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Chapter 5 : Making It Last For The Rest Of Your Life



Getting professional advice

Assessing Social Security
Creating Financial Plan
Evaluating cash flow and asses, including your home equity.



Help to steer toward goals.

Better find financial advice from personal reference.
Must be holder of CFP (Certified Financial Planner).

*when major life event occurs (death of parents, spouse or selling family house) you will be
more vulnerable to be victim of fraud.

Financial Planner will cover about :


Long & short term financial goal

Evaluate assets, debt & cash flow
Insurance (including health, long term care, life, disability, homeowners umbrella

Investment & saving
Retirement Planning
Estate Planning (including wills, trusts & power of attorney).


Social Security :

Employer withhold and self-employed individual pay taxes to the Federal

Government under Federal Insurance Contribution Act (FICA) for Social Security

& Medicare.
Must be at least 62 years old to be qualified.
Amount receive depend on earning, which paid Social Security taxes up to
certain limit and the age begin receiving payments.

Take It Now or Later :

When to start receive Social Security? Take reduced amount before retirement age
or wait until eligible for maximum amount? Ask your self :

What is my financial strength now?

Take it now if need money to live on by all means.
Dont take if dont need, amount increase every years.

Am I still working?
Do I have serious health problem?
Do I concern Social Security will run out of money?


Planning Your Later Years:

Steps are different one to each others, depending on the age you start planning :

The older you are, fewer years to prepare.

Income probably decrease, pension & others retirement income may not have

COLA (Cost Of Living Adjustment).

Cannot afford as much volatility in investment because less time to ride out the

Likely need to leave off the income you generate or even draw down asset.
More provisions for catastrophic illness or emergency.
May be less able to manage your money because of failing health or cognitive

Basic Steps To Help Manage Your Finance :

1) Asses what you have :
Calculate your balance sheet, add up your asset and subtract your liabilities.
2) Figure out your expense :
Determine monthly cost for next one years or two. (3 or 4 is better)
Use the cost from past year or two & add 5% per year for inflation.
Add in anticipated expenses for big event (wedding, new car, new home, birth
Add in some potential expenses for home maintenance & repair.
3) Calculate your income :
Including wages, Social Security, retirement plans, dividend & interest.
4) Determine the shortfall and surplus :
Determine how much you will need to take from asset to meet your budget.
5) Learn about other sources of income & benefit.
Explore assistance programs that can reduce the shortfall increase the

Need base program such Supplemental Nutrition Assistance Program
(SNAP), Supplemental Security Income (SSI) & Meals on Wheels.

Look into a programs such as :

a) Reduce or free ride for seniors.
b) Store & service discount.
c) Life insurance benefit.
d) Medigap insurance reimbursement.

Financial planner will suggest, the reasonable amount to withdraw from saving

4% of total annually.
4% is reasonable but doesnt take the inflation rate on own expenses.
When figure out budget for later years, approximate your need by taking about

80% of current budget.

For many people, cash inflow doesnt match cash out flow.
Reason why credit card popular, continue spending habit & pay bills later

It can be overcome if not financially healthy. (raise, cost of living increase,
overtime second job, etc)

*Average saving for retirement is like $50,000* - Ben Stein (Economist)*

Assessing whether you have enough :

Determine how much cash will need from investment to live on:
1) Determine how much needed to live on per year.
2) Determine how much fix income receive (wages, Social Security, retirement
accounts, pensions, annuities, etc.)
3) Determine how much be realized from investment to meet the remaining need if
theres a shortfall.
4) Determine what return on investment is needed to meet your need.

Financial advisers may counsel older client to keep some money in equities

rather putting all in safe but low yielding certificates.

Return on investment will depend on how comfortable with risk & fluctuation.
Financial adviser will suggest buy an annuity. (get a define amount based on

amount invest and the period of time benefit will be paid).

Some financial advisor will suggest to using target-date fund.
Essentially mutual fund.
Stock & bond asset allocation of the fund changes as investor get closer to
their target date.

Taking required minimum withdraw :


On the age of 701/2, required to withdraw fund from traditional Individual

Retirement Accounts (IRAS).
Take specific amount, - minimal withdrawal,
Based on life expectancy table from Internal Revenue Service, (publication

590, Individual Retirement Arrangement).

