Reassessing Retirement Assumptions

Posted on April 29, 2013 by shardin719 under Retirement

What makes financial sense for some baby boomers may not make sense for you.

There is no “typical” retirement. Many baby boomers want one and believe that they will have one, and their futures may indeed unfold as planned. For others, the story will be different. Just as there is no routine retirement, there are no rote financial moves that should be made before or during this phase of life, and no universal truths about the retirement experience.

Here are some commonly held assumptions – suppositions that may or may not prove true for you, depending on your financial and lifestyle circumstances.

#1. You should take Social Security as late as possible. Generally speaking, this is a smart move. If you were born in the years from 1943-1954, your monthly benefit will be 25% smaller if you claim Social Security at 62 instead of your “full” retirement age of 66. If you wait until 70 to take Social Security, your monthly benefit will be 32% larger than if you had taken it at 66.¹

So why would anyone apply for Social Security benefits in their early 60s? The fact is, some seniors really need the income now. Some have health issues or the prospect of hereditary diseases influencing their choice. Single retirees don’t have a second, spousal income to count on, and that is another factor in the decision. For most people, waiting longer implies a larger lifetime payout from America’s retirement trust. Not everyone can bank on longevity or relative affluence, however.

#2. You’ll probably live 15-20 years after you retire. You may live much longer, especially if you are a woman. According to the Census Bureau, the population of Americans 100 or older grew 65.8% between 1980 and 2010, and 82.8% of centenarians were women in 2010. The real eye-opener: in 2010, slightly more than a third of America’s centenarians lived alone in their own homes. Had their retirement expenses lessened with time? Doubtful to say the least.²

#3. You should step back from growth investing as you get older. As many investors age, they shift portfolio assets into investment vehicles that offer less risk than stocks and stock funds. This is a well-regarded, long-established tenet of asset allocation. Does it apply for everyone? No. Some retirees may need to invest for growth well into their 60s or 70s because their retirement savings are meager. There are retirement planners who actually favor aggressive growth investing for life, arguing that the rewards outweigh the risks at any age.

#4. The way most people invest is the way you should invest. Again, just as there is no typical retirement, there is no typical asset allocation strategy or investment that works for everyone. Your time horizon, your risk tolerance, and your current retirement nest egg represent just three of the variables to consider when you evaluate whether you should or should not enter into a particular investment.

#5. Going Roth is a no-brainer. Not necessarily. If you are mulling a Roth IRA or Roth 401(k) conversion, the big question is whether the tax savings in the end will be worth the tax you will pay on the conversion today. The younger you are – roughly speaking – the greater the possibility the answer will be “yes”, as your highest-earning years are likely in the future. If you are older and at or near your peak earning potential, the conversion may not be worth it at all.

#6. A lump sum payout represents a good deal. Some corporations are offering current and/or former workers a choice of receiving pension plan assets in a lump sum payout instead of periodic payments. They aren’t doing this out of generosity; they are doing it because actuaries have advised them to lessen their retirement obligations to loyal employees. For many pension plan participants, electing not to take the lump sum and sticking with the lifelong periodic payments may make more sense in the long run. The question is, can the retiree invest the lump sum in such a way that might produce more money over the long run, or not? The lump sum payout does offer liquidity and flexibility that the periodic payments don’t, but there are few things as economically reassuring as predictable, recurring retirement income. Longevity is another factor in this decision.

#7. Living it up in your 60s won’t hurt you in your 80s. Some couples withdraw much more than they should from their savings in the early years of retirement. After a few years, they notice a drawdown happening – their portfolio isn’t returning enough to replenish their retirement nest egg, and so the fear of outliving their money grows. This is a good argument for living beneath your means while still carefully planning and budgeting some “epic adventures” along the way.

