Revisiting Your Cash Flow Before You Retire
Reviewing and understanding your cash flow, income streams versus expenses, is an important part of retirement planning that is frequently overlooked. The lifestyle you have created based on your income during employment may require some modification when you leave your current position.
Let’s start with understanding income; I define income as a consistent, scheduled, reliable stream of payment, for a determined amount of time. Social Security is an example of income; you receive your check at the same time each month, for the same amount, for life. If you have a Defined Benefit Pension with your employer, you can choose an option that will provide income to you based on your life expectancy or one that will continue to provide an amount to your surviving spouse.
Bond and CD interest fit the definition of income however; an issue may present itself at maturity. These products have a shelf life and at maturity and renewal, there is no guarantee the same opportunities will exist. Annuities can also provide a lifetime stream of income.
The key to these sources is in the definition, consistent, scheduled, and reliable for a determined period. If you receive a check on January 2 and you run out of money on February 1 you know there is another check coming on the third. Your income sources will not run out, they may stop after a pre-determined date, but not run out.
Drawing down on savings to supplement your income is a strategy to offset a shortfall but does not provide income. One reason is that savings can run out; if you spend it too quickly, it will be gone. Unless you are able to add to savings or, receive a high enough return to replace your withdrawal, you will eventually run out. As a strategy this requires careful consideration, drawing down on savings too early can have a negative impact in later years.
Once you have determined your income flow the next step is to list your outflow, expenses. Expenses fall into one of two categories, necessary or lifestyle.
Necessary expenses are those you need to survive, shelter, food, medical, insurance utilities, transportation. These are bills that if not paid will have a direct negative effect on your ability to live, or function day-to-day.
Lifestyle expenses are not necessary for us to live but, they are the ones that we like best, these expenses are fun and make us feel good. They can be impulse or emotional purchases, planned or unplanned, practical or not, but expenses that are not needed for survival. They include your daily out-of-pocket expenses that add up each time you swipe your debit or credit card.
Tracking lifestyle expenses on a daily basis can be key factor in understanding where your money goes and where spending habits need to be changed.
Understanding your income and expenses will become critical when you decide to leave your current job and paycheck. You no longer will have the regular paycheck you have grown accustomed to, and your lifestyle may require some modifications. Reviewing your situation and preparing for these changes will make the adjustments easier when the time comes.
About Mike Bonacorsi, CFP®
Mike Bonacorsi is a CERTIFIED FINANCIAL PLANNER™ professional, public speaker and award-winning author of Retirement Readiness: A Guide to Creating Your Vision, Knowing Your Position, and Preparing for Your Future. You can listen to his radio show, The Mike Bonacorsi Show, at WSMN, 1590AM or on your computer at http://wsmnradio.com on Tuesdays from noon – 1:00 PM. For additional information, visit http://mikebonacorsi.com/. Reprinted with permission of the author. 2009© Mike Bonacorsi CFP® All Rights Reserved.
Tuesday, May 12, 2009
Sunday, May 3, 2009
Introduction to Retirement Readiness, Creating Your Vision, Knowing Your Position, & Preparing for Your Future
This is not a book about a great investment strategy, a hot new product, or a guarantee of any kind. I wrote it to get you thinking about retirement before it happens.
Too many times over the years, I've met with people who've already made the leap into retirement without any real direction or thought. They want a lifestyle that doesn't match up with their finances; they make decisions based on what may or may not be working for someone else.
As you read this book, I want you to create a retirement life that is yours. Your dreams, goals, and ambitions should be based on your situation. To do this, we’ll create a vision, asses your situation, and prepare for the unexpected.
Read this book a few times- throw it in your briefcase, on your nightstand, in a desk drawer. Make sure it’s somewhere accessible. This is an interactive book. Answer the questions at the end of each section, be honest, and share your answers with your spouse.
More important, read this book before you retire, so you can hit the ground running on the day you declare yourself retired.
Last, I want this book to get you thinking. You have to make these decisions once in your life, and there are pros and cons for each decision. Don’t hesitate to seek out the advice of a financial professional for further input on creating a retirement plant that will fit your needs.
This book is available on Amazon.com at a 22% discount!
http://www.amazon.com/Retirement-Readiness-Creating-Position-Preparing/dp/193180771X
Too many times over the years, I've met with people who've already made the leap into retirement without any real direction or thought. They want a lifestyle that doesn't match up with their finances; they make decisions based on what may or may not be working for someone else.
