Tag Archives: Retirement Budget

Five Retirement Issues

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Five Retirement IssuesEveryone should consider five fundamental retirement issues if they are going to retire anytime soon! Savings, income, expenses, health, and time management. If you have a plan for each that meets your needs in retirement, you are well on the way to a successful and satisfying retirement. Many people only think about retirement once they are heading out the door. Either voluntarily or forced out in a corporate restructuring or downsizing. Don’t wait; develop your plan now!

Five Retirement Issues

Have You Saved Enough

How much income will your savings generate? Post-investment advisors assume 4%. It can be drawn down each year. This number assumes a reasonable probability that your savings will last well into retirement. Will you have enough when you add income from other sources, such as pensions? If not, keep working and beef up your savings.

Verify Your Income

How much income will you have in retirement? Add up the income from your savings, pension, investments etc. How does this number compare to your current income? If not enough should you work longer, save more etc?

Review Your Budget

Review your budget now and how it will change post retirement. What expenses will disappear? Will you have new expenses? Travel, new car, home renovation, upgraded and health issues come to mind.

Time Management

Most people will have up to ten hours every day to fill which were originally filled by work. How will you fill these hours after you retire? Many people find it difficult after all the travel and the Home projects are completed. What is your long term time management plan?

How is Your Health

Your health can play a huge factor in retirement. Not only in terms of enjoyment but also from a budget perspective. Be realistic and plan accordingly.

 

Manage divorce and personal finances after age 65

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Manage divorce and personal financesDivorce is difficult enough at any time in your life. The younger you are when you divorce, the longer you will have to recover financially from the settlement whatever it may be. But when you manage divorce and personal finances after age 65 or after you retire, it can be much more complicated and financially difficult. There is the usual splitting of assets based on age, dependency, support needs and access to the kids. With two people no longer sharing the expenses of running a household, it can become much more expensive for the individuals involved to handle all of the associated expenses. Significant adjustments for all parties are often needed, sometimes with painful financial realities.

A middle aged manager who reported to me who decided that he was going to separate from his wife and move into a place of his own, indicated to me less than six months later that he could not afford to live separately. It was just too expensive. He decided to move back in with his wife and children because it was just too expensive otherwise. Now imagine if you have just retired and are around  65 and have decided to retire. What are the impacts of retirement, divorce and suddenly realizing that you have to split all of your assets and income with your spouse?

Manage divorce and personal finances after age 65

Unless it is way beyond making it work, we suggest that people in this situation find ways to make work for them and recover their relationship. We will not even begin to address what this might mean on an emotional level. It is far too complex and varied to address. We will try to address some of the financial considerations instead. As a couple, you may be financially secure, sharing the expenses and supporting one home, car etc.  We are following this with a list of areas that need to be considered assuming it is a 50 – 50 split which it seldom will be in most situations. Readers can apply this list to their own situation and make adjustments as needed.

Your Home – assume you will either sell your home and split the proceeds or one spouse will buy out the other. Either way you end up with 50% of what you had and all of the expenses. Most people cannot replace their current home with 50% less.

Your Car – if you only have one car, you may have to buy another and split the value of the current vehicle 50 -50. Even if you own two cars, chances are one is worth more than the other.

Your investments

While your investments and pension income may be sufficient to support cohabitating couples, after they are both split 50 -50, will you have sufficient income to live in the manner you have become use to. Not likely and significant adjustments in life style will be needed.

Your debts –  are much the same. If the debts were jointly created then you have 50% ownership. However once divorced your credit rating may fall. Suddenly consumers find themselves unable to find lenders to loan them money to finance their portion of the debt.

Insurance Coverage – do you still need life insurance coverage? Will the insurance costs double because now you need to support two homes etc. Look at all of your insurance coverage to ensure that  affordability is considered, Make sure you have adequate coverage for your needs.

Health coverage and benefits

This can be a huge area especially for consumers in the US. Does one spouse lose coverage after the divorce and do they need to find additional coverage often at considerable expense?

