Friday, December 28, 2007

Dealing With Issues That Can Ruin Retirement

9 dumb moves to ruin your retirement by presents some typical ways people can negatively impact their retirement. Since I retired in our forties, I used this checklist to make sure we won't have any concerns. Here's's list of nine issues with my comments on how I think we're doing:

  1. Buying too much house. We're OK, I think. While I stretched for my first house, we were more conservative in our second house, making a down payment of 40%. This kept the mortgage payment at 20% of our take home pay. When I retired in my forties in October, 2007, we did the calculation on paying off the balance and decided to keep the mortgage at least one or two more years, since the interest is 5.375%. A payoff would require 135 times our mortgage payment, which didn't make sense financially at this time.

    Based on my parents experience, I expect our house will be too big for us 30 years from now. At that time, we would likely sell and move to a smaller home or assisted living apartments.

  2. Ignoring the effects of inflation. We're covered. Our financial advisor has included 3% inflation for our planning. We use 5% inflation for our long term care insurance. It's amazing how these levels affect estimated prices 30 or 40 years down the line. At 40 years, 3% and 5% inflation result in 3.3 times and 7.0 times higher costs, respectively.

  3. Raiding retirement accounts early. Not a problem for us. We've never touched ours. Since we are in our forties, we expect to wait until 59 1/2 before making any withdrawals.

  4. Counting primarily on Social Security. Not an issue for us. We have targeted to save 20 times our income for retirement.

  5. Expecting company retirement benefits won't change. We're OK, I think. My company has a defined contribution plan, which provides a lump sum at retirement. Historically, our health plans change periodically, transferring a higher proportion of the costs to the employee. I expect the same in retirement and am planning for it.

  6. Letting your kids needs trump yours. OK, for now. Even though we've retired in our forties, we are still putting aside money for our daughter's education. At this point, we expect to continue contributing to education funds.

  7. Depending on your partner's income. Need some improvement. When I did the analysis of my Social Security benefits, I realized being outside of the workforce significantly reduced retirement payments. My spouse has not been working for seven years and I think we may need to boost her social security benefits in the next few years.

  8. Planning to work forever. Not an issue. We've already retired in our forties. :-) I expect that we'll do some part time work periodically for interest or to augment income, but nothing on as " required" basis.

  9. Not worrying about health costs. We need to review periodically. I think this is our main uncertainty. While we will have retiree health insurance and long term care insurance, a significant medical crisis can still be a major financial burden.

Overall, I think we have most of the areas covered. However, we still need to do some additional work in the Social Security benefits and health cost areas.

For more on Reaping the Rewards , check back every Friday for a new segment.

This is not financial, insurance or retirement advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

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