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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…)

These strategies can help recover lost income and/or assets following one or more of the life events described above. These strategies can also be used by late savers to make up for lost time and to prepare for a comfortable retirement.

Increase Contributions to Tax-Deferred Retirement Savings Plans. The 2001 tax law increased annual contribution limits for IRAs and employer 401(k), 403(b), and Section 457 plans, at least through 2010. Just a 1% increase in the amount of pay diverted to savings can result in thousands of additional dollars at retirement. Americans contributed an average of $3,514 to 401(k) plans in 2001 (Opdyke and Higgins 2002). The maximum plan contribution limits are $12,000 in 2003, $13,000 in 2004, $14,000 in 2005, $15,000 in 2006, and higher amounts adjusted for inflation thereafter. (more…)

In 1999 the Social Security Administration (SSA) began mailing Social Security statements annually to all adults 25 and over about three months prior to their birthdays. In the statement, you receive an estimate of your benefits under the most current laws, and a record of your social security statement of earnings upon which your benefits are based. If you do not have this statement, you need to get one. Call 800-772-1213 or go to www.ssa.gov and request a statement order form. Because this is sensitive personal information, it is not available online. You have to mail a form to the SSAand wait for a response in four to six weeks. (more…)

The Medicare program still pays for acute health care for all older Americans, although it faces the same structural shifts as Social Security and, therefore, faces the same threats to programmatic stability. Attempts to incentivize health maintenance organizations (HMOs) to expand the traditional Medicare benefits package by providing dental, chronic prescription drug, and other therapies not otherwise included in original Medicare have not worked well and are declining. The expense of most acute care provided to retirees by their own physicians, in hospitals of their own choosing, is still covered by Medicare at rates for which providers are still willing to work. (more…)

In December 2002, the U.S. Treasury Department issued some long-awaited guidance to employers about cash balance plans. These proposed regulations, issued under Internal Revenue Code Section 411 (b)(1)(H), prohibit age discrimination employment in benefit accruals and are fairly comprehensive in nature. Although a public hearing on the regulations was held in April 2003, the rules are not yet final as this article goes to press.

In essence, the regulations generally indicate that a company cannot directly or indirectly affect a participant’s benefit accrual based on age. (more…)

Increasingly, many financially desperate households have found that the encumbrances of consumer credit have pushed them to the precipice of bankruptcy and into the tangled web of debt consolidation companies. Not all “nonprofit” debt management companies serve the consumers’ interest, and many are created merely to benefit the business founders. As a result, these companies must be selected with caution due to the large numbers of “upfront” fees that are required. In addition, most nonprofit enterprises receive a substantial amount of their operating expenses from the financial services industry and actually are created to serve the interest of creditors. (more…)

Cash flow planning is the process by which the flow of income necessary to sustain a given standard of living in retirement is identified and financed. It is perhaps the most critical part of retirement planning. Cash flow planning for retirees depends crucially on two factors: (1) the resource constraints a retiree faces in terms of assets and other retirement income sources and (2) the desires and needs a retiree has for spending in retirement. Both of these, in turn, depend to a great degree on when the planning is done. (more…)

There are at least two schools of thought with regard to the basic principles involved in planning for retirement spending. The first, and most common, approach poses the problem as a seemingly simple determination of the retirement income needs of a retiree relative to pre retirement income. This is typically expressed as a “replacement rate,” in which a retiree targets a given fraction of his or her pre retirement income level as an amount adequate to sustain a desired lifestyle without working. Often, a particular level of income is given as a rule of thumb (e.g., 80% of pre retirement income). (more…)

As U.S. longevity increases and health care costs soar, many older Americans face the prospect of outliving their retirement resources. Personal health and maintenance expenses are escalating, and more of America’s older adults have little recourse but to use credit for purchasing necessary medicines and even groceries. Moreover, many seniors who had planned on living in a mortgage-free home are finding that rising tax assessments, escalating insurance premiums, and other home maintenance–related costs are claiming a growing portion of their fixed incomes. (more…)