Gifts to the kids – gifts to the kids that were previously shared are now individualized. They may cost more as well when you consider that as a couple you are actually spending more money. Cut backs may be needed in order to survive.

Personal Items – that have significant value are some of the most difficult to deal with. Not only do they have significant sentimental value, it might be difficult for one spouse to buy the other out.

This is a relatively short summary. However the ramifications can be significant for a spouse planning to separate and get a divorce. Especially if it is after they retire after the age of 55. Sometimes it is just much easier to Manage divorce and personal finances after age 65 than it is to actually divorce. Think carefully about what action you want to take before initiating action that cannot be stopped once it begins.

For more on this subject, Manage divorce and personal finances after age 65 , click here.

 

Retirement Numbers to Watch

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Retirement Numbers to WatchWhen you are approaching retirement there are lots of things to think about, but there are a few retirement numbers to watch and pay attention to. You want your money to last and you want your retirement to be pleasant and comfortable throughout your retirement life. If you are going to achieve these objectives, consumers need to pay attention to the withdrawal rate from your savings, the level of pensions that you will receive and the amount and timing of the government pensions that you will receive. Pay attention to these numbers, make the right decisions and re-evaluate as you get closer to retirement to make sure you working with the most up to date information.

Retirement Numbers to Watch

Withdrawal Rate – this is the rate that you withdraw from your savings. The amount you need vs. take will depend on a number of factors. First you need to decide just how long you need your savings to last, what the income level is from your savings and of course how long you will live. Many advisers suggest 4% as a reasonable withdrawal rate. We happen to think that the rate you use should depend on the income level from your investments and the health of your investments. Some years when investments are not doing well you may want to take less, while in good years you can afford to take more out.

Reliance Rate – percentage funded by pensions from employer and government. How much will your income amount to in retirement compared to what you were making prior to retirement. The difference is how much you will need to make up from savings, perhaps working longer and expense reduction.

When to Claim Government Pensions

Claim early and you will suffer a penalty i.e. a reduction in the amount paid out, claim later and the pension amount goes up, but you have to do without that income until you claim it. Can you afford it? Will your cash flow allow you to delay your claims?

Add up all of your income from all sources in retirement, compare to your current income level and develop a plan to source the difference in income.

Avoid Penny Pinching in Retirement

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Avoid Penny Pinching in RetirementThis is not rocket science although some financial advisers will try to make you think that it is. If you want to avoid penny pinching in retirement, there are some basic rules that need to be followed throughout life and they are pretty simple. Keep working, save for retirement and save for emergencies. Finally don’t touch either of these savings areas until you actually retire or have a real emergency. Sure there are some calculations that need to be done to avoid drawing too much money out too quickly, but for the most part you need to set sufficient money aside for retirement.

Steps to Take to Avoid Penny Pinching in Retirement

  • Work longer
  • Reverse mortgage
  • Reduce spending
  • Save more
  • Start saving early

Work longer – while you may have wanted to retire early, if you do not have the money to do some of the things you want to in retirement, you may have to work a little longer than you planned. Every extra year you work adds to your savings and provides income to live on.

Reverse mortgage – we are not fans of a reverse mortgage, however if you have equity in your home and do not want to move, then a reverse mortgage is one way to get at some of the money locked up in your home. Of course at some point you will need to sell your home to pay off the mortgage that has accumulated through a reverse mortgage.

Reduce spending – examine all of your expenses. Decide which ones are must haves and those that are nice to have. Reduce your spending wherever you can without entering the penny pinching mode.

Save more – more cash towards your retirement. Set aside at least 10% of your gross income every week or every pay check. Start early when you begin working and do not touch it until it is time to retire!

Start saving early – start on your first job and invest 10% of your income. Once you get use to doing this and living on 90%, you will not miss it. Your retirement will be secure providing that you work a normal life and do not touch your savings until you actually retire.

