6 Financial Tips for Senior Citizens
How to Convert Assets into Income
Poor stock returns are threatening to destroy the golden rule for maximizing the longevity of your money, namely, withdraw 4% of your assets during the first year of your retirement, making an inflation-adjusted equivalent amount each year thereafter, and you will have nearly a 90% chance of maximizing the longevity of your money for 30 years. However, this calculation assumes an 8% yield on stocks, and a 5% yield on bonds.
Keeping in mind the current low interest rates and volatile stock market performance, some advisers suggest starting with anywhere between 2% and 3%.
Perhaps this sounds like very little to live on, but you need to learn to balance your cash flow.
Invest in an Annuity
Even without a pension, you can be guaranteed a check each month for the rest of your life by purchasing an immediate annuity or a life annuity (you can purchase one on http://www.immediateannuities.com ).
Strategy: Place enough money in a (life) annuity such that the income produced by same along with your Social Security income covers your basic living expenses. Allow the remainder of your portfolio to keep growing. This strategy is backed by the government in the United States - in February, the Treasury Department proposed facilitating the purchase of annuities in 401(k) retirement plans for workers.
Annual payments will depend on your age and current interest rates. As such, check amounts today are less than five years ago, says Michael Goodman, Certified Public Accountant and New York City financial planner. He advises buying three annuities over a period of a decade in order to avoid investing all your money when rates are low.
Be Resourceful and Flexible
Rather than relying on a rate of withdrawal, be flexible and make adjustments along the way.
When the markets perform well, you could withdraw 5% or 6%. In challenging times as far as stocks, retract your strategy. Once a year, sit down with a calculator - try the Fidelity Strategic Income Evaluator at https://www.fidelity.com/ - and calculate a safe drawdown amount based on your expenses and your portfolio return.
Minimize Taxes
As you withdraw funds from your individual retirement account (IRA) and your 401 (k) to generate income in retirement, keep in mind that the government will take their cut (withdrawals are taxed as ordinary income).
Common sense dictates that you withdraw your taxable investments first and allow the money from the retirement plan to grow while deferring taxes. Save the Roth IRA accounts for last, since you never need to make drawdowns (or withdrawals).
That is a guideline, not a hard and fast rule. Sometimes it is worth changing the order, said Bill Meyer of the Retiree Inc. consulting firm.
If, for example, withdrawals from the 401(k) plan will put you in a higher tax bracket, take out the minimum in order to stay in a lower bracket and withdraw the remainder from your Roth account.
Explore the World!
Make the most out of your retirement funds by living abroad, where everything, from housing to health care can cost less. If you live in the United States, take into account that Medicare coverage does not apply outside the United States, and therefore you will need a private policy.
InternationalLiving.com rates popular destinations for retirees depending on real estate costs, the quality of health care, ease of integration, the climate, and much more.
Do Not Ignore Health Costs
According to the MetLife Mature Market Institute, a stay in a nursing home for the elderly costs an average of $78,110 per year. Fidelity forecasts indicate that in addition to today’s costs for the stay, a 65-year-old couple spends $230,000 in out-of-pocket medical expenses.
Long-term health insurance coverage, albeit expensive, can be an option for protection (currently the cost is around $3,000 a year for a 50-year-old couple).
You are a good candidate if you are a woman (greater life expectancy), have a family history of diseases such as Alzheimer's, dementia or Parkinson's, or if you have assets of between $250,000 to $1.5 million (if you have less, the price is too high; if you have more, you can self-finance it).
Source: http://www.cnnexpansion.com
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