Retirement – It's Sooner Than You Think (honestly)

Many people hear "retirement" and think— what? 401K? Roth vs. Traditional IRA? Stocks, bonds, mutual funds? Do they?

Or do many people put money away according to the suggested amount and then simply hope that when retirement comes all will work out?

One report I read estimated that 66 million Americans have put away a Whopping $0 towards retirement.

Many people are still thinking there might be a thing called Social Security around when they retire. Social Security: as of 2004, the average annual Social Security retirement benefit is approximately $11,000. That is not a lot to live on folks. Plus, we all hear the news periodically that there might not be any Social Security around when we get older and need it.

And as a further WAKE UP call, I found a calculator which estimated (without Social Security):

• a couple at 40
• bringing in $90k a year (together)
• with very modest investments

would need to save an additional $2,690,000.00 ( yes 2 million +) in order to retire at 65-- OR – plan on working an additional 29 years!!

Now before you get overwhelmed and click over to another article—lets put our heads together and simply cover a few very very basic start up basics.

1) Standard Of Living: You need to know at what standard of living you will want to live during retirement.

2) Basic Living Expenses: You will need to calculate the cost of basic living expenses (at that level) i.e. electric bill now of $200 = what in 2030?

3) Hobbies and Leisure Activities: Know what type of hobbies, and leisure activities you will keep busy with and what their cost might be then.

4) Family Visiting / Travel: Realize that more and more children move away when grown. So while they work out of state—YOU may need to do the traveling to see them. Plan for these costs.

5) Convalescent Care (nursing home costs) provincially run about $100/day median. You will need to multiply that times the same 4% inflation rate. Then multiply that times the number of years before you may need it—to approximate how much you may need to afford for your housing when you need assistance. Truth be known—WE need to plan to handle that cost ourselves, rather than think our children will be able to take on that kind of additional cost.

You will need to total yearly amounts. You will need the approximate yearly cost to live (at your desired level) during regular healthy retirement. And, you will need the total yearly amount of costs to live in assisted or full care living facilities ( for each – you and mate).

Multiply each yearly amount by the number of years you might be living in that circumstance. Example: Retire at 65. Live healthy retirement- 15 years (so 15 x yearly cost of healthy living) . Live assisted – 8 years ( so 8 x yearly cost of living in care).

You now have two totals that when added together equal your estimation of the total dollar amount you will need to draw from in order to live after retiring. NOW you are ready to begin planning your investments in such a way that you can achieve that TOTAL number by the time you retire.

Here are some tools to help you now that you are ready to take that first step:

USA Today retirement cost calculator: http://www.calcbuilder.com/cgi-bin/calcs/RET2.cgi/usatoday

Motley Fool’s retirement area http://www.fool.com/retirement.htm?source=PFinAg

Metlife’s retirement area http://www.metlife.com/Applications/Corporate/WPS/CDA/PageGenerator/0,1674,P1946,00.html

About.com’s HUGE retirement resource area: http://www.retireplan.about.com/

Until next time—all the best,

Kate

Owning A Second Home Is Easier Than You Think

Buying a second home is a serious financial commitment, but it is can also lead to a feeling of complete freedom. It can provide you with a vacation home, a place to escape from your mundane routine and an investment in the future for when you retire. Aging and wealthier households, smaller families and new technologies that allow professionals to work from remote places are all significant demographic trends. These trends indicate that buying a second home is becoming a more reasonable option for many Americans. The recent changes in tax laws are also making second home purchases more affordable. Strategically planning your purchase, consulting a trusted professional and taking your time are the keys to making the perfect investment.

Strategies For Retirement Investments

Planning for retirement early is smart, especially now. Many experts believe that as the Baby Boomer generation gets closer to retirement property values will increase at a rapid rate. More people will be buying second homes in high demand locations so locking in a lower price now can save thousands. If you are buying a house you want to retire in later be certain to consider all the possible changes and growth for the area. Many times development and increased populations change the face of a seemingly perfect location within just a few years. Another alternative to consider is investing in a home and using it as rental property first. At retirement you can choose to improve and make the rental home your primary residence. You can then sell or exchange and buy the retirement home of your dreams.

Tax Advantages Can Be Found Everywhere

Regardless of the avenue you take to invest in your retirement, the IRS offers tax advantages in a wide variety of ways. Mortgage interest and local and state real estate taxes are all deductible if you live in your second home a portion of the year. Write offs are limited to two homes. If you rent the home for less than 15 days you do not have to claim the rental income or pay taxes on it. If you rent your second home more than 15 days you must report the rental income. However, now all of the expenses used to run the property are deductible. Property taxes, interest, insurance, repairs, utilities, supplies, cleaning and maintenance are all considered expenses. Equity in your first home can also help with the purchase of a second home as a retirement investment. A home equity loan or line of credit can be used to cover the down payment on a second home. Be aware however, that borrowing in this way only allows the first $100,000 of equity debt to be written off.

Get Creative About Your Investments

Another tax strategy is using the IRS Code, Section 1031. Section 1031 says no gain or loss will be recognized in the exchange of property held for use in an investment. This allows savvy investors to purchase a property and later exchange it for one of like kind. For those planning to retire this means you can purchase a second home as a rental property/vacation home and build your investment. At retirement you can then exchange the property for the dream home you have always hoped for and defer the capital gains tax. The savings is incredible. Of course, real estate deals like this can be tricky so always take advice from a real estate professional and be certain all the transactions are done legally.

On Your Way To The Retirement Plans You Hoped For

Retirement can be a stressful topic for many people. However, more and more middle aged Americans seem to be using forethought and common sense to build the life they know they want to have after 65. Education, creativity, clear thinking, asking questions and knowing the kind of future you want to invest in is the way to achieve success. Using the tax system strategically to reach your goals will lead to a retirement full of joy, comfort and quality time to do what truly matters. When you are ready to search for a second home, or a place to start your retirement, enlist the help of a seasoned REALTOR. One that knows the market of the area you have targeted for your purchase and an SRES or ABR designation after their name. The SRES designation is the most important qualification to help you find the assistance you need. Now that you are ready don’t wait, start making your dreams come true!

Elaine VonCannon is a REALTOR with RE/Max Capital in Williamsburg, Virginia, and she manages investment property. Elaine is also an Accredited Buyer's Representative as well as a Senior Real Estate Specialist. She has helped numerous clients invest in and make money on property in Southeastern Virginia. She can be reached at www.voncannonrealestate.com.