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To get the most from your
retirement years, there are some essential, basic plans that should be achieved:
1. Financial Plan
The Financial Planning process analyzes your overall financial position, e.g.,
incomes, assets, liabilities, investments and life insurance, and with
assumptions about the rates of inflation and return, projects your finances into
future years. You will be able to vary some of the factors such as sale of your
residence, sale of other real estate etc., and see the impacts on your income
stream.
Another benefit of Financial Planning is to obtain an independent review of your
investments usually consisting of stocks, bonds, and mutual funds. Focus must be
given to your risk allocation in the form of growth versus income
(conservative). Many experts advise that the older we become, the more
conservative our investment mix should be. Witness the 65% – 70% decline in
the NASDAQ market during 2000 – 2001. How would that have impacted you had 50%
of your portfolio been allocated to high growth technology stocks?
You need the services of a professional Financial Planner for your Financial
Plan. You should ask for a reference from someone whom you trust preferably a
CPA or Attorney. Often, a fee-only Financial Planner is recommended for the most
likely independent, objective analysis and recommendations. Some planners are
employed directly by a brokerage/investment/insurance firm. These firms may not
charge directly for the Financial Plan, but their objectivity may be somewhat
questionable. With the fee-only, you pay for the plan (amount depends on
complexity) but their objectivity is likely the best. Be sure to contact some of
their previous clients for reference.
The Financial Planning process will assist you with other decisions you’re
likely to be dealing with such as relocation, house/condo, lifestyle, etc.
2. Estate Plan
Another key step for retirement planning is to ensure that you have a current Estate Plan.
With the 2001 Tax Law, individuals can pass $1million (exclusion) to their heirs free of federal taxes beginning in 2002. Also, the top tax rate decreases to 50 percent from the 2001 level of 55 percent until this rate reaches 45 percent in 2007. The exclusion level increases to $1.5 million in 2004, $2 million 2006 and $3.5 million in 2009.
In spite of these plans, for the next several years, federal estate taxes can significantly reduce the net estate proceeds for your spouse and loved ones. You should note that the substantial real estate valuation increases over recent years create estate tax exposures for many of us.
The prudent action to take is to have an Estate Planning Attorney review your
finances in the context of Estate Planning. This is a very complex, technical area and requires the expertise of an Attorney. The objective of Estate Planning is to see that your wishes are carried out (disposition of assets) and to minimize the tax bite via various options of the Estate Planning menu. Other parts of Estate Planning will include the implementation or update of your Will or Living Trust, an Executor of your estate, Durable Power of Attorney, Durable Power of Attorney for Health Care, and a Directive to Physician. These steps are advisable/necessary regardless of your estate value.
Again, ask for the name of an Estate Planning Attorney from someone whom you trust such as your CPA or Attorney. Check their references, and don’t
procrastinate! If you have an Estate Plan when you relocate, have an Estate Attorney in your new state review the plan for any changes necessary for differences in state laws.
3. Relocation Decision Essentials
The relocation decision is very personal, sometimes emotional, and based largely on your future financial needs. The Financial Plan discussed above will identify your monetary needs to maintain your specified life style, e.g., remain where you are, relocate to a state with lower income taxes and general cost of living,
live in a condo, rent, etc. Your retirement and projected investment incomes will also be presented so that you can compare your projected living expenses and income levels based on various assumptions. Needless to say, there are other factors that should also be considered. For example:
Proximity to family and friends
Your current level of satisfaction where you currently reside, e.g., cost of living, climate, crime, transportation access, urbanization, etc.
How long will you be physically capable of maintaining your current home, e.g., lawn, repairs, etc.?
Whether you will require the cash from sale of your home to assist with
your projected income needs throughout your retirement
If you decide to relocate, establish some search criteria for your new location.
Such considerations would likely include:
House versus condominium or apartment
Assisted-living accommodations
Attractive state income tax provisions
Proximity to quality hospital and medical care
Availability of university adult education
Cultural events programs/activities
Organizations for meeting new people
Public transportation access
Only you can assign the weights (importance) for each of these factors in your decision. At least, by addressing such criteria, you increase your chances of a positive, healthy result.
We strongly suggest that once you decide to relocate, rent an apartment for at least 1 – 2 months in your selected area before you sell your residence. This stay will give you an up-close and personal view of actually living there. If
you decide to stay, then sell your current residence. Otherwise, return to your
residence as a fallback.
Take this opportunity to review local real estate; visit colleges to learn about
their offerings and senior programs/cultural events; visit the local hospital to determine their departmental strengths/weaknesses; become familiar with public transportation, and other areas of specific interest.
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