Traveling to those exotic destinations you’ve always dreamed of…
Spending precious time with grandchildren…
Those are all the things most of us think of when we think of retirement.
But being ready to retire means more than just reaching a certain age or renewing your subscription to Travel & Leisure.
You need a plan.
And with the current economic conditions, it better be a good one.
There are three things you need to seriously consider when planning for your golden years of retirement:
1. When you stop working, how much will your annual income be?
2. What will your monthly expenses be when you retire?
3. If you don’t have enough income to pay your monthly expenses, will you have enough money saved to make up the shortfall?
Here’s how to arrive at your answers to these questions:
First, get an estimate of your Social Security benefits. Next, look at your monthly pension benefit and any income you expect to receive from annuities or other investments such as annuities. Compare what your monthly benefits would be if you retire at age 62, 65, 67 or 70. Then decide if waiting for a later retirement date would be worth the extra money each month.
You need to decide what you really (really) need to retire. That means taking a cold hard look at what is a necessity and what is a luxury. The basics would be housing, healthcare, food, transportation, personal care and insurance. Decide what you can actually afford to pay in order to maintain the essentials. Be conservative but be realistic. Don’t tell yourself you can live on macaroni and cheese and hot dogs when you know you’re not really going to do that.
Remember that anything beyond the six categories named above is a discretionary expense. While you may have dreamed of traveling to exotic locales or playing golf at Augusta National (assuming you could afford the membership), those things aren’t necessities. Traveling to see the grandchildren once a year could be seen as something of a necessity; a photo safari in Africa is not.
Making Up The Shortfall
In a perfect world, your Social Security and income from pensions or investments will pay all your expenses and give you a little extra cushion to make life comfortable. Unfortunately, that’s more likely the exception than the rule unless you’ve been exceptionally good at saving and started planning for retirement early on in your working career. You will more than likely need some extra income to provide for anything beyond the necessities.
And that’s where many people get into trouble. They convince themselves that they can live more modestly than they really can and retire too soon. When reality sets in, they start making withdrawals from their investments and retirement plans and spend entirely too much. They run out of money before they run out of time. Never put yourself in a position to have to withdraw more than 4% or 5% per year from your investment portfolio.
The Hard Choices
Once you’ve crunched the numbers (or at least made some good estimates), you may find that your retirement goals need to be modified. You may need to work longer, move to a less expensive house, or consider taking a part-time job to make up the difference in what you have and what you need. Bear in mind that everything may not go according to plan. You may develop health issues and that may mean retiring sooner than you expected to.
The best thing you can do for yourself and your family is to start planning now to handle what the future may bring. Call us at (585) 244-2170. We can help you find a solid financial professional to help you run those numbers and provide investment advice for making the most of what you have already saved as well as offering tips to increase your current savings.
And we will continue to work with them as a member of your team to make sure your legal planning is up to date as well.
Go here to easily name guardians for your minor children, and then come back to me for a comprehensive Family Wealth Planning session to put everyting you need in place to take care of your family and control how your wealth (financial and non-financial) is passed on to your chosen heirs. Don’t let your planning happen by default!
Do you own a family business?
If so, you have plenty of company. More than 90% of U.S. businesses are family businesses. Out of the Fortune 500, 150 are family businesses.
Now, would you like to hear some really startling statistics?
Only 30% of family businesses will survive into the family’s second generation, 12% to the third generation and only 4% last to the fourth generation.
Scary statistics, aren’t they?
All the blood, sweat and tears you put into building the family business…just gone.
Wondering how this happens?
The number one reason is lack of family business succession planning.
You can probably avoid many of the problems that can take your family business under with sound estate planning that takes family business succession plans into account.
Here are a few things you need to think about:
What Happens When You Give Up Control?
Plan your retirement around not having income from the business. That will keep your financial well-being separate from that of the business and it will be easier for you to turn over control of the company you built. It will make the company and you much healthier financially. Talk to your estate planning attorney and plan your retirement now so that you are no longer dependent upon the company for income when you retire.
Who Takes Over?
Does your entire family work in the business? Have you groomed one of your children to take over? How do the other siblings feel about that? Consider what will happen if you leave one child in charge of the business and others in charge of assets the company relies on. This can bring old childhood resentments to the forefront if siblings feel that one has been favored over the others. If all your assets are tied together and there is no harmony between the various controlling parties, your company and your family could be destroyed.
Have You Planned for a Management Transition?
Once you retire to play golf in Florida, who will manage the company? Will management consist wholly of family members or do you have employees in key positions who can take over? Have you discussed the possible management structure with your family? Make planning a smooth management transition a part of your estate planning process. The two are not totally separate processes if you own a family business.
How Do You Handle the Transfer of Assets?
This is an integral part of your estate plan and your family business succession plan. Will the transfer of assets take place with lifetime sales/gifts/transfers or will the ownership of the company be transferred only upon your death. You need to ensure that you have enough liquid assets left for you and your spouse to live on in retirement without putting the company into bankruptcy.
Many families just don’t want to deal with these issues. But dealing with issues as complex as these in a moment of crisis when you die or are rendered unable to make decisions by some illness or injury can mean disaster for your company. Taking them into account while everyone is able to focus on what is and isn’t important, and looking at the big picture for the survival of your family business, will make everyone’s life easier. A little painful introspection and thoughtful planning now will allow even your great- grandchildren to enjoy the fruits of your labor.