My wife and I happened to be eating Gyros at the University Grill last month and could not help noticing a few dozen women wearing red hats and purple dresses. We were interested to learn that they were one of a dozen chapters of the Red Hat Society located here in Charlottesville, Virginia.
The Red Hat Society believes silliness is the comic relief of life. Their female members convene with red hats and purple dresses to celebrate life after 50. (see www.redhatsociety.com). The next 3 articles are written to insure that the members of the Red Hat Society will be able to party for the next 50 years too.
The latest time to plan for retirement is when you are fifty-something. Five years is not enough time to prepare for retirement. Here are the issues you should be worried about when you are within ten to fifteen years of retirement.
Compute a retirement projection every year and adjust your savings accordingly. Many people are afraid of having their retirement progress assessed. Ignorance may be bliss, but reality will be painful for those who don’t plan ahead and review their plan periodically. Waiting to analyze your efforts and continuing to save whatever, will often result in retiring later and being unable to enjoy a lifestyle of travel, hobbies and gifting.
Plan on taking Social Security as late as possible. Reduced Social Security benefits are available for those who need them, but you get a higher benefit by waiting. Actuarially it averages to be 6 of one or a half dozen of the other, on an average. But most people are not the average. The higher payment later can help fund the tail end of retirement if you live beyond your normal life expectancy. Unless you are fairly certain you will die younger than normal, plan on taking Social Security as late as possible.
Understand the importance of an appropriate withdrawal strategy. Everyone can retire so long as they can live off about 4.5% of their savings each year. Translated, if you were 67 you would need to have about 22 times a $40,000 standard of living saved, or about $880,000, in order to retire. This amount is higher if you retire earlier than normal, and lower if you retire later than normal. You also have to discount savings in a retirement account by about 30% because you will need to pay tax on that amount. A financial planner can provide these calculations for you and advise you on the small adjustments necessary that will make a large difference in your retirement lifestyle.
Know what is and isn’t critical. Paying off a mortgage isn’t critical, but using a line of credit to fund your standard of living by additional debt is a terrible mistake. Investing in whole life, limited partnerships, loaded mutual funds, immediate annuities or second homes can all ruin your chances of a long and prosperous retirement.
Seek non-commissioned advice. If you rely upon a friend who sells commissioned based products you are likely to get the recommendation of a collection of commissioned based products to meet your financial needs. No advise is truly objective, but “fee-only” advice is the closest thing to it. Fee-Only advisors at least have the same goal as you – increasing your net worth. To find a Fee-Only financial planner in your area, visit the National Association of Personal Financial Advisors at http://www.napfa.org or call 1-800-366-2732.
Photo by Huyen Nguyen on Unsplash
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