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Retirement Planning
Funding Your Retirement
People around the world are living longer. This means there is an increased likelihood they will outlive their retirement savings.
Living Longer
Current mortality tables show that an averagehealthy American male at age 65 today can expect to reach approximately age 85 - but that same individual also has a 50% chance of living beyond age 85 and 25% chance of living beyond age 92. As a result, people who plan to cover their economic needs to their "life expectancy" - in this case, age 85 - still face a 50% chance of failure. The Wharton study explains that only lifetime income annuities can mitigate the financial risk of living too long by relieving consumers of the need to set aside the far greater sums they would otherwise need to allocate to other asset classes to ensure they would not outlive their retirement savings.
From Retirement Weekly
Taking money out once you are retired.
Some retirees take too much money out during the first few years of retirement and don't have enough left for their later years.
Some retirees are too frugal and don't have the opportunity to enjoy their retirement. They skip vacations, don't eat out and scrimp to the point that most of their savings go to their heirs.
Some retirees don't take the minimum distribution of retirement funds mandated by the IRS (after you reach 70 ˝) and have to pay stiff penalties.
Some retirees move all of their retirement assets into money market funds and lose the growth that stock and equity funds produce.
How can you best avoid or at least best protected yourself from these mistakes?
My suggestion is find a good financial advisor and let him/her guide you. If mistakes are made you at least know that you have made every attempt to avoid them.
If you provide a financial advisor with the information he/she needs as far as what your expenses are and what you hope to spend each year during your retirement, he/she should be able to come up with a plan that will maximize your chances of meeting your needs.
If your retirement funds are substantial you would probably also be wise to work with an estate planner in conjunction with your account and attorney.
Obviously as you get closer to retirement your investment strategies should change. By the same case once you are retired, where you have your funds and how you generate income and where you get money for every day expenses should change substantially. Unfortunately we regularly hear how unscrupulous con-men (and women) have separated seniors from their hard earned savings. We have also heard that if it sounds too good to be true it usually is a bad investment, but far too few seniors take this advice to heart.
What is a financial advisor?
Humberto Cruze, columnist for Tribune Media Services lists the credentials of financial advisers. Cruze checked an "investor survival skills" survey which found that only 36 percent of Americans who use a broker or financial planner check out that person's disciplinary background.
Advisers come in many forms, and the same person can have more than one title.
Brokers
Brokers, or "registered representatives," who recommend securities to buy or sell must pass an examination by the NASD, a self-regulatory group for the brokerage industry.
They must be registered with the NASD (thus the term "registered representative") and licensed by the securities agency of the state or states where they do business.
You can check a broker's background with the NASD by calling 800-289-9999 or going to the Web site www.nasd.com and clicking on NASD BrokerCheck.
Registered investment adviser
An adviser who provides overall rather than incidental investment advice must be registered as a "registered investment adviser" with the Securities and Exchange Commission or the appropriate state securities agency. (Generally, advisers who manage $25 million or more in clients' assets register with the SEC.)
All registered advisers must file a so-called ADV form disclosing among other things any business affiliations, conflicts of interest and disciplinary history.
Consumers, including those with complaints about a broker or investment adviser, can check with the SEC's Office of Investor Education and Assistance (800-732-0330; at www.sec.gov, under the heading Investor Information, click on Check Out Brokers & Advisors) or with the appropriate state securities agency.
Contact information for state securities regulators is available at the Web site of the North American Securities Administrators Association, www.nasaa.org.
State-licensed adviser
Advisers who sell insurance and insurance-related investment products such as annuities must have the appropriate state insurance license.
You can check with the National Association of Insurance Commissioners (816-842-3600; www.naic.org, click on Consumer Information Source) or the insurance department of your state.
Certified financial planner
For advisers who represent themselves as financial planners who go beyond investment advice to provide a comprehensive financial plan, you can verify whether they actually hold the Certified Financial Planner designation by checking with the Certified Financial Planner Board of Standards at 888-237-6275 or www.cfp.net/learn (click on how to choose a planner).
Increasingly, the CFP mark has become the credential of choice in the financial advice industry. But credentials and alphabet-soup titles alone, while important, do not guarantee you'll get a suitable adviser.
Seek recommendations from business associates or friends and interview several candidates before hiring any. Focus on advisers whose areas of expertise match your goals (tax or retirement planning, for instance) and don't be shy about asking how they get paid. Trust your gut too. If the relationship just doesn't feel right, go with somebody else.
Ways to Save Money
In order to increase your savings and contributions to your retirement fund if you can practice just a few of these ways to save money you can add substantially to your retirement fund. If you are already retired following even some of these suggestions will increase the money you will have at the end of each week.
- Open a home-equity line of credit and use it to pay off any credit card debt. Home-equity interest rates are far less than those of credit cards.
- Save all your change and take it to the bank every other month. More often if it turns out to be a large amount.
