Sunday, October 12, 2008

Can You Afford to Retire?

The information below is from an article written by Jonathan D. Pond, Financial Planning Information, Inc.

Critical factors you must consider to prepare for your retirement...

To be financially safe, he tells his clients to expect to live to age 95 -- and to expect a 6% annualized return on investments, based on a mix of 60% stocks and 40% bonds and other interest-earning securities.

To calculate your income needs, figure inflation could average 3% annually. Then withdraw an annual amount in the early years of retirement -- say, 4% of savings -- that is enough to meet your income needs but is below the assumed growth rate of investments. That way you won’t drain your assets too quickly.

Expect your taxes to drop by no more than 10% -- and realize that they even may increase.

Assume that you will spend at least that much, and shape a financial plan that provides enough income to support that spending. Important: Don’t leave out big-ticket expenses that still will pop up, including replacing your car, large-scale home repairs and dental work.

Consider obtaining temporary insurance through the stop-gap federal program COBRA... check with state programs... or look for private individual coverage with high deductibles to lower premiums.

Assume that they won’t find part-time work to bolster your income and map a financial plan that doesn't count on extra income.

Put off retirement until your accounts are big enough to support your spending needs. (NOTE: all considered by what's happening today - you'll have to work for many more years than you expected.)

Unless you really need the money or are in poor health, it's often better to delay starting Social Security benefits until you reach full retirement age.

Be careful not to overestimate the value of an early retirement package. You may want to consult a financial adviser for help analyzing the package.

This is a good retirement calculator: Analyze Now It has free on-line information that helps you determine when to begin taking Social Security payments, how much to allocate to different investment categories, how much you need to save for retirement and how withdrawals from your retirement accounts will affect your taxes. It was created and is run by Henry K. Hebeler, a former chief economic forecaster for The Boeing Company.

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