Retirement Planning - Essay Example

While there are many courses of action one can take to retire, some have greater risk while others offer security. For those of us wanting to retire in the next fifteen to twenty years, risk should be tempered through proper management, diverse investing, and proper estate planning that includes a will, estate plan, and life insurance if one is not self insured through a high net worth in personal property (FINRA, 2011). How Much Does one Need to Retire? Retirement goals most often deal with time and money.

In order to retire by a certain time, one must have a certain amount of money. This amount can be in a stock account, coming in as passive income, or cash flow, or be a combination of both. In order for me to maintain my current lifestyle in retirement, I will need to have an income of $4,500 with a margin of growth that meets or exceeds inflation. While many people’s expenses go down in retirement, I do not want to take any chances when it comes to matters such as healthcare, which is the reason that many senior citizens end up broke and living off of social security and, in some cases, the equity in their home through a reverse mortgage.

So, while some of my current expenses, such as paying for my mortgage, will not be an issue when I retire, I want to maintain the same level of income to allow for a lifestyle that goes beyond living, and allows me to have a life so that I can travel, give money to organizations I feel are important, while having more to leave behind to loved ones. This will be accomplished through proper asset allocation in a diversified portfolio that will come to approximately three-million dollars. Asset Allocation My current asset allocation is split between individual stocks that I manage through Scottrade, a company matched 401(k), and real estate.

My equity is split evenly between the stock market and residential properties, but over the next fifteen to twenty years I expect my real estate holdings to be approximately two-thirds of my portfolio. The reason for this forecast is the properties’ appreciation and growing equity. In addition to the properties’ gains, I will also acquire more properties when good deals are available along with the cash to purchase. Owning property is extremely attractive because the investment can grow while paying at least partially for itself if not in full by way of payments made from tenants.

In addition to this, owning property allows investors to receive tax breaks from losses even in years when money has been made. This is done after mortgage interest and depreciation is taken into account. For example, if a piece of property is worth $124,000 with mortgage payments of $1,000 per month, and a tenant occupying the home is paying $1,150 in rent for the whole year, then the profit at the end of the year is $1,800. However, the mortgage interest amounted to $9,000, and depreciation on a piece of investment property is incurred over thirty-one years.

In the case of this property, the depreciation is $4,000 a year. Rather than paying taxes on $1,800, a loss is shown in the amount of $11,200, resulting in a larger tax return, or lower tax burden, at the end of the year (Pascale, 2010). The advantage to being in a 401(k) is that the company I work for matches my contributions up to 3%. If my 401(k) is cut in half from a