Medicare--  Karl Stark in philly.com -- "AARP is drug plan advocate, marketer"  Stark writes a comprehensive article on AARP's role as both marketer of it Medicare Advantage plans, and as a political advocate for the plans, which some people find to be a conflict of interest.  (Read)  

Medicare --  Mary Phillips in a Special to the Tribune-Star -- "Seniors may still qualify for Extra Help" --  Mary uses a Q and A approach to how to apply for Medicaid while on Medicare, discussing "Dual-eligibles" and such programs as SSI and Extra Help.  (Read) 

Copyright, 2007, Ronald J. Iverson  

STAGE 3-  Now that you have tabulated your asset base - do the following:

1) Remember from the previous Asset Inventory Page that we had a break between items 18 and 19.  The reason for that break is significant.  The first 18 items are generally items that should appreciate over the years-some at a high rate, and some at a lower rate-and some may remain relatively stable, but should not, in the long run of your retirement years, go down in value.

2) Items 19 through 24 would normally be items that depreciate--or in the case of the last two items, simply hold steady.  There is an old saying-"Anything with a motor, doesn't appreciate."-unless of course, you keep your car so long that it becomes an antique!

3) So, tabulate the value of today's generally appreciable items-items 1 through 18.  Regard them as growth items for your retirement, and keep in mind that recent real estate holding appreciation has far exceeded most investment returns, but that rising housing values may not hold up to continued expectations.

  
                          Today's total value of appreciable assets:      $__________

4) Now add up the value of items 19 through 24.  They are the depreciable items. (Items 23 and 24 will not really "depreciate," but a funeral 20 years from now will likely cost more than you have set aside at this time.) Do not yet subtract them from the above amount, we will do that in a moment.  They still have value to you today, but tomorrow's value will likely go down.

                Today's total value of depreciable or steady assets:  $__________

5) Here's what you've done.  You have completed two base asset pictures.  The first is a base of appreciable assets that you can use to roughly calculate how your retirement picture can be counted on to appreciate--in other words provide continual income for the length of your retirement.  Examine the results of Step 3.  If it looks like you can safely assume a 5-8% annual return (or inflation) on these items, and the base is large enough, you may feel pretty secure about retiring.  If not, you need to go to work to add savings strength, and sound investment decisions to your asset inventory.  But, hold the phone, there's more.

6) Take a look at the value of the results of Step 4.  These items are ones, which will work against the positive results of Step 3.  True, you may decide to "downsize" during the retirement period, but in all likihood, these are items, which will need replacing during your retirement years.  Thus, you need to project today, how much you will be willing to spend in the first twenty or so years of your retirement, to replace those items.  Whatever the calculation, the end result is diminishment of the total of Step 3.  So, simply figure what you wrote in Step 3, and what you wrote in Step 4, and now subtract Step 4, to achieve some idea of a net total.  Remember, the Step 4 items are decisions (maybe sacrifices), which you are willing to make, and which will have to be made up in future buying.

   Step 3  $________ Subtract Step 4 $_________  =  Net total $_________
    
7) At this point, you have only dealt with your "Asset Base." For instance, you have calculated the Total asset base, and the "Net total" asset base--but have not yet separated out the non-income producing portions.  There is a difference.  Remember when we talked about "House Rich-Cash Poor" positioning of real estate, or other non-income producing assets?  These assets are a factor, and even though they may be appreciating, until such a time that repositioning (profit from the sale of the real estate) is accomplished, cash flow income from those sources should be excluded from your annual or monthly retirement income projections.  In other words, these items are "non-liquid," and do possess value in that they may be liquidated, but in their current state do not provide retirement income until liquidated, then invested or saved.  So, now add up the "sleeping" (non-income producing) assets, of items 1, 2, 3, 4, 5, 9, 16, and possibly 18. 

                          Total value of non-income producing assets $ __________ 

8) Now you are ready to add up the total value of your income producing assets; items 6-8, 10-15, and possibly 17 and 18 depending on what they may be.  These are the items that you have preserved for your retirement.  In other words, two parts (savings and pensions) of the original three-legged stool of retirement.  These are items which do not have to be sold for you to receive an income from them, and, in essence are expected to be a large part of your retirement income.

                                Total value of income producing assets $ ____________

9) You can logically attach a percentage, (anywhere from 3-8% to this amount), and calculate the anticipated annual income you will have available from these assets, which will be available to use as retirement income.

                         Income from income producing assets @ 5%  $___________

(After separating out the income producing assets from the non-income producing assets, you may be surprised to find that your income producing assets won't quite get the job done.  And, that even though the non-income producers, have significant value, they will not provide a great deal of consistent cash flow to your retirement objectives.  In other words, they will not contribute to your income picture until such time that you sell them.  Everyone should be so lucky--assets are assets, no matter what--but you can only count on the income producers to contribute immediately and consistently to the income needs of your retirement.) 

10)   Now, on a positive retirement note, calculate what expenses you can expect to go down, and other expenses you  can choose to reduce.  Take a look at your checkbook for the last twelve months expenditures associated with your job.   Look at the job related expenses that will disappear once you achieve retirement.  You may surprise yourself.  Depending on the type of work you do, wardrobe and transportation factors will likely enter in.  Perhaps there's not a real need for three or even two autos.  Child care costs or adult day care costs may even be a factor.  You will find several items once you make a determined effort to find them.  These items will be eliminated from your retirement income needs.