As you read this book, I want you to create a retirement life that is yours. Your dreams, goals, and ambitions should be based on your situation. To do this, we’ll create a vision, asses your situation, and prepare for the unexpected.
Read this book a few times- throw it in your briefcase, on your nightstand, in a desk drawer. Make sure it’s somewhere accessible. This is an interactive book. Answer the questions at the end of each section, be honest, and share your answers with your spouse.
More important, read this book before you retire, so you can hit the ground running on the day you declare yourself retired.
Last, I want this book to get you thinking. You have to make these decisions once in your life, and there are pros and cons for each decision. Don’t hesitate to seek out the advice of a financial professional for further input on creating a retirement plant that will fit your needs.
This book is available on Amazon.com at a 22% discount!
http://www.amazon.com/Retirement-Readiness-Creating-Position-Preparing/dp/193180771X
Saturday, May 2, 2009
Who Says You Have To Retire At 65?
Do you want your retirement years to be lively? Is your current job or career, fulfilling for you? If so, then maybe you are going to be joining the happy, busy ranks of those, more than 70% according to a recent A.A.R.P. survey, who are planning a "working retirement." If working past your retirement date seems grim, then cheer up. There is a silver lining if you know where to look.
1) Continuing at your current job has its positives - you know the job. There are no learning curves, or the awkwardness of being the new kid.
2) If you have personal debt or you are close to paying off your mortgage, working a few more years at your current income can go a long way to eliminating expenses.
3) Continuing to draw a paycheck will allow you to delay Social Security, for a higher benefit in the near future. Your benefit will continue to increase up to age 70. Keeping that weekly paycheck coming will also prevent you from drawing down your savings too early.
4) Chances are if you are near retirement, you may be close to peak earning and benefit levels. Perhaps you want to boost your 401k levels by maxing out your contribution and taking advantage of the over 50 catch-up contribution. Your employer may even contribute to your account adding to your total. Health benefits will probably continue and can provide continued coverage for you, your spouse and possibly other family members. It can also provide as a bridge to Medicare or act as a supplement.
5) You might not be ready to quit working. You may need income, require some benefits, or just like to work. There are many people out there, who enjoy the challenges work brings and going out there each day to meet them. For you "retirement" may the beginning of a new career!
You may be feeling like "George." His wife Linda says, "George is in his sixties and while all our friends are talking about retiring, he doesn't want to quit. George likes his job, he has the option to continue full-time, or work in a per diem arrangement, as long as he wants. He's the kind of person that needs to be busy. The income and flexibility in his job will allow us plenty of opportunity to enjoy ourselves without worrying about money. I have already stopped working, but this doesn't mean that my husband will. As long as we can enjoy more time together, then I am satisfied with his decision to stay in the workforce, for now." Linda and George have different dreams about retirement, but they have created a plan that works for them. Where do your dreams fit into your plans for retirement?
1) Continuing at your current job has its positives - you know the job. There are no learning curves, or the awkwardness of being the new kid.
2) If you have personal debt or you are close to paying off your mortgage, working a few more years at your current income can go a long way to eliminating expenses.
3) Continuing to draw a paycheck will allow you to delay Social Security, for a higher benefit in the near future. Your benefit will continue to increase up to age 70. Keeping that weekly paycheck coming will also prevent you from drawing down your savings too early.
4) Chances are if you are near retirement, you may be close to peak earning and benefit levels. Perhaps you want to boost your 401k levels by maxing out your contribution and taking advantage of the over 50 catch-up contribution. Your employer may even contribute to your account adding to your total. Health benefits will probably continue and can provide continued coverage for you, your spouse and possibly other family members. It can also provide as a bridge to Medicare or act as a supplement.
5) You might not be ready to quit working. You may need income, require some benefits, or just like to work. There are many people out there, who enjoy the challenges work brings and going out there each day to meet them. For you "retirement" may the beginning of a new career!
