Money Matters

6 rules for a stable retirement

Author: By Dan Searles & Tom Hardie
Posted: Thursday, September 18, 2008

Retirement can be your longest vacation. If you retire at age 60 and live to 95, you may very well be retired longer than you worked. Yet many people enter their retirement years with little more than the promise of a Social Security check and a gold watch. It doesn’t have to be that way. With this in mind, we’ll field this month’s question.

 

Q: I am 63 years young and looking forward to a long retirement playing golf and fishing for rainbow trout. What are your suggestions for creating a happy, stable retirement?

 

A: Over the years I have developed and gathered the following tips which many new retirees find helpful:

 

1. Know the Rule of 1492: A penny saved in 1492 earning five percent annually, compounded daily, would be worth about $1.6 billion*. Once withdrawn, the after-tax amount would be about $1.072 million if taxed at 33 percent.

 

Also, if you were to withdraw the funds prior to age 59½, you would be subject to a 10 percent tax penalty. However, the same dollars, if taxed annually at 33 percent, would only be worth $192,235! The moral of the story is save, save, save and then consider putting as much of your savings as possible in tax deferred vehicles such as IRAs, 401(k)s and various insurance related products.

 

2. Know your pension options: Your pension probably provides for either a lump sum or a guaranteed lifetime income. Study these options before you retire and know if they are indexed for inflation or not. Don’t wait until the last minute when emotions and stress can make last-minute choices dangerous.

 

3. Calculate your new tax bracket: Remember, the U.S. Federal tax system is progressive so the more you make, the more you pay. But the converse is also true: the less you make, the less you pay. So if your post-retirement income will be substantially less than your working income, make sure you calculate the reduced tax burden when figuring your post-retirement budget.

 

4. Protect thy spouse: One of the greatest risks to a couple’s income is one of them needing long-term assisted living or nursing home care. According to a recent AARP survey, the national average cost for a nursing home is more than $50,000 per year. This bill is well beyond the reach of most Americans. So plan ahead and, if appropriate, purchase long-term care insurance with a home health care rider. These policies are very expensive, so shop around through an independent agent you trust and buy the most coverage you can comfortably afford.

 

5. Diversify your investments: A combination of stocks, bonds and cash is commonly used by many investors who are not only looking for growth opportunities, but also to help reduce the overall risk of their portfolios.

 

6. Finally, remember that money is not the most important thing in your life. If you doubt this, just ask someone who is sick. So plan, save, invest (get professional advice if you need it), then go out and enjoy life. After all, that’s why you build a nest egg in the first place.

 

Your Money Matters, so treat it wisely.

 

Dan Searles, CFP, is a financial planner and a Registered Representative offering securities and advisory services through National Planning Corporation, member FINRA/SIPC, and a Registered Investment Adviser. Medallion Financial Group and NPC are separate and unrelated companies.

 

National Planning Corporation does not endorse the opinions expressed in this column. The information here is not to be considered as financial, tax or legal advice. As with any financial, tax or legal matter, consult your qualified adviser before taking action. No investment strategy can ensure a profit or protect against a loss. As always, past performance is not indicative of future results.

 

* hypothetical is used for illustrative purposes only and is not indicative of any particular investment. Past performance is not a guarantee of future results.

Categories: Money Matters

Tags: Money

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