CRUNCHING THE NUMBERS: Crunch some numbers ... do a 'reality check' ... and see the impact of a housing change
To know what your retirement picture is today -- not the overblown one that plagues you late at night, but the one based on real numbers -- we've provided some basic steps and links to calculators below. Remember that if you want to reach financial freedom and an enjoyable retirement (however you define it), you need to know where you're starting from. Only then can you turn things around and move forward.
Maybe you've done some of these calculations recently for a financial planner ... and that's why you are looking for a 'Plan B'! If so, then you've already done half the work!
Reality Check: Your Real Monthly Budget
Obviously you want to start with as realistic a picture as possible of your present financial situation, as painful as that might be. Here are the steps I suggest you take:
|1. First you'll want to define your household's monthly income from W-2 salaried jobs, and/or 1099 income if you are self-employed. Be sure to look at after-tax income, whether it's being withheld or you pay it in to the IRS periodically (say, quarterly or yearly). Whatever you don't get to keep should not be included in your monthly income figure.|
2. If you haven't worked up a realistic budget recently, you might have to spend the next month writing down absolutely every expenditure you make. (Same goes for all family members.) Every check you write. Every automatic withdrawal you have set up in your bank accounts. And remember those periodic payments, like homeowner's insurance, where you'll want to take your annual premium and divided it by 12 for your monthly allocation. With that information, you'll work up your total monthly expenses.
3. Next look at what assets you have: home equity based on an updated estimate of the market value of your house (yes, we know it's a moving target ...). Also, any mutual funds, IRAs, savings, and other assets. Updated, of course, to reflect the recent economic upheaval.
4. And lastly, look at your liabilities. Consumer debt, credit card debt, your mortgage. Be sure the monthly payments from all of these are reflected in your expenses in item 2.
I suggest you look to online sources for budget calculators. I've found one I really like, prepared by that great website About.com, which can be found by clicking on the blue link marked "budget calculators".
Generating Your Existing Retirement Picture
Here's the minimum information you're going to want to gather (updated of course), if your circumstances have allowed you to contribute to them:
Projected Social Security payments, based on selected retirement age
Other periodic income:
- 401(K) or 403(B)
- IRAs, SEPs and KEOUGHs
- Other retirement income
Portfolio composition and yield
If you haven't received a report from the Social Security Administration recently on what you can expect as benefits upon retirement at different ages, that report can be obtained by requesting it through this Social Security retirement benefits link.
So now for the real reality check: figuring out how bright your retirement picture looks. So many retirement calculators are available to you; just go to Google and enter "retirement calculator" in the search field. But of all those I looked at, the one that seemed to give a pretty good picture, relatively painlessly, was prepared by CNN Money, and is available by clicking on the blue "CNN Money" link. Thank you, CNN Money!
Painting a Brand New Retirement Picture
The section MAKING WISE HOUSING CHOICES presents several options that allow you to lower your housing costs. Some provide real cost data; others will require that you dig down and follow the links provided so you can estimate what your particular preference would cost.
Since you did the calculations of your existing retirement picture earlier, it'll be easy for you to use the exact same methods to paint a brand new retirement picture using a new housing choice. Or two. Or three.
Pre-retirement changes: If you decide to make a change in housing before retirement, it'll have a major impact on your monthly expenses right away. That will allow you to start saving so much more towards retirement. Add to that any amount left over from the equity in your house, if your decision involved selling it. [That is: selling price, minus outstanding mortgage and selling expenses, minus lower purchase price of new housing, minus any rehabbing cost.] Whatever that is, it becomes part of your savings that should be well invested so it's growing and benefiting from compounding every day.
Post-retirement changes: Even if you decide you're only going to make a housing change upon retirement, it will still have an impact on what you'll need in order to cover your monthly expenses from that time forward. [It may turn out to be the only change you need to plan on, in order to make your present numbers work.] And, again, if your decision involves selling your house and reducing your living costs, you'll add to your retirement savings whatever net proceeds you get from selling your house. [That is: selling price, minus outstanding mortgage and selling expenses, minus lower purchase price of new housing, minus any rehabbing cost.]
Whatever you decide, my goal is to show you how critical your housing choice is to your retirement picture. Something very few people take into consideration.
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