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## The most important thing you need to know before you retire!

Many baby boomer retirees are either already retired or planning to do so. They all need to ask themselves one question, can I retire? The answer to that is found in calculating their  FUNDED RATIO which could be the most important thing you can do in retirement.

Simply put, your funded ratio is the present value of everything that you own divided by the present value of everything that you owe. Present value is key here, you are adding up the current value of all of your investment accounts and the all of your future income streams that you are expected to have (Social security, pension payments, other guaranteed payments) throughout your life and comparing those to the present value of all of your future expenses/liabilities (income taxes, health care costs, etc.)

The resulting number will give you a good idea if you can retire. This is the math behind the "fundedness" of your retirement.

For example, a typical baby boomer retiree couple at age 66 may have current IRA/301(k) and other investment accounts of \$1.3 million. Add the value of their house, \$699k, and the present value of 25 + years of pension and Social Security income and they would have total assets of \$3.8 million dollars.

However, their present and future liabilities may include not only the mortgage that they have on their residence, but also all of their discretionary and non-discretionary expenses that they'll have throughout their retirement. Things like food, clothing, shelter, etc. You should also calculate all of your future health care and tax expenses as well. A healthly 66 year old couple today could have over \$2 million of future health care expenses when add in the cost for Medicare Part B, D, Medicare Supplement, dr. office co-pays, prescriptions, deductibles, and long term care insurance. The present value of all of these present and future liabilities is \$3.3 million in our example.

This couple's funded ratio then is \$3.8/\$3.3 = 1.14. This means that for every dollar of future debt/liabilities (health care costs, taxes, fixed expenses, etc.,) they have \$1.14 of assets.

Their retirement in FUNDED 114%! The greater the number the better. By doing proper tax planning and inevestment management, you can make that ratio even higher.

Do yourself a favor, calculate your Funded Ratio today, and get a good mathmatical idea where you stand!

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