Retirement Planning Before You Retire

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Retirement Planning Before You RetireVery few people think about Retirement Planning before they retire. They wait until it is getting close to the time they will be retiring. Retirement is not even in the equation when you are young or just starting out. There are far too many other things to consider, such as how you will spend your first paycheck. The car you will buy and the clothes that you will purchase. The same thing applies when you are raising a family and have all sorts of expenses, including the kid’s education, the mortgage to pay for, bills associated with the house, etc. Retirement is a long way away, and there is much time to save for that later.

No wonder people wake up one morning and realize that they will have to keep working for many more years than what they had planned because they did not save for retirement. What a shock to the emotions when you realize that you do not like your job, you want to retire, and you may even be downsized, yet you do not have sufficient savings to get you through your retirement years. This can be a serious time in your life, stressful if you still have lots of bills to pay and loans to discharge, not to mention getting the kids through school.

Start Retirement Planning Before You Retire

The best advice I ever received from a mentor was that I should set aside 10% of everything I earned for retirement. Invest it conservatively and only touch the money once it is time to retire. He told me this when I was in my early 20s, and if I had followed his advice from that day, I would be able to retire when I was 50, well before most people start thinking about retiring.

As it turns out, I was able to retire from my career job at 49 and went on to try some things that I had always thought about. I did not apply retirement planning before you retire advice; I just used the 10% rule, and it worked for my family and me. This approach gave me the freedom to continue working, to retire fully, or to retire and try a different career. This freedom and reduction in stress is really wonderful. Start now and save for retirement if you still need to do so.

Retirement Planning Before You Retire When you are 50

If you are just starting to plan for retirement and you are around the age of 50, you really do not have that much time left before you will be forced to retire either for health reasons, workforce adjustment, or downsizing. Pay off your bills, save everything you can, and have a financial adviser assess your situation regarding how much income you will actually have when you retire. It is never too late unless you are being walked out the door in a downsizing situation.

This approach will help you decide how many more years you need to work, how much you need to save, and how much you can spend while in retirement.

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6 Retirement Surprises

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6 Retirement SurprisesWe live with our parents for approximately 25% of our life. Then we are working for about 40% of our lives. The remaining time we are on this earth is spent in retirement. This is the time when our pensions and our savings are most important to ensure that we have the quality of life that we have always wanted. There are many things that can get in the way of attaining and keeping the quality of life that we want to have in our retirement. 6 Retirement Surprises are discussed in the following material.

Six Retirement Surprises

Here are 6 retirement surprises that we all need to pay attention to during retirement and also when we are planning for our retirement.

Live within your means

We have all of this extra time to spend and sometimes people plan trips etc that they have been waiting for until retirement. They may buy a new car and they may spend a lot of money upgrading their homes all of which eats into their savings and as their savings decline, there is less income from the savings to help them with daily expenses. Plan your major expenses and make sure that you are living within your means to enable the quality of life that you desire as you get older.

Budget changes

If you do not have a budget, you should. Once you have a budget, living within that budget is important as mentioned above. But sometimes there are changes to your budget that are needed to reflect additional income as well as additional expenses. We suggest updating your budget at least once per year to assess your ability to live within your means and make sure you have sufficient income to live on.

Health changes

Health issues can creep in at any time. From heart attacks to strokes, diabetes, and on and on. Most people will have some form of health insurance to cover them. However, there is the deductible and most only cover up to 80% of the health bill for hospital stays, etc. Even 20% of $200,000 is $40,000 which is a substantial amount to cover. If you or your spouse needs to go into a home to have cared for the bill for this can be high as well. Even at $3000 a month or $36,000 a year, this is a substantial amount that needs to be covered.

Inflation

For the past 20 years, our governments have been able to control inflation and keep it in the manageable range of 1 to 3%. Some countries have experienced far higher levels of inflation. We can only hope that where we live will remain in the 2% range for the foreseeable future. Even 2% over 20 years adds a hefty increase to your daily bills. This is something that should also be planned for.  A 40% increase over 40 years is substantial.

