Paying for Retirement Video

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Paying for Retirement

Kevin McCormally: I am Kevin McCormally of Kiplinger's and I am here with Mary Beth Franklin, the Senior Editor of Kiplinger's Personal Finance magazine to talk about paying for retirement. Mary Beth, there is all this attention on the baby boomers turning 60, moving towards retirement. How, on earth, the people will figure out much money they need to pay for retirement? Mary Beth Franklin: Well first of all you have to figure out how much you are going to spend on retirement. So, take a rough estimate how much your transportation, housing, food, taxes add it all up and then add up your guaranteed sources of income, sources of security probably, pension maybe. If there is a shortfall, you are going to make up the difference from your personal savings. Kevin McCormally: But how will I figure out how much money I need to make up that shortfall? Mary Beth Franklin: There is a conservative rule of thumb that says you shouldn't withdraw more than 4% of your total net stake your first year in retirement. So, let's say you have $500,000. That means don't take out more than $20,000 at first year. Kevin McCormally: What if I need a lot more than $20,000? How do I ever build up that net stake? Mary Beth Franklin: Well, it's never to late to start saving or saving more, particularly workers 50 and older are allowed to contribute in an $5,000 to their 401(k) this year. That means a total of $20,000. They can also kick in an extra thousand dollars to an IRA. There is another $5,000 right there. Kevin McCormally: What about the delaying retirement till you are older? Mary Beth Franklin: That's actually a great way to cut down on your retirement cost for three reasons. If you work a little longer that gives you more time to save. It also means you will probably going to delay taking yourself social security benefit, so they will be bigger when you do claim them, and frankly you will be living a short amount of time in retirement to draw in those savings. Kevin McCormally: Finally, what about home equity? A lot of people have homes who worth a lot of money, how does that play into the retirement? Mary Beth Franklin: I think homes will be a piggy bank for people on retirement. There is two ways to look at it. One you can sell the house, downsize to something smaller or to a less expensive area at the country and bank some of the money. The nice thing about the tax law is that if you are single you can pocket up to $250,000 tax free and couples up to $500,000. Kevin McCormally: What about reverse mortgages? Mary Beth Franklin: This is something that's slowly gaining attention and popularity and I think will become more useful in the future. It means you can stay in your house and the bank pays you and that the loan does not have to be repaid until you move or you die. Kevin McCormally: Okay, thank you very much.

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Kevin McCormally: I am Kevin McCormally of Kiplinger's and I am here with Mary Beth Franklin, the Senior Editor of Kiplinger's Personal Finance magazine to talk about paying for retirement. Mary Beth, there is all this attention on the baby boomers turning 60, moving towards retirement. How, on earth, the people will figure out much money they need to pay for retirement?

Mary Beth Franklin: Well first of all you have to figure out how much you are going to spend on retirement. So, take a rough estimate how much your transportation, housing, food, taxes add it all up and then add up your guaranteed sources of income, sources of security probably, pension maybe. If there is a shortfall, you are going to make up the difference from your personal savings.

Kevin McCormally: But how will I figure out how much money I need to make up that shortfall?

Mary Beth Franklin: There is a conservative rule of thumb that says you shouldn't withdraw more than 4% of your total net stake your first year in retirement. So, let's say you have $500,000. That means don't take out more than $20,000 at first year.

Kevin McCormally: What if I need a lot more than $20,000? How do I ever build up that net stake?

Mary Beth Franklin: Well, it's never to late to start saving or saving more, particularly workers 50 and older are allowed to contribute in an $5,000 to their 401(k) this year. That means a total of $20,000. They can also kick in an extra thousand dollars to an IRA. There is another $5,000 right there.

Kevin McCormally: What about the delaying retirement till you are older?

Mary Beth Franklin: That's actually a great way to cut down on your retirement cost for three reasons. If you work a little longer that gives you more time to save. It also means you will probably going to delay taking yourself social security benefit, so they will be bigger when you do claim them, and frankly you will be living a short amount of time in retirement to draw in those savings.

Kevin McCormally: Finally, what about home equity? A lot of people have homes who worth a lot of money, how does that play into the retirement?

Mary Beth Franklin: I think homes will be a piggy bank for people on retirement. There is two ways to look at it. One you can sell the house, downsize to something smaller or to a less expensive area at the country and bank some of the money. The nice thing about the tax law is that if you are single you can pocket up to $250,000 tax free and couples up to $500,000.

Kevin McCormally: What about reverse mortgages?

Mary Beth Franklin: This is something that's slowly gaining attention and popularity and I think will become more useful in the future. It means you can stay in your house and the bank pays you and that the loan does not have to be repaid until you move or you die.

Kevin McCormally: Okay, thank you very much.

Transcription by: Scribe4you Transcription Services