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: Are you planning to retire in the near future? If so, you will want to read this month's article on retirement readiness. Don't forget that you can also keep up-to-date with our activities by becoming a "friend" on our Facebook page, joining us on LinkedIn or by following us on Twitter. |
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Are You Ready To Retire?
You have done pretty well for yourself with all the work that you've put in over the years. The kids are through with college and have launched on careers of their own. You've built up substantial balances in your retirement plans, put aside a good-sized rainy day fund and insured yourself against every conceivable catastrophe.
You have dreams and aspirations for life beyond the daily grind. Now you suspect that you are ready to enter that next phase of your life, but you want to be sure that you have the resources to live it as you intend. Perhaps it is time to do some serious thinking and planning about retirement.
Consider your costs.
You will have to begin with a hardheaded estimate of your retirement expenses. Although many sources tell you that you can maintain your lifestyle with 60% to 80% of your pre-retirement income, the reality can differ greatly with the style of life that you have in mind. If you plan to relocate to a less costly community and spend your days catching up on your reading at the local library, your expenses may be modest. On the other hand, a year of serious globe-trotting or shuttling between summer and winter retreats can easily consume more than your current income.
Will you still be making mortgage payments? Do you plan to help with the expense of a grandchild's education? Does family history suggest that you will need to contend with chronic illness, or live far beyond your allotted three-score years and ten? Do you intend perchance to do some consulting after retirement? Do you have a philanthropic urge? All factors of this sort should figure into your income requirements. Do not forget the income tax that will be due unless that income is derived from tax-exempt municipal bonds, Roth IRA withdrawals, or the nontaxable portion of your Social Security benefit.
Don't forget inflation.
You will have to factor in a presumed rate of inflation throughout your retirement. Even at today's modest rates, inflation gradually will boost the amount that you will need to finance your intended lifestyle. Retiring today at age 60, you may be looking forward to 30 or more years of retirement. Just 3% inflation will reduce the purchasing power of your dollar by 59 cents over the course of 30 years. The capital that you have available to support your retirement must produce enough income not just to support you at the level of your needs for the first year, but also to increase each year to cover rising costs. The accompanying table shows how long a nest egg can continue providing a stream of income rising by 3% each year under various earnings assumptions.
Ready?
The question is whether your resources will support you through the retirement that you envision with a comfortable margin of safety. It's not rocket science, but the calculation does call for a number of facts, suppositions and estimates. You could crunch the numbers yourself if you are handy with a spreadsheet or use one of the retirement planning aids provided in financial books and magazines, software programs and Internet sites. On the other hand, if you would like some help with the arithmetic, we would, of course, be happy to provide it.
Either way, you will start by totaling up your current and expected assets. Your current balances in retirement accounts, as well as unsheltered savings and investments that you do not intend for more immediate use will form the basis of your nest egg. Factor in your projected Social Security and pension benefits. An expected inheritance or a judgment due you can add to the total. Home equity also can contribute if you intend to move to a less expensive home.
With your projected expenses and available resources, all that is needed to complete the calculation are assumptions as to (1) the rate of inflation, (2) the expected return on your investments, and (3) the number of years that you will spend in retirement. Because you cannot be sure of any of these factors-or of tax rates or the state of your health in the future-it is prudent to be conservative in your estimates.
© 2006 M.A. Co. All rights reserved.
Any developments occurring after January 31, 2006, are not reflected in this article.
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| Monthly Conference Call
Our next webinar "Planning for Retirement Given the Market's Recent Downturn" will be held on Tuesday, April 13th from 12:00pm - 1:00pm (EST). If you are interested in registering for the webinar, please call Loury Davis at 410-732-2637 or email loury.davis@lpl.com to reserve your space today.
By the way, these free monthly calls are not just for clients, they are designed to help anyone trying to better their financial situation. If you have someone in mind that could benefit from one of our calls, please have them contact Loury. |
LGBT Free Dinner Seminars
Retirement for Domestic Partners - It's All About Having Choices! Are you Prepared to Make the Right Ones? This seminar has been designed to help you make intelligent, informed decisions about your retirement options.
Wealth Management Dinner Seminars
Speaker: Woody Derricks, President, Partnership Wealth Management
Date: Wednesday, April 21st at 7:00 PM at Firefly (Dupont Circle)
OR
Date: Thursday, April 22nd at 7:00 PM at Geranio (Old Town)
Firefly Restaurant: 1310 New Hampshire Ave., NW, Washington, DC 20036
Geranio Restaurant: 722 King Street, Alexandria, VA 22309
RSVP: Please call Loury Davis at (410) 732-2633 or (877) 807-2633 today for a reservation. Don't miss the opportunity! You must RSVP in order to confirm your reservation.
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Office News 
Once again, we are a proud sponsor of the Maryland SPCA March for the Animals walk-a-thon being held on Sunday, April 18th at Druid Hill Park. If you are attending the event, please stop by our booth. We'd love to see you!
Just a reminder! We are always accepting donations for the local animal shelters -
toys, collars, leashes, food, cat litter, cardboard trays, office
supplies, cleaning supplies, towels, mats, washcloths, etc. We will
accept donations Monday-Friday between 8:30am & 4:30pm.
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On the Home Front
Spring is in the air, and with that comes the start to all of our outdoor hobbies. Heidi's kickball season starts this month! Her team will attempt to repeat last season's success and a trip to the playoffs.
"Spring training" begins for baseball as well this month. A few nice weekend days should be all we need to get back in shape. This season, we're changing from aluminum to wood bats. We'll see how this change impacts the scores, length of the games, and the team records. We'll be sure to keep you posted!
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I hope you enjoyed this month's newsletter.
Best Wishes,
Woody Derricks
President
Phone: 410-732-2633
Toll Free: 877-807-2633
Fax: 410-732-2634
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Please note our new mailing address:
1819 Thames Street
Baltimore, MD 21231
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Available by Appointment in Alexandria & DC.
Woody Derricks is also registered to discuss and transact securities business in:
AK, CA, CT, DC, DE, FL, IN, MD, NJ, NV, NY, PA, RI, TX, VA, and VT. |
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