Your retirement plan should be created and periodically revised with an understanding of the unique circumstances of your life and your unique financial objectives. There is no such thing as generic retirement planning, and that is because none of us will have generic retirements.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – http://www.forbes.com/sites/janetnovack/2011/02/15/the-big-decision-when-to-take-social-security/ [2/15/11]

2 – money.usnews.com/money/retirement/articles/2013/01/07/what-people-who-live-to-100-have-in-common [1/7/13]

Weekly Economic Update

Posted on April 15, 2013 by shardin719 under Weekly Economic Update

WEEKLY QUOTE

“Find somebody else to run your business on a day-to-day basis.”

– Richard Branson

WEEKLY TIP

While home equity and life insurance may present you with sources of retirement income, they do not represent “retirement plans.”

WEEKLY RIDDLE

You have 31 baseballs in a box. You have 31 kids lined up to get them. You give each kid a baseball, but at the end, one baseball remains in the box. How is this possible?

Last week’s riddle:

They have not flesh, nor feathers, nor scales, nor bone. Yet they have fingers and thumbs of their own. What are they?

Last week’s answer:

Gloves.

April 15, 2013

HOUSEHOLDS BOUGHT LESS LAST MONTH

Retail sales were down 0.4% in March, according to the Commerce Department. This unanticipated dip was the deepest retreat in nine months. Even with volatile car and truck sales factored out, the March decline remained 0.4%.¹

CONSUMER SENTIMENT SLIPS

The University of Michigan’s overall index of consumer sentiment came in at 72.3 in its preliminary April reading – down significantly from the final March mark of 78.6. Last month’s imposed federal budget cuts may have had an effect.¹

PRODUCER PRICE INDEX DOWN 0.6%

Cheap gasoline was the big factor. Economists polled by Reuters had forecast a 0.2% retreat in the PPI for March, but the decline in pump prices made more of an impact. Core PPI (with food and energy costs subtracted) rose 0.2% last month.^1,2

GOLD ENTERS A BEAR MARKET

Friday, the precious metal settled at $1,501.40 on the COMEX after a 4.1% one-day plunge. Futures fell 4.7% across last week. The April 12 settlement price was 20.5% below the record close of $1,888.70 notched on August 22, 2011.³

STOCKS CLIMB 2% IN A WEEK

Unfazed by soft economic indicators, Wall Street was in a buying mood last week. After a 2.29% gain in five days left the S&P 500 at 1,588.85 at Friday’s close, investors wondered if the index would top 1,600 soon. The Dow (+2.06% to 14,865.06), NASDAQ (+2.84% to 3,294.95) and Russell 2000 (+2.12% to 942.85) all advanced impressively on the week.²

THIS WEEK: Monday, Citigroup presents Q1 results and a new NAHB Housing Market Index appears. The March CPI arrives Tuesday, along with numbers on March housing starts and earnings from Coca-Cola, Yahoo!, BlackRock, Goldman Sachs, Johnson & Johnson, Northern Trust, US Bancorp, Intel and CSX. Wednesday, the Federal Reserve offers its latest Beige Book and Wall Street awaits earnings fromAmerican Express, Bank of NY Mellon, Abbott Labs, Bank of America, eBay and SanDisk. The Conference Board’s March index of leading indicators comes out Thursday, G20 finance ministers meet, and Chipotle, United Health, E-Trade, Philip Morris, Morgan Stanley, PepsiCo, Verizon, Nokia, Peabody Energy, Google, IBM, Microsoft and Capital One report earnings. Friday, earnings from Schlumberger, McDonald’s, GE and Honeywell round out the week.

% CHANGE	Y-T-D	1-YR CHG	5-YR AVG	10-YR AVG
DJIA	+13.44	+14.46	+4.12	+8.12
NASDAQ	+9.12	+7.83	+8.77	+14.25
S&P 500	+11.41	+14.51	+3.84	+8.30
REAL YIELD	4/12 RATE	1 YR AGO	5 YRS AGO	10 YRS AGO
10 YR TIPS	-0.68%	-0.22%	1.19%	2.23%

Sources: cnbc.com, bigcharts.com, treasury.gov – 4/12/13^2,4,5,6

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

Please feel free to forward this article to family, friends or colleagues.
If you would like us to add them to our distribution list, please reply with their address.
We will contact them first and request their permission to add them to our list.