Not working forever

While some of us may plan to work well into our 60’s and beyond the reality is that many of us will not be able to work due to health issues. Availability of work is another factor. We have seen some 80-year-olds still working. They are probably for the money and also for the social part of the job. However, as soon as your health goes or as soon as they downsize it is much more difficult to find a job unless it is a minimum wage job.

Volatile markets

The last 30 years have seen really volatile markets. In 2008 the market dropped by 50% and has since come back and exceeded the levels pre-2008. If you need to withdraw money from your savings plan or your retirement when the market is down. You are actually eating into more of your capital than may have been planned or budgeted. Accounting for these changes is necessary to ensure that you will have a retirement plan that lasts.

Retirement portfolio to match your expenses

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Retirement portfolioI have heard many seniors talk about how they are living on a fixed income. Inflation is increasing and making their income not go as far as it once did. They worry about whether they will have enough money to do some of the things they want to do. They are getting older and must live at the same level of Retirement portfolio income. When many of these people complain about being on a fixed income they are actually receiving a small increase every year. This is an increase in their pensions which usually have a small inflation increase every year.

Most feel that these small increases are clearly not enough. They worry that inflation will really overtake them. Some are used to salary increases when they were working that increased their salaries faster than the inflation rate. Those types of salary increases are long gone. But that is no consolation to the many seniors who live on a fixed income even if there is a small increase every year. The bottom line, we all need to evaluate all of our expenses. Reduce where we can to counter the effects of inflation.

Increase Your Income

One way to gain increases in your income most years is to invest in dividend stocks Focus on those that increase their dividend every year. They should also have a growth component in their stock value. Although there are no guarantees, these stocks pay a dividend so you do have income from your investments. If you invest in the right companies, you may get an increase every year. In fact, some companies have a record of increasing their dividends for many years. This is an enviable record and can be an important component of a retirement portfolio.

With dividends increasing every year your income is increasing. If the stock does well the value of the stock will also increase. When it comes time to sell your investment to be used as part of your retirement, you will be selling a stock that has also increased in value. This will help deal with the increasing inflation that we all know is there and will continue for many years.

Retirement portfolio – Avoid Cashing in Your Principal

Consumers who are retired and living off of pensions may find that they can live on the pension income they receive and also the income they generate from their investments without having to touch their investment principal. If this is the case, they are in an excellent situation to live into their late years without having to worry about having enough money to live on. In fact, your investment adviser can calculate the income rates and the rate of seniors may want to withdraw their money to ensure they can enjoy it in this situation.

Many people are not in this position. This is one of the reasons we urge people to save for their retirement regardless of whether they have a pension or not. It is an additional safety margin in case your pension is not as large as expected or inflation is much higher than anticipated.

Retirement Costs Confuse Soon-to-be Retirees

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Retirement Costs Confuse Soon-to-be RetireesRetirement Costs Confuse recent retirees are confused about what the costs are going to be when they retire according to recent surveys. Those people who are about to retire and those who suddenly find themselves push out of jobs before they were ready are often worried about whether they will have enough money to last them through retirement and what kind of quality of life they will have while retired. Most of us want to maintain our present lifestyle as a minimum and since we now have more time on our hands we want to be able to the things we never had time for. But the big question everyone wonders is, will they have sufficient income to live that life that they may be dreaming about.

Retirement Costs Confuse – What Are Consumers Concerned About

There are lots of things on the minds of people who are retiring these days that will affect how well they will live during retirement. We will list a few of these:

  •         Property taxes seem to keep going up
  •         Price of food is going up
  •         The fluctuation of their investments
  •         Cost of utilities continues to rise
  •         What medical costs will they have
  •         Have they set aside enough savings
  •         Are these savings well invested

These are just a few of the items people worry about and there are a lot more. There are options that can be considered, such as working longer and spending less. These may not be the preferred options, however, if there is not enough to go around, then some tough decisions sometimes need to be taken.

Impact of Inflation

The longer you are retired, the more inflation will creep into the picture and impact your purchasing power. Most people do not even think about inflation and are suddenly shocked when their indexed pensions if they are lucky enough to have them do not keep up with the rate of inflation. They have no choice but to cut back in other areas. Inflation will play a large impact even more since people are living longer than our parents ever did.

