Wednesday, January 1, 2014

Remembering 2013 (Learning About Retirement)

Our culture believes New Year’s Day is a good time to reflect on the past and look to the future. So, once you have calculated and compared your current net worth to that number for November 1, 2013 and January 1, 2013, spend a little time reflecting on what you have learned in the last year.

2013 was my first year of retirement. I learned replaceable income is the key to a comfortable retirement. I proposed a two tier method of budgeting in retirement that seems reasonable. As far as possible, pay for reoccurring expenses such as food, clothing, utilities, and car operational costs with money from pensions, annuities, and Social Security. Pay for unusual expenses such as annual property taxes, new cars, and Mediterranean cruises out of taxable accounts.

Avoid using money from tax deferred accounts such as a 401 (k), unless it is necessary to annuitize that account to provide a guaranteed stream of income. Be careful how you do it. Some companies offer good options to annuitize a retirement account. Some will gouge you pretty bad to guarantee anything.

Consider the equity in your home, the last line of defense. Since I am hopelessly old school, I believe you don’t have a retirement plan until the mortgage on your house is paid off. For life in the 21st century, let me add you do not have a retirement plan unless you have health insurance or are old enough to enroll in Medicare.

In your retirement you still need cash (checking accounts, savings accounts, and money market funds). A lot more cash than you think you will need. Moving to your retirement destination ain’t cheap. Selling your existing home gobbles up cash at a frightening rate. We put $11,000 into repairs and upgrades before we put our house on the market. Once the house was under contract it cost another $5,000 for surprise repairs such as $2,100 for a new electrical panel. Our 40 year old box had been recalled in 2005 as the result of a class action lawsuit. It started too many house fires. The buyer’s financing fell through. Now we start all over again. Did I mention I am paying property taxes in two states?

Your savings are now asked to balance three concerns, produce a stream of income (dividends from stocks, income from rental properties, and interest from CDs and bonds), protect against inflation (capital gains from stocks or real estate), and safety from known unknowns (such a market crashes). No matter what you might be told by a salesman, there is no investment that can provide for all three concerns. Diversification is more important in retirement than in the years when an increasing income can overcome your mistakes.

I still haven’t been able to out give God. Don’t get crazy on me, but no matter how much you are giving to charity, after prayerful consideration, give a little more. See what happens. Look for opportunities to be a blessing in this unhappy world. These could be small, like a generous tip to a good waitress, or larger like helping someone caught in one of life’s binds. You are only limited by your imagination or your faith. Just be careful not to enable another’s bad behavior with your generosity. Sometimes helping does hurt.

Happy New Year! May the Lord bless and keep you; may he make his face shine upon you; May the Lord lift up His countenance upon you, and give you peace.

Both in 2014 and forever.

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