Financial planning isn't my expertize; I earn my money another way. However, recently I received a request for some help in that area. Here is what I provided to that individual. Disclaimer - I'm not a financial professional.
Financial Planning for Retirement – Checklist for those within 10
years of retirement
As we approach retirement we
should look at our financial plans and make adjustments. Once in retirement,
income from employment is replaced by income from pensions or social security
plus the draw-down of our savings and retirement investments. This may require changes in spending habits.
It is helpful to review our
financial plans and then to make adjustments prior to retirement. Earlier is
better than later simply because we have time to adjust our spending and
savings. Retirement at 65 means it is possible to live for 30 years in
retirement, with our only income from pensions and various savings. Retirement
offers new possibilities, and most experts recommend we plan and prepare for
that 30 years in retirement. What are we
going to do for 30 years? What will it cost? How will we deal with old age
health issues? Where will we live?
The early retirement years may offer
travel and other possibilities while we are relatively young and healthy. These
things can be costly and must be planned for. Our health in later years will
degrade and we may see less opportunity for travel, etc. and much higher health
care expenses. These possibilities should be included in our financial plans.
Many experts recommend that we
retire debt free. In other words, pay down our mortgage and other loans prior
to retirement. However, personal situations do vary. Here are a few things to
consider:
Financial
Liabilities which will require retirement income:
1.
Mortgage
2.
Student Loans
3.
Credit card debt
4.
Auto or other loans
5.
Taxes on income
Basic
Living Expenses In Retirement:
1.
Mortgage and real estate taxes or rent
2.
Condominium or HOA fees
3.
Homeowners or Renters Insurance
4.
Long Term Care Insurance or special savings for
this purpose
5.
Utilities (gas and electric)
6.
Phone
7.
Groceries
8.
Household expenses
9.
Clothing
10.
Auto insurance, gasoline and repairs
11.
Health Insurance premiums
12.
Out of pocket dental and medical expenses
Discretionary
Expenses in Retirement
1.
Entertainment
2.
Cable TV
3.
Dining out
4.
Travel and vacations
5.
Smart phone and other electronic packages
Unusual
Retirement Expenses
1.
Unusual trips or purchases
2.
Unusual Medical costs
3.
Home maintenance expenses (furnace and HVAC, fireplace,
water heater, roof, windows, exterior trim, bathroom and kitchen fixtures, plumbing,
appliances, etc.)
4.
Emergencies
Life
Insurance. Insurance is one of the realities of modern existence. Most
of us have life insurance. Approaching retirement it is prudent to re-evaluate
our insurance needs. Life insurance is generally purchased to cover large
financial liabilities in the event of our death. As we reduce our financial
liabilities, life insurance requirements may become much smaller and we may be
able to reduce our life insurance needs. Things for which we might want the
proceeds of life insurance in retirement include:
1.
Mortgages
2.
Student Loans
3.
Other debts
4.
Funeral costs
5.
Additional funds for surviving spouse
Long
Term Care Insurance. According to the U.S. Government Department of
Health and Human Services “70% of people turning age 65 can expect to use some
form of long-term care during their lives. “ Long Term Care Insurance or LTC is
an important aspect of retirement planning. Here are some websites that can
help:
Click to go to
New Window> http://longtermcare.gov/
Click to go to
New Window> http://www.aaltci.org/
Longevity
Insurance. As the human lifespan is extended, there is a possibility we
may outlive our financial resources. After completing our financial plan if
that is a possibility what to do? Some 401(k) or 403(b) plans allow the purchase
of a deferred income annuity. On July 1,
2014 the U.S. Treasury Department and IRS announced tax rules that would allow the
use of up to 25% of their 401(k) or IRA balances to purchase a deferred income
annuity. The goal of these annuities is to provide a lifetime income stream
later in life. “A longevity annuity is an income stream – a type of “deferred
income annuity” – that begins at an advanced age and continues throughout the
individual’s life.”
Financial
Assets Available as Income in Retirement. These should be considered:
1.
Pension
2.
Social Security
3.
Savings
4.
Retirement Accounts – 401(k), 403(b), IRAs and
Roth IRAs
5.
Annuity
6.
Other (rental income, etc.)
Financial
Planning 101. Planning for a 30 year retirement is not a trivial
exercise. Here are a few things to consider:
1.
What will be my annual basic expenses at the age
of 65, 75, 85 and 95?
2.
What will be my sources of income and the amounts
at the age of 65, 75, 85 and 95?
3.
What will be my discretionary spending each year
from 65 to 75? What about thereafter?
4.
Where will the money come from?
5.
Will there be enough to support my retirement
plan?
6.
Have I included inflation in my plans? Have I
included reasonable returns in my plans for my retirement accounts?
7.
Have I considered rising health care costs as I
age?
8.
Have I considered unusual expenses, my health
and my family’s health history in making my plans?
9.
Do I have a long term care plan? Do I have the necessary funds for this?
10.
When will I draw from my retirement accounts? At
present, the Internal Revenue Service requires that we each draw from our
401(k), 403(b) and other IRAs, but not our Roths beginning at the age of
70-1/2. IRS Publication 590 “Individual
Retirement Arrangement” provides detailed information.