Citations.

1 – http://www.nasdaq.com/article/us-stocks-slip-with-weak-consumer-sentiment-retail-data-20130412-00393#.UWhv1cpXqXk [4/12/13]

2 – http://www.cnbc.com/id/100637362 [4/12/13]

3 – http://www.marketwatch.com/story/gold-prices-slip-with-weekly-declines-in-sight-2013-04-12 [4/12/13]

4 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=4%2F12%2F12&x=0&y=0 [4/12/13]

4 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=4%2F12%2F12&x=0&y=0 [4/12/13]

4 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=4%2F12%2F12&x=0&y=0 [4/12/13]

4 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=4%2F11%2F08&x=0&y=0 [4/12/13]

4 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=4%2F11%2F08&x=0&y=0 [4/12/13]

4 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=4%2F11%2F08&x=0&y=0 [4/12/13]

4 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=4%2F11%2F03&x=0&y=0 [4/12/13]

4 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=4%2F11%2F03&x=0&y=0 [4/12/13]

4 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=4%2F11%2F03&x=0&y=0 [4/12/13]

5 – http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [4/12/13]

6 – http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [4/12/13]

Weekly Economic Update

Posted on March 26, 2013 by shardin719 under Weekly Economic Update

WEEKLY QUOTE

“There are three ways to ultimate success. The first way is to be kind. The second way is to be kind. The third way is to be kind.”

– Fred Rogers

WEEKLY TIP

While a divorced parent may want to keep paying the mortgage on a large home for the sake of the kids, it is often financially wiser to move into a smaller home with a smaller mortgage payment.

WEEKLY RIDDLE

The letters in the words meter, man and uses may be rearranged to make a 12-letter word. What is this word?

Last week’s riddle:

The 22nd and 24th U.S. presidents had the exact same parents – and yet, the 22nd and 24th U.S. presidents were not siblings. Why?

Last week’s answer:

The 22nd and 24th U.S. presidents were both the same person – Grover Cleveland.

March 25, 2013

WINTER DOESN’T DETER HOMEBUYERS

According to the National Association of Realtors, existing home sales rose 0.8% in February. The sales pace hit 4.98 million units, a 39-month high. The inventory of homes for sale increased 9.6% last month, recovering from a six-and-a-half-year low reached the month before. In related news, housing starts were also up 0.8% in February, with the Census Bureau putting the 12-month increase at 27.7%. As for projects in the pipeline, building permits rose 4.6% last month, part of a 33.8% year-over-year climb. The latest Federal Housing Finance Agency index showed a 6.5% yearly advance in house prices.1,2,3

ANOTHER GAIN FOR THE CONFERENCE BOARD LEI

Seemingly reflective of the economy’s momentum, the Conference Board’s Leading Economic Index advanced for a third straight month. Its 0.5% February gain comes on the heels of an 0.5% rise in January and an 0.4% improvement in December.4

FED WILL KEEP EASING FOR THE NEAR FUTURE

Last week, Federal Reserve Chairman Ben Bernanke said that the central bank would keep up its monthly bond-buying effort until the economy showed more than “temporary improvement,” while noting that it might soon vary the size of those purchases in response to the pace of job growth. Bernanke reaffirmed that interest rates will stay at historic lows unless the jobless rate dips below 6.5%.5

RALLY WANES AS CYPRUS CRISIS BUILDS

On March 19, the Cypriot government turned down a European Central Bank offer to rescue its banking system. (The plan would have taxed depositors.) So the Dow lost 0.01% last week, the S&P 500 0.24% and the NASDAQ 0.13%. Friday, the Dow closed at 14,512.03, the S&P at 1,556.89 and the NASDAQ at 3,245.00. On the NYMEX, gold wrapped up the week at $1,607.10 and oil at $93.91.6,7

