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Aim high on expenses, low on income: true picture falls somewhere in middle

Golden retirement takes more discipline than gold

Start early. Very early. That’s what financial gurus recommend to guarantee a golden retirement.

“Far too many people wait until they are in their mid-40s before they start putting money away for retirement,” said Harmon Bays, a financial advisor with Legg Mason Wood Walker Inc. in Jackson. “The time to begin saving is when you are in your early 20s. Historically, money has doubled about every seven years in the equity markets; therefore, the longer the money is invested the more opportunity for growing your principal over time.”

Stacey Wall, president of Pinnacle Trust in Ridgeland, said people often “wake up” during midlife crises.

“After they stop panicking, they need to either meet with a financial advisor or check out Web sites with retirement planning calculators and get a handle on what they’ll realistically need to retire,” Wall said. “It may not be as much as some planners make it out to be.”

Nancy L. Anderson, CFA, a financial advisor and president of New Perspectives Inc., in Clinton, said it’s important to nail down three vital pieces of retirement money: pension plans, social security and profit-sharing or 401(k) plans.

“The ARISA law and contractual agreements have protected most pension plans in the event of mergers and acquisitions,” Anderson said. “And even though many people joke about social security not being around when it’s time to retire, baby boomers have it in place. If you haven’t received a personal benefits statement from the Social Security Administration recently, particularly if you are in your 40s, you need to request one. It will show what you can expect to receive, depending on your birth year and estimated date of retirement. Many retirees will opt for Medicare coverage. That will reduce their social security a little bit, but not drastically. It’s easy to request a statement online at www.ssa.gov.”

Other assets, such as IRAs and savings plans, should also be considered, Anderson said.

“You have to look at the whole picture,” she said. “You have to envision: when I retire, what do I want my life to be like, and what will my monthly expenses be to maintain that lifestyle?”

Some people anticipate their homes will be paid for by the time they retire, thereby eliminating one of their largest expenses. Their children may have graduated from college by then, omitting another hefty expense. At the same time, work-related costs, such as maintaining a work wardrobe, will decrease. Other people will continue to pay a mortgage and will want to travel; therefore, their overall expenses will increase.

“People often overlook the fact that they’re putting 10% into a retirement plan that they never see, and that expense will stop,” she said.

The solution to retirement planning: aim high on monthly expenses and aim low on what various sources can produce, Anderson said.

“The truth usually falls somewhere in between,” she said.

Many experts recommend this rule of thumb for retirement needs: 75% of current take-home pay.

“Be realistic on the assumptions that you make in how much your money is going to earn,” Wall said. “In the last decade, many people were mesmerized by the great market environment, thinking their 401(k) was going to grow by 20% to 25% every year. We know now that’s not going to happen. You’ve got to base your earning expectations on a reasonable long-term number to make sure you’re saving enough money.”

Even if people didn’t start saving for retirement soon enough, it’s never too late, said Tim Medley, a financial advisor and president of Medley & Brown in Jackson.

“I frequently see situations where a couple has had difficulty saving money during their 40s because of the cost of raising children, particularly educational cost,” he said. “Many times, that cost goes down in their 50s and provides them with a terrific opportunity to put away a lot of money. Unfortunately, some couples also decide to use that newfound extra money for travel or to make other purchases.”

Medley said it isn’t difficult to convince fiftysomethings to discipline themselves “if they face the reality of the situation.”

“I’m not receptive necessarily to some of these emotional arguments,” he said. “They have to make a decision if they want to be in a position in their 60s to have a substantial sum saved. There still should be room for a couple of nights a month at the Mayflower.”

Couples frequently expedite retirement savings when a spouse, usually the wife, returns to the workforce after raising children, Medley said.

“It can have a very positive effect, not only in terms of current income, but often with access to a second retirement plan,” he said. “Let’s say a spouse decides to teach at a public school from the age of 45 to 60. Over 15 years, a substantial second retirement plan can be put in place. It can make a huge difference.”

In a worst-case scenario — there’s no slack in the budget to save for retirement — people may need to make radical lifestyle changes, such as downsizing their housing or keeping automobiles longer, said Wall.

“Most people want to think by the time they’re 60 or 65 years old, they can at least work part-time or work because they want to, not because they have to,” he said. “People are living more active and longer lives. They have to ask themselves, ‘Do I cut back now or decide I’m going to work until I’m 72 or 73 years old?’ It’s a tough decision.”

Even though many people plan for retirement and can cover expenses through early retirement years, they usually spend most of their assets in the last couple of years of their lives and often fear they won’t have enough money at the end, Anderson said.

“People considering retirement have another tough decision to face: whether or not to purchase long-term care insurance,” she said. “The best time to look at long-term care plans is when you’re about 50. Companies offering the plans are regulated by the state so they’re fairly standard. You just have to sift through the bells and whistles and compare prices preferably with two or three companies to determine the best plan. Many 70-year-olds say they need it, but by then it’s so expensive they have to decide whether or not to take their chances.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at lwjeter@yahoo.com or (601) 853-3967.

About Lynne W. Jeter

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