Home' Trinidad and Tobago Guardian : August 31st 2014 Contents SBG14 FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt AUGUST 31 • 2014
Sorry, folks, but there is no
magic number when it
comes to retirement savings
Conventional wisdom has been that sav-
ing for a retirement income of 80 per cent
your current salary is a good safety net. But
advisers say such broad generalisations often
miss the mark given consumers disparate
incomes, life expectancies and other vari-
"The rules of thumb that are thrown
around out there can do more harm than
good," said Richard Stumpf, a certified finan-
cial planner in Wichita, Kansas.
One couple Stumpf works with, when
they first came in, had been aggressively
saving and picking riskier investments with
a $6 million benchmark in mind. But they d
overestimated their needs. "When we ran
the numbers, we discovered that they only
needed an average 4.0 per cent (earnings)
to get to an appropriate number," he said.
For a different couple, however, Stumpf
recommended saving for retirement income
exceeding 100 per cent of their current earn-
"Their goal after retirement was to hit
the road in an RV, which would be more
expensive than their current lifestyle," he
A common mistake consumers make is
assuming that they need income in retire-
ment that matches or comes close to their
current needs. But many current financial
expenses change---you won t still be putting
away say, ten per cent of pay into an indi-
vidual pension plan, or will you be paying
taxes on any income below $5,000 a month.
Clark Randall, a certified financial planner
in Dallas. "Right off the bat, you re saving
money there," he said. Retirees may also
eliminate costs for business attire, or com-
Zeroing out mortgages, car loans and
other debts before retirement represents
"Everyone who is planning for retirement
should aim to be mortgage free when they
walk out on the very last day," said Karin
Maloney Stifler, a certified financial planner
in Solon, Ohio. "The lower you can drive
your fixed costs in retirement, the more
options you ll have."
You ll still need cash for budget line items
such as the tax on income above $5,000 a
month and maintenance, but nixing monthly
debt payments leaves more assets to grow
in retirement accounts.
All T&T employees reaching the age of
60, who have made more than 750 National
Insurance contributions are entitled to a
retirement benefit of $3,000 a month cur-
rently. You qualify for the Retirement Benefit
at any time between the ages of 60 and 65
if you are retired or at age 65 whether you
retire or not.
The National Insurance benefit of $3,000
a month is 60 per cent of the threshold
amount of $5,000 a month, which is tax
free in T&T and further reducing savings
Although you might anticipate needing
less in retirement, it doesn t do to calculate
figures too conservatively. "You can never
save too much," Stifler said. "Err on the
side of saving more than you think you ll
There s a lot out of the individual saver s
control-notably, inflation. "The numbers
might look really nice right now, but are
they still going to look good 10 or 15 years
from now?" Stumpf said. Savings goals need
room for earnings to be reinvested and out-
pace inflation over the course of a lifetime.
"Otherwise, you re kidding yourself that
you re going to be able to retire comfortably,"
Some new retirement expenses more than
offset those eliminated. Consumers may be
able to nix some life insurance, for example,
but will likely need to consider long-term
care insurance, Randall said.
Private healthcare costs are also a wild
In 2012, the Employee Benefit Research
Institute estimated that a 65-year-old man
might need $70,000 in savings, and a
woman of that age, $93,000, to have a 50
per cent chance of having enough saved to
cover healthcare expenses in retirement.
Don t underestimate the lure of discre-
tionary spending, either. "Nobody just wants
to exist in retirement," said Carolyn
McClanahan, a certified financial planner
in Jacksonville, Florida. "You have the go-
go, slow-go and no-go phases of retirement.
In those initial years, people do spend more."
Budget for travel and hobbies to fill
expanding leisure time, she said, while your
health is still good.---Adapted from a story
by CNBC's Kelli B Grant
Conventional wisdom says to time your mortgage to
be paid off before you enter retirement, so you own
your home free and clear.
Maybe you ve done that, but now you re moving or
buying a second home. Does that rule still apply, or
with interest rates still so low, should you look at financ-
ing? Or perhaps you re downsizing and now s your
chance to be rid of that mortgage and pay cash. What s
the best move?
That s going to depend a great deal on what funds
you have available to live on, and how much margin---
or wiggle room---you have.
While it certainly feels good to own your home out-
right, and there is wisdom in not being slave to a lender
as the Proverb has it, in some cases the most prudent
course is to take out a mortgage.
What you don t want to do, for instance, is tie up
all or even most of your money in your home, leaving
you short. When things get tight, you most certainly
can t pull out your kitchen sink and carry it down to
the local store to trade for groceries. While carrying a
mortgage does add to your monthly expenses, it allows
you to hold on to the bulk of your money, providing
liquidity for monthly living costs as well as emergen-
Nor do you want to take a big chunk out of your
individual retirement account in one calendar year to
buy a second home, let s say. You might find yourself
in a higher marginal tax bracket than you would versus
taking it over several years. Taking out a mortgage and
taking withdrawals over a period of time may alleviate
But can you even get a mortgage in retirement? Don t
you need a job for that? Not necessarily. If you have
steady income, such as from a pension, or even regular
withdrawals from an investment account, you may
qualify. Your best bet is to talk to your local bank or
a mortgage broker ahead of time to see what kind of
income is required, so if you need to have a regular
stream of income for a prescribed number of months
in advance of your application, you can get that in place.
You may be surprised to find out that the length of
your mortgage does not need to be limited to your
expected life span. That is to say that, presumably, an
80-year-old can take out a 30-year mortgage, without
discrimination, even though it is unlikely that he will
outlive the term of the mortgage. So if you determine
that a mortgage is right for you and, like that 80-year-
old, you most likely will not outlive your mortgage, you
may as well take out the longest term you can---assuming
preserving equity for your heirs is not an issue.
There is another way to purchase a home with a
mortgage, but one that doesn t require a payment: with
a reverse mortgage purchase. A reverse mortgage for
purchase works similarly to a traditional reverse mortgage
in that you are in essence borrowing against your equity
each month, but are not required to make a current
However with this plan, you do make a large down
payment (perhaps up to 50 per cent, depending on your
age and other factors). This can be nice if you are down-
sizing, because you can use some of your proceeds for
the downpayment and pocket the rest. As with any
reverse mortgage though, you should weigh the poten-
tially steep costs against your need for preserving the
equity in your home.
Also, your credit is still an important factor in helping
you get a mortgage --- and the better your credit, the
lower your interest rates. If you think you ll be taking
out a mortgage in the not-too-distant future, now s
the time to check in with your credit.
Does it ever make sense then to pay cash for a home
in retirement? You bet. If you are in the position where
you have enough funds to sustain your lifestyle with
no need to access the money tied up in real estate equity,
then rest easy in your paid-off home.
Finding your 'magic number'
for retirement savings
Should a retiree
ever take out a
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