THIS WEEK: Cyprus must arrange or agree to a bailout deal by Monday or face suspended ECB aid; Dollar General reports Q4 results, and Ben Bernanke speaks in London. Tuesday, NAR posts February new home sales figures, data arrives on February hard goods orders, and a new Conference Board consumer confidence poll and January’s Case-Shiller Home Price Index appear. Wednesday, NAR reports February pending home sales; Red Hat and Paychex announce earnings. Blackberry, Accenture, Mosaic and GameStop report earnings Thursday, and the BEA makes its final estimate of Q4 GDP. March 29 is Good Friday, with U.S. financial markets closed (and banks open); March’s final University of Michigan consumer sentiment survey and the Commerce Department’s February consumer spending report arrive.

% CHANGE	Y-T-D	1-YR CHG	5-YR AVG	10-YR AVG
DJIA	+10.74	+11.24	+3.48	+7.03
NASDAQ	+7.47	+5.93	+8.74	+12.82
S&P 500	+9.16	+11.78	+3.42	+7.38
REAL YIELD	3/22 RATE	1 YR AGO	5 YRS AGO	10 YRS AGO
10 YR TIPS	-0.60%	-0.08%	1.02%	2.29%

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
Citations.
1 – http://www.marketwatch.com/story/home-sales-reach-highest-rate-since-2009-2013-03-21 [3/21/13]
2 – http://www.census.gov/construction/nrc/pdf/newresconst.pdf [3/22/13]
3 – http://www.foxbusiness.com/news/2013/03/21/us-home-prices-rise-06-in-january/ [3/21/13]
4 – http://www.conference-board.org/data/bcicountry.cfm?cid=1 [3/21/13]
5 – http://www.sfgate.com/news/article/Bernanke-Stimulus-hinges-on-sustained-improvement-4370751.php [3/20/13]
6 – http://www.cnbc.com/id/100582032 [3/22/13]
7 – online.wsj.com/mdc/public/page/mdc_commodities.html [3/22/13]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=3%2F22%2F12&x=0&y=0 [3/22/13]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=3%2F22%2F12&x=0&y=0 [3/22/13]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F22%2F12&x=0&y=0 [3/22/13]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=3%2F20%2F08&x=0&y=0 [3/22/13]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=3%2F20%2F08&x=0&y=0 [3/22/13]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F20%2F08&x=0&y=0 [3/22/13]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=3%2F21%2F03&x=0&y=0 [3/22/13]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=3%2F21%2F03&x=0&y=0 [3/22/13]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F21%2F03&x=0&y=0 [3/22/13]
9 – http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [3/22/13]
10 – http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [3/22/13]

What Does the Dow’s Record High Really Mean?

Posted on March 18, 2013 by shardin719 under Weekly Economic Update

Does it signal anything more than bullish sentiment?

Provided by Sherry Hardin

Next stop, 15,000? As the Dow Jones Industrial Average settled at a new all-time high of 14,253.77 on March 5, the psychological lift on Wall Street was undeniable – the market was finally back to where it was in 2007. Or was it?¹

For many Americans, the Dow equals the stock market, and the stock market is a direct product of the economy. It doesn’t quite work that way, of course. Right now, it is worth examining some of the factors that have driven the Dow to its series of record closes. Does the Dow’s impressive winter rally signal anything more than unbridled bullish enthusiasm?

