March April 2018

13 Professional Land Surveyors of Oregon | www.plso.org Retirement Asset accumulation A high-level approach to ensuring ad- equate retirement assets is to save a minimum of 10 percent of your gross in- come each year. You may need to save even more depending on your asset ac- cumulation goals and how many years you have left to save before retirement. If you would rather have a dollar goal, multiply your annual income goal by 25 to arrive at the amount you should try to save. For example, if after consid- ering Social Security and any pension payment, you want $30,000 more of an- nual income in retirement, you will need to save $750,000. Lower goals mean you need to withdraw at a faster rate and increase the risk you will deplete your assets too soon. Budgeting Not all budgets need to detail specific spending items. Rather, you can consid- er yourself working within a budget if you know that each year you are saving and not creating new debt (and paying off leg- acy debt for your education or home). If you want to squeeze out more savings, a line-by-line review of spending may well be fruitful. Personal debt Many of us are saddled with personal debt from college and graduate school. This debt has become so burdensome that the customary progression to home ownership has been delayed for many. The debt has also had a domino effect on the ability to save for retirement. Paying down personal debt should be job one. Other personal debt, such as for a car pur- chase, should be avoided, minimized or paid down as quickly as possible. Cred- it card debt, which carries high interest rates, should be avoided entirely. Re- member, each dollar of debt limits your ability to save for the future. Mortgage debt It used to be commonly accepted that you pay off your mortgage before retirement, but more and more retirees are entering retirement with mortgage debt. The old rule remains the best approach, since any indebtedness in retirement will lim- it your ability to react and adjust to poor investment return on your assets. Social Security With traditional pension plans less com- monly offered by employers, Social Security has become an even more im- portant source of guaranteed lifetime retirement income. By waiting to age 70, you can increase the benefit payment sig- nificantly, which is also the base for annual Social Security cost-of-living increases for the rest of your life. That increased So- cial Security benefit may also increase the benefit that a surviving spouse will receive after you die. Unless you have a health care issue that could reduce your life expectancy and no spouse who might need a spousal benefit based on your earnings record, claiming Social Security early is the greatest retirement planning mistake made. Health care Health care is the single greatest cost in retirement, and various studies esti- mate the cost to be $250,000 or more for a healthy 65-year-old couple. The cost of health care will be even greater to the extent one retires before age 65 and Medicare eligibility. Moreover, health care costs can vary andmay come sooner than expected. The best plan, then, is to work until at least age 65 and understand that health care is a unique challenge in retirement. To the extent possible, utilize Health Savings Accounts and bank any unused amounts annually to build up a tax-free health care fund for retirement. Income planning No later than 10 years before your planned retirement, you should be trans- lating your retirement assets into an annual or monthly retirement income stream. Start with your Social Security and any pension plan payments as your income base, and then consider how much income your other assets can safe- ly generate. Depending on this analysis, you may want to consider purchasing an annuity to make more of your retirement income guaranteed and avoid the twin risks of poor investment return and liv- ing longer than expected. Consider also that many of your retire- ment assets have an embedded tax liability. You will need to look through your retirement assets to determine after-tax income, since your food, rent and cable bills are paid with after-tax money. Only by seeing your after-tax in- come can you decide if you have enough to live on. Annual financial wellness check-ups During your early working years, you are likely to be focused on debt reduction and asset accumulation. As you get closer to retirement, you will need to focus on the strategies associated with Social Securi- ty, health care, and income generation. At all times you should annually revis- it your goals and make adjustments, as needed, to howmuch and where you are saving, howmuch you are spending, how aggressively you are investing, and when your target retirement date is. Modeling such behaviors will make it more likely you will be well prepared for retirement. By doing so you will also make it more likely that you are proper- ly assessing the state of your retirement readiness and not over- or underestimat- ing your financial health.  x