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How much is enough for retirement?

Dr. Don TaylorDear Dr. Don,
I am 61 and would like to retire in two years. I have two homes. The main residence is worth about $750,000 and the other is a condo in Florida worth about $250,000 -- with no mortgage on either property. I have a 401(k) that's worth about $250,000 and about $700,000 in CDs. My Social Security benefits at age 63 will be about $20,000 a year. Can I afford to retire and keep both homes? Thank you. -- Bob Bountiful

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Dear Bob,
You've got the concept of net worth down pat. Your net worth is within spitting distance of $2 million. Now you need to work on building a cash flow statement and developing a spending plan to see if your income will adequately fund your lifestyle in retirement.

Property taxes, homeowners insurance, condo fees and auto insurance are bound to burn through your Social Security income. What are you going to do for health care insurance and groceries?

What are your monthly expenses? How do you expect them to change in retirement? Will you travel more? Play golf more? Eat out more? Track your current spending to gain clues on how you'll spend money in retirement. Build a household budget for retirement and then see how easily your income will fund that budget.

If your only income sources in retirement are Social Security and investment returns, you need an investment plan that will give you a level of confidence that you can earn a high enough return to meet your needs for income. What kind of yield are you earning on your CD portfolio and on your 401(k) investments? How is the 401(k) invested?

A reverse mortgage is something to keep in your back pocket when you are considering how to fund your retirement. You have more than half your wealth invested in real estate. If you need to tap that equity in retirement without losing use of the home, a reverse mortgage could be the answer. Bankrate has more on reverse mortgages.

Making retirement work at your age with your asset base shouldn't be difficult, but you may need to rearrange your thinking as to how those assets are invested. I suggest you meet with a financial planner to discuss your budget and how your money is invested. A recent column on choosing a financial adviser can help you find someone in your area.

-- Posted: Jan. 7, 2005




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