activities you want to pursue (those things that make you the happiest), the sooner a plan can be created to provide the resources to help make it happen. One of the big advantages of working with experienced advisors like Chet and Patti is to help you identify and prioritize your goals. As with most goals, the greater the time and personal disciple applied to the goal, the greater the probability of success.

The government wants to help. For workers at least age 50, the tax code allows them to save an additional amount (catch up) in certain tax deferred accounts. The amount varies depending upon the plan/account.

For many people their cost of living will fall when they retire. This is based upon the reduced need for work related expenses such as commuting and work clothes. Pre-retirees can also reduce their retirement expenses by reducing their debts prior to retirement. It can be very liberating to pay-off a debt. If eliminating debt before retirement is not possible, efforts to reduce the highest interest debt can be very productive.

One of the biggest cost items for retirees is healthcare. The government provides Medicare to those eligible beginning at age 65. However, Medicare does not cover all of the medical costs. Retirees need to explore whether their employer will provide assistance or what private plans make the most sense for their situation. Should you need nursing home care, the costs can be high (>$100,000/yr.). This can be mitigated with long-term care insurance. This coverage is expensive and if you are in declining health, you may find it difficult to get.

If your company provides a retirement plan, it is important for you to understand your options. Seeking professional help in this area could save you a lot of money in taxes you need not pay.

Other steps include ensuring your estate plan is current including beneficiaries, durable power of attorney, healthcare proxy, will, and in some cases a living will. Improper asset transfer planning is another area professional help can result in tax savings.