Let’s Talk About Retirement

Nancee asked:


I’m almost 24 years old and I feel like I’m obsessed with saving for retirement. I think it’d be better if I had an idea of how much I should actually be saving. If I max out an IRA every year from now until I retire at 65, will that be enough to live off of? I need to set a reasonable limit for myself so that I can actually have money to go out and have some fun rather than just sit at home when I’m not at work.

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Mario Carini asked:


rse we know that saving for retirement is important. But with day-to-day expenses it’s difficult to get down and plan for the golden years. When 65 rolls around, most people are ill prepared to meet the financial requirements of retirement.

A report issued by the National Summit on Retirement Savings in June of 1998 says: “Americans must save more today if they are to realize the dream of a financially secure retirement tomorrow.” Section two of the report says: “Many Americans are not planning or saving enough to be able to afford to retire.”

Two major problems that were outlined at the conference was the need to educate the public about the necessity of saving and the related confusion about how to go about it. As old age approaches, many people become increasingly suspicious of anything and everything that they might consider as a scam. As you get older, it’s harder to salt away enough to last you through your retirement years. And even more difficult when the economy is on a shaky footing.

With the rising cost of living, taxes, mortgages, credit card debt and low wages, the average American has very little incentive to save at all. Today’s financial worries take precedence over retirement financial stability. And to top this off, the income derived from pensions and social security benefits don’t meet the needs of a retirement lifestyle. Unfortunately, today’s recessionary times have eaten away life savings and investments.

Some people have taken steps to plan ahead. While IRA’s, RRSP’s, 401K are useful avenues to salt away some income for an uncertain future, no one can totally rely on the money from these sources to insure retirement will be a comfortable one. Investments in stocks, bonds, Mutual funds and real estate do help add money to the retirement pool, but this assumes you know something about investing in these avenues and in the current financial climate, the chance of making any money at all is risky.

One of the best methods to plan for retirement is not to retire at all! While retirement may be the best time for leisure and luxury, eventually life gets boring with so much unproductive time on your hands. That’s where running your own business comes in.

While you’re still working a job, you should be looking ahead to what it is you like to do and see how you can turn that hobby, talent and skill to good use.

You don’t need to grow your retirement business into a multi-national corporation. All it needs to do is give you something that excites you and motivates you to get out of bed every morning.

Retirement should be an exciting time in your life and requires as much planning and foresight that it does in planning a wedding or travel to an exotic location. In today’s environment, a working retirement is the best way to produce a modest income, yet still have the time to enjoy what life can bring. It insures that no matter what the climate is, you will stay comfortable with something to fall back on when things get rough.

And the best way is to start while you’re still working. So take a close look at what you’d like to do during your retirement years and ask advisers on how you can start. There are hundreds of businesses on the Internet, many of which can produce a good income. Whether you like to sell or produce something like ebooks and software, there’s a good chance you’ll be able to sell it.

Your current retirement savings won’t be enough when you reach 65 so plan now to insure you will have some added income.

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poet1b asked:


Right now, boomers are preparing for retirement. Most are earning in their peak years or near their peak income levels. They are pumping more money than ever into the market to pay for their retirements.

The ratio of people pulling money out of the market to fund their retirements in comparison with the people putting money into the market to save for their future retirements is better than it will be for at least the next three generations, most likely more.

In the next five to fifteen years, the ratio of people paying into the market to save for their retirements in comparison to the people taking out of the market to pay for their retirements is going to change drastically. The draw on the market will increases drastically over the savings rate to finance retirement. This will be a historical first for the stock market.

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David Nilssen asked:


Where do you find the necessary funding to seed a business, buy a new one, or raise additional working capital? Traditionally, business owners have used SBA loans, personal contacts, retirement distributions, credit cards or home equity to satisfy their funding needs. The biggest downside to these sources of financing is the accrued debt and corresponding payments. They can pinch the business’s cash flow and impair the ability to access money in the event that “life happens.” This is why the idea of using retire­ment funds to inject cash into a business has been gaining popularity. Although few know about this new concept, if structured correctly it allows for an individual’s retirement account to invest directly into their business venture without taking a distribution and paying taxes or penalties.

