The Bogleheads' Guide to Retirement Planning by Taylor Larimore, Richard A. Ferri, Mel Lindauer, Laura F. Dogu, John C. Bogle Read Free Book Online
card debt, pay it off by using funds you may have in taxable low-yield savings, suspending Roth IRA contributions, taking out a home equity loan if you have a lot of equity (over 50 percent) in your home, or refinancing your mortgage if interest rates are favorable for doing so and if refinancing does not greatly extend the length of term of your mortgage. If you own more house than you need, consider downsizing. If you are making car payments or are leasing a car, try to reduce your transportation outlay by selling it and buying a dependable used car for cash. You could also reduce your support of children in college if they are eligible for educational loans since they can borrow for college, particularly if they are old enough to be in a graduate program.
Another cost-saving strategy is adjusting your insurance. Consider raising the insurance deductibles on your home and the collision deductible on your car—or drop the collision deductible altogether if the value of the car is less than $5,000. If you are paying for a portion of your health care and are in good health, look for a cheaper plan and/or raise your annual deductible. If you are taking prescription medicines, ask for a generic equivalent. Live a healthy lifestyle by not smoking, not drinking in excess, and getting regular exercise. Last, if no one is dependent on your income, drop your life insurance, and if you have a dependent, buy term life insurance.
ADDITIONAL STRATEGIES TO CLOSE AN ANNUAL INCOME GAP
You may be able to reduce some, if not all, of any projected annual income shortfall by selling your home and moving to a less expensive location. If you are a retired couple, ask yourself if you regularly use all the space you have and if you want the furnishings, maintenance, and taxes that go with it. Downsizing from a four-bedroom to a smaller three-bedroom home (net 500 square feet reduction) has the potential of freeing up $100,000 in cash and reducing ongoing costs for taxes, insurance, and utilities by 5 percent or more per year. Moving to another town may also reduce costs. For example, moving from Chicago to Champagne-Urbana, Illinois, will reduce your living costs by more than 10 percent. Retiring to Mexico or another location south of the border can reduce your living costs by a considerable amount. If you do move out of the country, rent for the first year or so to ensure that the lifestyle suits you.
CHECKING ON YOUR PROGRESS AND MAKING ADJUSTMENTS
A key strategy to keep your plan on track is an annual portfolio checkup as suggested later. Rebalance your asset allocation if the situation warrants. A semiannual review is recommended for individuals in their 50s. The closer you are to your retirement age, the less time you have to recover from adverse events.
ANNUAL AFFORDABLE SPENDING CALCULATIONS
Check your spending and saving habits at least annually, and make adjustments to your retirement savings when necessary. Has the contribution limit for tax-deferred savings increased? Can you save more or redirect savings from a taxable account to a tax-deferred account? Did you get a raise? Did you reduce ongoing expenses, and how did you redirect the money? Have health-care expenses changed? These adjustments do not require a detailed tracking of expenditures, only a big picture approach. Situations change over time, and we all need to be flexible enough to adjust.
CHECKING STRATEGIES AND TRACKING PROGRESS
In the decade before retirement, an annual review should include looking at all the major items that affect your ability to draw down assets at your desired rate in retirement. This includes reviewing your annual Social Security statement and its income projections, employer pensions, employer-sponsored plans (such as 401(k), 403(b), 457, SIMPLE, and SEP), traditional and Roth IRAs, savings in taxable accounts, other sources of income, and any amount that might be freed up from downsizing. On the expense side of the ledger, subtract your
Another cost-saving strategy is adjusting your insurance. Consider raising the insurance deductibles on your home and the collision deductible on your car—or drop the collision deductible altogether if the value of the car is less than $5,000. If you are paying for a portion of your health care and are in good health, look for a cheaper plan and/or raise your annual deductible. If you are taking prescription medicines, ask for a generic equivalent. Live a healthy lifestyle by not smoking, not drinking in excess, and getting regular exercise. Last, if no one is dependent on your income, drop your life insurance, and if you have a dependent, buy term life insurance.
ADDITIONAL STRATEGIES TO CLOSE AN ANNUAL INCOME GAP
You may be able to reduce some, if not all, of any projected annual income shortfall by selling your home and moving to a less expensive location. If you are a retired couple, ask yourself if you regularly use all the space you have and if you want the furnishings, maintenance, and taxes that go with it. Downsizing from a four-bedroom to a smaller three-bedroom home (net 500 square feet reduction) has the potential of freeing up $100,000 in cash and reducing ongoing costs for taxes, insurance, and utilities by 5 percent or more per year. Moving to another town may also reduce costs. For example, moving from Chicago to Champagne-Urbana, Illinois, will reduce your living costs by more than 10 percent. Retiring to Mexico or another location south of the border can reduce your living costs by a considerable amount. If you do move out of the country, rent for the first year or so to ensure that the lifestyle suits you.
CHECKING ON YOUR PROGRESS AND MAKING ADJUSTMENTS
A key strategy to keep your plan on track is an annual portfolio checkup as suggested later. Rebalance your asset allocation if the situation warrants. A semiannual review is recommended for individuals in their 50s. The closer you are to your retirement age, the less time you have to recover from adverse events.
ANNUAL AFFORDABLE SPENDING CALCULATIONS
Check your spending and saving habits at least annually, and make adjustments to your retirement savings when necessary. Has the contribution limit for tax-deferred savings increased? Can you save more or redirect savings from a taxable account to a tax-deferred account? Did you get a raise? Did you reduce ongoing expenses, and how did you redirect the money? Have health-care expenses changed? These adjustments do not require a detailed tracking of expenditures, only a big picture approach. Situations change over time, and we all need to be flexible enough to adjust.
CHECKING STRATEGIES AND TRACKING PROGRESS
In the decade before retirement, an annual review should include looking at all the major items that affect your ability to draw down assets at your desired rate in retirement. This includes reviewing your annual Social Security statement and its income projections, employer pensions, employer-sponsored plans (such as 401(k), 403(b), 457, SIMPLE, and SEP), traditional and Roth IRAs, savings in taxable accounts, other sources of income, and any amount that might be freed up from downsizing. On the expense side of the ledger, subtract your
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