Start Saving for Retirement Now

If you are young and expecting social security in the US to pay for your retirement or CPP and OAS in Canada, think again. While this income certainly helps, it does not keep up with inflation and the amounts provided are not enough to live comfortably on. Retirees need to have either pension income or savings income to help them top up their annual income to live on. If you are young and reading this start saving now if you are close to retirement evaluate your situation and make a decision to keep working or live on what you have. Avoid surprises if you can.

Get Help with Your Retirement Planning

Not everyone has the knowledge or the skills to plan their retirement. They may lack information about investments, yields, savings rates, payout strategies and investment strategies designed for the long term. They may not understand the impact of inflation or the various tax rates that apply in their situation.

Retirement Costs Confuse Soon-to-be Retirees – Tools

There are lots of tools available online that can assist some readers with their decisions. However, there are really only two choices that you can make if you want to plan for retirement. The first is to find a retirement investment adviser that you trust. Then begin discussing your retirement objectives and goals, the assets you have. Focus on the assets you will need to achieve the kind of retirement that you want to have. Some people will just go on blind faith and let the adviser make all of the decisions. We do not encourage this at all. Be informed and learn as much as you can, which leads us to the second option.

The second option is to teach yourself. Read everything you can about retirement planning and investing. Attend seminars, read books, talk to advisers. Learn to use the tools that can be purchased to help with investment planning and retirement planning. It may take effort, but it will be interesting and challenging which is something that we can all use while retired.

Personally I like a combination of the two. I have spent a lot of time investigating and learning about retirement strategies as well as investing. I make all of my own decisions. But before I act on them, I always run them past my adviser first. He may have some great ideas and counsel. Then, I finalize my decision.

This is by far the best approach for me. I get a lot of satisfaction out of the effort, especially when these decisions pay off. Sometimes they do not but that is part of the risk in life.

Retirement on $190 a Month!

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Retirement on 190 per MonthWhat a question and how ridiculous – Retirement on $190 a Month! There is no way anyone can survive on this amount in retirement or any other stage in your life with today’s cost of living. Retirement on $190 a month is just not possible in North America. Yet recent surveys are finding that unless Americans do something, this is what the average American is looking at in terms of income from their savings and it is not pretty.

The conclusion, work longer, save more, and stay healthy! If you do not do all of these things, retirement is not going to be a place that many people want to be. Older people who are retired will need to live with their families and be supported by their families. This is not something that everyone can do or is willing to do. Everyone is much better off if they have saved enough for retirement and can exist on their own.

Canadians are no better off, even though their habit of saving is higher. Could you exist on a Retirement on $190 per Month? They have much higher taxes and medical costs, so it amounts to the same thing. Even though their medical is looked after, they still have to pay for all of our drugs and also their nursing home accommodations just like everyone else. Saving for retirement is the only way we will have the option to retire early if we want to.

Retirement on $190 a Month! – Work Longer

Some will want to continue to work past the traditional retirement age, for fun or for the social aspect. But if you have sufficient savings set aside at least you have the option to work or go on a trip or just hang around with family! What we are really talking about is starting when you are young and building financial independence so that you can retire when you want, so that layoffs and downsizing do not worry you and so that you are free to pursue your dreams as you get older. You may want to retire when you are 50 or wait until 75. Either way, if you have saved for retirement, you have the options and the power to do what you want.

Some Information from the Survey by Wells Fargo

A Wells Fargo annual retirement survey which polled nearly 2,000 middle-class Americans ranging from 20 to 60 years old, found that Americans aren’t saving enough, and they are more likely to end up working through retirement. We are seeing more and more older people working for minimum wage jobs at some of the big box stores and also in the service industry. One guy we know is 78, still works at a coffee shop so that he can head south during the wintertime!

While most Americans predict they will need a nest egg of $300,000 to live on for 19 years in retirement, the average savings of 50-somethings is only $29,000, which comes out to an income of $190 a month over 20 years assuming a 5% rate of return. That is incredibly low and just not sustainable if you live beyond retirement age.

