Let’s Talk About Retirement

Luke asked:


I’m only 25, but still at my age, I”ve just gone through lots of schooling, and spent all my money on things like housing, car, vacation, etc, all those frivolous things, and I never really saved, I’m n ot a millionaire, and I don’t have a 401K or any type of plan yet. I have lots of family friends, and I live with my partner, who has some of those things, but I’m starting to feel like maybe I should already have some sort of a plan.

Personally, I just don’t think that far in advance, because I could be dead by then, but just HOW important is saving for retirement.

Worst case scenario, if you have no plan, money, friends or family by then, will you end up being a homeless senior citizen, where do you technically end up?

I’m not familiar with the programs this country has, if any.

I’d like to start planning something, however it makes life SO monotone, everything is a plan. work, schooling, shopping, retirement,

it takes the FUN out of living. Blah.

CHRISTA

Rex Truman asked:


A retirement calculator is one of the most useful things you can use when planning your retirement savings. You see most people plan for retirement without any idea of how much they need to save, or how much they want in retirement. A retirement calculator provides the answers.

A retirement calculator shows you how much to need to save to get the income you need when you retire. Or it may be how much you want! That depends how much you are making, and how young you are. Either way do use a retirement calculator.

You can find a retirement calculator on many web sites, so you do not need to get the services or a retirement planner or investment advisor to find the answers. In this way, you use the retirement calculator, calculate the amounts you need, and then visit an investment advisor or retirement planner.

To decide how much you need to save, you need:

1. The income you need to live on at today’s prices

2. The rate of inflation per annum between now and the retirement date.

3. The rate at which your fund will grow.

Let’s go through these and how they relate to a retirement calculator. First, how much do you need to live on? Remember, that retired people do not normally spend as much as people who work. When you retire, you won’t need:

special clothes for work the sort of car that keeps you up with the Joneses

you will be able to take holidays at off-peak times

and you will have time to do things - instead of paying to get them done.

So your costs will be lower. So let’s say you are earning $60,000 a year now, you might think that $50,000 would be enough. Next you need to remember that if you are healthy, you expect to live for 15-20 years, and so need to allow for inflation in that period - so actually you need more! This is where a good retirement calculator comes in.

2. The next thing the retirement calculator needs is the rate of inflation, or what you expect it to average until you retire. With the price of oil going up, we know that inflation over the next decade will be higher than it is now. Official figures put inflation at around 2-3%, but the true figure is more like 5%.

This means that you need to allow for at least 5%, and probably 7% and feed that into the retirement calculator.

4. At what rate will your retirement plan grow? A difficult one this. Five years ago, people were talking in terms of 10%, but not now experts suggest a lower figure. The problem is that a retirement fund or retirement plan has to be prudent - you don’t want to wake up one morning, a year or before you retire, to find that a crash on Wall Street has cut the value of your fund by 30%. You just won’t have the time to get that money back.

So you will be doing well to get 10% return, but could almost guarantee 5-6%. Maybe 7-8% would be a realistic figure to put into the retirement calculator.

The retirement calculator is just some software set up to make a calculation after you enter some figures. As I said earlier, the retirement calculator needs:

Required income

Inflation

Expected return

And of course, how long till you retire.

Here are some results from a retirement calculator:

Required income: $30,000 per annum

Years till retirement: 15 years

Annual inflation: 2.5% (unrealistic)

Annual yield: 5%

Income needed in 15 years: $43,448

Required value of retirement plan in 15 years: $825,000

Quite a lot of money for a modest retirement income. Here’s another one:

Required income: $30,000 per annum

Years till retirement: 20 years

Annual inflation: 5%

Annual yield: 8%

Required value of retirement plan in 20 years: $987,573

If you want an income of $45,000 when you retire - equivalent to less than $30,000 today - you will need: $148,000.

When you use a retirement calculator, make sure you use one that does calculate the income you will get at retirement adjusted for inflation - over 20 years, you will need 50% more than think you need today. If you do this, then you will benefit form using a retirement calculator.



DONNY

Mamabear asked:


My husband has been stashing money into 3 different retirement savings accounts through his work. I just found out about it after 3 years he’s been on this job. Is it so very important to save for one’s retirement that we can barely get by payday to payday? If he had bigger paychecks without saving for retirement we would be out of debt by now.

CARMELO

William Smith asked:


All Americans know that retirement planning is vitally important. We know that pensions are a thing of the past, and that Social Security is likely to be “reformed” so that it does not provide the same benefits it once did.

