7 Keys to a Sound Retirement Part 1 of 2

Did you know that there are 7 Keys to many different things in this life? For example, we all know that effective leaders have seven habits, that there are seven different types of intelligence and that there are even seven steps to get to heaven.

Now, courtesy of the Society of Actuaries, we have the 7 tips for a sound retirement.  They just released her a new 64 page report entitled ‘Segmenting the Middle Market: Retirement Risks and Solutions Phase 2 Report’. Not the most inspiring of titles, we’ll admit, but then again these people are actuaries.

In their report they say that financial planning for retirement requires a methodical approach. (Does that sound familiar?) They say with this approach you need to identify and quantify all of the important components that will affect your asset accumulation, investment decisions, income management and so forth. They also noted that this approach is increasingly important for Americans who make middle incomes and more than likely have accumulated less than $100,000 for their retirement. The 1st 2 steps that the day espouse are here in part one of this two-part blog and the others, obviously, are going to be in the 2nd. Enjoy.

The 1st Key that they talk about is quantifying your assets and your net worth. Basically this is a complete tally of all of the things that you won’t including your home, cell phone businesses and so forth. It also includes everything that you owe. Since your home is more than likely your largest asset it’s likely that it will play an important part in any of your retirement plans.

Their recommendation is that you try and create as much income as possible from your home. This can be in the form of selling it, renting it, taking out a home equity loan, getting yourself reverse mortgage, paying off the mortgage completely and also taking out a home equity loan.

Another suggestion, and something that unfortunately is overlooked quite frequently, is converting assets and income and, while you’re at it, converting income streams into assets. The simple fact is, in retirement there are many assets that can possibly be converted into monthly income and generate more spending power. Similarly, income streams like a pension should also be seen as comparable in value to an asset.

A problem that the SOA identified is the interesting fact that many people aren’t able to fully realize or think about their assets and income as having equal value and, because of this, have a difficult time translating between the two.

The 2nd Key is to quantify your risk coverage. What you’re doing here is taking stock of all of the insurance that you already have and all that you’re going to need, including health, disability, homeowners, life, auto and so forth. Considering the need for long-term care insurance is also vitally important, especially when you consider that the cost for long-term care is extremely high and there is a very real possibility that, at some point in your future, you may need some type of medical assistance.

The report noted that households with ‘limited assets’ of less than $200,000 will probably need to spend down their assets and then rely on Medicaid. Those households with an excess of $2 million in financial assets should be able to cover the cost of long-term care out of their pockets. For those households that are in between these two numbers, long-term care insurance should be included into any financial plans and should be purchased in the last few years before retirement.

Another note that the SOA gave in their report is that, in most cases, the need for life insurance is high. Indeed, the death benefit associated with any life insurance plan can be used for bequests and also to provide valuable income to the surviving spouse, if necessary. Since the premiums for life insurance get more expensive as a person gets older, they also suggest that a person continue “existing preretirement coverages during the retirement period.”. One interesting note that you need to know about is that, in the near future, policies that combine long-term care insurance with life insurance and annuities will be available.

Those are just the first two keys to the seven that were outlined by the SOA.  If you’re keen on finding out what the other five are, you’re going to have to come back and visit us very soon for Part 2. In the meantime, we hope that this important information was interesting and relatively helpful. See you back here soon.

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