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Making your dollars do the work

Five strategies to having a retirement fund when you need it

What is your idea of retirement? Lounging in the backyard after working in the garden and having lunch with friends? Taking a trip to Europe, hitting every museum and monument you've ever wanted to see? Maybe you'd be content to just have the grandchildren over on weekends and take them to the park.

No matter what your perfect retirement includes, worrying about money is probably not part of it.

Financial concerns diminish your quality of life, distracting you from the things you enjoy most. Many retirees worry about how they'll maintain their current lifestyle and about the financial responsibilities they pass on to their heirs.

Although most people at or near retirement may not focus on increasing their income, they should look at strategies to maximize the dollars they already have. Here are five smart strategies that might help you find those retirement dollars you need.

Maintain a long-term horizon: With life expectancies growing and medicine continually improving, many Americans can expect to live well past age 80. But this benefit comes with the challenge of making your money last your entire lifetime.

Fixed-income vehicles such as CDs and money market accounts provide steady income, but usually no growth. Stocks are for people who can handle the risk of losing money, a chance most retirees can't afford.

One alternative is the equity-indexed annuity (EIA). It may be a retirement option for those seeking growth, a guaranteed principal and a long-term outlook. The guarantees are based on the claims paying ability of the issuing company.

Account for inflation: Inflation is loss of purchasing power caused by rising prices. Although inflation has been tame lately, historically it has averaged around 3.5 percent per year. At that rate, in 20 years the purchasing power of $50,000 will fall to $24,520 - less than half. Keeping a portion of your retirement assets in growth-oriented investments may help offset the unavoidable growth of inflation.

Reduce your income tax hit: Many people have been unpleasantly surprised to find out even their Social Security benefits are taxed. Legislation of 1983 and 1993 allows up to 85 percent of your benefits to be taxed. Taxation depends on the amount of income. Fortunately, there are ways to potentially reduce your taxable income.

Supplement your income: If you still have the time, energy or interest to continue working -- perhaps pursuing a second career or turning a hobby into a business -- it's much easier than ever before.

Social Security income limits have been raised. In 2005, retirees below full retirement age (currently 65 and 2 months) who receive benefits and continue to work can earn up to $12,000 before Social Security benefits are reduced. For those who haven't started collecting benefits, the earnings limit is up to $31,800 in the months prior to reaching full retirement age. After full retirement age, benefits aren't affected regardless of income.

Establish a living trust: Although the estate tax exemption has been raised, the recent strong gains in the real estate market might leave you liable for estate taxes. Estate planning isn't just for the "super-rich" anymore.

One option for married couples that allows them to avoid probate and save money on taxes is the AB Trust, also referred to as a "living trust with marital life estate." This option lets couples pass the maximum amount of assets to their beneficiaries.

Before planning that trip to the mountains or remodeling your kitchen, think about how you can make your retirement dollars work harder. Once that's done, you'll be able to sit back and relax. Then you can spend your time worrying about the important things, like how you're going to get nine holes in before lunch.

If you want to learn more about how to make your dollars do the work, contact a financial advisor who is experienced with the needs of retirees. He or she can help you make the best decisions for your financial situation, so your retirement fund is there when you need it.

Botkin is a speaker in the San Diego community and mentor to financial professionals nationwide. For more information, call (800) 303-8754.

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