The small picture. Investors should remember that the Dow Jones Industrial Average includes just 30 stocks – 30 closely watched stocks, to be sure, but still just 30 of roughly 2,800 companies listed on the New York Stock Exchange. The S&P 500, with its 500 components, is considered a better measure of the market. When you hear or read that “stocks advanced today” or “stocks retreated this afternoon”, the reference is to the S&P. As the Dow kept settling at all-time peaks in early March, the S&P was consistently wrapping up trading days at 5-year highs but still remained about 2% off its 2007 record close.^2,3

You could argue that the Dow is even less representative of the broad stock market than it once was. In 2007, Kraft, Citigroup and General Motors were among the blue chips; since then, they’ve been tossed out and the index has gotten a little more tech-heavy.¹

If you add up all the share prices of the 30 stocks in the Dow, you will not get a number over $14,000. The value of the Dow = 7.68 x the total share prices of all 30 Dow components. How did Dow Jones arrive at the magic multiplier of 7.68? It is a direct reflection of the Dow Divisor, which is a numerical value computed and periodically adjusted by Dow Jones Indexes. For every $1 that shares of a DJIA component rise in price, the value of the Dow rises 7.68 (the Dow Divisor, you see, is well beneath 1 – on March 7 it was 0.130216081).^4,5,6

The DJIA isn’t indexed to inflation, so hitting 14,167 in 2013 isn’t quite like hitting 14,167 in 2007. It is a price-weighted index as well (i.e., each Dow component represents a fraction of the index proportional to its price), which also makes a comparison between 2007 and 2013 a bit hazy.¹

The big picture. The Dow surpassed its old record thanks to many factors – the resurgent housing market, the Institute for Supply Management’s February purchasing managers indices showing stronger expansion in the manufacturing and service sectors, an encouraging ADP employment report, and of course earnings. Perhaps the most influential factor, however, is central bank policy. The Federal Reserve’s ongoing bond-buying has stimulated the real estate industry, the market and the overall economy, and fueled the DJIA’s ascent. The parallel, open-ended effort of the European Central Bank has diminished some of the anxiety over the future of the euro. In early March, the ECB and the Bank of England again refrained from adjusting interest rates and ECB president Mario Draghi mentioned the need for the bank to retain an “accommodative” policy mode until the eurozone economy sufficiently improves.³

In the big picture, two perceptions are moving the market higher. One is the conclusive belief that the recession is over. The other is the assumption that the Fed will keep easing for a year or more. Pair those thoughts together, and you have grounds for sustained bullish sentiment.

How high could the Dow go? Any time the Dow flirts with or reaches a new record high, bears caution that a pullback is next. Though many analysts feel stocks are fairly valued at the moment, a combination of headlines could inspire a retreat – but not necessarily a correction, or a replay of the last bear market.

While the market has soared in the first quarter, the economy grew just 0.1% in the fourth quarter by the federal government’s most recent estimate. That may have given some investors pause: the Investment Company Institute said that $1.13 billion left U.S. stock funds in the week of February 25-March 1, which either amounts to bad timing, an aberration (as it was the first outflow ICI recorded this year), profit-taking or skittishness.⁷

If the Dow hits 14,500 or 15,000, that won’t confirm that the economy has fully healed or that the current bull market will last X number of years longer. It will be good for Wall Street’s morale, however, and Main Street certainly takes note of that. Lazard Capital Markets managing director Art Hogan seemed to speak for the status quo in a recent CNBC.com article: “We’re certainly in an environment where good news is great and bad news is just okay. The market has just found the path of least resistance to the upside in the near term and it’s hard to find something to knock it off there.”⁷

Citations.

1 – business.time.com/2013/03/06/dow-jones-closes-at-record-high-so-what/ [3/6/13]

2 – http://www.nyse.com/content/faqs/1050241764950.html [3/7/13]

3 – money.cnn.com/2013/03/07/investing/stocks-markets [3/7/13]

4 – http://www.dailyfinance.com/2013/02/28/dow-14000-economy-meaning-djia-explainer/ [2/28/13]

5 – http://www.investopedia.com/terms/d/dowdivisor.asp#axzz2MtpUOJVi [3/7/13]

6 – online.wsj.com/mdc/public/page/2_3022-djiahourly.html [3/7/13]

7 – http://www.cnbc.com/id/100533269 [3/7/13]

Retirement Seen Through Your Eyes

Posted on March 11, 2013 by shardin719 under Retirement

After you leave work, what will your life look like?

