This article discusses
my retirement plan benefit. First here
is some arithmetic you should do before you retire. How to size up your
financial situation:
1. List your assets. Include income-producing assets (stocks, bonds,
other annuity-generating insurance policies, real estate, company
profit-sharing plans), plus non-income-producing assets (paid-up life
insurance, furniture, and household goods) and assets that require
expenditures for maintenance (houses, cars, etc.). Estimate total dollar
value, factoring in appreciation.
2. Figure out post-retirement income. Add up income from assets,
pensions, and Social Security.
3. Calculate post-retirement expenses, then deduct costs stemming from
work (commuting, clothes). Next add on the cost of benefits (health
insurance) which will no longer be covered by an employer. Estimate an
annual dollar figure. Factor in inflation rate.
4. If post-retirement expenses outstrip post-retirement income, develop
a plan for liquidating assets. Rule of thumb: The percentage of total
capital which a retired person may spend annually begins at 5% at age
65, and increases by 1 % every five years, until reaching 10 % at age
80.
Bottom line: Only those whose post-retirement expenses still outstrip
total income at this point will have to cut back. Generally, a retired
person needs 75 % of his pre-retirement, after-tax income to maintain
his present standard of living.
See
retirement plan
for more information.
Now here is some advise on how to improve your chances
for successful retirement.
Only 2 % of all U.S. families will be able to match their current
standard of living when they retire. Problem: Inflation and taxation are
eroding savings and investment income. Many people arrive at a brokerage
firm or financial-planning office saying they just want to make money.
That isn't sufficient. As the value of pension plans and investments
falls off, the opportunities to make up the loss in other areas is much
more limited than most people perceive. Essentials:
It is more important than ever to calculate the tax consequences of an
investment. For instance, most people are satisfied if they invest in a
stock and their investment goes up 30%. However, they haven't assessed
the real return.
The principal of debt instruments (bonds, savings bonds, Treasury bills,
etc..) erodes with inflation. These become negative investments when you
adjust for taxes and inflation.
To
My Retirement Plan Benefit - Top
Alternative: Try buying short-maturity bonds at a
discount on full margin. This lets you convert the interest payments
into a capital gain since they can be postponed to the bond's maturity.
You can only do this with bonds issued before July 18, 1984. Bonds
issued on or after that date will produce ordinary income at maturity,
not capital gains.
Example: Buy a low-face-value bond currently selling at $900. Put up
$300 and borrow $600. Pay interest on the $600, which is tax deductible
over time, if you have sufficient investment income. In two years, when
your bond matures, you will have a $100 capital gain, plus the interest.
The real growth in recent years has been in things.
If you have a home or your business has property, consider re mortgaging
it. Those assets may be tying up opportunity money. You may be able to
invest it in your business, a tax-free annuity, or more real estate.
Use your own business knowledge if you are going to invest in the stock
market. Many investors treat the stock market as a slot machine. It's a
total gamble. They don't relate the market to the economy or to their
own business. It's important to invest in what you understand and know
about.
Example: If you are in the auto repair business, you
should know what's going on in auto parts, tires, oil companies,
etc..
You can no longer sit on investments for years. The time frame of swings
in the economy, and therefore the stock market, is getting ridiculously
swift. Corporations can't even make five-year plans these days without
external conditions making them obsolete before the five years are up.
Don't expect to buy a stock and hold on to it for five or ten years.
Reevaluate your investments often.
Keep your eye on Washington. Understand what the probabilities are for
government intervention in certain industries.
Be disciplined about your life-style and investments.
The 2 % of people who will be able to maintain their life-style don't
fall prey to jazzy titles without high salaries. They don't try to keep
up with the neighbors or think that they can easily afford to pay the
government too. They can't. Tax planning is now an essential investing
element.
Source: Consumer Information Center
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