February 2, 2012
Getting ready for retirement? As you consider funding it, make some plans so that you won’t experience headaches and heartaches later on. Take these things into consideration.
Plan to have your house paid off before you retire. Although interest rates are low, and some may be tempted to invest their money elsewhere for a “better return”, nothing is as comforting financially than having a place to live that is really yours. Paying down that debt (or any other debt) is the same as getting a guaranteed rate of return on an investment at the interest rate you are paying. Be sure, however, to budget for taxes and insurance, as these expenses tend to be forgotten when they are incorporated into your mortgage payment.
Speaking of budgets, look at your current budget item by item and determine what expenses you will have when you retire. This will be a great start to determine how much you need each year to live on. Be sure to add savings as a line item for unexpected or major expenses such as auto repair, replacing your roof, major illness, vacations, etc.
Plan to only spend between 3% - 5% of your retirement savings annually. Your current plan may be to eventually spend all that you have saved, but if you do, you run the risk of running out of money. Americans are living longer, and may need their retirement funds to last 30-40 years. If you don’t think you will have enough, you may need to adjust your retirement date, or the amount you are saving.
Finally, you may be asked by adult children or other family members for financial help. There may be valid reasons to help them. Be sure to determine if this is a temporary need or ongoing. You may need to help them work out a plan toward financial independence. If you continue to assist family members, you may be putting your financial future at risk. Be upfront with them about your finances. They may discover that you are not as wealthy as they thought.
Need help? Consult a CPA or financial planner. There are also financial calculators on the internet that can help you determine if you have enough saved. Follow some wise advice from Proverbs 27:23-24, and “know the state of your flocks”.