Provided by Sherry Hardin

How do you picture your future? If you are like many baby boomers, your view of retirement is likely pragmatic compared to that of your parents. That doesn’t mean you have to have a “plain vanilla” tomorrow. Even if your retirement savings are not as great as you would prefer, you still have great potential to design the life you want.

With that in mind, here are some things to think about.

What do you absolutely need to accomplish? If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a “short list” of life goals, and while they may have nothing to do with money, the financial decisions you make may be integral to achieving them. (This may be the most exciting aspect of retirement planning.)

What would revitalize you? Some people retire with no particular goals at all, and others retire burnt out. After weeks or months of respite, ambition inevitably returns. They start to think about what pursuits or adventures they could embark on to make these years special. Others have known for decades what dreams they will follow … and yet, when the time to follow them arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones.

In retirement, time is really your most valuable asset. With more free time and opportunity for reflection, you might find your old dreams giving way to new ones. You may find yourself called to volunteer as never before, or motivated to work again but in a new context.

Who should you share your time with? Here is another profound choice you get to make in retirement. The quick answer to this question for many retirees would be “family”. Today, we have nuclear families, blended families, extended families; some people think of their friends or their employees as family. You may define it as you wish and allocate more or less of your time to your family as you wish (some people do want less family time when they retire).

Regardless of how you define “family” or whether or not you want more “family time” in retirement, you probably don’t want to spend your time around “dream stealers”. They do exist. If you have a grand dream in mind for retirement, you may meet people who try to thwart it and urge you not to pursue it. (Hopefully, they are not in close proximity to you.) Reducing their psychological impact on your retirement may increase your happiness.

How much will you spend? We can’t control all retirement expenses, but we can control some of them. The thought of downsizing may have crossed your mind. While only about 10% of people older than 60 sell homes and move following retirement, it can potentially bring you a substantial lump sum or lead to smaller mortgage payments. You could also lose one or more cars (and the insurance that goes with them) and live in a neighborhood with extensive, efficient public transit. Ditching land lines and premium cable TV (or maybe all cable TV) can bring more savings. Garage sales and donations can have financial benefits as well as helping you get rid of clutter, with either cash or a federal tax deduction that may be as great as 30-50% of your adjusted gross income provided you carefully itemize and donate the goods to a 501(c)(3) non-profit.¹

Could you leave a legacy? Many of us would like to give our kids or grandkids a good start in life, or help charities or schools – but given the economic realities of retiring today, there is no shame in putting your priorities first.

Consider a baby boomer couple with, for example, $285,000 in retirement savings. If that couple follows the 4% rule, the old maxim that you should withdraw about 4% of your retirement savings per year, subsequently adjusted for inflation – then you are talking about $11,400 withdrawn to start. When you combine that $11,400 with Social Security and assorted investment income, that couple isn’t exactly rich. Sustaining and enhancing income becomes the priority, and legacy planning may have to take a backseat. In Merrill Lynch’s 2012 Affluent Insights Survey, just 26% of households polled (all with investable assets of $250,000 or more) felt assured that they could leave their children an inheritance; not too surprising given what the economy and the stock market have been through these past several years.²

How are you planning for retirement? This is the most important question of all. If you feel you need to prepare more for the future or reexamine your existing plan in light of changes in your life, then confer with a financial professional experienced in retirement planning.

Citations.

1 – http://www.bankrate.com/finance/financial-literacy/ways-to-downsize-during-retirement.aspx [2/28/13]

2 – wealthmanagement.ml.com/Publish/Content/application/pdf/GWMOL/Report_ML-Affluent-Insights-Survey_0912.pdf [9/12]