Some Retirement Programs Paint Too Rosy of a Picture

Are you considering early retirement? Has your company just announced a merger or downsizing? The uncertainty about one’s financial future can be unsettling. Having enough money to pay the monthly bills is not a serious question for the people who were anticipating retirement. They simply modify their spending to match their projected retirement income. They have had the necessary time to plan. For the forced or enhanced package retiree the answer is not so simple. It requires a well thought out cash flow analysis for such things as continuing health coverage expense, debt service on homes and cars, and vacations. You can no longer fall back on using the credit card or borrowing from the credit union. You must cover those shortfalls from principal or investment results, not just working a few more hours of overtime. Unfortunately, most retirement planning programs available from mutual fund companies, brokerage companies, banks, and some financial planning companies are seriously flawed. The main problem with most retirement planning programs is that they do not use the retiree’s actual spending habits, but simply rely on percentage estimates to project future cash flows. The standard question is “What percentage of your current income do you think you will need in retirement?”, and, of course, if you’re like most people, you’ll have no idea. The next piece of advice will go something like this: “We find most people need 80%.” I ...

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