THE BACKGROUND

The IRA and 401(k) were created in 1974 when congress passed the Employee Retirement Income Security Act (ERISA). The IRA and 401(k) trans­ferred the responsibility of retirement investing from the employer to the employee. The rules sur­rounding these plans are complex; the laws state that retirement plans are prohibited from only two types of investments: life insurance and collect­ibles.

NEW TREND IN FINANCING

Retirement Account Facilitators (RAFs), such as Bellevue, WA-based Guidant Financial Group, Inc. help structure specific retirement accounts that en­able investment into private businesses.

“This investment strategy has been implemented for [more than] 15 years and has been legal since ERISA passed in 1974,” said Joe Wishcamper, gen­eral counsel for Guidant Financial Group.

This industry, bolstered by the stock market perfor­mance of recent years, has been growing at a rapid pace as more entrepreneurs pursue owing or financ­ing their business this way. Wishcamper said that “last year [Guidant] structured retirement accounts for about 800 clients. This year [Guidant] will structure retirement accounts for more than 1500.”

The main reasons a business owner would want to turn to their retirement accounts for financing in­clude the added advantages of less business debt and greater long-term potential for their retirement funds. By using retirement money instead of a tra­ditional business or home-equity loan, business owners can avoid costly debt service.

This enables more money to be reinvested into the business instead of sending cash to a bank each month in the form of interest payments. In addition, because the retirement account owns a portion of the business, some of the profits from the business can be returned to the retirement account tax-de­ferred.

If you are looking for financing for your new or current business venture, your retirement account just might be the answer. Before proceeding with this type of investment strategy it is important to understand all the benefits and risks involved when investing retirement dollars into your business or franchise.

More information about financing a business or franchise with existing retirement accounts and Guidant Financial Group can be found at www.guidantfinancial.com or by calling 888.472.4455.



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James Lange asked:


Clint Eastwood playing “Dirty Harry” warns, “A man’s got to know his limitations.” This advice is particularly appropriate for financial planners and advisors who are giving advice beyond their expertise. Though I am biased because I have over 27 years of technical expertise in the IRA and retirement plan area, the lack of knowledge in this area can cost clients hundreds of thousands or even millions of dollars.

I have seen financial planners without an adequate background in IRAs and retirement plans, acting without advice from counsel or even advice from other experts in the financial planning area, make enormously costly mistakes. That is costly to the clients, not the advisor.

IRA & Retirement Planning Mistakes That Can Accelerate Acceleration of Income Taxes and Can Cost You Up to a Million Dollars or More!

For example one advisor had both a father and son as clients. The father died leaving his IRA to his son. The advisor promptly transferred the IRA from the father’s name to the son’s name? Sounds o.k. to you? But it isn’t o.k. If you transfer an inherited IRA to a non-spouse beneficiary without a special designation like “inherited IRA of Dad for the benefit of Son” you cause immediate income tax acceleration for the IRA beneficiary. So rather than having the ability to stretch an IRA or defer taxes for forty years, the son had to pay the taxes on the entire IRA distribution the year after his father died. Using reasonable assumptions, this mistake cost the son one million dollars over his lifetime.

Another time, a 55 year old retires from his company with a million dollars in a retirement plan. The advisor recommends using an IRC Code 72(t) election for the entire million dollars. Only a fraction of that money was needed for cash flow between ages 55 and 59. The result of the faulty advice was unnecessary massive acceleration of income taxes between ages 55 and 59. The appropriate response would have been to make an IRC 72(t) election for part of the IRA, not all of it.

Neither of these advisors is a bad person. As far as I know they might be wonderful spouses and loving parents. In fact, they could even be excellent money managers or product experts who have given excellent investment advice to hundreds of their clients. Where they failed, however, is not taking the time to become educated about IRAs and retirement plans or not seeking any additional help when they were confronted with issues related to IRAs and retirement plans.

It also grieves me to say that these types of mistakes are all too common and that terrible advice regarding IRAs and retirement plans is routinely provided to millions of clients.

Avoid These Costly IRA & Retirement Planning Mistakes Do Your Research

If you are an advisor reading this, my suggestion, would be to read, study and attend some good seminars that will bring you up to speed on IRAs, Roth IRAs, and other retirement planswith good information you can really add value for your clients. Excellent sources for information include books by Seymour Goldberg, Ed Slott, Robert Keebler, Natalie Choate, Gregory Kolojeski, and of course my own book Retire Secure!.

