Catching up on pension arrears

BLACK ENTERPRISES consulted with certified financial planner Ivory Johnson, founding father of Delancey Wealth Management, to find out how pre-retirees can catch up on retirement.

Withdraw conservatively.

Make sure you do not overpay. “The rule of thumb is don’t take out greater than 4% of your retirement savings per yr. Retirees receiving a pension and no mortgage usually tend to follow the 4% rule (because they’ve extra money flow), says Johnson.

Evaluate your portfolio.

“The general rule is to own 60% to 65% of the shares. And the rationale is to maintain pace with inflation. The stocks you own should probably be in higher dividend paying corporations so you may reinvest them. So if I take an organization that pays a 2-3% dividend and the stock falls 3%, I’m even. You may also take a few of that income and use it as a paycheck, which relieves your portfolio of the necessity for appreciation. So you wish dividend-paying stocks and the remaining in short-term bonds. Or other alternative asset classes, akin to real estate mutual funds, which pay a pleasant dividend.

Take advantage of the chance to catch up.

The limit for workers participating in 401(k), 403(b), most 457 plans and the federal government’s Savings Plan is $17,500. The The annual IRA contribution limit is $6,500. If you are 50 or older, you may make additional contributions to a Traditional or Roth IRA up to $1,000. If you’ve got a 401(k) or 403(b), you may make catch-up contributions up to $6,500.

Think about ways to earn extra income.

Lifetime income could also be in the shape of real estate. If you rent a property and it doesn’t have a mortgage until you retire, that is a sort of retirement, Johnson says. “Rental properties can provide an inflation-adjusted income and are best for retirement in case your mortgage is low or has maxed out. Buying a rental property in the beginning of retirement still offers the tax advantage of depreciation, however the difference between mortgage and rent will not be attractive. Johnson also recommends taking on a side job.

Plan for catastrophic illness and other crises in retirement.

Get disability insurance. “It could be a car accident or a debilitating illness that forces you out of the workforce. People over 50 years of age should also consider purchasing long-term care insurance. The notion that they will never need a home visiting nurse or that they will be candidates for a nursing home is statistically untrue.”

If you have been hit hard by the recession, make changes.

“A revised plan may include working longer, reducing current lifestyles, working part-time in retirement or asking children to shoulder more of the tutorial burden. It all depends on what’s essential to you, Johnson says.

Don’t be a financial burden on your loved ones.

Johnson suggests considering purchasing long-term care insurance. “A sick parent without resources is a burden on children and can break up a family. In my experience, one child usually bears the burden of care and the costs fall on the child with the most resources. It’s not much fun on Thanksgiving when the child who made the most sacrifices to secure his career ends up paying the bills.”

Continue investing throughout retirement.

Johnson recommends exposure to stocks to maintain pace with inflation. “The best solution to achieve that is dollar-cost averaging, which involves investing the identical sum of money on a daily basis. By doing this, you purchase more shares when the market is low and develop the habit of saving. The right stock allocation might be a function of your age, risk tolerance, time horizon and the quantity you have to retire, Johnson says.