In developing a retirement plan there are several factors to consider in addition to the amount you need or want to save.

1. Income Taxes.

The above discussion did not take into consideration income taxes. You might have to save more if you have to pay income taxes on all or part of your retirement benefit or your contributions. Distributions from qualified employer plans are always subject to retirement income tax. (more…)

There are two traditional ways to value pension plan assets, i.e., market value and book value (cost). The actuary has always been skeptical about using market value due to the frequency of large short-term swings in security prices. In order to use market value properly, the actuary should value the liabilities at market also, which implies changing the interest rate assumption each year to meet the changing condition of the securities marketplace. This approach is, in fact, what is encouraged by FASB No. 35, which requires market value of assets to be used for disclosure purposes. There is an illusion of accuracy connected with market values because of the assumption that securities could be converted to cash at published prices. In fact, it is questionable whether any large fund could be liquidated with rapidity and if many tried to do so simultaneously, the entire securities market would collapse. (more…)

The treatment of investment risk probably is the least satisfactory area in the establishment of investment objectives. In spite of all the work published on risk in the investment literature of the past several years, risk tolerance often is not specified in setting investment objectives and investment performance measurement. Sometimes, statements of risk are made in general terms (e.g., the fund should not suffer a loss in any designated period) or a maximum tolerable decline in asset value is specified. Such specifications of risk are very difficult for an investment manager to deal with. (more…)

“Portable,” as defined in Webster’s Encyclopedic Unabridged Dictionary, means “capable of being transported or conveyed.” A portable retirement account would allow you to move it from one employer to another without any discernible detriment to you. As a rule, employers in either the not-for-profit or the for-profit sector rarely permit employees to bring retirement plans from previous employers to their new positions. On occasion, Congress has debated enacting legislation that would allow for the creation of individual pension accounts that could be moved from one employer to another. (more…)

By some estimates, the personal savings rate in America has dropped to as low as 1 percent of income in recent years. This is down from approximately 8 percent in 1980, 5 percent in 1993, and 2.2 percent in 1999, and it is a frightening statistic. We save half as much as the Europeans and one-third as much as the Japanese. Not only is the trend bad in relative terms, in absolute terms, it means most people today will have to either work longer to achieve their retirement goals or sacrifice quality of life during retirement. Some will have to do both. (more…)

Another old adage says that we should learn from the mistakes of others. When it comes to retirement planning, there are many legal, tax, and retirement saving mistakes you can make as a business owner, retirement plan trustee, or plan participant. (more…)