Posts Tagged ‘Retirement’
It’s OK To Live A Little In Retirement is the first thing I sent him. Fortunately, he and his wife have been great savers and are in a position to enjoy the fruits of their labors. This can often be harder than you would expect as chronic savers can sometimes find it hard to shift gears and relax the purse strings on discretionary spending.
“The rest of the world sort of laughs at the United States — how can a great country like the United States get so many things wrong?” said Keith Ambachtsheer, a Dutch pension specialist
From the NY Times’ “No Smoke, No Mirrors” on the excellent Dutch pension system. At the end of the article is an interesting debate that is growing in the Netherlands, pitting younger workers who want growth from their pension assets vs. the retired who want safety. Not unlike mufti-generational family trusts, writ large
And as a result, he has attained a degree of financial freedom many would envy.
Doug Immel recently completed his custom-built dream home, sparing no expense on details like cherry-wood floors, cathedral ceilings and stained-glass windows — in just 164 square feet of living space including a loft.
“I wanted to have an edge against career vagaries,” said Immel, a former real estate appraiser. A dwelling with minimal financial burden “gives you a little attitude.” He invests the money he would have spent on a mortgage and related costs in a mutual fund, halving his retirement horizon to 10 years and maybe even as soon as three. “I am infinitely happier.”
Not many people would be comfortable living in 200 sft. But I wonder how many would have a happier life trading that unused 3rd, 4th or 5th bedroom for a greater degree of financial freedom.
This is becoming a common challenge as boomers age and spouses find they have different trajectories imagined for their later years. A client forwards this excellent discussion of the issues that arise from the NY Times. A short list:
- Different daily schedules
- Different abilities to travel
- Different priorities around discretionary spending
- Whose money is it when only one is still earning?
- The “leap” when starting to dip into retirement assets can be a bit scary.
These are only some of the challenges and many couple do not even have the basic conversation about how they are going to cope. The situation can be unexpectedly stressful on a marriage. For anyone in, or considering, an extended period where one spouse has left work but the other has not, I strongly recommend the Times article. And making time to discuss and negotiate how to accommodate each person’s wishes.
The standard advice is that you can draw between 3-5% per year from an invested portfolio and have that portfolio last 30 years. There is much debate over what is a “safe” sustainable withdrawal rate but most studies conclude that a 4% draw will survive whatever the markets throw at you over a 30 year period. In your case that would mean $40K a year, increased annually only by inflation.
There are multiple calculators (search “How long will my money last”) that will give you a straight line estimate for different withdrawal rates. These are helpful guides but are far from definitive. The reality is that an investment portfolio of any sort will increase and decrease in value and these unpredictable fluctuations can have a dramatic impact on how long your money will actually last. The more aggressive the investment portfolio, the more volatile your range of outcomes. More upside to how long the money lasts, but also more downside. Generally this is why individuals who are relying on a portfolio to support their current ongoing needs are best advised to invest in a low risk portfolio, one that minimizes the risks of major loss while protecting their savings against purchasing power erosion from inflation. This conservative approach may seem counter-intuitive to some who believe that taking more risk will allow them to earn more and thus take a higher annual % withdrawal. When withdrawal rates are north of 5%, this is a temptation but it is in effect gambling with the odds against you.
Most people want to know whether their savings will last for their lifetimes because it is not much good if they spend money to last 30 years but they last 35. To answer this broader question with any confidence requires two pieces of information: How much you are routinely spending in total out savings and how long you will live.
As for how long you might live, we can only assume “the worst” and that is that you will outlive your expected median life expectancy of 84. Most with educations and some financial means in the US will. Realistically that implies you will have expenses to support for perhaps 35 years from today. Some of your present expenses may decrease in time. Medical for example should decline when you are eligible for Medicare. And you most likely will receive Social Security benefits at age 67 or after thus reducing the required draw from your assets. But other expenses may increase.
The best approach in my estimation is to have a rough plan for what the future holds financially for you and for this you may want to enlist the advice of a CFP in your area.
Originally posted on Nerdwallet
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Well it may have been too good to last. For the past two years or so, the costs of a reverse mortgage were at historical lows, both their interest rates and associated fees. The use of a reverse mortgage was increasingly recommend by planners, employed as a standby line of credit for retirees living off savings and enabling them to smooth out the cash flows that were being drawn down from more volatile investment assets.
A colleague in the business, Tom MacDonald, emails me today that the costs of these loans are going up and their availability more restricted as of September 30. Key points:
- All fixed rate options eliminated. The only choice will be an adjustable rate.
- The amount of money the borrower qualifies for will be reduced by about 15%. On top of this, interest rates are rising which also reduces the amount of money a borrower qualifies for.
- There is a limit on how much can be taken out in the first year.
- The Mortgage Insurance Premium charged by HUD is changing and could be higher.
- Effective in January, 2014, there will be financial assessments for all borrowers to estimate if they will be willing and able to keep up on property taxes, homeowner’s insurance and standard maintenance. Anyone not passing the financial assessment will be required to have impounds for their life expectancy.
All in all, this sounds like reverse mortgages, for a time a very appealing option in the right situation, are going to become a lot less attractive.
Because women represent most of the long term care claims, major insurance companies will be rolling out their new gender-based pricing. That means, by the end of the year, female premiums will increase by 30-40%. However, this does not affect premiums for women who apply before the increase takes effect.
According to the Department of Health Services, 70% of Americans will need long term care in their retirement years. As part of a strong financial safety net, every family should have a long term care protection strategy. Strategy options include: purchasing traditional long term care insurance and/or designating a specific asset(s) to cover the potential costs of long term care. Having a long term care plan in place helps to maintain quality of life, while minimizing the burden on the family.
by Guest Author Denise Michaud (email@example.com) is an independent insurance broker specializing in Long Term Care Planning and a consultant for the California Partnership for Long Term Care.
If you do nothing else about your retirement, start saving early. You should also save a lot and stay out of debt
This is the best advice possible from Above the Market and much the same as my own tax person told me when I was 20-something, a long time ago. The sooner you start, the easier it is to save a lot of money. The author’s simple demonstration shows that saving $2,000/yr starting at age 19 for just 7 years equals the sum a person would have accumulated by age 65 if they waited to start until 26 and made contributions for 40 years. Counterintuitive for sure, which is why of course, I knew better at the time, as I suspect many 20-somethings do today.