We know that we must take the planning bull by the horns ourselves. And yet, few Americans take full advantage of employer-sponsored retirement planning services like 401k’s. For workers without employer-sponsored retirement vehicles, retirement planning and saving is even lower. Sadly, those of us who fail to plan should plan to fail.

Retirement Planning - How Much Will You Need in Retirement?

Step One in planning is determining how much you will need. Will your mortgage be paid off? Will you have other outstanding debts? If you will own your home, in full, and be completely debt-free upon retirement, experts say you will need 70 percent of your current income to retire comfortably.

However, you must take inflation into account when planning, or you could wind up like many distressed widows and widowers who thought that their pensions would be enough, only to find out that rising prices quickly deflated their buying power.

When retirement planning, anticipate 3 percent inflation per year.

If you earn $60,000 per year, planning experts say you will need an inflation-adjusted $42,000 per year in retirement. If you were retiring in ten years, this would mean $54,800 per year. If you’re not retiring for 25 years, then plan on needing more than $85,000 per year.

A grisly aspect of retirement planning is estimating how long you will live. If your planning exercises tell you that you will need $85,000 per year, and you plan to retire at 65 and live to 90, this would mean you would need a staggering $2,125,000!

Retirement Planning Products and Services

Step Two in planning is determining the products and services that best fit your retirement planning needs. You may have one set of products that you use during the “accumulation phase” of planning the saving and investing during your working years; and another during your actual retirement years, where the emphasis will be on wisely utilizing your nest egg.

For example, you may decide to save $4,000 pear year in a target-retirement mutual fund sheltered in your Roth IRA. This may be a great accumulation phase strategy, but once you retire, you will need a new strategy that lets you preserve as much principal as possible.

Those of us wise enough to begin our retirement planning very early in life have a great advantage. Guess how much someone with the foresight to begin their planning at age 22, who saved $4,000 per year in a mutual fund that returned 11 percent per year, would have in their retirement account at age 67?

They would have saved $184,000 over the course of 46 years. Would that money have doubled to $368,000? How about tripled to $552,000? Would they be happy if it increased by ten-fold to $1.84 million? If so, then they would be really happy with the actual compound return of 11 percent, as it would amount to an amazing $4.8 million!

Even adjusted for 46 years of inflation, this would be more than $1.27 million, which would allow the retiree to live off the 5 percent interest on ultra-safe U.S. government bonds (inflation-adjusted $63,500 per year) and leave an estate of $4.8 million ($1.27 million, inflation-adjusted) to his or her family.

But there are planning options for those of us who weren’t so wise in our youths. A reverse mortgage, for example, allows you to sell your home to a bank, while you continue to occupy it. They pay you a monthly house payment, instead of the other way around, but they don’t take possession of your house until you pass away.

Various life insurance and annuity products can also be helpful in retirement planning. There is a whole world of options out there, you just have to know where to look, and this web site is a great place to start.



ALFONZO

Jenn asked:


I’m 24 yrs old and I’ve been thinking about opening up a retirement plan. But I dont know what to look for. Any suggestions would be great! I am a freelance interpreter so my employment does not offer one.

GASTON

one4Christ asked:


Does anyone know what (if any) are the penalties for withdrawing some or all of your retirement funds to use as a down payment to purchase your first home? I have a 457 retirement plan and I am considering pulling out $10K to go towards the purchase of my first home. Normally I would be penalized 30% but I heard somewhere that there are 3 circumstances where this is allowable without penalties. Can anyone vertify this is accurate or tell me where I can get more info.

Thank you!

KATY

Albert William asked:


With turbulent economy and plummeting stocks, everyone has become concerned about their after retirement life. Future seems gloomed and there is not a single option left other than a retirement plan. There are galore of such retirement plans available but amongst them 401K plan has carved out a special niche for itself.

A 401K retirement plan is a retirement savings plan, funded by the employee and an equal contribution from the company or the employer. Basically, the contribution is made from the pre-tax salary, which grows tax-free until withdrawn. Companies, tax-exempt or other non-profit organizations establish these plans for the sake of making their employees life after retirement a bit better and at the same time independent.

401K retirement plan is actually a section of IRC or the Internal Revenue Code. This code lays down the rule under which the whole plan works and operates. Under this plan, the employee is allowed by the employer to defer part of his compensation by contributing the same to his account. Besides, this 401K retirement plan is regulated and monitored by the Employee Benefits Security Administration.

