by Donald Whelpley
@ 2022 All rights reserved.
So far we explored the process to figure out your retirement NEEDS. Congratulations! You have just completed what many consider the most difficult phase of retirement planning, namely “How much will I need?”
Today we will begin looking at how to FUND your needs and some other necessary things. There are 2 parts to FUNDING. Start by researching how much you will receive from “continuing resources.”
Then, once you have this information then you may find that the amount you have to pull from finite resources (IRA’s etc.) is merely a fraction of your budget. The less you have to take from those finite savings early in your retirement years the better. It is not a bad idea to get a part-time job for a couple years. It is also important that you resist the urge to splurge during your first year of retirement.
FIRST, find your CONTINUING RESOURCES. These are resources which do not deplete your savings. A job provides continuing resources, but money taken from savings cannot be replaced. How much will you receive from pensions, Social Security, and other continuing sources? Subtract those from your annual retirement budget needs. The remainder is what you will need to fund from personal savings resources (IRAs, savings, etc.)
The earlier you start investing the better. How much should you be putting away at age 50? Answer: 15 – 20% of your income before taxes (no joke). This is why you need to know now what your needs will be THEN, and begin the financial journey.
The earlier you start investing the better. How much should you be putting away at age 50? Answer: 15 – 20% of your income before taxes (no joke). This is why you need to know NOW what your needs will be THEN, and begin the financial journey.
(NOTE: If you are like me, you may need to come BACK to this page once you understand the many options you have.)
MY CONTINUING INCOME RESOURCES (Annual):
$____________ Your Pension
$____________ Spouse Pension
$____________ Your Social Security
$____________ Spouse Social Security
$____________ Additional Stream of Continuing Income (rental property income, part-time work)
$____________ Additional Stream of Continuing Income (business venture, online sales)
$____________ Additional Stream of Continuing Income (REIT, Uber, profitable hobby)
$____________ Additional Stream of Continuing Income
= $____________ TOTAL CONTINUING INCOME RESOURCES (you will need this number below).
$ __ TOTAL 1st BUDGET (Look back to last week for this number)
- $____________ TOTAL CONTINUING INCOME RESOURCES (from above).
= $____________ Resources you’ll need to draw from IRAs + other investments to meet your NEEDS.
SECOND, a high percentage of retirees will end up needing long-term care. In fact, according to longtermcare.gov 69% of those turning 65 this year will need some kind of long-term care during their lifetime and about 70% of those will need Medicaid assistance. That is why I will bring up the issue of Medicaid multiple times. It may be to your advantage to purchase long-term care insurance.
THIRD, You should consult an Elder Law attorney before retiring to set up the best plan to protect your assets for you, your spouse, and your heirs. Every state has a unique set of laws relating to these things. For example, Michigan is one of the only states that does not place a lien on your house if you need Medicare support. How can you leave a healthy inheritance if the state takes half of your home’s assets when you both pass? Your attorney may be able to help you develop a plan.
FOURTH, have a conversation with your adult children, if you like them. There is no need to hide your plans (but that does not mean you need to talk about money per se). They should know what you are doing to protect their interests and yours. A will is just part of this plan. Make sure they know where your legal documents are stored and where you keep your final instructions. (It is cheaper to have a family member as your Executor, but it can be a cruel thing to do to someone you care about.) This conversation could be a great educational experience for them to begin planning their own futures.
Don’t panic. You may have time to better prepare. You also may have more financial resources available than you imagined. I planned out my first 15 financial years on a spreadsheet. Amazingly, I had everything funded in the first 10 years from external resources (nothing from savings), except the first year. I go back to that spreadsheet every year to update it. Things DO change. (Who could have seen the 9.1% inflation 7 years ago?)
In Part 3 I will begin to talk about various Streams of Retirement Income and why most investment professionals set you up for failure with their “3-legged stool” of retirement planning.
See Part 1 of A Layman’s Look from Don: Streams of Retirement Income