Plan­ning for a com­fort­able re­tire­ment

The Saratogian (Saratoga, NY) - - BUSINESS - By Den­nis and Aaron Fagan

When it comes to plan­ning for re­tire­ment, the move from de­fined ben­e­fit plans to de­fined con­tri­bu­tion plans be­gan in 1978 when the In­ter­nal Rev­enue Ser­vice passed the Rev­enue Act, al­low­ing em­ploy­ees to de­fer some of their com­pen­sa­tion.

This law, Sec­tion 401(k) of the In­ter­nal Rev­enue Code spelled the begin­ning of the end for many de­fined ben­e­fit plans as com­pa­nies be­gan to shift the bur­den of pen­sion plan­ning from them­selves to their em­ploy­ees. Un­for­tu­nately, for a va­ri­ety of rea­sons many Amer­i­cans did not be­gin to save on their own as they should as ac­cord­ing to the In­sured Re­tire­ment In­sti­tute (IRI) four in 10 baby boomers have no re­tire­ment sav­ings and of those who do have re­tire­ment sav­ings, “59 per­cent have saved less than $250,000 and 37 per­cent have saved less than $100,000.”

First and fore­most, rec­og­nize that as a re­sult of the fact that ac­cord­ing to the Pen­sion Ben­e­fit Guar­anty Cor­po­ra­tion there are less than 25 per­cent of the num­ber of pri­vate pen­sion plans now as com­pared to 1983, YOU shoul­der the re­spon­si­bil­ity for pro­vid­ing your­self a se­cure re­tire­ment.

The first step is to start plan­ning and take ac­tion sooner rather than later. If you can’t af­ford to max out your em­ployer spon­sored 401(k) or 403(b) whose lim­its are $19,000 for those lucky enough to be un­der fifty and $25,000 for those of us age fifty and over, at least max­i­mize the com­pany match. An ex­am­ple of this might be a com­pany match of 50% for every dol­lar the em­ployee con­trib­utes up to 6% of his/her salary. There­fore, if you con­trib­ute 6% your em­ployer will de­posit 3%. Not a bad deal.

As­sum­ing that you be­gan sav­ing $5,000 per year in your 401(k) at the age of forty, as­sum­ing an av­er­age an­nual re­turn of 6% you will ac­cu­mu­late ap­prox­i­mately $274,332. How­ever, if you wait just five years un­til you are 45, that to­tal will de­cline by $91,394 to $183,928! Fur­ther­more, let us as­sume that at the age of forty you took the ini­tia­tive to en­roll in your 401(k) as well as con­trib­ute the $5,000 per year, but were too con­ser­va­tive with your in­vest­ment. As noted above an av­er­age an­nual re­turn of 6% would ac­cu­mu­late ap­prox­i­mately $274,332. How­ever, if that an­nual re­turn is re­duced to 4%, the ac­cu­mu­lated fund at age 65 would drop by $66,102 to $208,230 – a step price to pay.

For the 10,000 Amer­i­cans that will re­tire every sin­gle day for the next twenty years, ac­cu­mu­lat­ing enough sav­ings rep­re­sents only one com­po­nent of a thor­ough re­tire­ment plan. Other con­sid­er­a­tions in­clude:

Log on to www.so­cialse­cu­rity.gov in order to check your So­cial Se­cu­rity ben­e­fits. If you have not re­ceived a pa­per copy of your state­ment it is due to the fact that SSA mails pa­per state­ments only on every fifth birth­day un­til age sixty and then on an an­nual ba­sis. On­line you will be able to check that your earn­ings have been ac­cu­rately cred­ited to your ac­count and see ap­prox­i­mately what your ben­e­fits will be upon re­tire­ment. Fur­ther­more, be­gin to ed­u­cate your­self(ves) re­gard­ing your op­tions as well as how to co­or­di­nate yours along with those of your spouse.

Be­gin to in­ves­ti­gate, plan for and then for­mal­ize an es­tate plan, in­clud­ing should you be­come in­ca­pac­i­tated. This in­cludes the fi­nan­cial im­pli­ca­tion of longterm care needs in a nurs­ing home or hir­ing some­body to come in to your house. Get fa­mil­iar with Medi­care, in­clud­ing its costs and ben­e­fits as well as pur­chas­ing a sup­ple­ment to cover what Medi­care does not.

Get your bud­get in order. It’s all about in­come ver­sus outgo. Look to per­haps pay off debt (although not too ag­gres­sively as in­ter­est rates are at or near all-time lows), es­pe­cially non-de­ductible debt such as credit cards, au­to­mo­bile loans and con­sumer loans.

Fi­nally as space is lim­ited, con­sider where you want to live upon re­tire­ment. Are you go­ing to re­main in your cur­rent home? Are you go­ing to re­main in your cur­rent state? What are the tax im­pli­ca­tions of mov­ing, if any? Should you gift your home or other as­sets or per­haps place them in a trust?

Take some time and cover all these bases as well as some oth­ers. It will be time well spent.

Please note that all data is for gen­eral in­for­ma­tion pur­poses only and not meant as spe­cific rec­om­men­da­tions. The opin­ions of the au­thors are not a rec­om­men­da­tion to buy or sell the stock, bond mar­ket or any se­cu­rity con­tained therein. Se­cu­ri­ties con­tain risks and fluc­tu­a­tions in prin­ci­pal will oc­cur. Please re­search any in­vest­ment thor­oughly prior to com­mit­ting money or con­sult with your fi­nan­cial ad­vi­sor. Please note that Fagan As­so­ci­ates, Inc. or re­lated per­sons buy or sell for it­self se­cu­ri­ties that it also rec­om­mends to clients. Con­sult with your fi­nan­cial ad­vi­sor prior to mak­ing any changes to your port­fo­lio. To con­tact Fagan As­so­ci­ates, Please call (518) 2791044.

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