THINKING SHORT TERM

Prior to reaching retirement, 54% of current retirees had never considered how many years they would spend in retirement, and 43% had underestimated the amount of time they would spend in retirement.

Chances are you will live 20 or 30 years beyond your retirement date. Needless to say, you'll need investments that keep growing. The average life spans are increasing. Once a married couple reaches the age of 65, there is a 97% chance one of them will live to 75, a 72% chance one will live to 85, and a 45% chance one will live to 90. A woman of 65 has a 33% chance of living to age 90.

At any stage of retirement, a portion of your assets should be invested in growth-oriented investments such as blue-chip stock unit trusts. A rough guide is to subtract your age from 100 to compute the minimum percentage of growth-oriented investments you should own. TIME (Taxes, Inflation, Mistakes and Emergencies) makes the amount of capital needed much larger than most people would imagine. No one should become overly dependent on group term life Insurance. It is costly, inflexible, not portable, and probably won't be available when it's most likely to be needed, which is after age 65.

TAKING MORE THAN YOUR TAX-FREE LUMP SOME IN CASH

It’s true that you can take up to one-third of your pension in cash. However, after the tax-free portion, the receiver will take up to 40% withholding before you see the check. In order to avoid withholding, have the money sent directly to your Compulsory Pension or Living Annuity. You can then draw as little as 5% per year from your Living Annuity and defer taxes on the rest.

FAILING TO SAVE

In a recent survey, it was found that nearly 50% of all workers and 34% of workers aged 55 and older reported that their total savings and investments, excluding the value of their homes, are less than $50,000.

FAILING TO ANTICIPATE INFLATION

Inflation won't retire when you do. Therefore, you'll have to depend on the growth of your nest egg to keep up with increasing costs. A well-balanced portfolio is the best weapon for fighting the effects of inflation. The key to a secure retirement is making sure your money lasts as long as you do.

A rule of thumb in projecting income needs in retirement is that you’ll need at least 75% of your current income. But many factors can bump this figure much higher...

a. You could live a very long life. Usually, retirement income needs are based on a person’s life expectancy. According to actuarial projections, people who live to age 65 can expect to live another 12 years. However, the number of people over the age of 100 years is growing impressively. You may be one of those who live beyond the century mark. If you do, then you would certainly want your income to see you through.

b. You may be needed to provide financial assistance to others. Adult children, siblings and/or parents may turn to you for help. You may have planned for your own retirement income needs but never considered the potential needs of others.

c. You want to live better than you do now. The decision to travel or buy a second home could boost your income needs in retirement over what they currently are.

d. Retirement community/assisted living. When you are unable to live on your own, but don’t require nursing home care, you may need to consider an assisted-living housing arrangement that provides you with living quarters, meals, housekeeping services, laundry, recreation and some on-site medical assistance.

Depending on where you live, assisted living costs on average $4,000 a month for the rent alone and much more for care. Expect to see prices rise as baby boomers reach their 70s and 80s -- starting in about 2016.

PUTTING ALL YOUR EGGS IN ONE INVESTMENT BASKET

In order to minimize risk, it’s best that you maintain a diversified investment mix of blue-chip stocks, equity indexed annuities or universal life insurance, real estate investment trusts (REIT) and money market funds. A unit trust-linked investment will allow you to transfer money from one fund to another with ease, to maintain the diversity you need.

TAPPING YOUR RETIREMENT INCOME TOO SOON

There are some retirees who go on a spending spree as soon as they retire and wind up regretting it later. Your best bet is to delay withdrawing money as long as you can. The longer you can build up your tax deferred retirement assets, the better.

ASSUMING TAXES WON'T PLAGUE YOUR RETIREMENT

You will still face a considerable tax burden, even after you retire. Tax-advantaged investments, such as unit trust-linked endowments, may reduce your taxable income. In addition, life insurance remains tax deferred until you use your cash value and you can tap this account using the preferred loans, thereby avoiding the tax on the proceeds and having to have it paid out of your death benefit.

RELYING ON SOCIAL SECURITY

You may have paid into the Social Security system for 30 years or more. While, for now, the system may be fiscally sound, don’t expect benefits to be substantial. At best, Social Security benefits only provide a safety net to retirement income. (Currently, the most you can expect is about $1,500 a month.) Should you want to retire early, before the retirement age fixed by law, your benefits will be permanently reduced. There are approximately 90% of older Americans who are saying that they expect to rely on Social Security as their top source of retirement income. But, in 2001, Social Security supplied only 39% of retirement income for individuals 65 or older.

For example: In the past, when the normal retirement age was 65, those who retired at 62 received a benefit reduced by 20%. Today, normal retirement age for someone born in 1938 is 65 years and two months (it is scheduled to rise to 67 years).

If this person retires in 2000 at age 62, the benefits are reduced by 20.83%. For those with a 67-year retirement age (starting in 2022), benefits will be reduced by 30% for those who opt to take benefits starting at 62.

RELYING ON AN EMPLOYER SPONSORED PENSION PLAN ALONE

Distributions from all qualified plans have to begin no later than April 1st of the calendar year following the year that the participant attains age 70 1/2, or the calendar year in which the employee retires. Special rules apply if the distribution is made to a 5% owner of the business. The purpose of minimum distribution rules for retirement plans is to force the owner or participant of the pension plan to withdraw money from the plans, thereby triggering an income tax on these monies. On April 16, 2002, the IRS issued final regulations as to these distributions.

Generally, the idea pursuant to the regulations is to have the owner or participant of the pension plan begin taking the money out of the pension plan beginning at the later of when he finishes working or age 70 ½. One of the purposes of this is to insure that these monies will be subject to income tax prior to the death of the owner.

UNDERESTIMATING MEDICAL EXPENSES

The number one cause of home foreclosure in the U.S. is physical disability. There are many who believe that Medicare, a federal benefits program covering many types of medical expenses starting at age 65, will cover everything. This is not true! Medicare will cover certain medical expenses. And you have to pay deductibles and co-payments on these expenses, as well as the expenses Medicare does not cover, out of your own pocket.

There is an alternative: You can deal with uncovered expenses by carrying supplemental health insurance coverage (a "Medi-gap" policy) with costs varying according to the coverage you select.

SIMPLIFYING YOUR ESTATE PLANNING

You probably need more than a simple Will to protect your estate. Properly organized living trusts can avoid Probate costs, massively reduce estate taxes and pass assets to your heirs with substantial control over the distribution. In addition, a person may need to do some Medicaid planning in order to deter being wiped out because of a necessity for long-term care.

NOT GOING FOR REGULAR INVESTMENT CHECK-UPS

Just like a major medical problem can be avoided through regular check-ups and screening, financial check-ups are important in order to make sure that your portfolio is functioning properly, and that it is balanced and diversified. You should consider the services of a respected financial planner if you need help. These periodic check-ups can help prevent future financial problems.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.