Also known as Cash Or Deferred Arrangement plan, 401K retirement plan caters towards providing a retirement income solution to a person after retirement. Imagine, what would have been the situation, if these plans were not there. Nothing just start looking for earning something to meet the basic needs in your twilight years. 

Some 401K retirement plans even include a fifty percent equal contribution from the company. Some of the employers also contribute to the employee’s funds independent of the contribution from the employee. This contribution is done under the profit sharing plan of the company and is tied upon firm’s profit. Some 410K plans also offers employee with an opportunity to direct their accounts to different investment options like stock market, company’s stock and mutual funds.

However, it is to be noted that 410K plans cannot be offered by the State Government to their employees. However, Tax-exempt, private employers are entitled to set up a 410K retirement plan for their competent and eligible employees.

There are several advantages of 410K retirement plan from the standpoint of an employee.

*    Contribution to the funds for 410K plan can be made through pre-tax money.

*    Reduction in tax amount and that too in each salary check.

*    Employees are free to decide where they want to direct their savings and contributions. In short, a total control over their investment.

*    The best part of the plan is that it is very flexible and dynamic as well. If you change company, your contribution would be moved to your new company’s plan.

*    After retirement security of funds is very high.

In a nut shell, 410 K plan is all what it takes to have a comfortable life after you retire. It not only gives you benefits after retirement but also before retirement as it saves on your tax liability as well. Without any doubt, no other retirement plan would be able to provide you with so much of benefits other than this 410K Plan.



GUS

David Chazin asked:


Don’t Wait to Plan Your Retirement

By David N. Chazin

In conjunction with Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor. Mr. Chazin is a regular contributor to PlannerConnect.

Most of us find it easier to earn and spend money than to save it. Planning and saving for retirement too often take a back seat to other priorities. Why is procrastination the rule, rather than the exception when it comes to retirement planning? I’ve heard many reasons from my clients: thinking about retirement makes them uncomfortable; they’re too busy to find time to plan for retirement; they’re too young to worry about retirement; and retirement planning is too complicated. If you find yourself making similar excuses for avoiding some serious thinking about retirement planning, it’s time to change your tune.

Saving for retirement has become a more pressing concern than ever before. Companies are putting the burden of funding pension plans largely on their employees, the Social Security system is straining under the burden of an aging population, inflation erodes long-term investment returns, and life expectancies are longer. Aging baby-boomers are feeling particularly squeezed — many are trying to save for their children’s college educations and their own retirements, while supporting their elderly parents at the same time.

Personal savings will have to fill the gap between your pension and government benefits on the one hand, and your retirement needs on the other. Surprisingly, people earning higher incomes aren’t immune to the realities of retirement savings. In fact, the 2003 Retirement Confidence Survey, conducted by the Employee Benefit Research Institute, found that fewer than 4 in 10 of today’s workers have actually calculated the amount of money they will need to have saved prior to retirement and 29% of workers say they have not saved for retirement at all.

Setting Goals

Setting specific goals should be at the heart of your overall retirement planning strategy. That means figuring out when you want to retire and what kind of lifestyle you realistically expect to maintain in your golden years. Those answers will, in turn, help you determine how much money you’ll need at retirement.

One rule of thumb says that in each year of retirement you’ll need 70 percent of your annual pre-retirement income. Of course, your financial needs may be more or less, depending upon your individual circumstances. While you can’t predict the rate of inflation or the return on your pension investments over the next several years, a financial planning professional can help you make some projections of how these factors will affect your savings plan.

Investments

If your projections show you’ll have a financial shortfall in retirement, you have several choices: retire later, retire on less, save more, or attempt to improve your rate of return. If the first three options aren’t practical or desirable, you should consider investments that have the potential to improve your rate of return if you can tolerate the risk.

Your investment strategy should be shaped by your age, time frame, tolerance for risk, and personal investment philosophy. Remember that time is your ally. By starting to save sooner rather than later, you have the potential to generate a larger nest egg down the road due to the power of compounding interest. With compounding, the growth in an investment’s value is computed on the sum of the original investment plus the continual reinvestment of dividends or interest it generates. The benefits of compounding increase with time.

