Contingency plans: The travel bug There are individuals out there who just love to travel. In fact, the home page on their Internet screen is Travelocity.com and the minute they see a "real deal'' they are booking their ticket and making plans to go.

They work to travel, taking off as many as six to eight times a year. Of course, they have used up all their vacation pay, but the experiences they have had and the sights they have seen, all around the world, are worth it. Or are they? This is the second in a series of composite cases on planning for unsettling times in the Bermuda economic and workplace environment.

Last week we talked about anticipating difficult times, thinking ahead and always trying to be prepared for any economic contingency using composite cases.

In the first example last week, we discussed an employee who has opted for early retirement at age 50 and has been offered a lump sum settlement of $70,000. The employee, who has another $20,000 saved, wants to take some time off (a year), fix up the house, and then maybe look for some other job. Just relax, and take it easy. The soon-to-be ex-employee also has an elderly mom living with him, a recent divorce and some child support payments.

This individual is so stressed, he has just about had it with working; the recent divorce was pretty devastating as well. Putting aside emotions, he starts to realise that some planning must go into saving additional money these next 15 years if there is to be any meaningful quality of life left for him. Quitting and taking some time off may not be an option. For one thing, not only will he lose out on the maximum match by his present employer in his current pension scheme, but he will have to start at square one in a new job.

He decides to list every single benefit provided by his current employer and translate them into financial terms (dollars). He is shocked to find out what self-funded health insurance costs, and how much is subsidised currently.

Employer benefits really add up when you translate them into being paid out of your own pocket.

Next, he sets out a road map with a truly personal goal at the end. Why is this so important? Figuring out where you want to go and what you want to achieve is tremendous motivation in helping you gain control of your finances and your life.

Bear in mind ind that this example is very simplistic and does not take into account other circumstances that may drastically affect the outcome of these projections. Certified Financial Planners know this and use intuitive skill and expertise building models that fully anticipate lifestyle changes, economic conditions, probability of achievement, and many, many other factors.

However, you can try this for yourself in the simplistic way by researching Websites such as: vanguard.com, msn.com, money.com, smartmoney.com and many, many others -- most mutual fund companies have a retirement calculator of one sort or another. When you hit the pre-and post-tax questions, just put in a zero, as it does not apply.

Canadians, try typing retirement.ca and many websites will pop up, Britons sjould type retirement.uk and see what you get and Germans can type retirement.de to get some ideas in English and German.

There are literally hundreds, maybe even thousands of sites out there. It is estimated there are now 8 billion websites...so if you are a do-it-yourselfer, there has to be one for you.

Questions to answer 1. How much will he need to live on in retirement? His mortgage and child support will be paid off by then, so he may not need as much as he does today.

Always project the minimum you need (not want) to live on, if you surpass that, in the end you've won! 2. How long does he think his life expectancy will be in retirement? Crazy question, really, and so personal, but look at Mom, who is 87, still very active! He may live to be 95, or older if his family has the longevity gene.

3. When would he ideally like to retire? Today, but what kind of retirement do we mean, one filled with constant anxiety (worse than the job) as he watches his savings dwindle? This answer will depend upon question four.

4. How much more will he need to save to reach his minimum standard of retirement living? 5. What will the effects of inflation in Bermuda be over the next 15 years? Inflation is a real enemy of retirees living on relatively fixed incomes. It has to be factored in and remember, retirees spend fixed income dollars on items that increase in cost faster than inflation, i.e. food and gas.

6. What rate of return will he need to increase savings? We don't know this yet, but we do know that he may not be able to risk much, if any, of his principal trying to get a high rate of return. Be careful: If projecting a 15 percent rate of return shows you meet the numbers and your investments over time don't (you know this could happen), then your numbers are totally flawed from the start. Be realistic.

STEP ONE He decides he needs $3,000 per month to live on in retirement (in today's dollars). This amount has to be projected into future dollars, which is how many dollars per month 15 years from now.

STEP TWO How much is the total estimated amount that he needs for his entire retirement from age 65 to age 95, a total of 30 years? This is a staggering amount of money and uses fairly complicated math concepts to calculate the future dollars needed at the start of retirement (65), plus building in for the effects of inflation.

STEP THREE What will his $90,000 in savings at 7 percent interest rate grow to in 15 years plus the effects of the employer pension of $20,000? We usually ignore the government pension, classifying it as food, health insurance and medicine extras emergency cash.

STEP FOUR This is the toughest step, this is where reality hits hard, and where we will know on an projected estimated basis whether our "mock employee'' can really afford to leave the job, take a year off or open a business. One last reminder, these projected estimates assume that the total amount of retirement savings is gone at age 95. If you only live until 85, you (actually, your heirs) win.

The Answers Monthly retirement income needed at age 65: $5,402 Total amount needed to fund 3) years of retirement at beginning of retirement: $1,327,149 Total of his asset resources (savings) available for use in retirement at beginning of retirement: $303,493 Shortfall in the projected future amount needed for retirement: $1,023,655) Additional Annual Amount needed to be saved starting on an annual basis today: $40,376 Monthly amount needed to be saved starting today! $3,394 The Reality This individual needs to save another $3,000 a month to get where he wants to go. Still think you should quit, take a year off daydreaming (a comment my mother loved to make when she thought we should be helping)? These numbers are not made up? Any number of websites will walk through this exercise, and while the results may be different, they will still be in the same range. There is not enough money saved here to make it! Mistakea are also made when you assume that if you can achieve a rate of return of 12 percent or 15 percent or 20 percent over time, not only will you have it made, you will be a millionaire. Anything over eight percent means investing in the stock market. How many years of hits can you afford to take like last year and so far this year before your savings are depleted? So, as in all things that your Mom and Dad used to say, take every thing in moderation. Be very, very careful where and how you invest your precious savings.

The End Result This employee looks at these numbers, and feels even worse. What is the point? In the end, he approaches his present employer, talks about burnout and the need for a change, and surprise, the employer agrees to promote him laterally to a position with additional opportunities for growth and education; and allows him to take two to three weeks off to get some rest and regroup.

Granted, this is a perfect scenario assuming a perfect world, but one thing we all tend to forget is, "them's that asks, gets''. No-one wants to lose a valuable employee.

The employee is able to continue saving, albeit not at the needed rate immediately, but he can see the light at the end of the tunnel for his mortgage and child support payments. Then he will be compensated for his additional skills, he will feel far more successful. The opportunities are there for the asking. Take them.

Martha Harris Myron CPA CFP is a Bermudian Certified Financial Planner who holds the NASD Series 7 licence and has a US tax background. Send questions regarding this article to marthamyron ynorthrock.bm The information in this column does not represent a recommendation to buy or sell stocks or any other investments. Readers needing specific assistance should seek advice from an experienced professional financial advisor.