- Buy regular gas as opposed to premium as most cars do not require premium fuel.
- Set your thermostat a little lower in the winter and higher in the summer. Only a few degrees will save you 10% or more on your utility bills . Note: you can purchase a "setback" thermostat at a hardware store for $100 or less. This thermostat can automatically adjust the heat or cooling in your house, condo or apartment.
- Carefully check or have a friend check your phone bills to make sure you are not being charged for services or equipment you don't use or should not have. Combine your communications bills to a single company to save money. Consider using a cell phone, if you have one, for all you LD calls.
- Purchase second-hand or executive driven cars. The cost savings is substantial and if you purchase from a reputable dealer or have the car thoroughly checked by a mechanic prior to purchase you should be able to save a great deal of money.
- Cut back on your entertainment; particularly on eating out at expensive restaurants.The money saved can be substantial over a period of time.
- If you smoke, stop. The increased cost of cigarettes makes stopping smoking a big savings.
- Purchased generic or store brand substitutes for brand name items. Over several years time the savings can be a great deal more than you would imagine.
- If you gamble more than small amounts stop. You are gambling your future security.
To give you an idea of the longevity you can expect, this information from MetLife may surprise you. Today a person who reaches 65 has a life expectancy of 85 but the odds that he/she will live beyond 85 are 50%. The likelihood that one member of a 65 year old couple living to age 97 is 25%. In view of these surprising statistics it is more important than ever to plan to not outlive your savings.
The rule of thumb is that you'll need 70% to 80% of your pre-retirement income. Of course this varies substantially depending on special needs and where you plan to retire.
Americans are becoming concerned they will outlive their retirement savings and are making the decision to postpone retirement or continue to work part-time or in temporary jobs after they retire. The Savings Calculator walks you through the steps needed to reach your retirement goals. It also helps you determine how much you can save. http://moneycentral.msn.com/Investor/calcs/n_savapp/main.asp If you increase your employment income after retirement it would be much easier to make ends meet.
In looking over your assets, as a general rule, the value of your home (check its approximate value http://www.domania.com/) will often represent your largest single source.. Many retirees have paid off their homes and either owe nothing or have a very small mortgage. This is fine if you have no need of funds, but if you are short of cash the equity in your home is a cost effective way to generate cash.
If you are not interested in selling you can also re-mortgage. The key here is to go to a legitimate bank or mortgage company and get the best possible rate. If you do not need a major amount of cash you can get a low interest line of credit using your home as collateral or get a second mortgage if you already have a first. Generally speaking it is a good idea to borrow against your home and pay off any credit card debt which is almost always at a much higher interest rate.
The U.S. Treasury sells two fixed income securities that compensate for inflation.
- The Treasury Inflation-Protected Security or TIPS
- I-bond (savings bonds)
The income generated from these investments is comparatively low, but they both guarantee your capital will not be lost to inflation.
Here are some resources to help you make these decisions.
https://www.fidelity.com/
http://www.axaonline.com/
http://www.wachoviainvestment.com/
Many seniors about to retire and even those who have just begun their retirement years are concerned about outliving their financial resources. They are also in the process of budgeting for the years to come. Here is some information that should prove helpful in assessing how your assets will provide for you in the years to come.
At what age do you plan to retire? Many overestimate how long they will be working and saving for retirement. Check where you stand. Go to:
http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner.jspfill in your age, desired retirement age, current income & expected income needed when you retire and the site will give you projected answers.
Retirement income calculators:
http://www3.troweprice.com/ric/RIC/
http://www.ing.com/us/tools_calcs/retire/
Calculate mortgage payments
and home equity accumulation on adjustable rate mortgages, interest only loads and fixed-rate mortgages. http://federalreserve.gov/apps/mortcalc/
Most seniors with an estate of value already have an attorney and have prepared a will to distribute their assets according to their wishes and the laws of the state in which they have legal residence. For those of you who have not executed such a document you can access information to do it without an attorney. However I would urge you to consult an attorney even after you have prepared your own will. This will avoid problems that you could not possibly have anticipated as a layperson.
Nolo® provides excellent will making software. Quicken WillMaker Plus 2004 $49.95 http://referral.nolo.com/nc.cfm?t=EF0004BA003703go to http://www.nolo.com/ click on Wills & Estate Planning. You will also find retirement planning and elder care legal information on 401 (k) plans, Roth IRAs, assisted living, nursing homes, social security benefits and more.
The Department of Labor has created a resource for retirees.
Go to http://www.dol.gov/ebsa/publications/NRTOC.html
and read Taking the Mystery Out of Retirement
Retirement Savings Not Protected
According to a 10 survey ending in 2002 by the Center of Retirement Research at Boston College 7 in 10 seniors 51 to 62 lost their jobs or had health problems or lost their spouse to either death or divorce. This caused problems for their retirement savings.
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