A viatical settlement is the sale of a life insurance policy by the policy owner before the policy matures. Such a sale, at a price discounted from the face amount of the policy but usually in excess of the premiums paid or current cash surrender value, provides the seller an immediate cash settlement. Similar to reverse mortgages, viatical settlements involve insured individuals with a life expectancy of less than five years. In countries with high health care costs (such as the United States), this is a practical way to pay extremely high health insurance premiums and other senior care expenses that severely ill people face. Some people are also familiar with life settlements, which are similar transactions but involve insureds with longer life expectancies (two to fifteen years). - From Wikipedia and other sources 5/2007Managing Retirement Income
To enjoy a comfortable retirement lifestyle, you need to take a hard look at reality. But that doesn't mean you can't learn something from a fairy tale. Specifically, when you're trying to determine how much to withdraw from your retirement funds, you'll want to find the "Goldilocks solution" - not too much, not too little, but just the right amount.
However, while Goldilocks' decisions focused on relatively minor issues, such as heat intensity of porridge and relative comfort of beds, your choices regarding withdrawal rates can have a big impact on how you spend your retirement years. If you take out too much money each year, you run the risk of running low on funds later in your retirement. On the other hand, if you withdraw too little each year, you may end up living more of a "no frills" existence than is truly necessary.
So you'll want to create a withdrawal strategy that's appropriate for your individual situation. Consider the following factors:
Age - Generally speaking, the younger you are at retirement, the lower your withdrawal rate should be. So, for example, if you retire at age 60, you might want to withdraw about 3 percent to 4 percent a year from your sources of income - your investments, 401(k), IRA, etc. But if you work until you are 70, you may want to take out between 4 percent and 6 percent annually. In any case, you will likely need to increase your withdrawal rates over time to help keep up with inflation. Also, keep in mind that these figures are only guidelines; there's no one "right" figure - or even range of figures - for everyone. Risk tolerance - All of us have different levels of risk tolerance. If you are extremely concerned about outliving your retirement income, you may want to withdraw less money each year from your investments than someone who, for whatever reason, is not particularly worried about running out of money. Investment mix - If you own mostly fixed-rate vehicles, such as bonds or Certificates of Deposit (CDs), your investment income may not keep pace with inflation. Consequently, you will probably have to take smaller withdrawals each year than if your portfolio included a reasonable amount of growth-oriented investments, such as stocks. Estate considerations - If you would like to leave a sizable legacy to your family and to charitable organizations, you may want to withdraw less money each year from your investments than if you had more modest ambitions for your estate. Still, you'll need to reconcile your generosity with your own retirement income needs - so don't "over-commit" yourself with your future planned giving.
It can be challenging to come up with the right withdrawal formula for your individual needs. In addition to the factors described above, you'll need to account for required minimum distributions (RMDs) from your 401(k) and IRA. If these amounts are higher than what you need, you may want to reinvest them. If you fail to take the minimum distribution, you will owe ordinary income tax plus a 50-percent penalty on the portion that you should have taken.
But in any case, you'll want to work closely with your financial advisor to create a strategy that's right for you. And, since some of your decisions will have tax implications, you'll also need to consult with your tax advisor.
By making the right moves with your retirement income, you could find yourself, like Goldilocks, living happily ever after.
Copyright ? 2007 Edward Jones.
Kent is a Financial Advisor in Central Texas with Edward Jones Investments. Edward Jones is a full service brokerage firm built on personal one on one service, specializing in small business and individual investors. For retirement planning information visit us at http://tinyurl.com/yrqnmn