Baby Boomer’s One-Page Planner

Pre-Retirement Planning without a Computer

Henry K. Hebeler

5-14-09

Hard times get more people interested in whether they have, or will have, saved enough to support them through their years of retirement. Here’s a simple method to get a credible and practical estimate without using a computer. Just fill out the table below following the instructions. You may find you have to save more or work longer if you are like most baby boomers today who have saved too little.

Step	Example	Your $	Instructions
1	60,000		Current ANNUAL gross wages before deductions
Annual costs for expenses that will be less in retirement:
2a	6,000		Annual Savings for retirement or future large purchase
2b	4,600		Annual payroll taxes for Social Security and Medicare
2c	5,000		Annual payments for new car or other items bought with loans
2d	6,000		Your annual deductions for health insurance
2e	12,000		Annual mortgage payments*
2f			Any other major spending reductions when retired (Annual amount)
2g	33,600		Total expenses that will be less: 2a + 2b + 2c + 2d + 2e +2f
3	26,400		Step 1 less Step 2g
Annual costs for expenses that will be more in retirement:
4a	2,400		Annual Medicare Part B (& Part D if you choose)
4b	6,000		Annual Medigap health insurance
4c	12,000		Annual Recreation, travel and entertainment
4d			Any other expenses that will be higher in retirement (Annual amount)
4e	2,000		Annual uninsured medical costs: Rx/ear/eye/dental typically uninsured
4f	22,400		Total expenses that will be more: 4a + 4b + 4c + 4d + 4e
5	48,800		Gross income needed in retirement in today’s $: Step 3 plus Step 4f
Annual sources of regular retirement income:
6a	25,000		Annual Social Security
6b			Annual Cost-of-living-adjusted Pensions (Few people have these)
6c	6,600		66% of Annual Fixed Pensions (worth less than COLA pensions)
6d			66% of annual payments from fixed annuities
6e			Annual income from a trust (or other) that will make lifetime payments
6f	31,600		Regular annual retirement income: 6a + 6b + 6c + 6d + 6e
7	17,200		Net income needed from savings: Step 5 minus Step 6f
8	30		Estimate the maximum number of years you might live in retirement
9a	516,000		Step 7 times Step 8
9b	80,000		Total $ you will spend for replacement cars in retirement in today’s $
9c	50,000		Total $ you will spend for replacing other high value items in today’s $
9d			Any other special purchases for retirement like retirement time share
9e	60,000		Total mortgage payments from retirement to paying off mortgage
9f	20,000		Emergency funds, perhaps for elderly parents, unemployed children, etc.
9g	726,000		Retirement savings needed without downsizing: Sum Step 9a thru 9f
10	100,000		Net cash you can get from downsizing your home at retirement, today’s $
11	626,000		Savings needed after downsizing in today’s $. Step 9g minus Step 10
12	500,000		Current amount saved for retirement
13	126,000		New savings required: Step 11 minus Step 12 (Stop here if minus #)
14	10		Number of years till retire
15	12,600		Average annual RETIREMENT savings needed till retire: Step 13 divided by Step 14

* If you have a mortgage, make an entry here whether or not you will pay it off before retiring. Step 9e will account for any post-retirement mortgage payments.

We strongly advise people to make a new plan each year as well as to consult with a professional adviser. Professionals can render opinions about projections, investment selection, future tax effects, insurance needs, estate planning, etc.

The analysis above is based on achieving a return that is equal to inflation. In spite of what many financial advisers may say, getting such a return is not always easy, especially for retirees because they generally have more conservative portfolios as they age, incur higher investment costs and are subject to reverse-dollar-cost-averaging. Baby boomers are going to have a hard time achieving a return that is significantly above inflation before retiring as well because of the economic environment where federal, state, personal, business and international debts are so high. Even in better times, studies have shown that average investors fail to achieve stock and mutual funds reported performance because they buy when the market is high, sell when it is low and incur additional transaction costs.

Because the program uses pre-tax values, it technically assumes that retirement savings are in qualified accounts like a 401(k) or IRA or otherwise that you are in a low tax bracket. However, there are so many uncertainties in the future economy and events that may happen in our lives that the uncertainties probably swamp the difference caused by tax effects for most people. There is no way to make a perfect projection whether using this simplified approach or the most comprehensive and sophisticated program.

More comprehensive programs like those on www.analyzenow.com can be helpful when trying to gain insight into the uncertainties of market performance, tax effects, when to start Social Security, whether an annuity might be better than a do-it-yourself approach, specific financial events that may occur and such things as survivor benefits and the relevance of early and late deaths on survivor’s resources.

Disclaimer:

This program is presented "as is". The author and publisher make no guarantees or warranties of any kind regarding this program or the legality or correctness of any document or plan created herewith. They do not guarantee or warrant that this program will meet your requirements, achieve your intended results, or be without defect or error. You assume all risks regarding the legality and use or misuse of the program or plan created from it. The author and publisher expressly disclaim any and all implied warranties or merchantability and fitness for a particular use. Under no circumstance shall they be liable for financial outcomes or any special, incidental, consequential or other damages arising out of the use or inability to use this program, even if they have been advised of the possibility or such damages. Their total liability shall be limited to the purchase price. Some states do not allow the limitation and/or exclusion of implied warranties or damages. You may have other rights that vary from state to state. The author and publisher are not providing legal, investment, tax, or accounting advice. This program is not a substitute for qualified professionals. You should seek the advice of qualified professionals for all of your legal, investment, tax, accounting and financial planning needs. The user of this program agrees that any legal issue shall be governed by and under the laws of the state of Washington.