Outlasting Your Benefits in Retirement

During our working life we raise a family and pay for many expenses through our salaries or business earnings, but the same salary or earnings cushion will not be available to service our own requirements when we grow old and become incapable of handling the pressures of physical work and we retire. The funds we set aside as savings will be the only resource that we can draw upon in old age besides the retirement funds like IRA and 401k. A major worry is whether these funds will last for the duration of our retirement keeping in mind our expected longevity.

Keep reassessing your retirement fund before the D-day

There is always the possibility that our retirement funds may get exhausted before we pass on. This could happen if our investments do not attract the returns forecast by professionals. Inflation may also reduce the value of our money and erode its purchasing power. This is why we must keep reassessing our retirement fund periodically before we retire.

What do you do if your fund is insufficient for your needs?

If your retirement portfolio falls drastically short of your targeted amount, postpone retirement and pursue work till savings improve, OR make more sacrifices in the interim and divert more savings till you boost the fund substantially.

The debt consolidation option

One option is to consolidate all your credit card balances, both high and low interest bearing and pay them off through one consolidated loan. This will free up resources that can be diverted for retirement funding. Similarly, one can hasten the closure of a home loan well before retirement.

Freeing up cash by cutting costs

You can switch from mortgage to cheaper rentals, sell off an expensive car and settle for a cheaper model, try curbing expenses on luxury goods and change the family lifestyle drastically.

Getting investments to work for you

Get your fund managers to move a portion of your assets from low risk to high risk but higher return stocks that will strengthen your retirement fund. Just ensure that you can convert your investments into money in the shortest possible time. This is particularly important when you are required to withdraw the minimum distribution (RMD) amounts before the stated deadlines.

Calculate presumptive expenses and target a suitable retirement fund

Take stock of expenses like electricity, telephones, gas and water, property taxes and insurance, then groceries and transportation fuel, and after that estimate medical and leisure expenditure. Then add 10% to 15% to account for category-wise price increases. This will be your targeted retirement fund.

The number of years you plan to stay in retirement is crucial

Supposing, you are aiming to accumulate a retirement fund of $500,000 to cover twenty years of retirement. Effectively, this would release a sum of $2,000 for monthly sustenance. To this figure you must add the social security benefit to form an idea about the total monthly income available during retirement.

Ensuring only need based withdrawals from the retirement fund

Try and withdraw only that amount which is permitted under IRS rules and regulations. This is beneficial as the remaining balance gathers maximum interest and stimulates tax free growth as happens in a Roth IRA. In a tax deferred scheme you get to pay lower taxes on your withdrawals.

Keep tabs on taxation on fund withdrawals

In tax deferred accounts you will be required to pay taxes on your withdrawals. If you withdrawal is timed before the age of 59 ½, you may end up shelling out 10% excise tax over and above income taxes. Consult a tax specialist before exercising this option to minimize tax liability.

A loan like the cash loan for title can make a big difference to your retirement planning. The loan for vehicle title will extend financial assistance equivalent up to around 60% of the car equity, and the only collateral required is the title to the car. The car equity loan interest rate approximates 25% APR and will not strain one’s repayment capacity. The auto equity loan repayment can be scheduled for repaying the loan either in the short term or longer term.

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