Retirement investing generally means long-term investing. If you can afford to tie up your money for a relatively long period, you can take on more risk with your investments. Too many business owners are extremely conservative — stashing their savings in certificates of deposit (CDs) and money market funds, for instance — which may leave them cash-poor at retirement time. CDs are FDIC insured and generally provide a fixed rate of return for a given period of time, usually between six months and five years. Money market funds are not insured and invest mostly in low-risk securities such as U.S. Treasury bills, and their yields are pegged to short-term interest rates.

A well-balanced, diversified portfolio of stocks, bonds and other investment vehicles is more likely to help you achieve your retirement planning goals. Despite the fluctuations of the stock market, many investment advisors adhere to the maxim that stocks are a good choice for long-term investments.

If you don’t have the stomach for buying individual stocks and bonds outright, consider mutual funds. Mutual funds offer a combination of professional management expertise plus ready-made diversification. With several thousand funds from which to choose, there are funds for practically every conceivable investment objective. Some funds seek capital appreciation, others emphasize paying current dividends, and still others combine these goals.

Variable annuities offer the potential for a stream of income in the future and are another popular way to invest retirement savings. Under these contracts, the money you invest builds up free of current income taxes. The taxes are deferred until you take the money out later, usually at retirement. Variable annuities combine aspects of insurance and investment sub-accounts, and offer a variety of investment choices. Withdrawing annuity money before age 59 ½ may result in a 10% early withdrawal penalty and income taxes.



Setting up a retirement planning strategy should be a top priority. More than ever, it’s up to you to achieve your wealth goals. Speak to a qualified financial planner about the best way to build your nest egg and to learn which investment options make the most sense for you.

David N. Chazin is part of a network of qualified financial planners affiliated with PlannerConnect. You can reach him at David.Chazin@LFG.com, or to connect with a financial planner in your area please call (800) 318-7848, or visit the PlannerConnect website.

Mutual funds and variable annuities are offered by prospectus. An investor should carefully consider the investment objectives, risks, charges and expenses of an investment before investing. Read a prospectus carefully before you invest. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor’s shares when redeemed may be worth more or less than the original amount invested.

David N. Chazin, is a registered representative of Lincoln Financial Advisors, a broker/dealer, and offers investment advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor,3000 Executive Parkway, Suite 400, San Ramon, CA 94583, (925) 275-0300. Insurance offered through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances.



ADRIAN

Helen Smith asked:


Retirement is one of the most significant changes that any of us will ever experience.

Everyone approaches retirement differently and with a mix of emotions, some of us can’t wait and others of us will be worried or even fearful.

Planning for retirement courses are more important today than they have ever been. We are much healthier, much more active and can expect to live much longer – a whole new phase of life and opportunity is opening up. Unlike other phases of life, this time there is less structure. For the first time we are faced with a period of maybe 30 years when we essentially write our own ‘job description’. That requires plenty of thought and planning, to avoid pitfalls and to ensure we make the most of it and enjoy a balanced retirement.

You can take a big step by getting some expert advice through a retirement course on how to make the most of your retirement, thereby making your remaining time in employment as stress-free and productive as possible.

It is important to recognise that many retirement courses still focus far too heavily on just the financial side of retirement, even if lifestyle aspects are in theory covered. Although finance is important it should not be dominant because the lifestyle aspects of retirement and decisions about them are fundamental to making the most of retirement.

In the past many retirement courses have also focused too much on information giving. A good course will also include methods that cause the individual to examine each aspect of retirement from their own point of view and encourage discussion between delegates.

Value to the individual of Retirement Courses

A retirement course that provides the right balance will lead to a number of benefits for attendees including

• Overcoming concerns and fears, making retirement an opportunity to look forward to.

• Making attendees of the retirement course consider retirement in a way they won’t have done before and as a result clearly identifying both the issues that need to be addressed and the opportunities. Raising new areas to consider even for those who have done a lot of thinking about retirement. Making them aware of common pitfalls.

• Making the level of change they are about to undergo clear and the retirement course will enable them to produce a personal plan which makes their transition to retirement smooth

• Generating lots of ideas for enjoying retirement – their own, their colleagues’, and the tutor’s. Different perspectives help them develop their own plan.

• Understanding how their relationship with their partner and others may be affected and the importance of planning this together (ideally attending the retirement course together)



HALEY

goodguy9544 asked:


I am planning on an early retirement and need to know what portion of my nest egg I can use to supplement my other sources of income without fear that I will end up with zero. I have another 40-50 years of life expectancy and plan to continue to invest the remaining balance as I make once-a-year withdrawals.

GREG