                                    Total annual job related expenditures $__________

11)  In addition, there are employment deduction considerations.  Look at your pay stubs, or, in the case of the self-employed, your last 1099. It's probably a safe bet that income taxes will be reduced.  Right below that will be FICA  (Social Security and Medicare contributions).  All three of these items should reduce, or be totally eliminated, depending on your income, should you choose to keep working.  Then remove any voluntary deductions, such as 401(k) contributions. These items will have a major impact on lowering your monthly expense ledger.  So look at it this way--you are actually playing offense and defense simultaneously--like in a chess or basketball game.  What you don't pay any longer to be employed, in essence, transfers to the positive side of your personal expense ledger.  Kind of like "A penny saved, is a penny earned."

                          Total annual employment related deductions $__________  

12)   Now, obviously, you must prepare for the loss of income from your job, if retirement is the goal. Calculate the loss of income from your job, unless you intend to work part-time or replace job one, with job two, and/or job three.

                                                 Loss of income from your job. $ __________

Financial advisors feel that a person needs 70 to 80 percent of his or her pre-retirement income to live comfortably during retirement.  Social Security normally replaces no more than 40 percent.  What's even more scary is that some people wander into retirement without any thought of decreasing expenses-simply spending at will.  You might even look at it this way--"Let's see now, how do I look into the future and exist for the next thirty years on less money than I am making working today?"

In Stages 4, 5, 6, 7, and 8 (A Retirement Blueprint -- Part 12), we will compile all the steps and see what develops for you based on your own calculations, and start to develop some mindsets to deal with a new way of life--a satisfactory retirement.

Copyright, 2007, Ronald J. Iverson  

STAGE 2 --   NOW THAT YOU KNOW WHAT OTHERS HAVE BEEN THROUGH -- ANALYZE WHAT YOU HAVE TODAY --

                                      PERSONAL ASSET INVENTORY

A complete inventory of all your assets is of great importance when evaluating retirement, asset preservation, and inheritance considerations.  If your assets are even of a "modest" nature, you need to list and evaluate them.  Please take care to complete the inventory by including and combining all of your assets, whether you are tabulating them as a couple or as an individual.  Have some fun with this.  You'll be surprised at the amount of the total at the bottom.  Where you see the break between items 18 and 19, it's not a mistake.  You'll find out why further on in the Stages 3 and 4.  Remember, we're talking about a lot of money here--yours--and ways to keep it yours.

In Stage 3 (A Retirement Blueprint--Part 11) we will discuss how to put this Personal Asset Inventory to use with some mathematical applications. The steps in Stage 3 will give you a greater idea of how to plan using the various parts of the inventory to help you prepare for a more comprehensive successful retirement.  

STAGE 1 -- DRAWING ON THE EXPERIENCE OF OTHERS

Ron Iverson, copyright, 2007

Following are examples of drawing on the experience of others-- misconceptions which caused problems.  Knowing the problems ahead of time, will help provide information to those seeking solutions in this series of articles in the blueprint.

Experience Example No. 8:  "We want to do some things to enjoy retirement, but the money just won't seem to stretch..."

For a varying period of time retirees feel good enough to remain active, but doing so usually requires money--money for travel, money for entertainment, money for dining out, etc.--all of which means that money must be there to supplement activities of time replacement, which formerly had been time spent at a job.   Without the proper funding up front, years of retirement can become a hardship for those who outlive their money and their ambitions, to continue enjoying the retirement. 

The retiree normally is active until some incident of bad health sets in.  Then money matters take on a new priority--and, obviously, for both spouses.  At that time, "making the money stretch" will require proper planning far ahead of the event, both in terms of medical insurance (cure) matters and possible long term (care) matters.  In short, doing the things to enjoy retirement is a matter of planning, not an "on the spot" decision.

Experience Example No. 9: "We thought the rising value of our home would be enough."

The incredible growth in the value of real estate during the last four decades has indeed been a blessing for homeowners.  Although this trend took a slight downturn in 2007, appreciation of real estate has outstripped the imagination of any young family who purchased a home during this period.  Even a home purchased for $25,000 thirty years ago may well have a value of $200,000 today.  That is the blessing.  However, other factors have surfaced which run somewhat counter to the positive factors.  Rising property taxes, increasing homeowners insurance premiums, higher costs for repairs and improvements, and hefty raises in utility bills have become a burden for the fixed-income homeowner.

An old phrase, "House rich-Cash poor" aptly fits the situation.  While an income was available during the time the value of the home was appreciating, the loss of the income through retirement, leaves the homeowner with the inflationary leftovers of that ownership.  Thus, the problem is created.  Assuming that a mortgage has been paid, or is nearing the end, the retiree is left with both a blessing and some challenges.  The good new is that the challenges can be overcome with a little-known technique called a "Line of Credit Reverse Mortgage."  The value of the reverse mortgage is addressed later in the "Solutions" part of this retirement blueprint.

Experience Example No. 10:  "We thought taxes were supposed to go down when we retired."

This is just silly thinking, probably perpetrated by wishful thinking and poor self advice.  Likely, only income taxes--and then done with accounting advice--have a sensible chance of going down.  Who could expect that any other tax will go down?  Certainly not property taxes. And while sales taxes, excise taxes, "sin taxes", gasoline taxes and several other forms of "hidden" taxes should hold fairly steady, count on them being a factor.  We are even subject to "bed taxes" in nursing homes-in most states-and very high ones at that.  Figure that one out, if you can.  The point is that counting on taxes going down is not even wishful thinking--they have an impact on those retirees trying to live within a fixed income. 

However, the good news is that you can logically calculate to some degree what taxes you can expect to encounter, normally based on geographic location and property values.  In other words, sales taxes saved in one location, may be offset by higher property taxes in another-and so on.  Look at the expected tax burden before you leap into retirement.  But don't expect any tax other than income taxes to go down.  Won't be happening.

Now that we have covered the nine parts of Stage 1 of "A Retirement Blueprint," in a few days, we will move on to Stage 2 "A Personal Asset Inventory" in our next installment--Part 10.