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Retirement Planning
By Gary Case

Published in the Idaho Press Tribune June 2011

For most people, saving for retirement is the single largest future capital and income need associated with their financial plan. Education funding, vacations, capital purchases, weddings, etc., all consume financial resources but should not supplant the primary savings goal of accumulating a retirement nest egg. Government entitlement programs and traditional pensions will continue to be scaled back and even eliminated for many individuals, so personal savings must assume an increasing role in generating future retirement income.

It is essential to consider the impact of potential long-term care expenses and medical costs in conjunction with retirement savings. One technique to consider is targeting an amount of net worth to preserve at the end of the plan which can be accessed for unforeseen medical or end-of-life costs.
Long-term care insurance, whether addressed through a traditional or an "asset-based" approach can decrease the amount of needed reserves by transferring the risk of generating funds to pay for care to a counterparty, most often an insurance company.

Integrating tax considerations into a retirement savings plan is critical. Along with inflation, taxes pose a serious challenge to successfully accumulating and distributing a retirement nest egg. While current income tax brackets are not now low, tax increases in the future (whether income or
consumption) are likely. Governmental regulations allow for income tax breaks either when funds are deposited into a

 

designated retirement savings account or when funds are withdrawn. Only rarely are benefits available on both ends, and governmental agencies work aggressively to close any "loop holes" in regulations that allow for what they consider
to be excessive income tax breaks. Developing pools of money that have different tax treatment is a prudent strategy for accumulating a nest egg. Tax-qualified plans, tax- deferred savings vehicles, tax-free investments, assets producing capital gains and other tax-favored approaches should be considered. Please refer to the section on tax-planning for additional information.

Life expectancy is another factor that must be addressed in a comprehensive
retirement plan. Family history of longevity along with consideration for
life-lengthening medical advances is prudent. A conservative approach is to assume age 100 as life expectancy; however, assuming a longer life requires additional assets be accumulated in order to generate an adequate lifetime income. Laddering portions of the retirement nest egg to produce income during subsequent income phases allows for better portfolio positioning to achieve both growth and distribution of assets within appropriate risk parameters. Life expectancy of prior generations should be considered in terms of potential inheritance as well as for determining general life expectancy.

I'll discuss additional aspects of retirement planning in future columns.

 


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