Minimum withdrawal calculated by dividing account balance by the life
expectancy factor.


When is your home is your asset :

Many people bulk of their net worth tied up in their home, according to the Center

for Retirement Research.

Without including the net worth of the home, you may not have enough available
capital to produce the amount of income needed to preserve the quality of life.

Options if in these situation:

1) Sell the home :
- Consider moving to smaller quarters, a less expensive area or an established
community that cost less.
Whether you decide to rent or own, consider these factors :
Fewer or smaller rooms
Less maintenance
One-floor living
Warmer climate
Additional or more convenient services
An accessible location for family and friends.
- If selling is an option, you may generate significant resources to invest.
2) Refinance the home :
- Home equity loans or lines of credit
Cost almost nothing to obtain (usually no application fee)
Borrow what you need up to limit.
If you owned home for a while, chances the value appreciated significantly.
- If no longer working, may have trouble qualifying because no visible means of

repaying the loan.

3) Reverse Mortgages :
- Available to homeowner age 62 or older.
- Enable to tap home equity without sell your home.
- Federally guaranteed by Federal Housing Administrations Home Equity

Conversion Mortgage Program (HECM).

Receive money from lander as a lump sum / monthly amount / as a line of credit.
The amount can be borrow depend on applicant age, value of the home, current

interest rates, upfront cost and current HECM loan limits.

Must continue pay property taxes, homeowners insurance, homeowners

association dues & assessments, and keep property maintained.

Reverse mortgages become due when last borrower dies or moving out of the

home permanently.
Loan balance will grown & equity may be very small.
Non-recourse loan, you or your heirs will never owe more than the home is worth.
The loan must be repaid when it becomes due, so you or your heir must pay off
reverse mortgage, sell the home or turn the home over the lender.

Other sources of fund :

1) Loans against retirement accounts:

Some optional retirement accounts offer opportunity to borrow against the value

of the account.
Loans limit generally 80% of the value.
Proceed within a few weeks
Easy application and requires no proof of ability to pay back (own money).
Use when emergencies arise.
Taking all out will affect balance in the later years.

2) Loans against life insurance policies:

- Life insurance policies offer opportunity to borrow against equity.
- Potential source of emergency money.
- Should be used cautiously.
3) Family loans:
- Common way to meet expenses.
- Loan from parent to child, advance or inheritance
- Low or no interest rate.
- Business with family can be risky (emotional & financially).
- Potential to cause of serious problems in family relationship.
- Fill out papers (drawn up by an attorney)
- Borrower might consider loaning money against the home equity.
- Should be documented (if a tax benefit is taken)
4) Gift:
- Individual can make a gift up to specific amount.
- No one should expect any financial payback.
5) Viatical settlement:
- Ill patients can sell their life insurance policy to a viatical settlement company &

receive a lump sum benefit.

If life expectancy is 6 month or less, get pay up to 80%.
If life expectancy is 2 years or less, up to 60%.
Legal transaction and usually involves a great deal of documentation from

Pay out may be considered a capital gain.
Check with Department of Social Services, to make sure this pay out wont affect
eligibility for assistance, if you are receiving public assistance.

Tips for making it last

Strategy to make your money last:

1) Credit:
- Establish credit in own name. When dies, surviving spouse has a credit history.
- Spouse may not able to establish credit in his or her name if joint account, even
get a credit card.
2) Credit Card:
- Pay off balance each month.
- Choose credit card that charge no annual fee.
- Consider credit card that pay you back or give reward points.
3) Affinity cards:
- Airlines, hotels, some stores and other companies offer rewards for each dollar

Use this to accumulate free flights, hotel stays, merchandise or cash back.

4) Senior Discounts:
- Many organizations offer reduced rates for seniors.
5) Converting IRAs to Roth IRAs:
- Investment in traditional IRAs, income tax deferred until withdraw the fund.
- Roth IRAs, no tax paid when withdraw fund because already paid taxes on

When convert to Roth IRAs, you liable for the income tax.


Primer on financial planning, also encouraging you to seek professional

Thereat of outliving money is real.
To anticipate problems and prepare for them.
Through your budget & expenses.
Preparation for your future.
Avoid becoming a victim of fraud.