May

10

Retirement Income Planning – Guiding Principle # 11

Posted by cameron

May 10, 2007 |

When I wrote the original Retirement Income Planning Guiding Principles post (you can see here) I missed out one very important one. This principle applies more in the years after retirement than before. It is the principle of maximizing flexibility. Of course this doesn’t mean much without an explanation by way of examples. The foundation of my approach is built on the notion that life can, and will, deal out surprises that cannot be planned for. If I don’t have maximum flexibility to deal with those issues then my plan can collapse like a house of cards. Following are things I will not do because they reduce my flexibility:

Carry a mortgage into retirement. Debt is the enemy of freedom and flexibility.

Carry credit card debt into retirement. It’s interesting to note the high bankruptcy rate of seniors because of debt load and increasing medical costs.

Be real estate rich and cash poor. Even when a home is paid for it is not a liquid asset and being forced to sell ones home to pay bills is nonsense.

Buy a Variable Annuity. The notion of a monthly check is attractive but turning over a large amount of cash to get it is going in the wrong direction. Once the annuity is paid for your cash is gone.

Take out a reverse mortgage. I have signed over my home, which will deplete assets and slowly, over time, rob me of freedom.

Anything that takes a large amount of cash and locks it away forever is not maximum flexibility. Anything that builds debt is the same. They both minimize flexibility and set you up for problems later.


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