You may be feeling like "George." His wife Linda says, "George is in his sixties and while all our friends are talking about retiring, he doesn't want to quit. George likes his job, he has the option to continue full-time, or work in a per diem arrangement, as long as he wants. He's the kind of person that needs to be busy. The income and flexibility in his job will allow us plenty of opportunity to enjoy ourselves without worrying about money. I have already stopped working, but this doesn't mean that my husband will. As long as we can enjoy more time together, then I am satisfied with his decision to stay in the workforce, for now." Linda and George have different dreams about retirement, but they have created a plan that works for them. Where do your dreams fit into your plans for retirement?
Social Security-when and Why Should I Start
As you get closer to retirement, it is important to realize that there are decisions you have to make regarding certain benefits that will become available to you. One decision that affects all but a few groups is when to begin your Social Security benefit.
Three milestones require consideration when choosing your benefit, age 62, full retirement age (between 65 and 67) and age 70. At each of these ages your benefit amount changes and it is important to understand which age and amount is most advantageous to your needs and situation.
Age 62, the age where Social Security first becomes available, offers you a benefit amount approximately 75% of the amount you would receive at full retirement age. The common thought for many people is to begin benefits at this time, the idea being, “the longer I take the benefit the more lifetime benefit I will receive”. Starting benefits at age 62 made more sense when life expectancies were shorter; the “break-even” age for taking benefits at 62 versus your full retirement age is between 78 and 80 years old.
Another factor in your decision is whether you will continue to work between age 62 and your full retirement age. Earnings from employment may reduce your benefits if they exceed certain amounts. In 2008 if you have not reached full retirement age and earned over $13,560.00 your benefit reduction is $1 for every $2 earned. If you will reach full retirement age during 2008, your earning limit is $36,120.00 and benefits are reduced $1 for every $3 earned. The month you reach full retirement age you can relax, from that point on you are able to earn as much as you want with no reduction in benefit. One important note is that these limits are on income earned from employment, not pensions, annuities, IRA’s, or 401k withdrawals.
A third consideration is delaying you benefit. Social Security provides delayed retirement credits up to 8% per year to age 70 for those who can wait to take their benefit.
These options will determine the benefit you receive during your lifetime. An often, overlooked part of the decision process is what affect will my choice have on my surviving spouse? Your surviving spouse at full retirement age will receive a benefit equal to yours if it is higher than his or her own. If you chose to delay your benefit beyond your full retirement age, your surviving spouse will receive your benefit plus the additional delayed retirement credits.
It is important to realize that decisions like these should not be automatic or determined by the “if it works for him it should work for me” process. You need to determine the pros and cons of each option and understand how it satisfies your needs in your unique situation.
Three milestones require consideration when choosing your benefit, age 62, full retirement age (between 65 and 67) and age 70. At each of these ages your benefit amount changes and it is important to understand which age and amount is most advantageous to your needs and situation.
Age 62, the age where Social Security first becomes available, offers you a benefit amount approximately 75% of the amount you would receive at full retirement age. The common thought for many people is to begin benefits at this time, the idea being, “the longer I take the benefit the more lifetime benefit I will receive”. Starting benefits at age 62 made more sense when life expectancies were shorter; the “break-even” age for taking benefits at 62 versus your full retirement age is between 78 and 80 years old.
Another factor in your decision is whether you will continue to work between age 62 and your full retirement age. Earnings from employment may reduce your benefits if they exceed certain amounts. In 2008 if you have not reached full retirement age and earned over $13,560.00 your benefit reduction is $1 for every $2 earned. If you will reach full retirement age during 2008, your earning limit is $36,120.00 and benefits are reduced $1 for every $3 earned. The month you reach full retirement age you can relax, from that point on you are able to earn as much as you want with no reduction in benefit. One important note is that these limits are on income earned from employment, not pensions, annuities, IRA’s, or 401k withdrawals.
A third consideration is delaying you benefit. Social Security provides delayed retirement credits up to 8% per year to age 70 for those who can wait to take their benefit.
These options will determine the benefit you receive during your lifetime. An often, overlooked part of the decision process is what affect will my choice have on my surviving spouse? Your surviving spouse at full retirement age will receive a benefit equal to yours if it is higher than his or her own. If you chose to delay your benefit beyond your full retirement age, your surviving spouse will receive your benefit plus the additional delayed retirement credits.
It is important to realize that decisions like these should not be automatic or determined by the “if it works for him it should work for me” process. You need to determine the pros and cons of each option and understand how it satisfies your needs in your unique situation.
Subscribe to:
Posts (Atom)