If you are a client looking for an advisor and you have a significant IRA, I would suggest that you learn something about IRAs by reading a book by one of the authors mentioned above or conducting some other research. At a minimum, ask an advisor what expertise they have in IRAs and retirement plans. If the advisor’s answer is, “What do you want to know?” I would repeat the question, “What expertise do you have in IRAs and retirement plans?” If they provide some vague information, ask them what books they have read, seminars they have attended, or can they show you any credentials that would certify their expertise in the IRA or retirement planning area.

Lack of expertise in the IRA and retirement plan area could, in many cases, be of more consequence than an advisor’s ability to pick the appropriate investments.

Expert advice is particularly important during life’s significant transitions such as retirement and planning for your estate. Incidentally, important transitions are also a great time to have money transferred to a new money manager, one who hopefully is competent with IRA and retirement plan issues.



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indrep33 asked:


I am 22.I will soon be making money on my own working from home. I don’t know anything about retirement. How much money should I save and what should I put this money into, a CD,a bond? I have no idea about these things. Also, does anyone know at what rate the cost of living rises each year? Is there an equation to determine how much money will be needed for me to retire when I get ready to?

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Gars Girl asked:


Can an ex spouce claim the same on medical retirement as they would on regular retirement? What is the diffrenence?

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FainTrain asked:


I have 5K that I want to invest towards retirement. I know very little about the options availible or the best move to make for the long run. I’m thinking about opening 2 roth IRA accounts at $2,500 a piece. One for me and one for my wife. And then contribuiting to both on a montly basis. Is this a good idea? Or is there a better option?

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Eric Bayne asked:


Many people, when they retire, don’t have much fun at all. Sure they no longer have to work, which is good. But, other than watching reruns of their favorite TV shows, they’re not really living the retirement life that they envisioned because they just don’t have the money for it.

They’ve never sat down and planned their retirement or figured out how much money they would need at retirement. And to do so is not very difficult. You simply have to imagine and think about your ideal life at retirement and estimate how much money it would take to live at that level. Your retirement expenses will usually fall into the categories like the following:

Required Expenses:

Housing - Estimate your housing cost at the time you plan to retire. If you own a home, this will be your monthly mortgage amount. Don’t forget to include your annual real estate tax amount and housing upkeep costs. If you are renting, add your monthly rental amount. Other fees that might be included in this category are big item home expenses such as stove, refrigerator, water heater, and so on.

Transportation - How do you plan on getting around your town or city? If you plan on owning a car after retirement, estimate your annual car maintenance fee, gasoline costs, and automobile insurance. If you rely on public transportation such as trains or busses, estimate the cost of monthly passes and so on.

Food - Grocery store items. Don’t include dining out in this cost figure. Estimate the amount of money you will spend on a monthly basis for food for your family which should include yourself, your partner, and whoever else will be living with you when you retire.

Health - You have to have some money saved up for medical emergencies that Medicare or your insurance policy is not covering.

Home or rental Insurance - usually a small amount but add it anyway.

Optional Expenses:

Entertainment - everyone needs to relax at some point. Look at your current life style or the life style you would like to have at retirement and add those costs. Things like movies, plays, amusement parks, museums, and so on - all go on the list.

Savings - Just because you’re retired, doesn’t meant that you automatically stop saving. You may have plans on saving for your grand daughter’s schooling or a special trip for yourself and your wife. Include it all.

Travel - For many retirees, retirement is the first chance that they’ve had to do extensive traveling. Maybe you’ve always wanted a trip to Morocco, or India, or Russia. Estimate how much such a trip would cost and add it to the pot.

Hobbies - Some hobbies don’t cost much at all, they simply require your time. But if you have a hobby like collecting rare coins, gambling, or flying airplanes - you’d better have saved yourself a large cache of money if you want to enjoy your passion.

Gifts - You don’t want to stop giving gifts just because you’ve retired. Estimate how much money you will probably need in order to give gifts to friends, family, and loved ones.

Now add up these expenses. Totaling the dollar amounts of these expenses should give you a pretty fair estimate of the type of life you’d like to live when you retire and how much it will cost you. With luck, you’ll be able to have the type of retirement that you’ve always dreamed of.



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