How to Increase Your Net Worth
When you review your net worth statement you may be pleased and quite
assured that you can meet your retirement goals. Or you may find
you're making good progress, but need to make changes in order to
have the future life you want, or retire as early as you would like.
You may even have found your net worth was a negative figure, that is,
you have more debts than assets. It is not always obvious to people
that they are sliding further into debt or that their assets are
steadily decreasing until they have completed a net worth statement
for several years in a row. Changes in saving and spending patterns
can be subtle and gradual. It usually takes two or more years of poor
management before you face serious financial problems. That's why
it's a good idea to note trends in your spending, saving, or
borrowing annually, so you have an opportunity to change your patterns
before money becomes a significant problem. Here are some things you
can do to increase your net worth.
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Write goals such as increasing your total net worth by a certain
percentage or reducing debt to a certain level by next year.
Setting specific goals makes your commitment more firm and clear
throughout the year, and helps you evaluate your annual net worth
progress.
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Make good, steady progress towards paying off your mortgage, since
for most homeowners, property is the biggest asset.
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Examine any investments you may have and see whether they are
yielding more than the interest you would make from a standard
savings account. If they are not, consider moving some or all your
investment money into accounts that typically earn at a higher
rate, such as money markets or certificates of deposit.
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Consider whether it makes sense to liquidate any of your assets.
This means to sell them for cash either to invest in something else
or to use to pay off debt or save.
Can You Afford To Retire Early?
Many dream of retiring early to travel, take classes, participate in
recreational activities, spend more time with family and friends, do
volunteer work, or start a second career. Younger spouses often want
to quit working when their older spouse does, or work part-time once
the older spouse retires.
What age is considered "early retirement" these days? Past
standard retirement ages have been 62 or 65, with any age under 62
being considered "early retirement." But the standard
retirement age is increasing. Because people are living longer now,
Social Security is changing the age at which it pays full benefits.
From 2003 on, the age of full Social Security retirement benefits will
gradually increase until it reaches age 66 in 2008 and age 67 by 2025,
but this depends on the year you were born.
If early retirement is one of your goals, you may need to rethink the
estimated post-retirement expenses total in Worksheet 6, as well as
the net worth estimate you completed in Worksheet 7. Be sure you take
into account these additional impacts of retiring early:
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The final years of employment are often the highest-earning years
of work life. The Social Security Administration uses your highest
earning years as a basis for determining the amount of your
benefits. As a result, along with forfeiting those years of income,
early retirees often receive Social Security benefits that are
based on a lower income level than they would have otherwise
received.
Caution:
If you have a cash value life insurance policy, remember
that its cash value is not the same as its face value. Be
sure you're using the correct figure according to the
insurance company's cash value table. See the chapter
on Health and Life Insurance for a fuller explanation of
this and many other insurance terms and
considerations.
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The current Social Security benefit reduction for people who retire
at age 62 (compared with age 65) is 20 percent. Once the age of
eligibility for retirement increases, however, the benefit
reduction for early retire-ment will also increase; eventually
those who retire at 62 will have their benefits permanently reduced
by 30 percent under the amount given to people who retire at 67.
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There are age requirements attached to other potential income
sources as well, such as IRAs. Be sure to account for any gaps
between your age and the point at which these income sources can be
drawn.
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Medicare coverage currently begins at age 65. Among those who
retire at a younger age, some are able to continue their
employer's group insurance plan or they might be able to
convert to an individual policy from their employer's plan.
Either of these options would probably give you coverage for less
than you would pay if you bought a plan on your own. Still, early
retirement will likely mean you will have to pay more for health
care.
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Early retirement may reduce company pension benefits, profit
sharing, and other kinds of benefits.
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Early retirement means that you will have more post-retirement
years to finance.
If you are thinking about early retirement, you may want to read
Thinking Over an Early Retirement Offer on the Web at: www.extension.iastate.edu/financial/earlyret/
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understanding that no discrimination is intended and no endorsement by the
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Planning Ahead for Retirement