Retirement Planning

The Retirement Evolution

In 1900, the average time spent in retirement was 1.2 years. Today, retirement averages over 19 years.

In 1900, two out of three men 65 or older worked. By the end of the century, less than one in five were in the labor force.

85% of the U.S. population currently retire before their 65th birthday.

While only 65% of people save money for retirement, only 39% actually have tried to calculate how much money they need to save.

By the year 2030, there will be more than 70 million people age 65 and older, more than twice the population for that age group in 2000.

A new longevity-based era is dawning. Old age will be postponed and adult life will become cyclic, making for a real need for a financial wake-up call. Whether your retirement is a dream or a nightmare is largely up to you. The time to chart your course to financial freedom is NOW.

There’s a day in the future you’re looking forward to with great anticipation….....and probably some anxiety: Your retirement day.

These mixed feelings are understandable. The prospect of setting your own schedule and spending time on your hobbies and with family may make you yearn for your eventual retirement. On the other hand, uncertainty about the future is likely to make you more than a bit apprehensive. You can reduce your fears by taking a realistic look at how well you’re preparing for retirement. Money is the biggest retirement concern most people have, so having a clear picture of your finances will go a long way toward putting your mind at ease.

Unfortunately, many people don’t start thinking about financial plans for retirement until they’re just about ready to retire. That makes for a lot of unnecessary stress in their lives. You can avoid having retirement sneak up on you by making plans early. Remember, the sooner you start preparing for retirement and the more thoroughly you plan, the more likely you are to enjoy yourself when retirement actually comes.

The following chart shows the future growth potential of saving $100 per month in a tax-deferred retirement account, over a number of years and with different rates of return. Please note that this chart does not reflect the effect of taxes.

Rate of Number of Years

Return 5 10 15 20 25 30

5% 6,801 15,528 26,729 41,103 59,551 83,226
6% 6,977 16,388 29,082 46,204 69,299 100,452
7% 7,159 17,308 31,696 52,093 81,007 121,997
8% 7,348 18,295 34,604 58,902 95,103 149,036
9% 7,542 19,351 37,841 66,789 112,112 183,074
10% 7,744 20,484 41,447 75,937 132,683 226,049

5 10 15 20 25 30

This example is for illustrative purposes and does not reflect returns on any specific product.

With today's rising life expectancy rates, people are living 20, 25 even 30 years or more into retirement. That means that today's dollars not only have to be preserved but have to keep growing as well. When planning for retirement you should consider investment return; taxes; and inflation, one of the biggest threats to retirement savings.

Is retirement time also rollover time?
After you retire, you should consider taking a rollover from your former employer's 401(k) plan into an IRA. IRAs offer a wide array of investment options and may have more flexible payout options than many employer-sponsored plans. Also, if you have any concerns about the ability of the employer-sponsored plan to meet its obligations, rolling your retirement assets over to an IRA will give you a measure of control over your savings-and peace of mind.

You may also have the option of taking your pension plan benefits in an annuity. There are a number of factors to consider including, your health and that of your spouse, how long you estimate your retirement will last, and your life insurance coverage.

Don't automatically sell all of your stocks.
Retirement is not the time to give up on growth. Even after you retire, you should consider seeking to grow a portion of your assets in order to keep pace with inflation. Depending on your circumstances it may be in your best interest to continue at least a portion of your allocation to growth-oriented stocks. As time goes by, you may be able to shift a portion of your allocation into income-producing investments.
You may also have unexercised company stock options. Any unexercised incentive stock options lose their tax-favored status three months after retirement, so plan carefully.

Update your beneficiaries.
If you plan to leave an inheritance, IRAs can be a good choice over 401(K) plans. The rules relating to 401(k) plan beneficiaries can be complicated. Self-directed IRAs, generally offered through financial services firms and mutual fund companies, generally offer many beneficiary options. Upon your death, many self-directed IRAs offer your beneficiaries the ability to take minimum distributions annually over their life expectancy. Many 401(K) plans do not offer this option to your beneficiaries. If you haven't already done so, review your beneficiary designations and update them as necessary. Remember, in order for your heirs to inherit your IRA they must be specifically named.

Watch your withdrawals.
Even if you don't need the money, you must make mandatory withdrawals from your retirement plans. If you have a 401(k) or traditional IRA, you must begin receiving a minimum distribution from your tax-deferred accounts by April 1 of the year after you turn 70 ½. If you are still working for your company you may be able to delay these mandatory withdrawals until April 1 of the year after you retire from your employer. If you do not take the minimum required distribution, you will be subject to federal penalties.

Social Security Benefits
You may be eligible to begin collecting Social Security benefits at age 62. However, it will be a reduced benefit until you turn 65. You need to decide when to start receiving these benefits by considering your post-retirement income. You can start receiving benefits at 62, 65 or wait until age 70.

Consider what happens to your employer-sponsored insurance benefits after you retire. Benefits such as life insurance, health and dental insurance may end after you stop working. If so, you need to arrange for individual coverage.

When it comes to Pre-Retirement Planning, we at Legacy Financial Advisors, have the following objectives:

  • To understand the longevity revolution and how it will change our society, communities, families and the marketplace.
  • To recognize the impact of longer life and how you live your life differently.
  • To understand the difference between a traditional linear life and the new cyclic paradigm.
  • To discuss all the adult lifestages and how we can help you prepare for what's up ahead.
  • Be able to envision your future and explore the steps you might wish to take as we help plan for your future, together.