Finance
Alternative methods of
Saving
By Aaron Crotty
I
n recent articles, focus was given
to the importance of preparing for
retirement and securing the right
pension plan. The points given in
those articles are truly significant to a
happy retirement.
Overtime, many persons have found
creative ways to ensure that their ‘nest
egg’ is at the level that they desire by
the time they decide to retire. Let us
look at a few of the unconventional
strategies that you can employ as
alternatives to the conventional
pension saving plans.
Retire debt-free
If you subscribe to the 4% rule, for
every $1,000 in income you need each
year, you’ll need about $25,000 in
assets. If your house payment is $1,000
per month, you’ll need a $300,000 nest
egg just to generate the payment.
Retiring debt-free and the need for
that income (and the corresponding
asset) go out the window. Debt and
income need go hand in hand. The
more debt you have, the more income
you will need.
There are a number of claiming
strategies you can use to maximize
your benefits. Most people don’t
use them and end up missing out on
$100,000 or more of income.
Let your paycheck be your
portfolio
Move to a place where your
dollar will go further
Using the arithmetic above, a $20,000
income is the functional equivalent of
a $500,000 portfolio. If you don’t have
the portfolio, another way to generate
that same amount of income would be
to trade some of your time or expertise
for it by working longer, working parttime or starting a small business. Done
correctly, this solution can generate
the income you need while leaving
plenty of time to pursue your other
interests.
Maximize your hidden balance
sheet
During your working years, you put
6.2% of every dollar you earn (up to
certain limits) into Social Security.
Your employer adds another 6.2%.
If that were your 401(k), would you
do everything possible to maximize
the distributions from that asset? Of
course you would. Yet, most people
claim Social Security benefits at 62,
which is almost universally a bad idea.
If you’re ready to retire, but your
nest egg isn’t, one option is to delay
retirement and give your portfolio a
chance to grow. Another option would
be to move to a location where your
dollar will go further. For example, it’s
much cheaper to live in New Mexico
than New Jersey.
Draw money in a tax-efficient
way
If you’re like most people, some of
your accounts are taxable and some
are tax-deferred or even tax-free.
Which should you draw from first in
retirement? Choose wisely, because
your choice could add years to the
life of your nest egg. (Hint: You should
usually take the taxable first.)
Take a medical vacation
Do you have health problems? For
example an open-heart surgery will
set you back about $100,000 in the
U.S. Buy a plane ticket to Narayana
Hrudayalaya
Health
Center
in
Southern India, and you can get that
same surgery for around $2,000. It has
the world’s largest cardiac hospital
and they perform more open-heart
surgeries than any hospital in the
world. Consequently, they have
pioneered several new techniques and
the results are excellent (they boast a
98% survival rate). Of course, quality of
care is a primary concern.
Travel cheaper
If you love to travel, but don’t love
paying for it, “travel hacking” might be
for you. That is where you use creative
ways to rack up rewards with airline
and hotel loyalty programmes.
Those are just a few of the
unconventional strategies you can
use to help your retirement dollars
go further. Some might work for you.
Others might not. The important thing
to remember is that your nest egg is
only one arrow in your quiver. Keep an
open mind and you’ll likely find more
than one way to solve your retirement
income problem.
To contact Aaron for financial advice, please
email him at aaron.crotty@arloassociates.
com
After The Bell
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May - Jun 2015
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