July 2007 Topic - "Planning for Retirement"

01.  Planning for Retirement
02.  Living with in your means after retirement
03.  Other investments for retirement

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1.Planning for Retirement

Regardless of your situation, retiring takes a lot of planning and research. Find out and take advantage of everything that is offered to you. In this newsletter I will discuss ways to plan for retirement.

What exactly is Medicare? It is insurance that is available to most people 65 and over. It is run and funded by the government. Everyone who works will get taxes taken out of their wages that goes into funding Medicare, which is why it is available to you when you retire. In essence you have been paying into it ever since you worked and now you can take advantage of it.

There are two parts to Medicare. The first is referred to as Part, A which is hospital insurance. This part of Medicare will cover hospital stays, inpatient procedures, hospice, nursing facilities and some home care. This is what you will get automatically when you turn 65 assuming that you or your spouse worked long enough to qualify. The guidelines are that you or your spouse must have worked at least 10 years in Medicare covered employment.

Assuming that you meet the guidelines you will not be charged a premium at all for this care. The second part of Medicare is known as Part B or medical insurance. This is optional and there is a premium to have this coverage. The premium is based on your income. This insurance will help you pay for doctor's visits, procedures and medical services that Part A will not cover. This is an individual's choice. The premiums are generally lower than an outside insurance company.

What exactly is Social Security? Everyone who works pays taxes. Parts of these taxes are for social security. The money that you pay is not held for you it goes to people that are receiving the benefits now. Any money that is not paid out to beneficiaries is then put into the Social Security Trust fund. Today more than 47 million people receive social security.

Aside from retirees you may also qualify for social security if you become disabled and can not work any longer or if a spouse or parent dies in a family. 32 million beneficiaries are retirees. It is estimated that one in every six Americans are receiving social security benefits.

2. Living with in your means after retirement

Before even planning how to retire you must know how much you need to live with in your means. This chart is basically a guideline that will lie out your expenses. Obviously some expenses will change after you retire. For example if you had a long drive to work each day then your gas payment will likely go down. However keep in mind while some expenses may decrease others are likely to increase. In other words, gas expenses may go down but leisure activities may go up. You will be home much more now so you may decide you want to join a country club.



Do not make yourself crazy with this chart it is just an average of how much money you should need to live the way you want after you are not punching a clock anymore. Some financial advisors argue that you will need 60% to 85% of your annual income to maintain the same lifestyle. We could sit here and crunch numbers for years to figure out the perfect amount of savings.

However, reality is no one knows. You want to have a good nest egg for your needs. This number will be different for everyone. Everyone has different dreams and plans when they retire. A good idea is to lie out a general plan of things that you and your spouse or loved one would like to accomplish. For instance, you will need to be able to pay off your mortgage and living expenses. You both may have always wanted to take a trip to Italy or Europe. These are things that the nest egg must be able to cover.

As you figure out a ballpark number be sure to take into account inflation. Inflation is inevitable. Money you save today will not be worth the same 20 or 30 years from now. Is there any guarantee that we can predict what our money will be worth in coming years? No there is not, financial advisors recommend saving now regardless of the future. Inflation will affect you however; other factors will work to your benefit. For example, money in an account now is gaining interest. The earlier you start saving the more "free" money you are receiving. "Free" money is the interest you are earning by using an IRA or other savings accounts.

3. Other investments for retirement

There are so many investments for retirement available to all of us nowadays. I will cover a variety of investments, however please talk to a financial advisor or planner before choosing what is right for you.

Mutual Funds:
A mutual fund is an investment that allows a group of investors to put their money together. Basically there is a fund manager who is responsible for taking the sum of money and investing it into different securities. You are becoming a shareholder of the fund. Instead of putting all the money into one place the money is being distributed to different securities. Mutual funds are considered one of the best investments because they are cost efficient and easy to invest.

Basically you are sitting back while someone trained picks the securities and other people are investing with you so trading costs are lower. The greatest advantage to this investment is diversification. Therefore, you are not putting all of your eggs into one basket. Your chances on losing money are less likely than if you only invest in one security.

Stocks:
Stocks are the shares of ownership in a public company. If you buy shares for Kellogg's than when the shares go up you make money but if the shares go down you lose money. This is really a gamble and not a safe investment. On the other hand, many people make a lot of money playing the stock market.

Bonds:
Bonds are a safe way to invest money. You lend money to the government and they give you the principal and interest on it after a predetermined amount of time. The downfall to bonds is the time period. Generally the longer amount of time that you lend the money the more interest you will receive.

Individual Retirement Account (IRA):
This type of account is used for retirement purposes and will provide income tax advantages. You deposit part of your earnings, which are considered contributions, into this account and they accumulate tax free until they are withdrawn. If you withdraw before your retirement age there is a penalty.

401k Plans:
A 401k plan is a retirement option offered by many employers. It has a tax advantage just like an IRA. To put it simply the employee opts to have money taken out their check each pay period and put into one or more funds. The money is taken out before the check is taxed. Most of the time the employer will match the employees contribution. The employers are not required to do so, yet many companies will. While the money accumulates the employee does not pay any taxes on it.

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Got a question? Then contact our Education Team on 561-883-2398 Ex.310 United conducts regular seminars on financial education, including "How to Budget", come along and join us. To reserve your seat contact our Education Team on 561-883-2398 Ex.310

Newsletter 07
Rev.1
July, 2007