Wednesday, November 26, 2014

Retirement?.......Oh! That Really Long Vacation!

Let’s face it. All of us, hard working folks have so much going on that we tend to live for the here and now. When we make money, we pay our bills, we pay down debt. We leave a little aside for “disposable income” (i.e., restaurant meals, movies, vacation, hobbies, home improvement and of course the kids). Well…most of us.

When we stop and take a look back, what’s left? For many American’s their home, if they have one, is the only real savings they have, come retirement. Another chunk can come from any potential inheritance Mom & Dad might leave you.  Maybe you have a Whole Life insurance policy that has a cash surrender value. Maybe you have a little stashed in a savings account or in an IRA or employer 401K plan. Then you have some Social Security Benefits; not nearly enough to really sustain your current spending levels. Many government workers have it really good in that they get guaranteed defined benefits, typically a percentage of their ending or highest salary until death. Yep, these legacy costs make democracy very expensive. (That’s another story)

Now think of what your expenses will be. Healthcare costs are huge as you get old. Especially, if you have health problems. Insurance or Medicare will not cover it all. That wonderful house you paid off; now needs a new roof, plumbing work, a new kitchen and bathroom and new HVAC system. You need a new car. You have to pay real estate taxes and insurance for home and auto. You don’t have kids anymore but, hey now you have grandkids. Who could say no to those little rug rats? How about an occasional vacation? Have to do a few of those before you find yourself in a pair of senior Pampers!

All is not lost. Plan for that retirement as early as possible. Like right out of college. Forego some modest luxuries if you must today so that tomorrow you will have a little more. Count on the fact that we will have various economic cycles and that IRA’s and 401K plans as well as savings invested in mutual funds could loose significant values. (Like they did starting in 2008. A 40% loss in value was common) If you have a windfall year, try not to spend more, put some in reserve. Retirement accounts, and employer plans are a huge benefit during your working years. Not only will you save for your retirement but you will also save on income taxes at rates higher than they might be when you retire. It’s possible a $10K savings in one year really feels more like $7.5K when you consider tax savings. Then you have the employer match of many employer sponsored retirement plans. THAT’S FREE MONEY! Take it and run, you earned it. Over a 40 year period (if you start at age 25) saving $2,000 a year and increasing this amount by $500, every 5 years at 4.85% avg. ROI, will yield a savings of about $359K, not taking into account tax savings.  The stock market and hence mutual funds have a better rate of return on average for a balanced portfolio. Of course no one can really predict a down cycle.

There are options and choices to make now that can make a big difference in the long run. You do have to be mindful. You do have to make those choices. But the real key is start as early as possible. Talk to your tax advisor, your CPA. Put it all out and come up with a clear plan and a goal. Need help, call me.

Retirement, is a very ugly word. It suggests that you are disposed of. It says you are put aside. It says you are no longer useful. Nonsense!……me I’m going for a Really Long Vacation!

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