Monday, January 24, 2011

Flexible Retirement Finance

12 January 2011 by John Comer, CFP ?


Post-Retirement regulations

I was asked to give a retirement seminar to my extended family in a recent family reunion.  We attract four generations to our meetings a week, so that the debate had to be useful for people as young as old as 80 and 25.  I was a little disappointed with the result for the 70 and 80 years of age, because they don't think they could change anything.  They were academically interested but not seen any practical application.

It is true that your ability to adjust your retirement is limited or nonexistent after selections.  The ability to change your social security payment has recently been reduced as well.   Finally, life insurance and long-term care may not be affordable for most people to be 70 years.  (If I need insurance but would have a price before you abandon the idea.)  That said, there are a lot of areas where you can make changes.

The first step is to project revenues and expenditures to see how you're doing.  By comparing these new projections for original projections every few years (if your income is stable, more often if income varies much) will help you understand how the initial assumptions are good.  By comparing these projections in different scenarios can help you understand what adjustments have the greatest impact on your finances.

For example, as the finances would be different if the husband dies at 75 and his wife lives in 100 against his wife dying to 75 and her husband live to 100?  How you expect your finances to change if one of you was confined to a nursing home for five years in five years from now to leave?  What if the u.s. economy has gone through a period of ten years as of Japan without increasing the value of your investments?

As you examine the different scenarios, which, if necessary, run out of money before age 100?  What scenarios result in your not to meet all your goals?  What scenarios are fairly likely that you want to make changes now to protect your goals?

Changes that may be needed

The revenue and expenditure should be the first line of Defense.  You can increase your income or decrease your expenses?  Even minor changes to margin can have a major impact for many years.  But be sure to consider as well the main changes.

Different people have different objectives.  My father-in-law went to his house three times in the last ten years of his life.  His moves were not caused by financial considerations, but by changes of life — marriage, the desire to be near friends and decreased mobility.  My father wants to stay at his house for the rest of his life.  In your situation, could a change in your House free money invested in the House or reduce your expenses?

Do you have personal property that you do not intend to use for retirement, but could be used in a pinch?  This could be the equity in your home, a second car, figurines or other personal property.  Investigate whether these elements may be converted into cash if necessary.  Without moving, a reverse mortgage would stay in your House, after other goods were spent?  Can a family member buy House on an installment to give you cash enabling you to live at home?

Also look to your business, volunteering and hobby to see if any of them could be converted into an income producing asset or an expense reduction activities. If you Volunteers Help complete tax returns, maybe you could get a part-time job completion of tax returns. If you volunteer as an usher at theatre community, perhaps you could get paid as an usher at a local sporting event.  Are some of your creations good enough to sell?

If not what you have imagined that they would be your finances, there may be changes you can make at any age.  Some adjustments may be more appealing than others, but that's why you look at all the possibilities.

Planning for flexibility in pre-retirement

For those of you who have not yet retired, these ideas can help you plan some cushions in your finances.  For example, keep home out of your retirement projections as well, if the unexpected happens, you have additional resources.  Take out insurance if you do not have the resources to finance this spending potential of long-term care.  Plan for retirement so that you have a minimum level of fixed costs and maximise costs variable that you can adjust if necessary.  So you can plan in advance how could adjust to possible events, run some different scenarios with your finances.

Most important of all, start early.  If you start saving for ten years before the retirement pension, you must save 72% of your nest egg you want, but if you start to 40 years before the date of saving, you should only save 20% of your nest egg you want.  (Assume that annual contributions amounting to earn 7% returns every year.)  Investment earnings will contribute to the rest of your retirement nest egg in both cases.

For young and old, there are adjustments that can be done.  Planning, controlling and adjusting your goals will help you to achieve your life's commercial transportation.

John Comer, CFP ?
Consultant
Comer Consulting, LLC
Plymouth, MN

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