Your Retirement Savings

Never invest your money in anything that eats or needs repairing. 

There are three basic principles of investing 1) risk and how risk regulates the rate of return, 2) how diversification moderates risk, and 3) growth through compounding, which is even better when it is tax deferred. 

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Don t spend your retirement savings on other things. If you change employers, roll your retirement savings over into an IRA or your new employer s retirement plan. 

If your retirement savings is 250,000 or more, you should consider professional money management. A professional money manager will handle your investment account according to your instructions. You will pay a fee for this service, but the benefits may be well worth the cost. 

As you consider a spending plan for your retirement savings, you must be aware of several tax rules. A qualified tax accountant or attorney can guide you through this maze of taxes and penalties. 

The balance in your retirement savings becomes a part of your estate at the time of your death. You can leave an unlimited estate to a spouse. If you aren t married, you may find a significant portion of your savings going to pay inheritance tax. A withdrawal plan that moves money from tax-deferred accounts to a trust could save your estate a good deal of money. 

The amount of personal savings you will need to fund your retirement depends on several variables including inflation, return on investments, and how long you will live. You already have an assumption about inflation. You should continue to use this number. You can expect investment returns to exceed inflation by 3-4 percent. You can be conservative and add 3 percent to your assumed inflation rate or be optimistic and add 4 percent. You can estimate your life expectancy from Table 3, which is based on the IRS life expectancy tables. A brief look at the table shows that for planning purposes, it is reasonable to plan to age 90 unless you have reason to adjust this number either up or down. 

You can now summarize the savings required to fund your retirement income needs. 

In this section, you inventory your retirement assets, project them to the year you plan to retire, compare the results to the total savings required at retirement, and calculate the additional amount you must save each year to meet your retirement income needs. 

What is your risk tolerance Investors can be labeled as either conservative, moderate, or aggressive depending on the amount of risk they can comfortably handle. The rule Don t take on more risk than you can sleep with. Lying awake nights worrying about your savings is no way to either anticipate or enjoy your retirement. 

Tax laws encourage you to save for your retirement. But these same laws penalize you severely if you don t follow the rules. Tax-deferred retirement savings are meant to be used during your lifetime and the lifetime of your qualified beneficiary. To avoid being penalized, you must not take out too much or too little, too soon or too late. These restrictions may encourage you to take out more than you need or less than you would like to. 

Tax rules affecting tax-deferred retirement savings must be taken into account when planning your Phase II strategy. 

The place to begin an analysis of what you need to do for a financially secure retirement is to look at your finances today. This will give you insight into how you are spending your money, whether you re getting ahead, and how much you ve been able to save. 

It is estimated that two-thirds of American households live paycheck to paycheck. This creates a problem. They are never able to save anything to meet future financial needs. As a result, they may never be able to retire or, if they do, they will be faced with a meager existence. By getting your income and outgo in balance, you can have a brighter financial future. 

How much do you need How much do you already have How much time do you have to save These are the questions that lead you to a saving plan. A well-thought out and diligently followed plan leads you to your goal. This section walks you through the major steps in planning for your post-retirement financial needs. 

In retirement, most people receive income from three sources—employer pension plans, Social Security, and personal savings. In the following calculation, you estimate what you can expect from employer pensions and Social Security. This is compared to your estimated retirement income needs to determine what you must provide from personal savings. 

If you plan to retire before you re eligible for immediate Social Security benefits, you need to provide additional savings to help meet your income needs until you qualify for Social Security. Typically, those retiring before age 62 find it to their advantage to begin drawing benefits at age 62, or the earliest age at which they qualify. For workers born before 1938, age-62 benefits are 80 percent of the age-65 full benefits. Workers born in 1938 and later qualify for full benefits at a later age. 

You now have the information necessary to determine your savings goal between now and retirement. This is the difference between Total Savings Required at Retirement and Net Savings for Retirement in Future Dollars. 

Delay retirement a few years to allow more time to add to your savings and reduce the number of years for which you need to provide. 

Designation of Beneficiary. Life insurance proceeds, U.S. savings bonds, and balances in employer retirement plans, Individual Retirement Accounts, or Keogh accounts pass directly to named beneficiaries. The asset is not subject to probate but is included in the estate for tax purposes. Also, bank accounts can have a pay-on-death person named to receive the proceeds of the accounts after your death. 

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