Retirement Planning for the Next Generation

Most of us are barely able to accumulate enough wealth for own retirement let alone thinking about providing for generations far removed from the event.  But if you could, would you?

The assumptions you make about how much money you will need in retirement are probably the most difficult exercise in the whole of retirement planning. The unknowns are so numerous that simply thinking too much about it gives many people the incentive to simply ignore the question. Taxes and inflation play a role in how much money we will need along with the condition of our health, our portfolios and our living arrangements. Who could possibly guess with any accuracy what those costs will be?

Yet, some of us can with certain investments. If you can wait until you are 70 1/2 years-old to begin taking your distributions from an IRA, and you take only the minimum amount needed, you may be in a position to make that IRA last much longer, across generations. Called a Stretch IRA, the sort of planning can create untold wealth for a child or grandchild.

More on the Stretch IRA from Paul Petillo, managing editor of Target 2025.com

The High Cost of Good Health in Retirement

The High Cost of Good Health in Retirement
The oddest item of all, being healthy in retirement, while less painful and more convenient than the being unhealthy, is more costly in the long run. This may have been something you have already considered had you run the numbers the way Boston College did in a recent report for the Center for Retirement Research. You may have said that health care is going to cost something and if you were typical, you went with the averages of about $220,000 per couple over the remaining years in retirement.

But good health could point to longevity. And longevity means additional years of costs and the real probability that during those added years, you will get something you hadn’t bargained on getting.

Now the knee jerk reaction would be to ask yourself: “why bother?” And this would be reasonable. If you can’t come close to estimating this cost (it is tough enough trying to figure out tax liabilities, inflation’s impact and the future of the investments you hold in your retirement accounts), what should you do?

Can You Invest Enough to Cover those Costs
You could try to add to your investments and hope that you have added enough. The problem with trying to offset insurance costs is you may never know whether you need it. But if you don’t have it, the costs can be very difficult to absorb and doubly so if you are in the fixed income world of retirement.

More here.

Challenging Taxes

What, you may ask, do property taxes have to do with a retirement plan? Other than exerting a negative force on the available cash in your plan, once you do decide to begin distributions, they also have a positive influence on the quality of the community you live in. So if your taxes are excessively high, should you try to get them lower? If so, define excessive.

Are you paying too much?
In many parts of the country, homes are worth less than they were two years ago. But what often does not follow those changes in valuations are the taxes assessed. For those lucky enough to still have a job, have maintained their salaries and have seen a minimal decline in the value of their house, challenging the property taxes you are currently paying might be counterintuitive and not worth the effort. While a reassessment of your home does not take into consideration your ability to pay, it might be worth considering if the information the assessor has on your home is not correct.

More on the effect of property taxes on your retirement plan can be found here.

Can Actuaries Make a Good Retirement Prediction?

When we do retire, we do tend to spend more during those initial years.  And because of that, we try an calculate just how much is enough so we won’t outlast our funds.  This is often based  on the 4% rule, an initial distribution that is adjusted upward as retirement continues based on inflation.

Because no one, not even the actuaries know how long we will live, whether we want to perserve some of those funds for our heirs, what the tax rate will be over those years and whether inflation will begin to rise significantly, this decision is incredibly difficult to make, even when you are close to retirement.

You can read the full article here

Staying: The New Retirement Planning Consideration

In the not-too-recent past, you could expect the equity in your house to provide not only a portion of your future retirement nest egg but also the distinct possibility that you had enough to move, possibly even to another location and have your new home paid-for.  Not that those dreams are necessarily dashed completely.  In fact, if you currently own your home (I must say that calling a home with a thirty-year mortgage as something you own has always struck me as ironic.), you might still be able to do what you had planned.

But some things have changed.  Let’s start with the dream of moving to downsize. In most areas of the country, with a few notable exceptions, home prices have stabilized and have even begun to modestly recover. More on this new retirement plan consideration.

More from Paul Petillo, Managing editor of Target2025.com