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Tuesday, April 13, 2010

“Retirement for the Ages- Part III”

Last week I began a discussion about retirement strategies for those of you who are in your sixties and can see the light at the end of the retirement tunnel. Some of you may have discovered that the light is actually an oncoming train! I began with the importance of figuring out just how much money you will need by using a simple retirement financial calculator at the Resource Center at www.welchgroup.com; click on ‘Links’; then ‘Retirement Planning Calculator’. Strategies for creating a comfortable retirement included continuing to work on a full or part-time basis and downsizing your lifestyle. Here are a few additional strategies:
  • Focus on debt elimination. One of the best ways to approach retirement planning is to pay off all your debts including your home mortgage. Start by writing down every loan you have; how much you owe; what your monthly payment is; and what your interest rate is. Use one page per loan. Shuffle your pages so that the loan with the highest interest rate is on top. Use any ‘extra’ money to accelerate the payoff on this loan while paying the minimum payment on all other loans. When the top loan is paid off, take its payments plus your ‘extra’ payments and apply to the next loan. Continue this process until you are debt free. The ‘mathematics’ of this strategy will detonate your debt in a few short years.
  • Review all insurance coverage. When you add up all of the premiums that you pay for all of the various types of insurance coverage you own, it can easily add up to 15% - 30% of your after tax retirement income. Commit to reviewing every insurance policy you own with the goal of cutting premiums 50%. In some cases you’ll discover you are paying for coverage that you no longer need. In other cases, by shopping around, you find more competitive pricing. Finally, consider raising your deductibles (property & casualty insurance and health insurance) or lengthening the waiting period (long-term care insurance) before benefits begin. For this exercise, you may need help. See my next recommendation.
  • Get professional help. If all of this seems overwhelming, consider meeting with a qualified financial advisor. They are trained to help you work through these complex issues. For a list of fee-only certified financial planners in your area, visit www.cfp.net.
  • Reorient your investments. As a pre-retiree, it’s time to take a fresh look at all of your investments. What was appropriate during your accumulation years may need to be repositioned with a more income-oriented slant. For example, our pre-retiree portfolios are dominated by Blue Chip dividend-paying stocks instead of more growth-oriented stocks. And while the current interest rates on bonds is anemic, consider what your target allocation to bonds should be as interest rates ‘normalize’ over the next few years.
  • Create additional income sources. A great time to launch a small start-up business is while you’re still working. Most people have something they are passionate about outside their job. Do you have a hobby that you could turn into a source of income?
Next week, I’ll brainstorm with you ideas for creating additional sources of income without having to get a second job.

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