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Retirement Planning – You Owe it to Your Family

By Carl Fischer

Retirement planning is more important than ever before in American history. Studies have shown that only one third of affluent families have been able to transfer and grow the family fortune into the next generation. Life expectancy has dramatically increased.  At age 65, a man has a 50% chance of living to 85, and a woman to 88.  In addition you have a 1 in 4 chance of being around well into your nineties.  Most previous planners would consider only 20 years, leaving individuals under funded. They ran out money before their time was up. Adult children are helping the elderly to their own demise and leaving a legacy of the same problems for their own children.  

The simple answer is education and communication among the intergenerational members of a family.  The internet has plethora of retirement calculators and information on retirement.  You owe it to your family to have a plan—no matter what stage of life you are in. It is not as hard as you may think.  However you must understand how the rules change and what you must do to keep documents and plans current.  For example in 2006 the first $2 million you leave is exempt from taxes and that limit is expected to rise to $3.5 million by 2009, then disappear completely in 2010, and be reinstated at $1 million in 2011.  The families that are able to preserve wealth and grow it in future generations are those that pass on the tools and techniques used to build and manage wealth.  It is no longer sufficient to build only your wealth, you must teach and help family members to build wealth for themselves.  “Give a person a fish– feed him for a day, teach a person to fish– feed him for a lifetime.”

There are four major vehicles to consider in retirement spending:

  1. Tax free Assets (Roth IRA’s, Roth like 401K’s, and Health Savings Accounts),
  2. Tax Deferred Assets (Money in 401K’s, traditional IRA’s, qualified company savings/pension plans),
  3. Taxable Savings accounts,
  4. Social security—not counting working a part time job. Health insurance and coverage is not considered in this article although it is another factor that must be accounted for to assure not burdening the family finances—managing health care costs is mandatory in preserving wealth.

It is obvious that tax free assets are the top priority because that money is all yours and may be passed to your heirs tax free. Tax deferred assets are important because of the savings you obtain by deferring the taxes. Both these categories take advantage of the compounding of tax-sheltered investments.  In essence, you are making interest on your taxes versus paying taxes on your interest.  Taxable savings accounts are “ready money” if you have to have it for a rainy day.  I suggest this stay at a minimum because in the tax deferred and tax free accounts the money can be used for emergencies in many cases without penalty, but even with the potential 10% penalty you may still net more money.  Social security is simply what the government will give back to you, if they have it, and is fairly easy to estimate.

You must become educated with these tools, especially the tax free and tax deferred type of accounts.  You must use them now.  Help yourself and your family-if you are the teenager just starting out, the adult in the prime earning years of your life, or the grandparent either enjoying or worrying about your retirement, develop a family plan.  Your plan should also consider using truly self-directed IRA’s or 401K’s so that you can take advantage of your knowledge and expertise.

Don’t feel alone a New York Life Retirement Income survey suggested that more than half the men and women in theUS are clueless on several issues such as:

  • What amount of savings is needed to retire comfortably?
  • What percentage could be safely withdrawn each year?
  • What is inflation’s impact on spending power? 

There are many strategies that financial advisors and planners endorse but it is most important that you choose one that you are comfortable with and understand.  In conclusion, I leave you with the following wisdom from one of my clients “you need more to retire than when you are working even if your house is paid off—my house taxes and insurance are more now, than my principle interest taxes and insurance together was when I retired. In addition, medical costs, gas, cars, vacations, golfing fees, fishing costs are all more —the best thing I did for myself and family was to convert to a Roth IRA in 1998 and use the truly self-directed IRA account. Every member of my family has a Roth IRA”

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