Are you saving enough for retirement?

Add in Social Security or other sources of income, and most people are not going to be able to cover basic needs with such a small amount of money. They will need to be able to live with family or friends to help with some of the lodging costs and who really wants to do that. Retirement on $190 a Month! is not a reality for most people, thankfully.

The recession has impacted many people, losing jobs, working for less, and reducing their savings, however, if you were not saving before the recession, chances are that you still are not saving for retirement today. We all need to change our habits and quickly if we want to be comfortable in old age.

According to the survey, only 33% of Americans have a detailed written retirement plan and 37% don’t know how much they will need in retirement or how long they will be able to live on what they have saved.

The survey found that 72% of Americans now expect to work through retirement, with 39% saying they will work because they have to and 33% saying they will do it because they want to. Whether you are working for enjoyment or because you need to, would you not rather have the independence to work or not work only because you felt like it and not because you had to?

Start saving now. If you are 21 today, saving $50 a paycheck for the next 30 years will put you in a very comfortable place financially! Remember, Retirement on $190 a Month! is just not possible. For more retirement planning and retirement income thoughts and ideas, click here.

How Much do You Really Need to Retire

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How Much do You Really Need to RetireHow much do you really need to retire? This is the question that many millions of people are asking themselves as they approach the time in their lives where they might consider retiring. We wrote an extensive post about this subject back in March 2010. We felt that we should repeat some of the ideas once again this year to remind everyone that a little planning will go along way to answering this question. For the older post, click here.

Here is what you need to consider to be able to answer your question about much do you really need to retire:

  • Total income during retirement
  • Current Expenses
  • Loan and debt payments that you may have
  • Travel plans and other special expenses
  • Health expenses
  • Rainy day funds
  • Long term expenses – new car, house maintenance, etc
  • Your total savings and how quickly you want to draw down on these savings

How Much do You Really Need to Retire –

Gather Your Financial Data

This is a pretty general list, but if you gather this information and apply it to your personal situation, you will have a good start towards knowing what your financial situation will be during retirement.

Next, you need to assess what changes you may need to make based on finances. If you do not make enough income during retirement, then you are going to have to either generate more or cut somewhere. Tough choices, but it needs to be done to ensure that you and your family have the life you desire.

What Will You do during Retirement?

Next, you need to give some serious thought to what you will do with your time and how you will fill the hours. Basically, you are looking at 40 plus hours a week to fill including commuting time. You need things to do that you enjoy and will have fun at, as well as perhaps even challenging. For some people, they will need the social side as well if they are of a more social bent. Spend some time thinking about this part as well. If you are bored, chances are you will spend more money than you plan!

Discuss Your Plans with Your Family

This is the most important part actually. You have to gather your financial information together. You have thought about what you want to do during retirement. Now you need to find out if your family has the same ideas. If your spouse for example wants to travel the world and your finances indicate that this is not affordable, then some serious discussion is needed. But it is also about the small things as well, for example, hobbies, going back to work, contract work, etc

Maybe your spouse expects you to complete a number of projects around the home and this is way down your list of things to do. Discussion and compromise usually win the day and is needed for your retirement plan to work and for you to answer the question of “How much do you really need to retire”?

Get your Savings Started

Your savings can play a major part in your retirement plans in addition to pension income. Some people believe that you should not touch your savings principle but spend the income. This is definitely one scenario to consider and if the income from your savings is sufficient to top up your pension income, you are in good shape. However, with low-interest rates and markets fluctuating a great deal these days, you may have to begin drawing down on your principle. Many experts believe 4% is a reasonable number were as others believe that you can draw much faster. This really depends on your age, expected remaining years, and your tax situation as well. Lots to think about as you approach retirement.

The first step is to get started by reading articles like this one and then take the next step to collect all your information and begin planning!

Constructive comments appreciated. For more information, thoughts, and ideas about what to consider in retirement, click here.