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Jim Lentini: Retirement preparation in reverse

Business Commentary

Posted: August 23, 2010 5:11 p.m.
Updated: August 24, 2010 4:55 a.m.

Every day, we see advertisements touted on television, by actors we recognize, for reverse mortgages and the benefits for those, age 62 or older. It is sad to see retirees at this age forced to start spending the equity of their homes to meet rising living costs in today’s economic environment.

A fact I found interesting — not too many years ago when studying economics — was that most individuals over age 65, 83 percent of a person’s assets, other than pension, was represented by the equity in their home. The dream of most workers in past generations was to work hard and have their home paid for by the time they retired. Now, due to economic changes and uncertainties, many have to spend their home equity to live. What will the future be like for children and grandchildren as retirees?

If you nearing retirement, you may be in similar financial circumstances as many other retirees. If you are between the ages of 40 and 60, and have minimum investable assets of $100,000, Financial Research Corporation says you are a “PowerBoomer.” Its study sheds light on the challenges that millions of Americans will face as they approach retirement. The biggest problem faced is being able to enjoy the same quality of life in retirement as they have during working years. The main concern is running out of money. We know we are living longer, and potentially need income for 30 years or more. We are also aware that Social Security and Medicare are in trouble as the costs continue to increase for these benefits.

As many people transition toward a state of retirement, they will need to restructure their portfolios to better position assets in the interest of producing retirement income. It is a common practice to consolidate current and previous employer-sponsored plans into an IRA. Eighty-seven percent of PowerBoomers with employer-sponsored plans, such as 401(k)s, will contribute billions into IRAs over the next few years. Consolidating helps provide a clearer picture of the entire portfolio, simplifies tax reporting and better aligns lump-sum amounts to generate future lifetime income.
How do we combat all these variables and plan for our retirement? First, work with your financial adviser to set up, and routinely review, a well-diversified portfolio and plan that best fits your needs. Life changing events will always affect those plans. Second, invest regularly in your 401(k), IRA or deferred investments. As noted in previous articles, some portion of your portfolio should be in variable annuities with a guaranteed withdrawal benefit rider. This rider will protect your principal, guarantee growth and guarantee a lifetime income that will increase if structured properly.
Rising costs, threatened benefits and the need to have sufficient money to support your retirement years are common concerns that could add to a lack of confidence as you near retirement, regardless of age or wealth.

Added to our concerns, we see health care costs increasing, and the experts are saying it will continue to escalate. Why? Because the federal government is setting the health care rules, requirements and laws that are changing how the companies cover and service our insurance coverage.  It will be interesting to see how health care coverage and costs change over the next three years until the “insurance exchanges” come into being in 2014.

These concerns and issues should be discussed with a financial and tax advisor to make the best plan that fits your personal needs and goals. We see every day that we need to rely on ourselves, and not government programs for our security in retirement. It is important to be actively involved in our planning for ourselves, our families, and our community. Remember, “Make a plan, and work the plan”.

Jim Lentini, CLU, ChFC, IAR is President of Lentini Insurance & Investments, Inc.  His column reflects his own views and not necessarily those of The Signal.


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